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3.05 Channels of Distribution

3.05 Channels of Distribution

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3.05 Channels of Distribution

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  1. 3.05 Channels of Distribution

  2. Textbook • Review pages 450 - 451

  3. What is distribution? • The moving or transferring of the ownership of goods and services from the producer to the consumer

  4. What is a channel of distribution? • The path (channel) a product travels from the producer (manufacturer) to the ultimate consumer

  5. MARKETING MIX • Remember the 4 P’s of Marketing? • Price • Product • Place • Promotion • DISTRIBUTION = PLACE

  6. Channel management tasks • Marketing • Packaging • Financing • Storage • Delivery • Merchandising • Personal selling

  7. Channel management decisions • Select channel members • Manage and motivate channel members • Evaluate channel members • What is the best means to distribute the product?

  8. Channel design decisions…. • Analyze customer needs • Set channel objectives • Identify major alternatives • Types of intermediaries • Number of intermediaries • Responsibilities of intermediaries SO……

  9. Who is an intermediary (middleman)? • Channel members who assist the producer in getting the goods and services to the final user

  10. The various intermediaries include: • Wholesalers • Rack jobber • Drop shipper • Retailers • Brick-and-mortar • Non-store • Agents

  11. Wholesalers • Companies that purchase large quantities from manufacturers, store products in warehouses and sell them to other businesses. • Example: BiLo buys their canned vegetables from Del Monte or Green Giant manufacturers

  12. Types of wholesalers • Rack jobber: A wholesaler that provides racks filled with merchandise in space that is leased from retailers. Ex. Rack jobber provides displays with music CDs in a series of convenience stores; rack jobber and convenience stores split revenues from sales of the CDs

  13. Types of Wholesalers • Drop shipper: A wholesaler that accepts an order and ships directly from the manufacturer without taking possession of the goods. • Ex. Fuller Supply Company buys coat hangers from the manufacturer and if a dry cleaner wants 200 boxes, they will ship directly from the manufacturer

  14. Retailers • Businesses that sell products to the final user or consumer. • Brick-and-mortar retail: A physical store that sells their products directly to customers. • Ex. Belk, American Eagle, CVS, Food Lion • Non-store retail: A way to reach customers through vending machines, direct mail, catalog retailing, TV home shopping, and e-tailing. • Ex. Drink machines, L.L. Bean catalog, QVC, E-bay

  15. Exclusive Dealers • Situation where suppliers and distributors enter into an exclusive agreement that only allows the named distributor to sell a specific product. For example, Apple had an exclusive distribution deal with AT&T to provide the iPhone to consumers.

  16. Agents • An individual or business that connects the buyers and sellers. Agents do not own the products they sell i.e. no legal ownership of the products • Ex. A REALTOR links the homebuyer to the home seller

  17. What is a direct channel? • Distribution that occurs directly from the producer to the consumer • For example: A consumer buys apples from an apple farmer • Cuts out the middleman

  18. What is an indirect channel? • Distribution that occurs through one or more intermediaries before reaching the final user • For example: The apple farmer sells his apples to Harris Teeter and Harris Teeter sells them to the consumer

  19. Indirect channel is used…. • When a producer doesn’t want responsibility for the selling activities of a large retailer • Producer to agent to retailer to consumer • Because wholesalers usually buy in large quantities • Producer to wholesaler to retailer to consumer

  20. 3.05 Transportation Systems and Services

  21. Physical distribution is… • Organizing and moving products through the channels • aka: Logistics = ordering, transporting, storing, handling and inventory control • The 3rd largest expense for most businesses • #1 Materials #2 Labor

  22. Physical distribution • Needs to be as efficient and cost effective as possible • Needs to be coordinated with other business functions such as • Purchasing • Finance • Production • Packaging • Promotion

  23. Transportation is… • Physically moving from Place A Place B • Methods include: • Trucking or motor carriers • Railroads • Marine shipping • Pipelines • Air cargo services

  24. Transportation is… • Trucking or motor carriers: tractor trailers • Common carriers – provide transportation services to any business in their operating area for a fee; multiple shippers may be consolidated into single truckloads • Contract carriers – for-hire carriers that provide equipment and drivers for specific routes, according to agreements between carrier and the shipper; less flexibility; one-time or continual basis • Private carriers – transport for an individual business; more expensive = more control • Exempt carriers – carry agricultural products; rates are lower

