CHANNELS OF DISTRIBUTION

CHAPTER 21

HOW DISTRIBUTION WORKS

This is the Place part of the Marketing Mix.This is where the marketer must decide how to get the product to the consumer.To make a place decision, marketers must decide on their CHANNEL OF DISTRIBUTION.

• This is the path a product takes from producer to consumer.

When the final user of a product is a business, the product is classified as an industrial product.When the final use is a person, the product is classified as a consumer product.

CHANNEL MEMBERS

All businesses involved in sales transactions that move products from manufacturer to the final user are called intermediaries.The most common types of intermediaries are:

RETAILERSWHOLESALERSAGENTS

WHOLESALERSWholesalers generally buy large quantities of products from manufacturers, store them, and then resell them to businesses.They can also be called distributors.Wholesalers take title, ownership, of the goods until they sell them to retailers.Rack Jobber—a wholesaler that manage inventory and merchandising for retailers by counting stock and maintaining store displays. They bill the retailer only for items sold.

Drop Shipper—owns the goods they sell but do not handle the products. Drop shippers sell the goods to other businesses and have them shipped directly from the manufacturer. Ex. Coal, lumber, chemicals.

RETAILERSRetailers sell goods to the final consumer for personal use.Traditional retailers, called brick and mortar retailers, sell goods to the consumers from their physical store.Retailers often provide services such as credit and delivery to solidify relationships with consumers.There are a number of non-store retailers:

Automatic Retailing--vendingDirect MailCatalog RetailingTV Home ShoppingOnline Retailing

                      

AGENTS

Unlike Wholesalers and Retailers, Agents do not own the goods they sell.

They act as intermediaries by bringing buyers and sellers together.

Real Estate Agents are a good example.

They are paid a commission of the sale, but never actually sell the house.

THE ACTUAL CHANNEL Most consumer products go through the most common channel,

from manufacturer to wholesaler to retailer to consumer.

MANUFACTURER WHOLESALER RETAILER CONSUMER

However, sometimes, parts of the channel may be skipped for certain types of products or to save costs.

MANUFACTURER RETAILER CONSUMER

Industrial Products go through a slightly different channel and again, some members may be skipped depending upon the type of good.

MANUFACTURER AGENT DISTRIBUTOR USER

DIRECT AND INDIRECT CHANNELS

Direct Distribution occurs when the goods or services are sold from the producer directly to the customer.Indirect Distribution occurs when one or more intermediaries are used.A landscaper mowing a lawn is an example of direct distribution.A Three Musketeers bar being purchased at a stationery store is an example of indirect distribution.

DISTRIBUTION PLANNING

Distribution decisions affect a firm’s marketing program.Some of the major considerations are the use of:

Multiple ChannelsControl vs CostsIntensity of Distribution desiredInvolvement in E-Commerce

MULTIPLE CHANNELS

Multiple Channels are used when a product fits the needs of both industrial and consumer markets.

Price Club is both a wholesaler and a retailer, serving businesses as well as consumers.

A company may choose to serve both types of purchaser or just one.

CONTROL VS COSTSA manufacturer must decide the amount of control it wants over its sales functions.

It can decide to use its own sales force or hire outside agents to do the selling.

A sales force is more costly, but the company has direct control over them.

Many retailers, such as large ones like Target, K Mart, often dictate the terms of selling and the payment terms.

Manufacturers need to determine whether it is profitable to deal with these large conglomerates and lose some control.

DISTRIBUTION INTENSITYThis has to do with how widely a product will be distributed.There are three levels of distribution intensity:

Exclusive• Involves protected territories for distribution of a product in a

geographic area.Selective

• A limited number of outlets in a given geographic area are used to sell the product. Ralph Lauren only uses certain stores.

Intensive• Involves the use of all suitable outlets to sell a product. The

object is complete market coverage.

E-COMMERCEE-Commerce is the means by which products are sold to consumers and industrial buyers through the use of the internet.In 2000, almost half of America’s retailers sold online.The growth of the internet as a sales and commerce vehicle is staggering, bringing the consumer closer to the manufacturer, saving them time, convenience, and money.Marketers who fail to successfully use this outlet will fail in most aspects of their business.