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DistributionDistribution
Chapter 13Chapter 13
What is distribution?What is distribution?
• Determining the best methods and procedures so that prospective customers can locate, obtain, and use a business’s products and services
Free EnterpriseFree Enterprise
• Is based on the matching of production and consumption decisions.
• Is based on matching supply and demand between consumer and producer.
Utilities affected by DistributionUtilities affected by Distribution
• Economic utility – amount of satisfaction a consumer receives from using a product or service
– Time utility: makes sure that the product is available when needed
– Place utility: makes sure that the product is available at the right place to be sold to customer
Channel of distributionChannel of distribution
• All the organizations and individuals who participate in the movement of goods from producer to consumer
Distribution adjusts the following Distribution adjusts the following differencesdifferences
• Differences in quantity
• Differences in assortment (products from many different manufacturers
• Differences in location (customers typically do not live next to the producer)
• Differences in timing of production and consumption by consumer
How does distribution save time How does distribution save time and $$$$and $$$$
• Consumers do not have to spend time locating products
• Cost to have products shipped to you
• Through marketing distribution there are experts getting the best prices to keep costs down
Types of distribution channelsTypes of distribution channels• Direct – the producer sells the product
directly to the customerExample: Farmer to customer
Used when:1. Small number of consumers2. Consumers in a small geographic area3. Product is complex – meet specific
needs
Indirect distributionIndirect distribution
• There are other businesses (intermediaries) between the producer and the customer
Example: Levis Manufacturing to Warehouse to Retailer to Customer
WholesalersWholesalers• Are companies who assist with distribution
activities between businesses.–Used to help producers with marketing
tasks to keep costs down–Main activities are:
• Buying• Selling• Transporting• Storing
Rack Jobbers and Drop Rack Jobbers and Drop ShippersShippers
• Rack jobbers manage inventory and merchandising for retailers by counting stock, filling it when needed, and maintaining store displays– Example: Pepsi, Frito Lay
• Drop shippers own the goods they sell but do not physically handle them– Example: Coal, lumber, chemicals
RetailersRetailers
• Sell typically to the consumer directly for profit
• Buy their goods from manufacturer or wholesaler
• Display their products so customers can evaluate them
• Do promotions for their products/services
Types of retailersTypes of retailers
• Brick and Mortar retailers – sell goods to the customers from their own physical stores
• Examples:
Types of retailersTypes of retailers• Automatic retailers – Vending machines
• Direct mail and catalog retailers
Retailers (Cont.)Retailers (Cont.)• TV home shopping –
• Online Retailing –Value of sales (million
dollars) E-commerce as percent of total sales
Percent distribution
Total E-commerce Total E-commerce234,667 112,791 48.1 100.0 100.0
6,824 5,214 76.4 2.9 4.626,047 19,507 74.9 11.1 17.322,088 11,026 49.9 9.4 9.85,608 3,092 55.1 2.4 2.7
71,329 5,994 8.4 30.4 5.317,684 14,211 80.4 7.5 12.63,667 2,244 61.2 1.6 2.0
13,158 9,894 75.2 5.6 8.86,396 5,351 83.7 2.7 4.77,953 5,736 72.1 3.4 5.17,030 4,820 68.6 3.0 4.35,926 3,604 60.8 2.5 3.2
29,167 14,096 48.3 12.4 12.511,790 8,002 67.9 5.0 7.1
How is retailing changing?How is retailing changing?
• More retail stores offering on-line shopping
• Many retail stores have catalogs to order from
• Speed and convenience in retail stores is important
• Customer service is very important
AgentsAgents
• Do not own the goods they sell
• Act as intermediaries by bringing buyer and seller together
–Real Estate Agents
–Food Brokers
Factors that affect distribution Factors that affect distribution decisions.decisions.
• Multiple channels – Selling to both industrial and consumer users– Selling cookies at Kroger (consumer) and to
airlines (industrial) for customers on plane– Control vs. cost – Determining the control
they want to keep over the distribution process and the costs and profitablity
Exclusive DistributionExclusive Distribution
• Protected territories for distribution of products in a given geographic location
Automobile dealers
Franchises (McDonalds)
Selective DistributionSelective Distribution
• A limited number of outlets in a geographic area are used to sell the product– Maintain the image of the product
• Ralph Lauren – Top department stores (Macy’s)• Liz Claiborne – Top department stores
Intensive DistributionIntensive Distribution
• The use of all suitable outlets to sell a product - Wal-Mart, Kroger, drugstores, etc.– Hanes socks– Household products– Types of foods
Distribution factors (continued)Distribution factors (continued)
• E-Commerce – using the Internet to sell products to customers and industrial buyers
• Foreign Markets – Look at cultural distributions in other countries to sell how are different– GM sells automobiles through franchised
retail outlets in US– In Taiwan, they own their own retail outlets.
Physical DistributionPhysical Distribution• Includes transporting, storing and stock
handling of products.– Trucking is the most frequently used
transportation• Advantages: Convenient, can deliver to door,
reduces packaging cost, rapid delivery of goods• Disadvantages: Traffic jams, equipment
breakdowns, traffic accidents, size and weight restrictions
Rail transportationRail transportation
Move heavy and bulky freight such as coal, steel, and lumber
Fishyback – shipping loaded truck trailers on a ship
Piggyback – shipping loaded truck trailers on railroad flatcars
RailroadsRailroads
• Advantages – relatively low cost, can ship large quantities, seldom stopped by bad weather
• Disadvantages – Lack of flexibility, cannot reach as many places
Water transportationWater transportation
• Oldest method of travel– Advantages: Lowest cost– Disadvantages: slowest, hard to get to port
location
PipelinesPipelines
• Used to transport oil and natural gas (200,000 miles of pipeline in U.S.)
• Advantages: operation costs are small, products move slowly and continuously, not affected by weather
• Disadvantages: High initial expense to build
Air TransportationAir Transportation
• The fastest mode of transportationAdvantages: Speed of delivery, reduces
inventory and storage costs
Disadvantages: Very expensive, mechanical breakdowns, delays caused by bad weather
Transportation service Transportation service companiescompanies
• U.S. Postal Service – run by government, small packages by parcel post or fourth-class mail
Express CarriersExpress Carriers
• Deliver small, lightweight packages up to 150 pounds, offer overnight and regular delivery. Faster the delivery time = more expensive– UPS– FED Ex
Inventory StorageInventory Storage
• Private warehouses – designed to meet the specific needs of the customer (TTAI having a warehouse to store their parts)
• Public Warehouse – offer storage and handling to individuals and companies (boat storage, residential, commercial)
Example: A to Z Self Storage
Distribution centerDistribution center
• Speeds delivery of goods and minimizes storage costs.
• Example: Wal-Mart Distribution Center in London