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Distribution. Distribution. Distribution channels various marketing institutions and the interrelationships responsible for the physical and title flow of goods and services from producer to consumer or business user

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Distribution2 l.jpg
Distribution

  • Distribution channels

    • various marketing institutions and the interrelationships responsible for the physical and title flow of goods and services from producer to consumer or business user

    • provide the means by which goods and services are conveyed from producers to consumers and users


Channel functions l.jpg
Channel Functions

  • 4 Channel Functions

    • facilitateexchange process by cutting the number of marketplace contacts necessary to make a sale

    • adjust discrepancies in the assortment of goods/services via a process known as sorting

    • standardize transactions in terms of product and the transfer process itself

    • facilitate the search behavior for both buyers and sellers


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Types of Distribution Channels

  • Marketing intermediaries are middlemen operating between producer and consumer or business users

    • direct channels

    • channels using marketing intermediaries

    • dual distribution channels

    • reverse channels


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Service Provider

Service Provider

Figure 13.12

Distribution Channels for Services

Consumer or

Industrial User

Intermediaries

Consolidators

Franchises

Consumer or

Industrial User


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Figure 14.2a

Alternative Distribution Channels

Consumer Goods

Producer

Consumer

Producer

Retailer

Consumer

Producer

Wholesaler

Retailer

Consumer

Producer

Agent/

Broker

Wholesaler

Retailer

Consumer


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Figure 14.2b

Alternative Distribution Channels

Business Goods

Producer

Business

User

Producer

Agent/

Broker

Business

User

Producer

Wholesaler

Business

User

Producer

Agent/

Broker

Wholesaler

Business

User


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Figure 14.2c

Alternative Distribution Channels

Services

Service

Provider

Consumer or

Business User

Service

Provider

Agent/

Broker

Consumer or

Business User


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Direct Channels

  • Bypass marketing intermediaries

  • Direct channels are a component of direct selling

  • Important in business goods market

  • Consumer examples:

    • Tupperware: party plan selling

    • Dell Computers: PCs


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Channels Using Marketing Intermediaries

  • Traditional channel for consumer goods:

    • producer

    • wholesaler

    • retailer

    • consumer

  • (Where used) for business purchases:

    • producer

    • wholesaler (industrial distributor - takes title)

    • business purchaser


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Channels Using Marketing Intermediaries

  • Used by Small Companies

    • producer

    • agent (manufacturer’s representative)

      • independent sales force in contacting wholesale buyers

    • wholesaler

    • then:

      • retailer/consumer (for consumer products)

      • business user (for business products)


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Channels Using Marketing Intermediaries

  • Dual Distribution

    • use of two or more distribution channels to reach the same target market

  • Reverse Channels

    • backward movement of goods from user to producer

    • helps solve waste problem

    • important for product recalls and repairs


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Wholesaling Intermediaries

  • Activities of persons or firms that sell primarily to:

    • retailers

    • other wholesalers

    • business users

  • And only in insignificant amounts to ultimateconsumers


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Wholesaling Intermediaries

  • Wholesalers

    • wholesaling intermediaries who

    • take title

  • Wholesaling intermediaries

    • broader category

    • includes agents and brokers

      • do not take title


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Table 14.1a

Wholesaling Services for Customers and Producers-Suppliers

Service

Beneficiaries of Service

Customers

Producer-Suppliers

BUYING

Anticipates customer demands and applies knowledge of alternative sources of supply; acts as purchasing agent for customers

SELLING

Provides a sales force to call on customers, creating a low-cost method of servicing smaller retailers and business users.

STORING

Maintains warehouse facilities at lower cost than most individual producers or retailers could achieve. Reduces risk and cost of maintaining inventory for producers.

TRANSPORTING

Customers receive prompt delivery in response to their demands, reducing their inventory investments. Wholesalers also break bulk by purchasing in economical carload or truckload lots, then reselling in smaller quantities, thereby reducing overall transportation costs.


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Table 14.1b

Wholesaling Services for Customers and Producers-Suppliers

Service

Beneficiaries of Service

Customers

Producer-Suppliers

PROVIDING MARKETING INFORMATION

Offers important market research input for producers through regular contacts with retail and business buyers. Provides customers with information about new products, technical information about product lines, reports on competitors’ activities, and industry trends, and advisory information concerning pricing changes, legal changes, and so forth.

FINANCING

Grants credit that might be unavailable for purchases directly from manufacturers. Provides financing assistance to producers by purchasing products in advance of sale and by promptly paying bills.

RISK TAKING

Evaluates credit risks of numerous, distant retail customers and small business users. Extends credit to customers that qualify. By transporting and stocking products in inventory, the wholesaler assumes risk of spoilage, theft, or obsolescence.


