Download 4.01 Explain the nature of channels of distribution

4.01 Explain the nature of
channels of distribution
Topic: Nature and Scope
Unit: Distribution
Definitions
• Channel of distribution – path a product takes
from producer (or manufacturer) to final user
(consumer)
• Producer – maker of the product
• Ultimate consumer – individual or group who
actually uses a good or service
• Industrial user – individual or group who uses
a good or service within a business setting
Definitions cont’d
• Middlemen/intermediaries – firm or person
who acts as a link between parties in a
business deal
• Retailers – A business that sells goods to a
consumer. Can be large or small. For
example, Target or a family run diner.
• Wholesaler – buy large quantities of goods
from manufacturers then resell them to other
businesses
Definitions cont’d
• Agent – party that has express or implied
permission to act on the behalf of another.
For example a real estate agent acts on behalf
of their client negotiating terms of the
sale/purchase of property
• Direct channel – producer supplies directly to
the ultimate consumer
• Indirect channel – involves one or more
intermediaries
Types of channel members
Wholesalers
Retailers
• Rack jobbers – manage
inventory and
merchandising for retailers
by counting stock, filling in
when needed, and
maintaining store displays.
• Drop shippers – own the
good they sell but don’t
physically handle the
products
• Brick-and-mortar – sell
goods to customers from
their physical stores
• Automatic retailer –
vending machines
• Direct mail, catalog, home
shopping networks, & etailing
Types cont’d
• Agents
– Independent Manufacturers’ Representative
• Work with several related, noncompeting,
manufacturers in a specific industry. They are paid
commission based on what they sell.
• For example, may carry fishing rods, hunting gear, or
outdoor shirts all from different manufacturers
– Broker
• Purpose is to bring buyers and sellers together in order
for a sale to take place. The relationship is temporary
Importance of channel members
• Cost savings in specialization – these people
know what they’re doing and can often
perform tasks better and at lower costs
• Reduce exchange time – in other words faster
product delivery. Imagine if every
manufacturer delivered their products!
• Customers want convenience and variety.
• Resellers sell small quantities
Importance cont’d
• Create sales – retailers use creative means to
drive customers into their stores
• Offer financial support – allow customers
options in purchasing products. i.e. payment
programs
• Provide information
Let’s
@ the channels
• Marketing Essentials textbook pages 378-379
• Look at the consumer channel (pg. 378). Which
channel is used most often for items that go out
of date quickly or need servicing?
• Look at the industrial channel (pg. 379). Which
channel is most often used to distribute major
equipment used in manufacturing?
• Which distribution channel, direct or indirect is
used more frequently for consumer products?
Industrial products?