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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?