  25. Transportation is…. • Intermodal combines two or more transportation modes to maximize advantages • Piggyback service is carrying loaded truck trailers on railroad flatcars; trucks take trailers to final destination • Railroads: move heavy and bulky freight • Coal, steel, lumber, grain, equipment; along rail lines • Ton mile is moving 1 ton (2,000 lbs) 1 mile • Carload is minimum # of lbs. to fill a boxcar • Marine Shipping: within US and around world • barges transport steel, iron ore, and grain; tankers; merchant vessels • Inland, intracoastal and international waterways

  26. Transportation is… • Pipelines: transport oil and natural gas • BP owns pipelines that move crude oil from Alaskan oil fields to the refineries • Product moves slowly but continuously • Air cargo: High value, low-weight and time-critical products; + speed - cost • Flowers shipped by air from Hawaii to NC • Seafood shipped overnight • Chocolates shipped from France

  27. A transportation company… • Help move small packages from A to B For example: US Postal Service

  28. A transportation company… • UPS • FedEx • Private companies that combine shipments from several businesses to help reduce costs to those businesses

  29. Freight forwarders • Private companies that combine less-than-carload or less-than truckload shipments from several different businesses and deliver them to their destinations. • Provide logistics expertise to companies

  30. 3.05 Inventory Storage

  31. Methods to store merchandise… • Storage: the holding of products until they are sold; produced in large quantities; amount of goods stored is called inventory • Harry Potter books are held until the retailers place their order

  32. Storage is needed…. • Until orders are received from customers • Production is greater than consumption or demand decreases • Commodity storage makes agricultural products available year-round • Buy in bulk • Faster delivery to customers

  33. Methods to store merchandise… • Private vs. Public Warehouses • Private warehouse: a facility designed to meet the needs of the owner. It may be based on size, temperature control or refrigeration; costly to build and maintain • Ex. Carol’s Linens has its own private warehouse to replenish inventory when needed

  34. Methods to store merchandise… • Public warehouse: Storage and handling facility that may be provided for any business willing to pay for the space; rent-a-warehouse • Singletary Warehouse Company has a variety of rental spaces to lease business owners. They offer refrigerated or temperature controlled space.

  35. Methods to store merchandise… • Distribution center: A storage facility used to centralize and speed up the delivery of goods and reduce storage costs • JC Penney’s has a distribution center in Atlanta to reach all stores in the southeast

  36. Methods to store merchandise… • Bonded warehouse: Private or public warehouse used to store products until federal taxes have been paid on the product(s) • U.S. Customs stores imported products until duties have been paid

  37. Methods of handling inventory include… • Products ordered by a business are received, checked, marked (priced), and transferred • Receiving record: document used to keep track of incoming inventory

  38. Methods of handling inventory include… • Check the received merchandise • Blind check method • Direct check method • Spot check method • Quality check method

  39. Methods of handling inventory include… • Blind check method: writing a detailed list of merchandise and its quantity. This list is then compared to the actual invoice. This method is time consuming but is considered the MOST ACCURATE.

  40. Methods of handling inventory include… • Direct check method: the merchandise is verified against the invoice or purchase order

  41. Methods of handling inventory include… • Spot check method: Merchandise is randomly checked for quality and quantity.

  42. Methods of handling inventory include… • Quality check method: Merchandise is inspected for workmanship and making sure there is no damage to merchandise.

  43. Methods of handling inventory include… • When merchandise has been received and checked, other information must be marked on the merchandise • Placing the selling price on the merchandise • Cumberland = 1,2,3,4,5,6,7,8,9,0 • UPC (universal product codes) • Scanned at check out • Once marked, transferred to selling floor

  44. Inventory is… • Storing of merchandise before it is sold • Perpetual inventory control • Physical inventory control

  45. Inventory is… • Perpetual: Tracks inventory on a continuous basis. A company can track and know the value and quantity of products on hand at any time • Harris Teeter electronically restocks items as they are sold; the scanner communicates to the warehouse that the item is in need of restocking

  46. Inventory is… • Physical: Stock is physically counted periodically and verified for accuracy • Sam’s Club physically counts each item in the warehouse once each year

  47. Distribution Planning Marketing 3.05

  48. Purpose of channel members • Channel members add value to a product by performing certain channel activities expertly • Marketing • Packaging • Financing • Storage • Delivery • Merchandising • Personal selling

  49. Distribution planning involves… • Decisions about a product’s physical movement and transfer of ownership from producer to consumer. • Some of the major considerations are: • Multiple channels • Control vs. costs • Intensity of distribution desired • Involvement in e-commerce

  50. Multiple channels…. • Some products meet the needs of both industrial and consumer markets. • J & J Snack Foods sells its pretzels, drinks and cookies using multiple channels to: • Supermarkets • Movie Theaters • Stadiums • Schools • Hospitals