What is a Distribution Channel?

Series of firms or individuals that facilitates the

movement of a product from the producer to the final customer

A channel is an organized

structure of buyers and sellers that bridge the gap of time and space between the manufacturer and the customer
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Functions of Distribution Channels

Time, place, and ownership utilities
Logistics functions Transportation and storage functions

Efficiency creation
Facilitating functions Repair and maintenance functions Risk-taking Communications and transaction

functions

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Creating Efficiencies
Breaking bulk - channel members

purchase large quantities from manufacturers and sell smaller quantities to many different customers Creating assortments - channel members provide a variety of products on one location

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Why Use Channel Intermediaries?

Without Intermediaries Milk P1 Bread P2 ShampooP3 Soap P4

C1

C2

C3

Reducing Transaction Costs

P1

3 + 3 + 3 + 3 = 12 Transactions With Intermediaries P2 Wholesaler or Retailer C1

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P3

P4

C2

C3
5

Other Reasons
Customers buy baskets or assortments of goods.

Economizes on the time cost of shopping.

Retail Service is most efficiently provided by an

intermediary
faster check-out, product demonstration, after-sales

service

Inventory carrying Intermediaries provide inventory buffer and hedge against demand fluctuations for the manufacturers.
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Intermediary Functions
Channel Intermediary Functions
Transactional Functions Contacting and Promoting Negotiating

Logistical Functions Physical Distribution Sorting Sorting out Allocation Accumulation Assorting

Facilitating Functions Market Research Financing

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Role of Intermediaries
Greater efficiency in making goods

available to target markets. Intermediaries provide

Contacts Experience Specialization Scale of operation

Match supply and demand.

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Channel Functions
Information Promotion Contact Matching

Negotiation
Physical Distribution

Financing
Risk taking
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Wholesaler
a middleman that sells products to other firms.

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Channel intermediaries Wholesalers

Break down bulk
buys from producers and sell small quantities to retailers

Provides storage facilities

reduces contact cost between producer and consumer

Wholesaler takes some of the marketing responsibility e.g sales force, promotions
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Types of Wholesaling Intermediaries

Wholesaling intermediaries are firms that

handle the flow of products from the manufacturer to retailer or business user
Independent Manufacturer-owned

Independent Intermediaries
Merchant wholesalers Full-service Limited-service Cash-and-carry Merchandise Agents or

Brokers

Manufacturers

wholesalers Truck jobbers Drop shippers Mail-order wholesalers Rack jobbers

agents Selling agents Commission merchants Merchandise brokers

2003 Prentice Hall, Inc

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Manufacturer-Owned Intermediaries

Sales branches
Sales offices Manufacturers showrooms

Types Of Wholesaling Intermediaries

Merchant Wholesalers
Merchant Wholesalers

Full Service
General Wholesalers Limited Line Wholesalers

Limited Service
Cash And Carry Wholesalers Truck Jobbers

Specialty Line Wholesalers

Industrial Distributors

Drop Shippers
Mail-order Wholesalers Rack Jobbers

Dr. Rosenbloom

Types Of Wholesaling Intermediaries

Merchant Wholesalers
Merchant Wholesalers

Full Service
General Wholesalers Limited Line Wholesalers

Carry wide range of lines

Specialty Line Wholesalers

Industrial Distributors

with little depth per line Generally nonperishable: hardware, clothing, drugs, some foods, cosmetics, and tobacco products

Dr. Rosenbloom

Types Of Wholesaling Intermediaries

Merchant Wholesalers
Merchant Wholesalers

Full Service
General Wholesalers Limited Line Wholesalers

Specialty Line Wholesalers

Industrial Distributors

Carry a narrow range of product lines but with great assortment of products within each line Example: kitchen accessories

Dr. Rosenbloom

Types Of Wholesaling Intermediaries

Merchant Wholesalers
Merchant Wholesalers

Full Service
General Wholesalers Limited Line Wholesalers

Specialize in only one or two product lines Example: specialty line wholesaler of exotic fruits and vegetables

Specialty Line Wholesalers

Industrial Distributors

Dr. Rosenbloom

Types Of Wholesaling Intermediaries

Merchant Wholesalers
Merchant Wholesalers

Full Service
General Wholesalers Limited Line Wholesalers

Stock inventory for resale to manufacturers Relatively trivial manufacturers total purchasing requirements

Specialty Line Wholesalers

Industrial Distributors

Dr. Rosenbloom

Types Of Wholesaling Intermediaries

Merchant Wholesalers
Merchant Wholesalers

Limited Service

Provide products in a

Cash And Carry Wholesalers Truck Jobbers

warehouse setting for resale but do not deliver, extend credit or promotional support Office supplies, groceries, auto supplies, and hardware products
Dr. Rosenbloom

Drop Shippers
Mail-order Wholesalers Rack Jobbers

Types Of Wholesaling Intermediaries

Merchant Wholesalers
Merchant Wholesalers

Limited Service

Small wholesalers that sell

Cash And Carry Wholesalers Truck Jobbers

directly from their trucks or vans to retailers for cash Fruits, vegetables, dairy products, and snack foods often are distributed by truck jobbers
Dr. Rosenbloom

Drop Shippers
Mail-order Wholesalers Rack Jobbers

Types Of Wholesaling Intermediaries

Merchant Wholesalers
Merchant Wholesalers

Limited Service

Sell products, take orders,

Cash And Carry Wholesalers Truck Jobbers

and arrange for delivery directly to customers Do not store, handle, or deliver any products Lumber, coal, and building materials
Dr. Rosenbloom