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Figure 14.3a

Transaction Economies through Wholesaling Intermediaries

Manufacturer

Customer

Manufacturer

Customer

Manufacturer

Customer

Manufacturer

Customer

Manufacturer

20 Contacts


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Figure 14.3b

Transaction Economies through Wholesaling Intermediaries

Manufacturer

Customer

Manufacturer

Wholesaling Intermediary

Customer

Manufacturer

Customer

Manufacturer

Customer

Manufacturer

9 Contacts


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Functions of Wholesaling Intermediaries

  • 3 Major Functions (not all provide every service)

    • Creates Utility

      • time utility

        • when products and services are available for sale when the consumer wants to purchase them

      • place utility

        • when goods and services are available at a convenient location

      • ownership/possession utility

        • when title to the products passes from the producer or intermediary to the purchaser


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Functions of Wholesaling Intermediaries (cont)

  • 3 Major Functions (cont)

    • Provides Services (basic marketing functions)

      • buying selling

      • storing transporting

      • financing providing market information

      • risk taking

    • Lowers Costs

      • reduces number of transactions


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Types of Wholesaling Intermediaries

  • Manufacturer-Owned Facilities

  • Independent Wholesaling Intermediaries

  • Retailer-Owned Facilities


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Figure 14.4

Major Types of Wholesaling Intermediaries

Wholesaling

Intermediaries

Manufacturer-

Owned

Facilities

Independent

Wholesaling

Intermediaries

Retailer-Owned

Cooperatives &

Buying Offices

Classification

Based on

Ownership

Merchant

Wholesalers

(take title)

Agents and

Brokers

(do not take title)

Classification

Based on

Title Flows


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Manufacturer-Owned Facilities

  • Sales Branches and Offices

    • sales branches carry inventory and process orders from available stock

    • sales offices do not carry stock, but serve as a regional office for the firm’s sales personnel

  • Trade Fairs and Exhibitions

    • periodic shows at which manufacturers in a particular industry display their wares for visiting retail and wholesale buyers


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Manufacturer-Owned Facilities (cont)

  • Merchandise Marts

    • provide space for permanent exhibitions at which manufacturers rent showrooms for their product offerings


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Figure

Types of Manufacturer-Owned Facilities

Manufacturer-

Owned

Facilities

Sales Branch

Sales Office

Trade Fair

Merchandise Mart


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Independent Wholesaling Intermediaries

  • Account for the majority of wholesaling establishments and wholesale sales in the U.S.

  • Take title to the goods they handle

  • Two major sub-categories

    • full-function merchant wholesalers

      • rack jobber (stock/service items unrelated to other goods)

    • limited-function merchant wholesalers

      • cash-and-carry, truck wholesalers, drop shippers


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Independent Wholesaling Intermediaries (cont)

  • Agents and Brokers

    • may or may not take possession of goods

    • never take title

  • Manufacturers’ agents

    • independent sales forces that work for a number of manufacturers of related but noncompeting products

    • receive commission on sales

    • marketing costs spread over many products

    • open doors for new territories


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Independent Wholesaling Intermediaries (cont)

  • Brokers

    • operate in industries characterized by:

      • large number of small suppliers and purchasers

      • act to bring buyers and sellers together

  • Commission merchants

    • take possession of goods

    • sell them on a “best price” basis

    • examples: grain, produce, livestock


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Independent Wholesaling Intermediaries (cont)

  • Auction Houses

    • bring buyers and sellers together in one location

    • allow potential buyers to inspect merchandise before purchasing it


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Figure 14.5

Classification of Independent Wholesaling Intermediaries

Independent

Wholesaling

Intermediaries

Merchant

Wholesalers

Agents and

Brokers

Full

Function

Limited

Function

Brokers,

Selling Agents,

Manufacturers’

Agents

Commission

Merchants,

Auction Houses


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Figure

Types of Merchant Wholesalers

Limited-Function

Full-Function

Rack Jobber

Cash-and-Carry Wholesaler

Truck Wholesaler

Drop Shipper

Mail-Order Wholesaler


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Table 14.2

Wholesaling Services for Customers and Producer-Suppliers

Limited-Function Wholesaler

Service

Full-Function

Cash-and-Carry

Truck

Drop Shipper

Mail-Order

Anticipates customer needs

--

Carries inventory

--

Delivers

--

--

--

Provides market information

Rarely

--

Provides credit

--

--

Sometimes

Assumes ownership risk by taking title


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Table 14.3

Services Provided by Agents and Brokers

Service

Commission Merchant

Auction House

Broker

Manufacturer’s Agent

Selling Agent

Anticipates customer needs

Sometimes

Sometimes

Carries inventory

--

--

--

Delivers

--

--

Sometimes

--

Provides market information

Provides credit

Sometimes

--

--

--

Sometimes

Assumes ownership risk by taking title

--

--

--

--

--


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Retailer-Owned Facilities

  • Large-size chain retailers often establish centralized buying offices to negotiate large-scale purchases directly with manufacturers for the chain members

