Chapter

Distributing Products Quickly and Efficiently

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Intermediaries and the Channel of Distribution

Marketing Intermediaries
Wholesaler Retailer Agents/Brokers

Channel of Distribution

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The Channel of Distribution

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Intermediaries and the Channel of Distribution

Role of Intermediaries
Create Efficiency Value vs. Cost

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Marketing Intermediaries
THREE BASIC FACTS ABOUT INTERMEDIARIES

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Marketing Intermediaries
1.

Marketing Intermediaries can be eliminated, but their activities cannot be eliminated

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Marketing Intermediaries
2. Intermediary organizations have survived because they have performed marketing functions faster and cheaper than others could

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Marketing Intermediaries
3. Intermediaries add cost to products, but these costs are usually offset by the values they create

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Utility
The want-satisfying power of a good or service

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Utility
Want-satisfying ability or value that organizations add to goods or services when the products are made more useful or accessible to consumers

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Four Major Types of Utility

TYPE DESCRIPTION EXAMPLES ORGANIZAITONAL FUNCTION RESPONSIBLE
Production*

Form

Conversion of raw materials and components into finished goods and services

Skippy Peanut Butter; State Farm automobile insurance policy; Boeing 767 aircraft

Time

Availability of goods and services when consumers want them

One-hour dry cleaning; LensCrafters eyeglass guarantee; Federal Express guarantee of package delivery by 10:30 a.m. the next day
Soda machines in school lobbies; coffee and snacks in Barnes & Noble bookstores; day cares in office complexes; ATM machines in gas stations; mailboxes outside convenience stores

Marketing

Place

Availability of goods and services at convenient locations

Marketing

Ownership
(possession)

Ability to transfer title to goods or services from marketer to buyer

Retail sales (in exchange for currency or credit-card payment); swap meets

Marketing

*Marketing provides inputs related to consumer preferences, but the actual creation of form utility is the responsibility of the production function.

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(production)

Form

Utility
Time

Possession

Information Place

Service

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Marketing Intermediaries
Wholesalers Agent / Brokers
Retailers

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Wholesale Intermediaries
Merchant Wholesalers
(a) Full-Service (b) Limited-Function

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Wholesale Intermediaries, cont.

Merchant Wholesalers
- Take Title
Full-Service 8 Distribution functions - transportation, storage, risk bearing, credit, market information, standardizing, grading, buying, and selling Limited-Function Selected functions
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Wholesale Intermediaries
Limited Function Merchant Wholesalers
Rack Jobbers Cash-and-Carry Drop Shippers Freight Forwarders

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Wholesale Intermediaries cont

Brokers / Agents
provide services in exchange for commissions
Do not take title Agents maintain long-term relationship Brokers are usually hired on temporary basis

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Wholesale Intermediaries
Manufacturers Agents / Sales Agents
- Manufacturers Agents may represent several manufacturers in a specific territory - Sales Agents represent a single manufacturer in a larger territory
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Retail Intermediaries
Sell to Consumers

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Retail Competition
Price Service Location Selection
Category Killers
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They All Started in 1962

Company
Wal-Mart Target Kmart
Source: Business 2.0, June 2003, p. 38.

1st Store
Rogers, Ark.
July 1962

Objective
Slash prices. Makeup difference in volume Discount retailer with strong sense of value Bring discount store concept to suburban malls
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Roseville, MN
May 1962

Garden City, MI
March 1962

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Retail Store Distribution

Intensive
-many outlets as possible -Convenience Goods

Selective
-Preferred group of in an area -Shopping Goods

Exclusive
-One retail outlet per area -Specialty Goods
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Largest Mall in USA

THE MALL OF AMERICA in Bloomington, Minnesota
Large enough to hold Thirty-two 747s Four Gap stores Aquarium Full-size amusement park More than 40 million visitors a year
(more than Disney World, Graceland and the Grand Canyon combined)
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Source: The Week magazine, April 2004 McGraw-Hill/Irwin McGraw-Hill/Irwin

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RETAILING STRATEGY
Off-Price Retailing

Club Warehouse Outlet Store Single/One-Price Policy Store

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Non-Store Retailing
E-tailing Telemarketing Vending Machines, Kiosks, Carts Direct Selling
Sell in homes or at work

Multilevel Marketing Direct Marketing

Direct mail, catalog
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Intermediaries and the Channel of Distribution

Channel of Distribution
Transport and Store

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The Channel of Distribution

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Vertical Marketing Systems

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Corporate Distribution
All of the organizations in the channel of distribution are owned by the same firm
Sherwin-Williams

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Contractual Distribution
Members are bound to cooperate through contractual agreements Franchise Systems
McDonalds, KFC, AAMCO

Wholesaler-Sponsored Chains
ACE Hardware, IGA food stores

Retail Cooperatives
Associated Grocers
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Administered Distribution
Producers manage all the marketing functions at the retail level. Retailers cooperate because they get so much free help.

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Three types of vertical marketing systems: corporate, contractual (most popular), and administered

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The Supply Chain vs. The Channel of Distribution

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The Supply Chain

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Logistics
Marketing activity that involves planning, implementing, and

controlling the physical flow

of materials, final goods, and related information

from points of origin to

points of consumption
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Logistics
You are here

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Logistics
Inbound Logistics
Materials Handling Outbound Logistics Reverse Logistics Third-Party Logistics Information
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Transportation & Storage Modes

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Transportation
Transportation: mode by which products move among channel members Modes differ in their- Dependability (safety and punctuality) Cost Speed of delivery Accessibility (different locations served) Capability (variety of products handled) Traceability (ability to locate goods in shipment)
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Transportation
Railroad
35-40 %

Pipeline
20%

Motor Vehicles Air

25% Small fraction

Water
15-17%

Intermodal

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Storage Modes
Warehousing
25-30% of cost of logistics Storage

Distribution

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