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Distribution. Chapters 21-22. Distribution – How It Works. Channel of Distribution : the path a product takes from producer or manufacturer to final user. When the product is purchased from a business, the final user is classified as an industrial user.

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distribution

Distribution

Chapters 21-22

distribution how it works
Distribution – How It Works
  • Channel of Distribution: the path a product takes from producer or manufacturer to final user.
  • When the product is purchased from a business, the final user is classified as an industrial user.
  • When the product is purchased for personal use, the final user is classified as a consumer.
    • Example: shampoo products could be classified as both a consumer and industrial product. Manufacturers of Shampoo sell their product to the customer through retail operations.
channel members
Channel Members
  • All businesses involved in a sales transaction that move products from the manufacturers to the final user are called intermediaries or middlemen.
    • Intermediaries provide value to producers because they often have expertise in certain areas that producers do not have.
      • Intermediaries provide the following roles:
        • Experts in displaying, merchandising, and providing convenient shopping locations
        • Reduce the number of contacts required to reach the final user of the product
channel members1
Channel Members
  • Wholesalers – buy large quantities of goods from manufacturers, store the goods, and then resell them to other businesses.
    • Two specialized wholesalers are called rack jobbers and drop shippers.
      • Rack jobbers: manage inventory and merchandising for retailers by counting stock, filling it when needed, and maintaining store displays. Examples: compact discs, hosiery, health products, and beauty aids.
      • Drop shippers: own the goods they sell but do not physically handle the actual products. Example: coal, lumber, chemicals that require special handling.
channel members2
Channel Members
  • Retailers – sell goods to the final consumer for personal use.
    • Sell goods to the customer from their own physical stores.
    • Serve as final link between manufacturer and consumer.
    • Provide special services, such as offering credit or providing delivery to help solidify customer relationships.
      • Types of retailers: brick and mortar, vending service, e-tailing,.s
channel members3
Channel Members
  • Agents: act as intermediaries by bringing buyers and sellers together.
    • Do not own the goods they sell.
      • Real estate agents, brokers, independent manufacturer’s representative (fishing rods, lures)
      • Brokers can be in the line of the food industry as well
direct and indirect channels
Direct and Indirect Channels
  • Direct distribution: when the goods or services are sold from the producer directly to the customer.
  • Indirect distribution: involves one or more intermediaries.
    • Example: independent insurance agent sells insurance policies from different insurance companies to consumers or businesses.
physical distribution1
Physical Distribution
  • All the activities that help to ensure that the right amount of product is delivered to the right place at the right time.
  • Involves moving products quickly with minimal handling to reduce costs and maximize customer satisfaction
  • 20-25 percent of the value of a product can be assigned to distribution expenses.
types of transportation
Types of Transportation
  • Transportation: marketing function of moving products from a seller to a buyer.
  • Five major transportation forms that move products:
    • Motor carriers
    • Railroads
    • Waterways
    • Pipelines
    • Air carriers
trucking
Trucking
  • Most frequently used form of transportation.
  • Carry higher-valued products that are expensive to carry in inventory.
  • Advantages
    • Convenient
    • Can deliver to any geographical location – door to door, wholesale or retail oriented
    • Can make rapid deliveries of large amounts of goods and reduce the need to carry large inventories between shipments.
  • Disadvantages
    • Delays due to traffic jams, equipment breakdown and accidents
    • Subject to size and weight restrictions enforced by states
rail transportation
Rail Transportation
  • Major type in the US
  • Accounts for 38 percent of total intercity of freight.
  • Important for moving heavy and bulky freight such as coal, steel, lumber, chemicals, grain, farm equipment
  • Advantages
    • Can ship at low costs by handling large quantities
    • Seldom slowed or stopped by bad weather
  • Disadvantages
    • Lack of flexibility
    • Can pick up and deliver goods only at stations along designated rail lines
    • Can not reach as many places as motor carriers do
water transportation
Water Transportation
  • Oldest methods of transporting merchandise
  • Internal shipping from one port to another on connecting river and lakes. (Agricultural products get shipped from Midwest to other parts of the world)
  • Intracoastal shipping – between ports along the Atlantic or Pacific coasts
  • Advantages
    • Low cost – ships and barges are the cheapest form of freight transportation
  • Disadvantages
    • Slowest form of transportation
    • Buyers that are located far from port city must have products off-loaded from ships onto railroad cars or motor carriers to reach destination.
    • Water transportation is affected by bad weather. Great Lakes shipping is usually closed for 2-3 months in the winter.
pipeline
Pipeline
  • Normally owned by the company using them. Considered private carriers.
  • There are more than 200,000 miles of pipelines in the US
  • Most frequently used to transport oil and natural gas
  • Carry approximately 20 percent of the ton-miles of freight transported in the US
  • Advantages
    • Operational costs are small, but high initial investment
    • Risk of pipeline leak is small, but when a leak does occur the damage to the environment can be extensive.
    • Not subjected to delivery delays due to bad weather
air transportation
Air Transportation
  • Less than one percent of the total ton-miles of freight shipped
  • High value, low-weight items such as overnight mail are often shipped by air.
  • FAA regulates air transportation – does not regulate charges for air freight.
  • Advantages
    • Speed
    • Satisfies customers who need something quickly
    • Reduces inventory expenses and storage costs for warehousing products.
  • Disadvantages
    • Cost
    • Mechanical breakdowns and delays in delivery caused by bad weather.
inventory storage
Inventory Storage
  • Storage is the marketing function of holding goods until they are sold.
  • Essential for most businesses – needs to store products until orders are received from customers.
  • Storing goods adds time and place utility to products.
  • Costs involved in storing products include space, equipment and personnel.
private warehouses
Private Warehouses
  • A facility designed to meet the specific needs of its owner.
  • Valuable for companies that move a large volume of products.
  • Costly to build and maintain.
  • Stores that use private warehouses are: Sears, Radio Shack, Kmart.
public warehouses
Public Warehouses
  • Offers storage and handling facilities to individuals or companies.
  • Available to any company that will pay for its use.
  • Public warehouses not only rent space but provide services to businesses.
  • Good for businesses that have low storage needs or seasonal production.
distribution centers
Distribution Centers
  • Warehouse designed to speed delivery of goods and to minimize storage costs.
  • Planned around markets instead of transportation requirements.
  • Sherwin-Williams, Benjamin Moore paints, WalMart
distribution for international markets
Distribution for International Markets
  • Critical in global marketing.
  • Exports now support one-sixth of the manufacturing and agricultural output of the US
  • Requires even more planning than for selling within domestic markets
  • Some countries have legal restrictions about how products may be transported
  • Businesses must understand other countries’ physical transportation systems.