Wholesaling, Retailing, and Physical Distribution · PDF fileExplain the five most important physical distribution activities. 14 | 3 Chapter 14 Outline – Channels of Distribution

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Chapter Fourteen

Wholesaling, Retailing, and Physical Distribution

Learning Objectives

1. Identify the various channels of distribution that are used for consumer and industrial productsproducts.

2. Explain the concept of market coverage.3. Understand how supply-chain management

facilitates partnering among channel members.4. Describe what a vertical marketing system is

and identify the types of vertical marketing

Copyright © Cengage Learning. All rights reserved.

systems.5. Discuss the need for wholesalers and describe

the services they provide to retailers and manufacturers.

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Learning Objectives (cont’d)

6. Identify and describe the major types of wholesalers.

7. Distinguish among the major types of retailers.

8. Identify the categories of shopping centers and the factors that determine how shopping centers are classified.


9. Explain the five most important physical distribution activities.

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Chapter 14 Outline

– Channels of Distribution• Channels for Consumer Products• Channels for Business Products• Market Coverage• Partnering Through Supply-Chain Management• Vertical Marketing Systems

– Marketing Intermediaries: WholesalersJ tifi ti f M k ti I t di i• Justifications for Marketing Intermediaries

• Wholesalers’ Services to Retailers• Wholesalers’ Services to Manufacturers• Types of Wholesalers

Copyright © Cengage Learning. All rights reserved. 14 | 4

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Chapter 14 Outline (cont’d)

– Marketing Intermediaries: Retailers• Classes of In-Store Retailers• Kinds of Nonstore Retailing

– Planned Shopping Centers• Lifestyle Shopping Centers• Neighborhood Shopping Centers• Community Shopping Centers

R i l Sh i C t• Regional Shopping Centers


Chapter 14 Outline (cont’d)

– Physical Distribution• Inventory Management• Order Processing• Warehousing• Materials Handling• Transportation


4

Channels of Distribution

• Channel of distribution (marketing channel)

• Middleman (marketing intermediary)– A marketing organization that links a producer

and user within a marketing channel• Merchant middleman • Functional middleman


Functional middleman • Retailer• Wholesaler

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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 not

have to pay for intermediaries, and can be close to their customersE l D ll C t M K


– Examples: Dell Computer, Mary Kay Cosmetics

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Channels for Consumer Products (cont’d)

• Producer to retailer to consumer– Producers sell directly to retailers when

retailers (Wal-Mart) can buy in large quantities– Most often used for bulky products for which

additional handling would increase selling costs, and for perishable or high-fashion products that must reach consumers quickly



• Producer to wholesaler to retailer to consumer– The traditional channel– Used when a producer’s products are carried

by so many retailers that the producer cannot deal with them all


6


• Producer to agent to wholesaler to retailer to consumer– Agent

– Often used for inexpensive, frequently purchased items, for seasonal products, and by producers that do not have their own sales forces


forces

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• A manufacturer may use multiple channels– To reach different market segments


– To increase sales or capture a larger market share


7

Channels for Business Products

• Producer to business user– Usually used for heavy machinery, airplanes,

major equipment– Allows the producer to provide expert and

timely services to customers


Channels for Business Products (cont’d)

• Producer to agent middleman to business user– Usually used for operating supplies, accessory

equipment, small tools, standardized parts


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Market Coverage

• Intensity of market coverage– Intensive distribution

– Selective distribution

– Exclusive distribution


Partnering Through Supply Chain Management

• Supply chain management– Long-term partnership among channel members g p p g

– Category management

– Technology


9

Vertical Marketing Systems

• Vertical channel integration– The combining of two or more stages of a

distribution channel under a single firm’sdistribution channel under a single firm s management

• Vertical marketing system (VMS)– A centrally managed distribution channel

resulting from vertical channel integration– Administered


– Contractual

– Corporate

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Marketing Intermediaries: Wholesalers

