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8/7/2019 Wholesaling, Retailing, And Physical Distribution-Prince Dudhatra-9724949948
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Chapter
Fifteen
Wholesaling,
Retailing, and
Physical Distribution
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Learning Objectives
1. Identify the various channels of distributionthat are used for consumer and industrialproducts.
2. Explain the concept of market coverage.
3. Understand how supply-chain managementfacilitates partnering among channel members.
4. Describe what a vertical marketing system isand identify the types of vertical marketing
systems.5. Discuss the need for wholesalers and describe
the services they provide to retailers andmanufacturers.
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Learning Objectives (contd)
6. Identify and describe the major types ofwholesalers.
7. Distinguish among the major types of
retailers.8. Identify the categories of shopping centers
and the factors that determine how shoppingcenters are classified.
9. Explain the five most important physicaldistribution activities.
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Channels of Distribution
Channel of distribution (marketing channel)
A sequence of marketing organizations that directs aproduct from the producer to the ultimate user
Middleman (marketing intermediary)
A marketing organization that links a producer anduser within a marketing channel
Merchant middlemantakes title to products by buyingthem
Functional middlemanhelps in the transfer ofownership of products but does not take title to the
products Retailerbuys from producers or other middlemen and
sells to consumers
Wholesalersells products to other firms
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Channels for Consumer Products
Producer to consumer (direct channel)
No intermediaries
Used by all services and by a few consumer
goods Producers can control quality and price, do nothave to pay for intermediaries, and can beclose to their customers
Examples: Dell Computer, Mary KayCosmetics
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Channels for Consumer Products (contd)
Producer to retailer to consumer
Producers sell directly to retailers whenretailers (Wal-Mart) can buy in large quantities
M
ost often used for bulky products for whichadditional handling would increase sellingcosts, and for perishable or high-fashionproducts that must reach consumers quickly
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Channels for Consumer Products (contd)
Producer to wholesaler to retailer toconsumer
The traditional channel
Used when a producers products are carriedby so many retailers that the producer cannotdeal with them all
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Channels for Consumer Products (contd)
Producer to agent to wholesaler to retailer toconsumer
Agentfunctional middlemen that do not taketitle to products and are compensated bycommissions paid to the producers
Often used for inexpensive, frequently-purchased items, for seasonal products, andby producers that do not have their own salesforces
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Channels for Consumer Products (contd)
A manufacturer may use multiple channels
To reach different market segments
When the same product is sold to consumers andbusinesses
To increase sales or capture a larger market share
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Channels for Business Products
Producer to business user
Usually used for heavy machinery, airplanes,major equipment
Allows the producer to provide expert andtimely services to customers
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Channels for Business Products (contd)
Producer to agent middleman to businessuser
Usually used for operating supplies, accessoryequipment, small tools, standardized parts
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Market Coverage
Intensity of market coverage Intensive distribution
The use of all availableoutlets for a product to
saturate the market Selective distribution
The use of only a portion ofthe available outlets for aproduct in each geographic
area Exclusive distribution
The use of only a single retailoutlet for a product in a larger
geographic area
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Partnering Through Supply
Chain Management
Supply chain management
Long-term partnership among channelmembers working together to create adistribution system that reduces
inefficiencies, costs, and redundancieswhile creating a competitive advantage andsatisfying customers
Category management
The retailer asks a supplier how to stock the
shelves Technology
Has enhanced implementation of supplychain management
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Vertical Marketing Systems
Vertical channel integration The combining of two or more stages of a distribution
channel under a single firms management
Vertical marketing system (VMS)
A centrally managed distribution channel resulting fromvertical channel integration
Administered
One channel member dominates the others
Contractual
Intermediary cooperation, rights, and obligations areformalized in contracts
Corporate
The entire channel is owned by the producer
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Marketing Intermediaries: Wholesalers
Justifications for marketingintermediaries
Intermediaries perform essentialmarketing services
Manufacturers would beburdened with additional recordkeeping and maintaining contactwith numerous retailers
Costs for distribution would notdecrease, and could possiblyincrease due to the marketinginefficiencies of producers
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Efficiency Provided by an Intermediary
Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 12th ed. Copyright 2003 by Houghton Mifflin Company,Adapted with permission.
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Wholesalers Services to Retailers
Buy in large quantities andthen sell in smaller quantities
Deliver goods
Stock in one place a variety of
goods Promote products to retailers
Provide market information for bothproducers and retailers
Provide financial aid in the form ofinventory management, loans,delayed billing
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Wholesalers Services to Manufacturers
Provide instant sales forces to manufacturers
Reduce manufacturers inventory costs bypurchasing finished goods in sizable
quantities Assume the credit risks associated with
selling to retailers
Furnish market information gleaned from the
market and customers to the manufacturers
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Types of Wholesalers
Merchant wholesalers Middlemen that purchase goods in large quantities and
then sell them to other wholesalers or retailers and toinstitutional, farm, government, professional, orindustrial users
Operate in one or more warehouses where theyreceive, take title to, and store goods
Full-service wholesalers
General merchandise wholesaler
Limited-line wholesaler Specialty-line wholesaler
Limited-service wholesalers
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Types of Wholesalers (contd)
Commission merchants, agents, and brokers Functional middlemen that do not take title to products
Perform some marketing activities
Paid a commission (percentage of sales price)
Commission merchant Carries merchandise and negotiates sales for
manufacturers
Agent
Expedites exchanges, represents a buyer or a seller, andis often hired permanently on a commission basis
Broker
Specializes in a particular commodity, represents a buyeror a seller, and is likely to be hired on a temporary basis
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Types of Wholesalers (contd)
Manufacturers sales branch Merchant wholesaler owned by a
manufacturer
Carries inventory, extends credit, delivers
goods, helps in promoting products Customers are retailers, other wholesalers,
and industrial purchasers
Manufacturers sales office
Sales agent owned by a manufacturer Sells goods manufactured by its own firm and
also others that complement its own productline
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Marketing Intermediaries: Retailers
Retailers: The final linkbetween producers andconsumers
Approx 2.6 millionretail firms in the U.S.
