Distribution Channels Dr. Vesselin Blagoev

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Distribution Channels

Dr. Vesselin Blagoev

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Channels of Distribution

We call Channels of Distribution any series of firms or individuals who participate in the flow of products from producer to final user or consumer

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Distribution Channel Functions

Research: gathering information needed for planning and aiding exchange

Promotion: developing and spreading persuasive information about an offer

Contact: finding and communicating with prospective buyers

Matching: shaping and fitting the offer to the buyer’s needs, incl. such activities as manufacturing, grading, assembling, and packaging

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Distribution Channel Functions

Negotiation: reaching an agreement on price and other terms of an offer so that ownership or possession can be transferred

Physical distribution: transporting and storing goods

Financing: acquiring and using funds to cover the costs of the channel work

Risk taking: assuming the risks of carrying out the channel work

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Type of channel

Direct Indirect

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Direct & Indirect channels

Producer

Wholesaler

Wholesaler

RetailerProducer

Producer

Producer RetailerJobber

Retailer

Direct-Marketing Channel

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Consumer Channels

Direct-marketing channels do not have intermediary levels

With more intermediary levels a channel of distribution has higher level of complexity

Multi-level marketing: a network of distributors, each one joined to the distributor who introduced him

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Traditional marketing

Multi-levelmarketing

Manufacturer

Wholesalers

Retailers

Consumers Distributors

Distributors

Distributors

Seller

Co

nsu

mer

s

Co

nsu

mer

s

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Network marketing

Manufacturer (or Retailer)

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Types of channels

Consumer (end-user) channels

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Producer

Producer

National Wholesalers


Регионален търговец на едро


Търговци на дребно


BuyersBuyers

ПроизводителПроизводител


Producer

Producer

Producer

Producer



Producer

Producer

Вносител дистрибутор


Нац.търго-вец на едро


Агент (джобер)


Regional wholesalers




RetailersRetailers

RetailersRetailers

RetailersRetailers



BuyersBuyers

ПотребителиПотребители




BuyersBuyers

BuyersBuyers

Own (Direct) channel

Мрежови маркетинг

Електронна търговия


Classic channels

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Producer

Producer







BuyersBuyers

роизводителроизводител

Producer

Producer

Producer

Producer

Producer

Producer



Producer

Producer











RetailersRetailers

RetailersRetailers

RetailersRetailers



BuyersBuyers




BuyersBuyers

BuyersBuyers

BuyersBuyers


Network marketing



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Producer

Producer







BuyersBuyers


Producer

Producer

Producer

Producer

Producer

Producer



Producer

Producer











RetailersRetailers

RetailersRetailers

RetailersRetailers



BuyersBuyers




BuyersBuyers

BuyersBuyers

BuyersBuyers


Network marketing



Producer Chains (METRO)

Buyers

Retailers Buyers

BuyersRetailersRegional

wholesalers

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Producer

Producer







BuyersBuyers

Producer

Producer

Producer

Producer

Producer

Producer

Producer

Producer



Producer

Producer











RetailersRetailers

RetailersRetailers

RetailersRetailers



BuyersBuyers



BuyersBuyers

BuyersBuyers

BuyersBuyers

BuyersBuyers


Network marketing

E-commerceE-commerce

Producer Chains (METRO)

Buyers

Retailers Buyers

BuyersRetailersRegional wholesalers

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Industrial Channels

Producer

Industrial Customer

Industrial Distributor

Producer’s RepresentativeProducer

Industrial Customer

Producer

Producer

IndustrialDistributor

Industrial Distributor

Producer’s Representative

Industrial Customer

IndustrialCustomer

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Channel Conflict Horizontal conflict: between

firms at the same level of the channel (some dealers go out of their territories; some dealers reduce the quality)

Vertical conflict: between firm at different levels (GM came to conflict with some dealers by trying to enforce policies on service, pricing, and advertising.

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Conventional Marketing Channel

Manufacturer Wholesaler Retailer

Consumer

A channel consisting of one or more independent producers, wholesalers, and retailers, each a separate business, seeking to maximize its own profit even at the expense of profits for the system as a whole

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Vertical Marketing System

Retailer

Wholesaler

Consumer

A distribution channel structure in which producers, wholesalers, and retailers act as unified system. Usually one of them owns the other, or has powerful contracts with them.