• Justifications for marketing intermediaries– Intermediaries perform essential marketing

services– Manufacturers would be burdened with additional

record keeping and maintaining contact with numerous retailers

– Costs for distribution would not decrease and could possibly increase due to the marketing


could possibly increase due to the marketing inefficiencies of producers

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Wholesalers’ Services to Retailers

• Buy in large quantities and then sell in smaller quantities

• Deliver goods• Stock in one place a variety of goods• Promote products to retailers• Provide market information for both producers

and retailers


• Provide financial aid in the form of inventory management, loans, delayed billing

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Wholesalers’ Services to Manufacturers

• Provide instant sales forces to manufacturers• Reduce manufacturers’ inventory costs by

purchasing finished goods in sizable quantities

• Assume the credit risks associated with selling to retailers

• Furnish market information gleaned from the


gmarket and customers to the manufacturers

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11

Types of Wholesalers

• Merchant wholesalers– Operate in one or more warehouses where they

receive take title to and store goodsreceive, take title to, and store goods– These wholesalers are sometimes called distributors or

jobbers– Full-service wholesalers

• General merchandise wholesaler• Limited-line wholesaler• Specialty-line wholesaler


Specialty line wholesaler– Limited-service wholesalers

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Types of Wholesalers (cont’d)

• 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


– Agent

– Broker

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Types of Wholesalers (cont’d)

• Manufacturer’s sales branch– Merchant wholesaler owned by a

manufacturermanufacturer– Carries inventory, extends credit, delivers

goods, helps in promoting products– Customers are retailers, other wholesalers,

and industrial purchasers• Manufacturer’s sales office


– Sales agent owned by a manufacturer– Sells goods manufactured by its own firm and

also others that complement its own product line

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Marketing Intermediaries: Retailers

• Retailers: The final link between producers and consumersp

• Approx. 2.6 million retail firms in the U.S.• 90% have sales of less than $1 million


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Classes of In-Store Retailers• Independent retailer

• Chain retailer

• Department store


• Discount store

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Classes of In-Store Retailers (cont’d)

• Catalog showroom

• Warehouse showroom

• Convenience store


Convenience store

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• Supermarket

• Superstore


• Warehouse club

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• Traditional specialty store

• Off-price retailer

• Category killer


• Category killer

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Kinds of Nonstore Retailing

• A type of retailing whereby consumers purchase products without visiting a storeproducts without visiting a store

• Direct selling

• Direct marketing



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Kinds of Nonstore Retailing (cont’d)

• Catalog marketing

• Direct-response marketing


• Telemarketing

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Kinds of Nonstore Retailing (cont’d)

• Television home shopping

• Online retailing

• Automatic vending


Automatic vending

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Planned Shopping Centers

• A self-contained retail facility constructed by independent owners and consisting of various stores– Lifestyle shopping center

– Neighborhood shopping center


– Community shopping center

– Regional shopping center

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Physical Distribution

• All those activities concerned with the efficient movement of products from the producer to the ultimate userultimate user

• Inventory management– The process of managing inventories in such a way as

to minimize inventory costs, including both holding costs and potential stock-out costs

• Holding costs • Stock-out


Stock out

• Order processing– Activities involved in receiving and filling customers’

purchase orders

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• Warehousing– The set of activities involved in receiving and storing

goods and preparing them for reshipmentgoods and preparing them for reshipment• Receiving goods• Identifying goods• Sorting goods• Dispatching goods to storage• Holding goods• Recalling, picking, and assembling goods


Recalling, picking, and assembling goods• Dispatching shipments

– Types of warehouses• Private warehouses• Public warehouses

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18

Physical Distribution (cont’d)

• Materials handling

• Transportation– The shipment of products to customers– Carrier

• Common carriers • Contract


• Private carriers– Freight forwarders– Railroads

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190

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.1 Distribution Channels

Dis

tribu

tion

Ch

an

ne

ls

Producer

Producer

ProducerW

holesaler

Retailer

Retailer

Consum

er

Consum

er

Consum

er

ProducerAgent

Wholesaler

BU

SIN

ESS

PRO

DU

CTS

CO

NS

UM

ER PR

OD

UC

TS

Retailer

Consum

er

Producer

ProducerAgentm

iddleman

Business

customer

Business

customer

3768X_14_ch14_p190-203.indd 1903768X_14_ch14_p190-203.indd 190 3/6/09 11:20:22 PM3/6/09 11:20:22 PM

191


Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.2 Efficiency Provided by an Intermediary

Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 15th ed. (Mason, Ohio: South-Western/Cengage Learning, 2010). Adapted with permission.

