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Slide 1: CHAPTER 14 Distributing Products Leonardo Matarrese @MyPlick
Slide 2: OUTLINE The Distribution Mix  Wholesaling  Retailing  Physical Distribution  Leonardo Matarrese @MyPlick
Slide 3: OBJECTIVES After reading this chapter, you should be able to:  Identify the different channels of distribution and explain different distribution strategies  Explain the differences between merchant wholesalers and agents/brokers  Identify the different types of retailing and retail stores  Describe the major activities in the physical distribution process  Compare the five basic forms of transportation and identify the types of firms that provide them Leonardo Matarrese @MyPlick
Slide 4: The Distribution Mix Combination of distribution channels by which a firm gets its products to end users Intermediary (Middlemen) Individual or firm that helps to distribute a product Wholesaler Intermediary who sells products to other businesses for resale to final consumers Retailer Intermediary who sells products directly to consumers Leonardo Matarrese @MyPlick
Slide 5: The Distribution Mix Three factors help firms decide which distribution mix to use: 1. The company’s target markets 2. The nature of its products 3. The costs of maintaining distribution and sales networks Leonardo Matarrese @MyPlick
Slide 6: Distribution of Consumer Products Distribution Channel Network of interdependent companies through which a product passes from producer to end user Direct Channel Distribution channel in which a product travels fromLeonardo Matarrese @MyPlick producer to consumer
Slide 7: Eight Primary Distribution Channels Channel 1: Direct Distribution of Consumer Products Channel 2: Retail Distribution of Consumer Products Channel 3: Wholesale Distribution of Consumer Products Channel 4: Distribution through Sales Agents or Brokers Channel 5: Distribution by Agents to Consumers and Businesses Channel 6: Direct Distribution of Business Products Channel 7: Wholesale Distribution of Industrial Products Channel 8: Wholesale Distribution to Business Leonardo Matarrese @MyPlick
Slide 8: Channels of Distribution Producer Agent/Broker Wholesaler Channel 1 Channel 2 Channel 3 Channel 4 Channel 5 Channel 6 Channel 7 Channel 8 Leonardo Matarrese @MyPlick Retailer Users Consumer Consumer Consumer Consumer Consumer/ Business Business Business Business 14 - 8 Consumer Channels Consumer/ Business Channel Business Channels
Slide 9: Pros & Cons of Nondirect Distribution  Why do nondirect distribution channel mean higher prices for consumers?  How can intermediaries save consumers both time and money? Leonardo Matarrese @MyPlick
Slide 10: Typical Series of Markups Manufacturer’s Cost Manufacturer’s Markup Wholesaler’s Markup Retailer’s Markup $25.00 $3.75 $5.75 $25.88 (15%) (20%) (75%) 14 - 10 Customer’s Price Leonardo Matarrese @MyPlick $60.38
Slide 11: The Value-Adding Intermediary Tomato Producer Chili Powder Producer Beef Producer Beans Producer Consumer Consumer Consumer Consumer Leonardo Matarrese @MyPlick
Slide 12: The Value‑Adding Intermediary Tomato Producer Chili Powder Producer Beef Producer Beans Producer SUPERMARKET Consumer Consumer Consumer Consumer Leonardo Matarrese @MyPlick
Slide 13: Distribution by Agents to Consumers & Businesses Channel 5 differs from the previous channels in two ways:  it includes an agent as the sole intermediary and  it distributes to both consumers and business customers. Leonardo Matarrese @MyPlick
Slide 14: Distribution of Business Products Industrial (Business) Distribution Network of channel members involved in the flow of manufactured goods to industrial customers Leonardo Matarrese @MyPlick
Slide 15: Distribution Strategies Intensive Distribution Strategy by which a product is distributed through as many channels as possible Exclusive Distribution Strategy by which a manufacturer grants exclusive rights to distribute or sell a product to a limited number of wholesalers or retailers in a given geographic area Selective Distribution Strategy by which a company uses only wholesalers and retailers who give special attention to specific Leonardo Matarrese @MyPlick products
Slide 16: Channel Conflict & Channel Leadership Channel Conflict Conflict arising when the members of a distribution channel disagree over the roles they should play or the rewards they should receive Channel Leadership (Channel Captain) Channel member who is most powerful in determining the roles and rewards of other members Vertical Marketing System (VMS) Unified distribution channel composed of separate Leonardo Matarrese @MyPlick businesses centrally controlled by a single member
