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Chapter 21
Channels of Distribution
Distribution 21.1
After finishing this section you will know:
The concept of a channel of distribution
 Who channel members are
 The different non-store retailing methods
 How channels of distribution differ for
consumer and B2B products
Distribution-How it Works
Channel of distribution- the path a product
takes from producer to final user
When the product is purchased for use in
business, the final user is industrial
When the product is purchased for personal
use, the final user is a consumer
A product can be both industrial and
consumer: when a hair salon buys shampoo in
bulk to wash their customers’ hair
Channel Members
Intermediaries- all businesses involved in
sales transactions that move products
from the manufacturer to the final user
 Provide value to producers by being
located in areas that the producer
cannot reach
 Reduce the number of contracts required
to reach the final user of the product
Channel Members
Agent intermediaries- do not take title to
the goods they are selling
 Usually called agents
 Paid commission to help buyers and
sellers get together
 Merchant intermediaries- take title to the
goods they are selling
Wholesalers- buy large quantities of goods
from manufacturers, store goods, then resell
them to other businesses
Rack jobbers- wholesalers that manage
inventory and merchandising for retailers by
counting stock, filling it when needed, and
maintaining store displays
Retailers are billed for goods sold, not for all
items on display
Common products include: CDs, hosiery,
health products, and beauty aids
Retailers- sell goods to the final
consumer for personal use
 Brick and mortar retailers- sell goods to
the customer from their own physical
 Final link between the manufacturer and
There are a number of non-store
retailing operations that serve the
Automatic retailing
Direct mail and catalog retailing
TV home shopping
Online retailing
Vending service- buy manufacturers’
products and sell them through
machines that dispense goods to
 Often placed in: stores, office buildings,
restaurants, hospitals, and schools for
Direct mail and catalogs- also reach the
final consumer
 Television home shopping networks- TV
stations that sell products to consumers
 Buy the products in set quantities and
sell them on television programs
 Consumers phone in orders while
watching the programs
E-tailing- retailers selling products over the
Internet to the customer
Customers with Internet access buy goods
directly from the manufacturers’ web sites
Some companies are solely found on the
Some brick and mortar retailers have
expanded to sell their products on the
Internet: Toys R Us, and Barnes & Noble
Agents- act as intermediaries by bringing
buyers and sellers together
 Brokers- agents who are paid a
commission for selling goods
Independent manufacturer’s
representative- represent several related
but not competing manufacturers in a
specific industry
 Not on any manufacturer’s payroll
 Work independently, running their own
Direct and Indirect Channels
Direct distribution- occurs when the
goods or services are sold from the
producer directly to the consumer
 No intermediaries are involved
Direct and Indirect Channels
Indirect distribution- involves one or
more intermediaries
 Both are common in marketing goods
 The channel of distribution is usually
more direct when the services are
performed by the business itself
Channels in the Consumer and
Industrial Markets
Different channels of distribution are generally
used to reach the customer in the consumer
and industrial market.
Some manufacturers might sell the same
product to two different markets using two
distinct channels.
It is important for any manufacturer to weigh
all of its options when selecting the best
A product can fail if the wrong channel is used
Reviewing Key Terms
 Page 381
 #1-6
Distribution Planning 21.2
After finishing this section you will know:
The key considerations in distribution planning
When to use multiple channels of distribution
How to compare the costs and control involved in
having a direct sales force versus using
independent sales agents
The 3 levels of distribution intensity
The effect of the Internet on distribution planning
The challenges involved in distribution planning for
international markets
Distribution Planning
Distribution decisions affect a firm’s
marketing program, in the following
 Multiple channels
 Control versus costs
 Intensity of distribution desired
 Involvement in e-commerce
Multiple Channels
Used when the product fits the needs of
both industrial and consumer markets
Control vs. Costs
Manufacturers and producers must
weigh the control they want to keep
over the distribution of their products
against costs and profitability
Control vs. Costs
To do this, the company must answer a
few questions:
 Who does the selling?
 Use an in-house sales force
On company payroll
 Receive employee benefits
 Reimbursed for expenses
 Manufacturers have complete control
Control vs. Costs
Hire agents to do the selling
Independent selling arm of producers
Can be lower in cost than hiring an in-house sales
There are 2 different types of agents:
Manufacturer’s agents- work for several
producers and carry non-competitive
merchandise in an exclusive territory
Selling agent- represent a single producer
Control vs. Costs
Who dictates the terms?
 When dealing with retail giants,
manufacturers must adhere to strict
 Some manufacturers cannot get involved
with the giants due to costs
Distribution Intensity
Exclusive distribution- protected
territories for distribution of a product in
a given geographic area
 Dealers are assured that they are the
only ones within a certain radius to sell a
manufacturer’s products
 Retailers are tied by contract to the
Distribution Intensity
Integrated distribution- variation of
exclusive distribution where
manufacturers own and run their own
retail operations
 Example: Sherwin-Williams sells its
paints in company-owned retail stores
Distribution Intensity
Selective distribution- a limited number
of outlets in a given geographic area
used to sell the product
 Select channel members that can:
 Maintain the image of the product
 Have no credit risks
 Be aggressive marketers
 Do good inventory planning
Distribution Intensity
Intensive distribution- involves the use
of all suitable outlets to sell a product
 Complete market coverage
 Sell to as many customers as possible
E-marketplace- online shopping location
 E-marketplaces for B2B provide:
one-stop shopping
 Substantial savings
Distribution Planning for Foreign
Different environments in foreign
markets require that businesses adjust
their distribution systems
 Chance to experiment with different
distribution strategies
 Cultural considerations should also be
Study foreign culture before expanding
Distribution Planning for Foreign
Keiretsu- alignment- Japanese
distribution system
 Groups of 20-45 companies connect to 1
 Bank groups businesses based on
frequency of trade with each other
 Wholesalers are very important in Japan
because of lack of storage space for the
Reviewing Key Terms
 Page 388
 #1-6