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Chapter 2

The Channel Participants

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Major Participants in the Marketing Channel

2Objective 1:

Producers

&

Manufacturers

Wholesale

Intermediaries

Retail

Intermediaries

Intermediaries

Consumers Industries

Final Users

* Commercial Channel * Target Markets

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1Objective 2:

Why shift distribution tasks to intermediaries?

Producers

&

Manufacturers

Lack expertise

Lack economies of scale

Intermediaries

Achieve economies ofscope and economies of

scale

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2

Example: Distribu

tion of Coca Cola

Huge order processing

facility

Huge inventory to meet

demand

Numerous warehouse

locations around the world

Transportation of

product to consumers

=Cost proh ib i tive

Manufacturer direct

to customers

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Hypothetical

Average Cost Curves for the Production and

Distribution of Coca-Cola

ATC

Boxes of Coca-Cola beverages

produced

0

0

C1

C2

Q1

Q1Boxes of Coca-Cola beverages

distributed

$ per box of

Coca-Colabeverages

distributed

$ per box of

Coca-Cola

beverages

distributed

ATC

Production of Coca-Cola

Distribution of Coca-Cola

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2Objective 3:

Major Types of Wholesalers

Merchant

wholesaler

Agents, brokers,

&commissionmerchants

Independentmiddlemen

Manufacturers'

sales branches&

offices

Manufacturerowned

All Wholesale Firms

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2Merchant Wholesalers

BuyTake title to

Store

Handle

Large quantities of products

Resell to

Retailers

Industrial,

Commercial,

or

Institutional

organizations

Other

Wholesalers

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2Agents, Brokers, & Commission Merchants

Involved in buying & selling

while acting on behalf of clients

Commissions

on

sales or purchases

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2

Owned & operated bymanufacturers

Distribute

manufacturers productsat wholesale

Some wholesale similar &supplementary products

purchased from other

manufacturers

Manufacturers Sales Branches & Offices

Separated from manufacturing plants

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Major Trends in Wholesale Structure

2Objective 4:

51.7% Manufacturers sales branches

& offices

49.7% Wholesale trade

218.8% Merchant wholesalers

56.5% Agents, brokers, & commission

merchants

1992

2002

1992

2007

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2Trends in Size& Concentrat ion

Measured by : Types of Who lesalers

Size of

wholesaler

Majority are small businesses

Sales volume In 2007, 40% of all firms have annual sales ofless than $1 million

# of Employees per firm In 2007, Over 50% of firms had fewer than 5employees

Economic concentrationin terms of % of total

sales

In 2002, 50 largest manufacturers sales

branches & offices garnered nearly 63% ofsales for this type

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2

Merchant Wholesalers Special izein

Performance of Distribution Tasks

Objective 5:

Operate at high levels of effectiveness and efficiency

Average cost curves lower than those for their

suppliers

Provide market coverage

Make sales contacts

Hold inventory

Process orders

Gather market information

Offer customer support

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Merchant Wholesalers Distribution

Tasks Serve Customers

2

Assure product availability

Provide customer serviceExtend credit & financial

assistance

Offer assortment convenience

Break bulk

Help customers with advice &technical support

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2Agent Wholesalers Distribution Tasks

Manufacturers

Agents

Market coverage

Sales contacts

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2

Agent Wholesalers Distribution Tasks

Market coverage

Sales contacts

Order processing

Marketing information

Product availability

Customer services

Selling agents

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2

Agent Wholesalers Distribution Tasks

Brokers

Market coverage

Sales contacts

Order processing

Marketing Information

Product availability

Customer services

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Agent Wholesalers Distribution Tasks2

Commission

Merchant

Market coverage

Sales contacts

Order processingBreaking bulk

Credit

Holding inventory

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Retail Structure2Objective 6:

By Ownership ofEstablishment

By Kind of Business(Merchandise Handled)

By Size of Establishment

By Degree of Vertical

Integration By Type of Relationship with

other Business Organizations

By Method of ConsumerContact

By Type of Location By Type of Service Rendered

By Legal Form ofOrganization

By ManagementOrganizations or OperationalTechnique

Alternative Bases for Classifying Retailers

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Kind-of-Business Classifications2

Retail Trade

Motor vehicle & parts dealers

Furniture & home furnishingsstores

Electronics & appliancestores

Building material & gardenequip. & supply dealers

Food & beverage stores

Health & personal carestores

Gasoline stations

Clothing & clothingaccessories stores

Sporting goods, hobby, book,& music stores

General merchandise stores

Miscellaneous store retailers Nonstore retailers

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Retail Structure Trends

Objective 7: 1

Decreasing number of establishments

Increasing sales

= increase in size of retail establishments

measured by average sales volumeper store

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1Concentration in Retailing

In 2007

5% of all retail firms

accounted for nearly 80%

of total sales!

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Distribution Tasks Performed by Retailers

2

The role of the retailer in the distributionchannel, regardless of his size or type, is

to interpret the demands of hiscustomers and to find and stock thegoods these customers want, when theywant them, and in the way they wantthem. This adds up to having the right

assortments at the time customers areready to buy.

Charles Y. Lazarus

Objective 8:

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2

Distribution Tasks Performed by Retailers

Offer manpower & physical facilities close to

consumers residences

Provide personal assistance to help sell products Interpret and relay consumer demand

Divide large quantities into consumer-sized lots

Offer storage

Remove risk by ordering in advance of the season

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Retailers Growing Power in Marketing

Channels

2Objective 9:

Increased size & buying

power

Becomepower retailers

&

Category killers

Application of advanced

Technologies

Information technology &

The Internet (e-commerce,

m-commerce, and f-

commerce)

Use of modern marketing

strategies

Modern marketing

techniques; Relationship

marketing

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Facilitating Agencies in Marketing Channels

Objective 10: 2

Transportation agencies

Storage agencies

Order processing agencies

Advertising agencies

Financial agencies

Insurance companies Marketing research firms