Effi c

ien

cy P

rovid

ed

by a

n In

term

ed

iary

Middlem

an orinterm

ediary

Producer

Producer

Producer

Producer

Producer

Producer

Producer

Producer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer


192


Pride/Hughes/Kapoor, BUSINESS, 10th editionTable 14.2 Relative Ratings of Transportation Modes by Selection

Criteria

Rela

tive R

atin

gs o

f Tra

ns

po

rtatio

n

Mo

des b

y S

ele

ctio

n C

riteria

Sele

ctio

n C

riteria

Mode

Cost

Speed

Dependability

Load F

lexib

ilityA

ccessib

ilityFre

quency

Railroads

Moderate

AverageAverage

High

High

Low

T rucksH

ighFast

High

AverageVery high

High

AirplanesVery high

Very fastH

ighLow

AverageAverage

Waterw

aysVery low

Very slowAverage

Very highLim

itedVery low

PipelinesLow

Slow

High

Very lowVery lim

itedVery high


193


Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.3 Changes in Ton-Miles for Various Transportation Modes

Source: U.S. Bureau of Transportation Statistics, National Transportation Statistics 2005, www.bts.gov (accessed January 30, 2006).

Ch

an

ges in

To

n-M

iles fo

r Va

riou

s

Tra

nsp

orta

tion

Mo

de

s

2,487

4,357

932

1,604

555

1,264

515

407

606

588

868

Tota

l ton m

iles

(in billions)

1980

Railro

ads

Coal

Grain

Lumber

Automobiles

IronS

teel

Tru

cks

Clothing

Paper goodsC

omputers

Books

Fresh fruitLivestock

Airp

lanes

Flowers

Food (highly perishable)Technical instrum

entsEm

ergency parts and equipm

entO

vernight mail

Wate

rways

(Rivers/canals

and Great Lakes)

Chem

icalsG

rainLarge equipm

entM

otor vehicles

Pip

elin

es

Oil

Processed coalN

atural gas

2005


194


Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.A Chapter Outline

Chapter 14 Outline

Wholesaling, Retailing, and Physical Distribution

Channels of Distribution

– Channels for Consumer Products

– Channels for Business Products

– Market Coverage

– Partnering Through Supply-Chain Management

– Vertical Marketing Systems

Marketing Intermediaries: Wholesalers

– Justifi cations for Marketing Intermediaries

– Wholesalers’ Services to Retailers

– Wholesalers’ Services to Manufacturers

– Types of Wholesalers

Marketing Intermediaries: Retailers

– Classes of In-Store Retailers

– Kinds of Nonstore Retailing

Planned Shopping Centers

– Lifestyle Shopping Centers

– Neighborhood Shopping Centers

– Community Shopping Centers

– Regional Shopping Centers


– Inventory Management

– Order Processing

– Warehousing

– Materials Handling

– Transportation


195


Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.B Class Exercise

Class Exercise

Which channel(s) of distribution would

you use for the following products?

Product Channel(s)

of

Distribution

Why?

1. A new

reduced-fat

candy bar

2. Fine china that

costs $550 for

a set

3. A video iPod

4. A line of jeans

that sells

between $30

and $50


196


Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.C Debate Issue

Debate Issue

If a wholesaler is eliminated from a

distribution channel, will consumer prices

decrease?

YES

• The fewer marketing

intermediaries in a

distribution channel,

the lower the price.

• Today, wholesalers

are not needed because

the marketing functions

they perform can be

performed by others.