Manufacturer

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Consumer Channels Jobber: an intermediary

which operates between a wholesaler and smaller retailers, who are not served by the wholesaler. Jobbers buy from the W. and sell to the retailers.

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Types of Middlemen

Three types of middlemen (channel alternatives) are usually used:

Company salesforce

Manufacturer’s agency

Industrial distributors

Expand the company’s salesforce. Assign salespeople to territories and have them contact all people in the area

Higher independent firms, whose salesforce handle related products

Find distributors in the different regions or industries who will buy and carry the new line

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Number of Middlemen

Three strategies are available:

Intensive distribution

Exclusive distribution

Selective distribution

Stocking the product in as many outlets as possible

Limiting the number of middlemen, handling the product, sometimes to one

Using more than one but less than all possible distributors

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Physical Distribution

Order processing / customer service

Transportation

Warehousing

Inventory carrying

Other

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Direct Marketing

Marketing through various advertising media that interact directly with consumers, generally calling for the consumer to make a direct response

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Direct Marketing

Direct-mail and Catalogue Marketing

Telemarketing (by phone) Television marketing e-commerce (e-shopping)

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Direct-mail Marketing

Direct-mail marketing involves single mailings that include letters, ads, samples, foldouts, and other sent to prospects on mailing lists. Mailing lists are developed from customer lists or obtained from mailing list companies, which provide names of people fitting different descriptions (heavy users, veterinarians, etc.)

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Direct Selling Direct-mail and Catalogue Marketing with ORDER FORM

Telemarketing (by phone) Television marketing e-commerce (e-shopping) i.e.

www.amazon.com, publibook.com

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e-commerce INTERNET SALES OF THE NOVEL

L'APRES-MIDI EPHEMERE D'UNE LONGUE JOURNEE

In FRANCE and other EU countries http://www.publibook

.com/boutique2006/detail-3484-18-6-1-PB.html

http://www.amazon.fr/Apr%C3%A8s-Midi-

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e-commerce In FRANCE and other EU countries (cont.) http://www4.fnac.com/Shelf/article.aspx?

PRID=2059437&OrderInSession=1&Mn=1&SID=359cd744-

http://nouveautes.chapitre.com/Octobre-2007/LITTERATURE-ETRANGERE.html

http://www.cultura.com/8073/Livre/Litterature/Litterature-etrangere/Europeenne

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e-commerce In CANADA http://www.tonality.ca/index.php?

cPath=37_258

In JAPAN http://bookweb.kinokuniya.co.jp/

guest/cgi-bin/booksea.cgi?ISBN=2748338391

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e-commerce In BULGARIA (in Bulgarian language) http://navigator.idg.bg/index.php?

type=2&p=2118&id=4514464 http://books.balkanatolia.com/c/sl-b/p-l/

cid-59/s-32/bylgarska-literatura.html http://www.pe-bg.com/?cid=3&cat=5&p=19 http://www.knigi.biz/?

act=products&do=detailed&id=124565

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WholesalersCompany Owned Independent

Merchant Agents/Brokers

Full Function Limited Function

Rack Jobbers

General Merchandise

Single-line

Specialty

Cash and Carry

Drop Shippers

Truck Jobbers

Mail Order

Rack Jobbers

Auction Companies

Brokers

Commission Merchants

Manufacturers Agents

Selling Agents

Import-Export Agents

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Merchant Wholesalers

Merchant wholesalers are independent owned businesses that take title to the merchandise they handle. They are the largest single group of wholesalers, accounting for roughly 50% of all wholesaling.

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Full-Function (Full-Service)

Full-service wholesalers provide a full set of services such as:

carrying stock using salesforce offering credit making deliveries providing management assistance getting market information sorting and assorting

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Rack Jobbers

Rack jobbers usually serve drug and grocery retailers, mostly in the nonfood sector. They send delivery trucks to stores and the delivery person sets up racks of newspapers and magazines, toys, sunglasses, hardware items, health and beauty aids, and other. They price the goods, keep them fresh, and bill the retailers for the sold items only.