Drop Shippers
Mail-order Wholesalers Rack Jobbers

Types Of Wholesaling Intermediaries

Merchant Wholesalers
Merchant Wholesalers

Limited Service

Sell from catalogs. Store and

Cash And Carry Wholesalers Truck Jobbers

deliver products, however, do not extend credit or provide promotional support Jewelry, specialty foods, and automotive parts
Dr. Rosenbloom

Drop Shippers
Mail-order Wholesalers Rack Jobbers

Types Of Wholesaling Intermediaries

Merchant Wholesalers
Merchant Wholesalers

Limited Service

Supply products and the

Cash And Carry Wholesalers Truck Jobbers

display units on which the products are displayed Stock the units, take orders, and control the retailers inventory and typically sell products on consignment
Dr. Rosenbloom

Drop Shippers
Mail-order Wholesalers Rack Jobbers

WHOLESALING TRENDS
Low margins

Producers bypass wholesalers

Acquisitions and mergers Increase of value added services

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Retailer
a middleman that buys from producers or other middlemen and sells to consumers.

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Channel intermediaries - Retailer

Much stronger personal relationship with the

consumer Hold a variety of products Offer consumers credit Promote and merchandise products Price the final product Build retailer brand in the high street

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In-Store Retailers Based on Store Size and Kind/Number of Products

Department Consists of several sections; wide assortment of products Discount Self-service; sells at lower-than-usual prices

Warehouse Showroom Large, low-cost building with large on-premises inventory, minimal service
Convenience Small store that sells limited variety of products; remains open beyond normal business hours

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 Supermarket

Large self-service; sells food and household products Superstore Large; carries not only food and nonfood products but also additional product lines Warehouse Clubs Large-scale, members-only; features cashand-carry wholesaling with discount retailing
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 Traditional Specialty

Narrow product mix with deep product lines Off-Price Buys manufacturers seconds, overruns, returns, and off-season merchandise for resale at deep discounts Category Killers Large specialty store; concentrates on single product line; competes with low prices and product availability
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Non-Store Retailing
Direct Selling Direct Catalog Direct-Response Telemarketing Television Home Shopping Online Retailing Automatic Vending

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Channel intermediaries - Internet

Sell to a geographically disperse market
Able to target and focus on specific segments Relatively low set-up costs

Use of e-commerce technology (for payment, shopping software, etc)

Paradigm shift in commerce and consumption

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Spotlight
Small-Business Internet Advertising

Source: Nielsen Online/Web MM 301 lecture 1 33

RETAILING TRENDS
Innovation

Growth of large chains

Increase in scrambled merchandising Internet

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Distributors, Dealers, Stockists, Agents

This set of channel members are also known as

stockists, agents, and guarantors depending on the extent of re-distribution undertaken by them for the companies they represent.
Agents do not invest in the companys products. All belong to the same category of company

outsourcing to help distribute products to retailers.

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Distributors, Dealers, Stockists, Agents

Some characteristics of distributors are: They are required to invest in the product by buying it from the company. They are on commission, margin, or mark-ups. They may or may not get credit from the company. However, they give credit to their customers who are wholesalers and retailers. Commission or margin is a percentage of the price at which they buy the product from the company. Mark-up is still a percentage but based on the selling price to the customer/consumer.
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Distributors, Dealers, Stockists, Agents

Distributors work in the markets and redistribute the stocks to

the customerswholesalers and retailers. Stockists may just invest in the products but expect the company to sell the products to the customers. Agents, dealers are only helping distribution with their contacts in the marketplace either with wholesalers/retailers or institutions. Distributors may be exclusive for the company or shared with others. Normally they sign some kind of an agreement of contract with the firm.
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Agents and Brokers

Agent: expedites exchanges,

represents a buyer or a seller, and often is hired permanently on a commission basis

Broker: specializes in a particular

commodity, represents either a buyer or a seller, and is likely to be hired on a temporary basis

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Channel intermediaries - Agents

Mainly used in international markets
Commission agent - does not take title of the goods.

Secures orders. Stockist agent - hold consignment stock Control is difficult due to cultural differences Training, motivation, etc are expensive

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Disadvantages of Franchising
Large Start-up Costs
Share Your Profits Regulations and Controls

Coat-tail Effect - your success

is tied to the franchisors performance

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WHAT ARE THE ADVANTAGES FOR THE FRANCHISER?

Greater reduced capital requirements since the

franchisee pays for the outlet Minimal staffing responsibility The ability to expand rapidly

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WHAT ARE THE BENEFITS OF A FRANCHISE OPERATION TO THE FRANCHISEE

the opportunity to obtain good locations, especially in shopping centers Industry entrance without previous experience Opportunity to open a business with limited capital Consumer identification with the name Opportunity to capitalize on the franchisers expertise in selection of the most efficient location

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WHAT ARE THE CHARACTERISTICS OF A WELLRUN FRANCHISE?

Enjoy annual market growth of at least 20%
Offer a product with wide geographic appeal Depend on a success formula which is capable of

transfer from franchiser to franchisee Run by woman who understands & utilizes the basic advantages of mass merchandising & distribution.

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WHAT ASPECTS OF THE BUSINESS ENTERPRISE WILL THE FRANCHISER CONTROL?

Source of the product or the ingredients used in the final product The source of equipment & furnishings Product quality & services Facilitating services (hours of operation, parking, promotion & delivery) Advertising quantity & content Training new franchisees Architectural design & location
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Advantages of Franchising
Training and management

assistance Personal ownership Nationally recognized name Financial advice and assistance

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