Slide 17: Wholesaling Merchant Wholesaler Independent wholesaler who takes legal possession of goods produced by a variety of manufacturers and then resells them to other businesses Full-Service Merchant Wholesaler Merchant wholesaler who provides credit, marketing, and merchandising services in addition to traditional buying and selling services Limited-Function Merchant Wholesaler Merchant wholesaler who provides a limited range Leonardo Matarrese @MyPlick
Slide 18: Wholesaling Drop Shipper Limited-function merchant wholesaler who receives customer orders, negotiates with producers, takes title to goods, and arranges for shipment to customers Rack Jobber Limited-function merchant wholesaler who sets up and maintains display racks in retail stores Agents and Brokers Independent representatives of many companies’ Leonardo Matarrese @MyPlick products who serve as sales forces for various
Slide 19: E-Intermediary Internet distribution channel member who assists in moving products through to customers or who collects information about various sellers to be presented in convenient format for Internet customers Syndicated Selling E‑Commerce practice whereby a Web site offers other Websites commissions for referring customers Shopping Agent (E-Agent) E-Intermediary (middleman) in the Internet distribution channel who assists users in finding products and prices but who does not take possession of products Business-to-Business Brokers Enable businesses to buy and sell from one another and confirm transactions electronically Matarrese @MyPlick Leonardo
Slide 20: Retailing Types of Retail Outlets Product Line Retailers  Bargain Retailers  Nonstore & Electronic Retailing  Leonardo Matarrese @MyPlick
Slide 21: Product Line Retailers  Retailers that feature broad product lines include: Department Store: Large product line retailer characterized by organization into specialized departments Supermarket: Large product line retailer offering a variety of food and food-related items in specialized departments Hypermarket: Very large product line retailer carrying a wide variety of unrelated products Specialty Store: Small retail store carrying one product line or category of related products Leonardo Matarrese @MyPlick   
Slide 22: Bargain Retailers  Retailer carrying a wide range of products at bargain prices: Discount House: Bargain retailer that generates large sales volume by offering goods at substantial price reductions Off-Price Store: Bargain retailer that buys excess inventories from high-quality manufacturers and sells them at discounted prices Catalog Showroom: Bargain retailer in which customers place orders for catalog items to be picked up at on-premises warehouses Leonardo Matarrese @MyPlick  
Slide 23: Bargain Retailers Retailer carrying a wide range of products at bargain prices:  Factory Outlet: Bargain retailer owned by the manufacturer whose products it sells  Warehouse Club (or Wholesale Club): Bargain retailer offering large discounts on brand-name merchandise to customers who have paid annual membership fees  Convenience Store: Retail store offering easy accessibility, extended hours, and fast service Leonardo Matarrese @MyPlick
Slide 24: Nonstore & Electronic Retailing Major Types of Nonstore Retailing:  Direct-Response Retailing: Nonstore retailing by direct interaction with customers to inform them of products and to receive sales orders Mail Order (or Catalog Marketing): Form of nonstore retailing in which customers place orders for catalog merchandise received through the mail Telemarketing: Nonstore retailing in which the telephone is used to sell directly to consumers Direct Selling: Form of nonstore retailing typified by door-to-door sales Matarrese @MyPlick Leonardo   
Slide 25: Small Business and the Web Percentage of Small Businesses With a Web Site 40% Percentage 30% 20% 10% 0% 37% 19% 9% 1997 1998 1999 Year Leonardo Matarrese @MyPlick 14 - 25
Slide 26: Small Business and the Web Percentage of Small Businesses Planning to Get a Web Site 70% 60% 50% 40% 30% 20% 10% 0% Percentage 65% 48% 38% 1-9 10-49 50-99 Company Size: Number of Employees Leonardo Matarrese @MyPlick 14 - 26
Slide 27: Small Business and the Web Percentage of Small Businesses Planning to Get a Web Site Percentage 80% 60% 40% 20% 0% Promoting to Prospects Selling Products Providing Better & Services Customer Support 69% 57% 48% Company Size: Number of Employees Leonardo Matarrese @MyPlick 14 - 27
Slide 28: The Boom in Electronic Retailing Video Marketing Nonstore retailing to consumers via standard and cable television Electronic Shopping Nonstore retailing in which information about the seller’s products and services is connected to consumers’ computers, allowing consumers to receive the information and purchase the products in the home Electronic Storefront Commercial Web site in which customers gather information about products, buying opportunities, placing orders, and paying for purchases Cybermall Collection of virtual storefronts (business Web sites) Leonardo products and representing a variety ofMatarrese @MyPlickproduct lines on the Internet