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Cash-and-Carry Cash-and-carry wholesalers are characterized by:

They have a limited line of fast-moving goods

Sell to small retailers for cash Normally they do not deliver

Example: A small fish store buys several crates of fish from a cash-end-carry wholesaler and pays at the spot.

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Drop Shippers Drop shippers operate in bulk industries such as

coal, lumber, and heavy equipment. They do not carry inventory or handle the

product Once an order is received, they find a

producer who ships the goods directly to the customer

The drop shippers take the title and the risk from the time the order is accepted to the time the goods are delivered to the customer

Their costs are lower

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Truck JobbersTruck Jobbers (Truck Wholesalers):

Perform selling and delivery functions

They carry a limited line of products (milk, bread, wines, snack foods)

They sell for cash as they make their rounds to small retailers, supermarkets, restaurants, hospitals, factory cafe, hotels

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Mail-order Wholesalers

Male-order wholesalers send catalogs to retail, industrial and institutional customers offering cosmetics, special foods, jewelry and other small items.They do not have salesforce to call on customers. The orders are sent by mail, truck, or other means.

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Producer’s Cooperatives

They are owned by farmer-members, assemble farm products to sell in local markets. They often try to improve the quality and promote the coop brand name (Sunkist oranges, Diamond walnuts)

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Agents and Brokers

Agents and Brokers differ from merchant wholesalers in two ways:

They do not take title to goods (they do not own the products they sell)

They perform a few functions only. Their main function is to aid in buying and selling

They earn commission on the selling price (1% to 6% usually)

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Agents Agents are important in international

trade. They are usually experts on local business customs and rules concerning imported products in their respective countries. In many cases they are experts on particular markets of interest.

Agents specialize by customer type or by product and product line.

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Manufacturers’ Agents

They sell similar products for several noncompeting producers (machinery and equipment, electronic items, automobile products, clothing and apparel accessories)

They sell for a commission on what is actually sold (usually 10–15%)

They are independent; they often work almost as members of each company salesforce

They can add a new line for no costs to the producer

Specially useful for introducing new products

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Selling Agents Selling agents take over the whole

marketing function of the producers – not only the selling function

They can work for several producers, even competing producers

They have almost full control of pricing, selling, and advertising

They serve as marketing manager for the particular producers

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Commission Merchants

Commission merchants and export or import commission houses handle products shipped to them by sellers, complete the sale and send the money (minus their commission) to each seller

Used in agricultural markets where farmers must have someone to handle the shipment (in the city)

They do not own the products they sell, but they have the right to sell ‘at market price’ (above some minimum)

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Brokers Brokers bring buyers and sellers together

Brokers usually have a temporary relationship with the Buyer and Seller while a particular deal is negotiated

Their product is information about what the Buyer needs and what supplies are available

They can aid in the negotiation process If the transaction is completed they earn a

commission from the party, which hired them

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Other Specialized Middlemen

Factors – wholesalers of credit. They provide their clients with working capital against accounts receivable, which they buy

Field warehousing – provide cash for products on hand. The producer retains title to the goods, but control of them passes to the field warehouser

Sales finance companies do floor planning – financing of display stocks for auto, appliance, and electronics retailers. Many auto dealers do not own the products they display and do it for commission

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RetailersMerchandizeLine carried

General merchandize

Limited line

Single line

Level of Service

Self-service

Self-selection

Limited service

Full service

Method of operation

Form of Ownership

Location of Facilities

Store

Nonstore Mail-order

In-home

Automatic vending machines

Direct response merchandisers

New technologies

Independent

Corporate chain

Association of ind.

Retailer cooperative chains

Wholesaler- sponsored voluntary

chains

Consumer cooperative

Franchises

Central business district

Main business thoroughfare

Secondary business district

Neighborhood cluster

Shopping center

Scattered individual location

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Personal (Direct) Selling

By Personal Selling we understand

Door-to-Door retailing Office-to-Office selling Home-Sales Parties

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Personal Selling Prospecting: find and cultivate new customers Targeting: decide how to allocate their scarce

time among prospects and customers Communicating: Communicate information

about company’s products and services Selling: approaching, presenting, answering q Servicing: consulting, arranging finance, etc. Info gathering: fill-in call reports and other Allocating: products to whom during shortages

Documents

Distribution Channels Dr. Vesselin Blagoev