  • Independent retailers occasionally band together to form buying groups to achieve cost savings through quantity purchases

  • Other groups of retailers establish retail-owned wholesale facilities as a result of the formation of a cooperative chain


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Channel Strategy Decisions

  • Factors that influence selection of specific distribution channel:

    • market factors

    • product factors

    • producer factors

    • competitive factors

    • degree of distribution intensity


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Channel Strategy Decisions (cont)

  • Market Factors

    • whether the product is intended for the consumer or industrial market

    • geographic location and market dispersion will affect the profitability of direct contacts by the manufacturer


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Channel Strategy Decisions (cont)

  • Product Factors

    • perishable products tend to move through relatively short channels directly to retailer or ultimate consumer

    • complex products tend to be sold by the producer to the buyer

    • generally, the more standardized the product, the longer the channel

    • generally, the lower the unit value of a product, the longer the channel


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Channel Strategy Decisions (cont)

  • Producer Factors

    • companies with adequate financial, managerial, and marketing resources are less compelled to utilize intermediaries in marketing their products

    • a firm with broad product lines is usually able to market its products directly to retailers or industrial users, since its sales force can offer a variety of products


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Channel Strategy Decisions (cont)

  • Producer Factors (cont)

    • manufacturers’ need for control over a product influences channel selection in that if aggressive promotion is required, a short channel will be chosen

  • Competitive Factors

    • inadequate promotion of products may motivate manufacturers to develop unique distribution channels - direct sales force to set up its own distribution network


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Channel Strategy Decisions (cont)

  • Degree of Distribution Intensity

    • Intensive Distribution

      • used for convenience goods

      • provides saturation coverage of the market

    • Selective Distribution

      • firm chooses only a limited number of retailers in a market area to handle its product line

      • generally close working relationships between manufacturer and retailers

      • co-op advertising; training and assistance where product service is important


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Channel Strategy Decisions (cont)

  • Degree of Distribution Intensity (cont)

    • Exclusive Distribution

      • extreme form of selective distribution

      • most often used for specialty goods

      • firms use only one wholesaler or retailer in a geographic region

      • producers and retailers cooperate closely in decisions concerning advertising and promotion, inventory, and prices


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Channel Strategy Decisions (cont)

  • Degree of Distribution Intensity (cont)

    • Exclusive Distribution (cont)

      • potential legal problems

        • exclusive dealing agreements prohibit a marketing intermediary from handling competing goods - could be ruled a violation of Clayton Act if agreement has tendency toward creating a monopoly

        • closed sales territories restrict geographical territories for each of the distributors - do the restrictions tend to decrease competition?

        • tying agreements - as exclusive dealer, must also carry other products of that producer - do the restrictions tend to decrease competition?


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Channel Functions: Who Should Perform Them?

  • Marketing functions must be performed by some member of the channel

  • Functions can be shifted, but they cannot be eliminated

  • Manufacturers may:

    • bypass independent wholesaling intermediaries

    • establish their own networks

    • push responsibility for some functions through channels onto retailers or purchaser


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Channel Functions: Who Should Perform Them? (cont)

  • To be competitive, wholesalers must:

    • provide better service

    • at less cost

    • than manufacturers or retailers can provide for themselves

      • value-added services

      • competitive tool of wholesalers


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Channel Management and Leadership

  • Channel Captain

    • the dominant and controlling member of a channel

  • Historically, producers or wholesalers served as channel captains

  • Large retailers increasingly taking on role of channel captain as large chains assume traditional wholesaling functions


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Channel Management and Leadership

  • Retailer fees

    • slotting allowances

      • fees for carrying new products

    • failure fee

      • one of a variety of “shelf space” fees

      • charged if new product does not meet sales projections


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Vertical Marketing Systems (VMS)

  • Planned channel designed to improve:

    • distribution efficiency

    • cost-effectiveness

      • economies of scale produced through:

        • size

        • elimination of duplication of services

  • Three types:

    • Corporate

    • Administered

    • Contractual


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Types of Vertical Marketing Systems (VMS)

  • Corporate VMS

    • single ownership of each stage in the marketing channel

  • Administered VMS

    • a dominant channel member produces channel coordination through the exercise of power

  • Contractual VMS

    • most significant form (40% of retail sales)

    • formal agreements between channel members


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Types of Vertical Marketing Systems (VMS)

  • Franchising

    • one type of Contractual VMS

    • a contractual agreement in which a wholesaler or retailer dealer (the franchisee) agrees to meet the operating requirements of a manufacturer or other franchiser


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