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Chapter Fifteen. Wholesaling, Retailing, and Physical Distribution. Channels of Distribution. Channel of distribution (marketing channel) A sequence of marketing organizations that directs a product from the producer to the ultimate user Middleman (marketing intermediary)

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Chapter fifteen l.jpg

Chapter Fifteen

Wholesaling, Retailing, and Physical Distribution


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Channels of Distribution

  • Channel of distribution (marketing channel)

    • A sequence of marketing organizations that directs a product from the producer to the ultimate user

  • Middleman (marketing intermediary)

    • A marketing organization that links a producer and user within a marketing channel


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Direct Channel

  • Producer to consumer

  • No intermediaries

    • Used by all services & by some consumer goods

    • Producers can control quality and price, do not have to pay for intermediaries, and can be close to their customers

    • Examples: Dell Computer, Mary Kay


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Retailer Channel

  • Producer to retailer to consumer

    • Producers sell directly to retailers when retailers (Wal-Mart) can buy in large quantities

    • Used for bulky products where additional handling would increase selling costs (furniture, cars), and for perishable or high-fashion products that must reach consumers quickly


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Wholesaler Channel

  • Producer to wholesaler to retailer to consumer

    • The traditional channel

    • Used when a producer’s products are carried by so many retailers that the producer cannot deal with them all

    • Used when retailer’s order is small compared to production’s economical output


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Agent/Broker Channel

  • Producer to agent to wholesaler to retailer to consumer

    • Agent - middlemen that do not take title to products and are compensated by commissions paid to the producers

    • Often used for services,real estate, and by producers that do not have their own sales forces


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Channels for Consumer Products

A manufacturer may use multiple channels

1) To reach different market segments

  • I.e.- same product is sold to consumers & businesses

    2) To increase sales or capture more market share

  • In store and online


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Channels for Consumer Products

Direct

Retailer

Wholesaler

Agent/Broker


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How do you choose which channels to use?Market Factors

Market FactorsThat Affect

ChannelChoices

Customer Profiles

Consumer or Industrial

Customer

Size of Market

Geographic Location


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How do you choose which channels to use? Product Factors

Product FactorsThat Affect

ChannelChoices

Product Complexity

Product Price

Product Life Cycle

Product Delicacy


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Vertical Marketing Systems

  • Vertical channel integration

    • The combining of two or more stages of a distribution channel under a single firm’s management

      • Lessens channel conflict

      • Lowers overall costs

      • Allows more control over the process


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Function of Intermediaries

Specialization and

Division of Labor

Channels

Fulfill

Three

Important

Functions

Overcoming

Discrepancies-

Temporal, spatial,

assortment, quantity

Providing Contact

Efficiency



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Marketing Intermediaries: Retailers

  • Retailers: The final link between producers and consumers

  • Approx 2.6 million retail firms in the U.S.

  • 90% have sales of less than $1 million


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Classes of In-Store Retailers by Ownership

  • Independent retailer

    • A firm that operates only one retail outlet- one owner of one store

  • Chain retailer

    • A company that operates more than one retail outlet -one owner of many stores

  • Franchise

    • A company that leases some of its retail outlets - many owners of many stores


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Type of Retailer

Service

Level

Product

assort-

ment

Price

Department Store

Mod Hi-High

Broad

Mod-High

Specialty Store

High

Narrow

Mod-High

Supermarket

Low

Broad

Moderate

Convenience Store

Low

Med-Narrow

Mod High

Drugstore

Low-Mod

Medium

Moderate

Full-line Discounter

Mod-Low

Med-Broad

Mod Low

Restaurant

Low-High

Med-Narrow

Low-High

Classes of In-Store Retailers by Merchandise


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How many intermediaries do I use?

  • Intensive distribution

    • The use of all available outlets for a product to saturate the market

    • Objective-mass market selling of convenience goods

  • Selective distribution

    • The use of only a portion of the available outlets for a product in each geographic area

    • Objective – reduce access to raise brand image

  • Exclusive distribution

    • The use of only a single retail outlet for a product in a larger geographic area

    • Objective – use buyer desire to lessen distribution costs and increase price



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Nonstore Retailing

  • Purchase products without visiting a store

    • Catalog marketing

      • make selections & place orders by mail or telephone

    • Online retailing

      • Presenting and selling products through computer connections

    • Automatic vending

      • The use of machines to dispense products

    • Direct Selling

      • Selling through face to face presentations