• Like all business

fi rms, wholesalers are

in business to make a

profi t and this profi t

causes higher prices.

NO

• Those who believe that

the elimination of

wholesalers would

lower prices do not

understand the

functions performed by

them.

• While it is true that the

marketing functions

must be performed,

wholesalers can provide

services more effi ciently

and cheaper than others

in the distribution cycle.

• Wholesalers are

entitled to profi ts if they

provide services more

effi ciently than others in

the distribution channel.


197


Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.D Chapter Quiz

Chapter Quiz

1. Highly perishable products such as fruits and vegetables are

typically channeled from producer to

a. retailer to consumer.

b. wholesaler to consumer.

c. wholesaler to retailer to consumer.

d. consumer.

e. functional middleman to consumer.

2. VMS is an acronym that stands for

a. vertical monitoring system.

b. vital manufacturing system.

c. variable management system.

d. vertical marketing system.

e. variable manufacturing service.

3. A mail-order wholesaler is an example of a ____________

wholesaler.

a. limited-service

b. full-service

c. general merchandise

d. limited-line

e. specialty-line

4. A fi rm that operates only one retail outlet is called a(n)

_________retailer.

a. chain

b. specialty

c. independent

d. merchant

e. single

5. High employee turnover is a major problem that reduces the

effectiveness of

a. direct-response marketing.

b. telemarketing.

c. direct selling.

d. online retailing.

e. catalog marketing.


198


Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.E Types of Merchant Wholesalers

Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 15th ed. (Mason, Ohio: South-Western/Cengage Learning, 2010). Reprinted with permission.

Typ

es o

f Merc

han

t Wh

ole

sale

rs

Merch

ant w

holesalers

Take title, assume risk, and buy and resell

products to other wholesalers, to retailers,

or to other business customers

Lim

ited-service w

holesalers

C

ash-and-carry

Truck

Drop shipper

M

ail-order

Full-service w

holesalers

G

eneral-merchandise

Lim

ited-line

Specialty-line


199


Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.F Types of Agents and Brokers

Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 15th ed. (Mason, Ohio: South-Western/Cengage Learning, 2010). Reprinted with permission.

Typ

es o

f Ag

en

ts a

nd

Bro

ke

rs

Agen

ts and

bro

kers

Do not take title to products and are com

pensatedw

ith comm

issions for negotiating exchangesbetw

een sellers and buyers

Agen

tsR

epresent either buyer or seller,usually on a perm

anent basis

M

anufacturers' agents

Selling agents

C

omm

ission merchants

Bro

kers

Bring buyers and sellers together

on a temporary basis

Food brokers

R

eal-estate brokers

Other brokers,

e.g., securities, insurance


200


Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.G Types of In-Store and Nonstore Retailers

Retailers

NONSTORE

• Direct selling


• Automatic

vending

IN-STORE

• Department

stores

• Discount stores

• Catalog and warehouse showrooms

• Convenience

stores

• Supermarkets

• Superstores

• Warehouse

clubs

• Traditional

specialty stores

• Off-price

retailers

• Category killers


201


Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.H Retail Sales Categorized by Merchant Type

Retail Sales Categorized by

Merchandise Type

Source: U.S. Bureau of the Census, Monthly Retail Trade: Sales and Inventories, January 2006: www.census.gov.


202


Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.I Definition of Channel of Distribution

CHANNEL OF

DISTRIBUTION OR

MARKETING CHANNEL

A sequence of marketing

organizations that directs a

product from the producer

to the ultimate user


203


Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.J If a Retailer’s Return Policy Is Inconvenient, Will You

Continue to Shop There?

If a retailer’s return policy was

inconvenient, would you shop

there?

Source: Data from Newgistic survey of 1,061 adults 18 and older, as published in USA Today, May 4, 2006.


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Wholesaling, Retailing, and Physical Distribution · PDF fileExplain the five most important physical distribution activities. 14 | 3 Chapter 14 Outline – Channels of Distribution