Chapter 15 Learning Goals • What are physical distribution (logistics) and logistics management? • What are distribution channels and their functions? • How can channels be organized? • When would a marketer use exclusive, selective, or intensive distribution? • What is wholesaling, and what are the types of wholesalers?
Chapter 15 Learning Goals (cont’d.) • What are the different kinds of retail operations? • What are the components of a successful retailing strategy? • What are the functions of physical distribution? • What are the trends in distribution?
Learning Goal 1 • What are physical distribution (logistics) and logistics management? • Physical distribution • Movement of products from the producer to industrial users and consumers • Logistics management is managing the • Movement of raw materials • Movement of materials and products within plants and warehouses • Movement of finished goods to intermediaries and buyers • Supply chain management • Helps increase the efficiency of logistics service by minimizing inventory and moving goods efficiently
Physical Distribution (logistics): The movement of products from the producer to industrial users and consumers
Supply Chain Management: Management of activities in a supply chain to minimize inventory and move goods efficiently
Logistics Management: Management of the physical distribution process: • movement of raw materials • movement of materials and products within plants and warehouses • movement of finished goods to intermediaries and buyers
Supply Chain for Compact Discs Suppliers ofraw materials Compact discfactory Wholesaler orDistributionCenter Retailers,Wholesalers,Distribution Customers
Learning Goal 2 • What are distribution channels and their functions? • Distribution channels are the series of marketing entities through which goods and services pass on their way from producers to end users • Channels • Reduce the number of transactions • Ease the flow of goods • Increase channel efficiency
Distribution Channels: A series of marketing entities through which goods and services pass on their way from producers to end users
Some Different Distribution Channels • Agents & brokers • electronic marketplaces on the Internet are doing what brokers have traditionally done • requests for proposals, verifying credit, lining up financing, arranging inspections, scheduling deliveries, collecting payment (Source: Entrepreneur, Jan. 2000, p. 22) • Industrial distributors • Wholesalers • Retailers
Functions of Distribution Channels • Reduce number of transactions • Ease the flow of goods • account numbers help keep track of goods • individual digits can indicate type of account, locations & addresses, & delivery routes • 15-digit numbers provide a quadrillion unique combinations(Source: Fortune, Sept. 28, 1998, p. 66) • Perform needed functions
Learning Goal 3 • How can channels be organized? • Vertical marketing systems • Corporate system • One firm owns the entire channel • Administrative system • A strong organization takes over as leader • Sets channel policies • Contractual system • Independent firms coordinate their distribution activities by written contract • Forward integration • When a manufacturer acquires a marketing intermediary closer to the customer • Backward integration • When wholesaler or retailer gains control over the production process
Vertical Marketing System: An organized, formal distribution channel in which firms are aligned in a hierarchy from manufacturer to wholesaler to retailer
Types of VerticalMarketing Systems • Corporate Distribution Systems • forward integration, backward integration • Administrative Distribution Systems • Contractual Distribution Systems
Learning Goal 4 • When would a marketer use exclusive, selective, or intensive distribution? • Exclusive distribution(one or two dealers in an area) • Used when products are in high demand in the target market • Selective distribution • Limited number of dealers per area, but more than one or two • Used for consumer shopping goods, some specialty goods, and some industrial accessories • Intensive distribution • Manufacturer sells its products in virtually every store willing to carry them • Used mainly for consumer convenience goods
Levels of Market Coverage • Exclusive distribution • 1-2 dealers market all products • Selective distribution • a few dealers market all products • Intensive distribution • products sold wherever possible
Learning Goal 5 • What is wholesaling, and what are the types of wholesalers? • Wholesalers sell finished products to retailers or other institutions such as manufacturers, schools, and hospitals • Provide a wide variety of services such as storing merchandise, financing inventory, breaking bulk, providing rapid delivery, and supplying market information • Types of wholesalers • Merchant wholesalers • Buy from manufacturers and sell to other businesses • Agents and Brokers • Independents who provide buying and selling services • Receive commissions according to their sales
Wholesalers: Channel members that buy finished products from manufacturers and sell the products to consumers • merchant wholesalers • agents and brokers
Wholesaling Manufacturer WholesalingIntermediaries MerchantWholesalers Agents &Brokers Full-service Limited service Retailers orindustrial users Customers
Learning Goal 6 • What are the different kinds of retail operations? • In-store operations • Department stores • Mass-merchandising shopping chains • Specialty stores • Discount stores • Off-price retailers • Factory outlets • Catalog showrooms • Nonstore retailing • Vending machines • Direct sales • Direct-response marketing • Internet retailing (e-commerce)
In-store: department store specialty store variety store convenience store supermarket discount store factory outlet hypermart Non-store: vending machine direct selling direct-response marketing home shopping network e-commerce Types of Retailers
Learning Goal 7 • What are the components of a successful retailing strategy? • Defining a target market • Developing a product offering • Creating an image and a promotional strategy • Choosing a location • Setting prices • Important factors in creating a store’s atmosphere: • Employee types and density • Merchandise type and density • Fixture type and density • Sound and odors
Components of Retailing Strategy • Define target market • Develop product offering • efficient consumer response (ECR) • Create image & promotional strategy • Choose location • Set prices
Gillette’s Retailing Strategy Gillette’s retail strategy involves: • targeting a new market overseas • open the new market with shaving products • distributing several other Gilette products through the same pipeline • the strategy steadily reduces distribution costs in the new market Source: Neff & Citrin, Lessons from the Top, 1999, p. 348.
Learning Goal 8 • What are the functions of physical distribution? • Choosing a warehouse location and type • Setting up a materials-handling system • Choosing modes of transportation • Criteria for selecting a mode of transportation include: • Cost • Transit time • Reliability • Capability • Accessibility • Traceability
Physical Distribution to Increase Efficiency & Satisfaction • Choose warehouse location & type • Set up materials-handling system • Make transport decisions • cost • transit time • reliability • capability • accessibility • traceability
Efficiency Afforded by FedEx • FedEx can trace packages so well that it has replaced the need for some companies to store goods in warehouses at all • This enables direct distribution to customers, a strategy that was pioneered by Dell Computers Source: Neff & Citrin, Lessons from the Top, 1999, p. 278.
Comparing Modes of Transportation Highest Lowest Relative costair truck rail pipe water Transit time water rail pipe truck air Reliabilitypipe truck rail air water Capability water rail truck airpipe Accessibility truck rail air water pipe Traceabilityair truck rail water pipe
Learning Goal 9 • What are the trends in distribution? • Stocklifting or buyback • Company buys all of its competitor’s stock from a retailer • Replaces inventory with its own merchandise • Physical distribution for services • Becoming increasingly important • Service providers must build good relationships with customers • Minimizing wait times • Managing service capacity • Improving service delivery through new distribution channels • E-Commerce • Web shopping is safe, quick, and convenient • Enables consumers to compare product features and prices easily • Consumers can use the Internet to shop all over the world
Trends in Distribution • Increase in stocklifting practice • purchasing all of a competitor’s products & replacing it with their own • CAM International sells stocklifted automotive parts to wholesalers at 30%-75% discount (Source: CAM International, www.caminternational.com) • Growth in service distribution • minimize waiting, increase capacity, new distribution channels