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Chapter 2Chapter 2
The Channel Participants
Major Participants in the Marketing Major Participants in the Marketing
ChannelChannel
22Objective 1:
Producers&
Manufacturers
WholesaleIntermediaries
RetailIntermediaries
Intermediaries
Consumers Industries
Final Users
* Commercial Channel * Target Markets
11Objective 2:
Why shift distribution tasks to Why shift distribution tasks to intermediaries?intermediaries?
Producers &
Manufacturers
• lack expertise• lack economies of scale
Intermediaries
• spread high fixed costs over large quantities of
diverse products• achieve economies of
scope and economies of scale
22Example:Example: Distribution of Distribution of CrayonsCrayons
• Huge order processing facility• Huge inventory• Several warehouse locations• Transportation of product to consumers
= cost prohibitive
Manufacturer directto customers
22Objective 3:
Major Types of WholesalersMajor Types of Wholesalers
Merchantwholesaler
Agents, brokers,&
commissionmerchants
Independentmiddlemen
Manufacturers'sales branches
&offices
Manufacturerowned
All Wholesale Firms
22Merchant WholesalersMerchant Wholesalers
BuyTake title to
StoreHandle
Large quantities of products
Resell to
Retailers
Industrial,commercial, orinstitutional concerns
otherWholesalers
22Agents, Brokers, & Commission Agents, Brokers, & Commission MerchantsMerchants
Involved in buying & selling
while acting on behalf of clients
Involved in buying & selling
while acting on behalf of clients
Commissions on
sales or purchases
Commissions on
sales or purchases
22
Owned & operated by manufacturers
Distribute manufacturer’s
products at wholesale
Some wholesale allied & supplementary products
purchased from other manufacturers.
Manufacturers’ Sales Branches & Manufacturers’ Sales Branches & OfficesOffices
Separated from manufacturing plants
Major Trends in Wholesale StructureMajor Trends in Wholesale Structure22Objective 4:
69.7% Manufacturer’s sales branches& offices
60.8% Wholesale trade
57.8% Merchant wholesalers
50.0% Agents, brokers, & commission
merchants
1987—1997
22Trends in Trends in SizeSize & & ConcentrationConcentration
Measured by: Types of Wholesalers
Size of wholesaler
Majority are small businesses
Sales volume Nearly 40% of all firms have annual sales of less than $1 million
# of Employees per firm Almost 50% of firms had fewer than 5 employees
Economic concentration in terms of % of total
sales
50 largest manufacturers’ sales branches & offices garnered nearly 53% of sales for this
type
22
Merchant Wholesalers Merchant Wholesalers SpecializeSpecialize in in Performance Distribution TasksPerformance 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
Merchant Wholesalers’ Merchant Wholesalers’ Distribution Tasks Serve Distribution Tasks Serve
CustomersCustomers
22
Assure product availability
Provide customer service Extend credit & financial
assistance Offer assortment
convenience Break bulk Help customers with
advice &technical support
22Agent Wholesalers’ Distribution Agent Wholesalers’ Distribution TasksTasks
Manufacturers’ Agents
Market coverage
Sales contacts
22Agent Wholesalers’ Distribution Agent Wholesalers’ Distribution TasksTasks
Market coverage
Sales contacts Order
processingMarketing
information
Product availability
Customer services
Selling agents
22Agent Wholesalers’ Distribution Agent Wholesalers’ Distribution TasksTasks
Brokers
Market coverage
Sales contacts Order
processingMarketing
information
Product availability
Customer services
Agent Wholesalers’ Distribution Agent Wholesalers’ Distribution TasksTasks
22
CommissionMerchant
Market coverage
Sales contacts Order
processingBreaking bulkCreditHolding
inventory
Retail StructureRetail Structure22Objective 6:
• By Ownership of Establishment
• 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 Consumer Contact
• By Type of Location• By Type of Service Rendered• By Legal Form of
Organization• By Management
Organizations or Operational Technique
Alternative Bases for Classifying Retailers
Kind-of-Business ClassificationsKind-of-Business Classifications22
Retail Trade
• Motor vehicle & parts dealers• Furniture & home furnishings
stores• Electronics & appliance
stores• Building material & garden
equip. & supply dealers• Food & beverage stores• Health & personal care
stores
• Gasoline stations• Clothing & clothing
accessories stores• Sporting goods, hobby, book,
& music stores• General merchandise stores• Miscellaneous store retailers• Nonstore retailers
Retail Structure TrendsRetail Structure TrendsObjective 7: 11
Decreasing number of establishments
Increasing sales
= increase in size of retail establishments measured by average sales volume
per store
11Concentration in RetailingConcentration in Retailing
In 1997
4% of all retail firms accounted for nearly 80%
of total sales!!
Distribution Tasks Performed by Retailers Distribution Tasks Performed by Retailers 22
The role of the retailer in the distribution channel, regardless of his size or type, is to interpret the demands of his customers and to find and stock the goods these customers want, when they want them, and in the way they want them. This adds up to having the right assortments at the time customers are ready to buy.
— Charles Y. Lazarus
Objective 8:
22Distribution Tasks Performed by Distribution Tasks Performed by
RetailersRetailers
• 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
• 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
Retailers’ Growing Power in Retailers’ Growing Power in Marketing ChannelsMarketing Channels
22Objective 9:
Increased size & buying power
Become power retailers &
category killers
Application of advancedTechnologies
Information technology & the Internet;
threetailing
Use of modern marketing strategies
Modern techniques; relationship marketing
Facilitating Agencies in Marketing Facilitating Agencies in Marketing ChannelsChannels
Objective 10: 22
• Transportation agencies• Storage agencies• Order processing agencies• Advertising agencies• Financial agencies• Insurance companies• Marketing research firms