Slide 29: Multilevel Marketing Distribution channel consisting of selfemployed distributors who receive commissions for selling products to customers and for recruiting new distributors Leonardo Matarrese @MyPlick
Slide 30: A Century of Change in Retailing Wheel of Retailing Concept of retail evolution holding that lowservice, low-price stores add services and raise prices until they lose price-sensitive customers and are replaced by new firms that enter the market to fill the need for low-price stores Leonardo Matarrese @MyPlick
Slide 31: Retail Reach Type of Seller Seller’s Neighborhood/ Giant Department Discount Shopping Global Rural General + + + + Chain + Customer Stores Stores Malls Retailers Stores Stores Base Consumer Isolated Local Audience Shoppers 1900 Isolated Area Shoppers Area & Area & Nationwide Regional Regional Shoppers Shoppers Shoppers Leonardo Matarrese @MyPlick Worldwide Shoppers 2000 14 - 31
Slide 32: A Century of Evolution in At‑Home Retailing Value Added for Shoppers  Convenience  Accessibility  Range of Products  Speed 1900 2000 Door-to-door sales & the birth of catalogs Catalog Video marketing & Leonardo Matarrese @MyPlick sales growth telemarketing E-Retailing 14 - 32
Slide 33: Physical Distribution Activities needed to move a product efficiently from manufacturer to consumer Warehousing Physical distribution operation concerned with the storage of goods Leonardo Matarrese @MyPlick
Slide 34: Types of Warehouses Private Warehouse Warehouse owned by and providing storage for a single company Public Warehouse Independently owned and operated warehouse that stores goods for many firms Leonardo Matarrese @MyPlick
Slide 35: Storage Warehouses and Distribution Centers Storage Warehouse Warehouse providing storage for extended periods of time Distribution Center Warehouse providing short-term storage of goods for which demand is Leonardo Matarrese @MyPlick both constant and high
Slide 36: Warehousing Costs Inventory Control Warehouse operation that tracks inventory on hand and ensures that an adequate supply is in stock at all times Material Handling Warehouse operation involving the transportation, arrangement, and Leonardo Matarrese @MyPlick orderly retrieval of goods in inventory
Slide 37: Transportation Operations Firms must consider the following factors when choosing a transportation method: – cost – nature of the product – distance Major transportation modes: – trucks – railroads – planes – water carriers – pipelines Leonardo Matarrese @MyPlick
Slide 38: Ranking Modes of Transportation Ranking (Best) 1 2 3 4 5 (Worst) Cost Delivery Speed Delivery Time Dependability Risk of Loss & Damage Number of Points Served Legend Air Water Rail Leonardo Matarrese @MyPlick Pipeline Truck 14 - 38
Slide 39: Changes in Transportation Operations Intermodal Transportation Combined use of several different modes of transportation Containerization Standardized heavy-duty containers in which many items are sealed at points of shipmentLeonardo Matarrese @MyPlickonly at final and opened
Slide 40: Companies Specializing in Transportation Common Carrier Transporting company, such as a truck line or railroad, that transports goods for any shipper Freight Forwarder Transporting company that leases bulk space from other carriers to be resold to firms making smaller shipments Contract Carrier Independent transporting company that usually owns the vehicles in which it transports products Private Carrier Manufacturer or retailer that maintains its own transportation Leonardo Matarrese @MyPlick system
Slide 41: Customer Service Operations Order Processing In customer service operations, the filling of orders as they are received Order Cycle Time In customer service operations, total time elapsed between placement and receipt of orders Leonardo Matarrese @MyPlick
Slide 42: Order Fulfillment and E-Customer Satisfaction    New e-commerce companies often focus on Internet sales, only to discover that after‑sale distribution delays cause customer dissatisfaction and discourage repeat sales. Any delay in physical distribution, then, is a breakdown in fulfillment and an obstacle to growth. Order fulfillment begins when the sale is made: It involves getting the product, in good condition and on time, to the customer for each sales transaction. @MyPlick Leonardo Matarrese
Slide 43: Distribution as a Marketing Strategy Hub Central distribution outlet that controls all or most of a firm’s distribution activities Supply-Side and Pre-Staging Hubs - located near industrial customers (i.e., automobile factories) Distribution-Side Hubs - serves geographically dispersed customers (i.e., producers of microchips) Leonardo Matarrese @MyPlick Two contrasting strategies have emerged from this approach:  