90% have sales ofless than $1 million
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The Ten Largest Retail Firms
in the United States
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Classes of In-Store Retailers
Independent retailer A firm that operates only one retail outlet Chain retailer
A company that operates more than one retail outlet Department store
A retail store that (1) employs 25 or more persons and (2) sells at
least home furnishing, appliances, family apparel, and householdlinens and dry goods, each in a different part of the store Discount store
A self-service, general merchandise outlet that sells products atlower-than-usual prices
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Classes of In-Store
Retailers (contd)
Catalog showroom A retail outlet that displays well-known brands
and sells them at discount prices throughcatalogs within the store
Warehouse showroom A retail facility in a large, low-cost building with
large on-premises inventories and minimalservice
Convenience store A small food store that sells a limited variety of
products but remains open well beyondnormal business hours
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Classes of In-Store
Retailers (contd)
Supermarket A large self-service store that
sells primarily food and householdproducts
Superstore A large retail store that carries not
only food and nonfood productsordinarily found in supermarketsbut also additional product lines
Warehouse club A large-scale, members-only
establishment that combinesfeatures of cash-and-carrywholesaling with discount retailing
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Classes of In-Store
Retailers (contd)
Traditional specialty store A store that carries a narrow product mix with
deep product lines
Off-price retailer
A store that buys manufacturers seconds,overruns, returns, and off-seasonmerchandise for resale to consumers at deepdiscounts
Category killer A very large specialty store that concentrates
on a single productline and competes on the basis of low pricesand product availability
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Kinds of Nonstore Retailing
A type of retailing wherebyconsumers purchase productswithout visiting a store
Direct selling
The marketing of products toultimate consumers through face-to-face sales presentations at homeor in the workplace
Direct marketing Using computers, telephones, and
nonpersonal media to showproducts to customers, who canthen purchase them by mail,
telephone, or online
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Kinds of Nonstore Retailing (contd)
Catalog marketing An organization provides a
catalog from which customersmake selections and place
orders by mail or telephone Direct-response marketing
A retailer advertises a productand makes it availablethrough mail or telephoneorders
Telemarketing The performance of
marketing-related activities by
telephone
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Kinds of Nonstore Retailing (contd)
Television home shopping Products are displayed to television viewers,
who can then order the products by calling atoll-free number and paying by credit card
Online retailing
Presenting and selling products throughcomputer connections
Automatic vending The use of machines to dispense products
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Planned Shopping Centers
A self-contained retail facility constructed byindependent owners and consisting of various stores Lifestyle shopping center
Has an open-air configuration and is occupied byupscale national chain specialty stores
Neighborhood shopping center Comprises several small convenience and specialty
stores
Community shopping center Includes one or two department stores and some
specialty stores, along with convenience stores Regional shopping center
Contains large department stores, numerous specialtystores, restaurants, movie theaters, and sometimeshotels
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Physical Distribution
All those activities concerned with the efficientmovement of products from the producer to theultimate user
Inventory management The process of managing inventories in such a way as
to minimize inventory costs, including both holdingcosts and potential stock-out costs
Holding coststhe costs of storing products until theyare purchased or shipped to customers
Stock-out coststhe costs of sales lost when items are
not in inventory when needed Order processing
Activities involved in receiving and filling customerspurchase orders
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Physical Distribution
Warehousing The set of activities involved in receiving and storing
goods and preparing them for reshipment
Receiving goods
Identifying goods
Sorting goods
Dispatching goods to storage
Holding goods
Recalling, picking, and assembling goods
Dispatching shipments Types of warehouses
Private warehousesowned and operated by a firm
Public warehousesoffer their services to all firms
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Physical Distribution (contd)
Materials handling The physical handling of goods, in warehousing as well
as during transportation
Transportation The shipment of products to customers
Carriera firm that offers transportation services Common carriersservices are available for hire to all
shippers
Contract carriersavailable for hire by one or severalshippers; not available to the general public
Private carriersowned and operated by the shipper Freight forwardersagents who facilitate the
transportation process for shippers by handling thedetails of the process
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Ratings of Transportation Modes
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Changes in Ton-Miles for Various
Transportation Modes
Source: U.S. Bureau of Transportation Statistics, NationalTransportation Statistics 2005, www.bts.gov ; accessed January 30, 2006