Download Business 7e - Pride, Hughes, Kapor

Chapter Fifteen
Wholesaling,
Retailing, and
Physical
Distribution
Learning Objectives
1. Identify the various channels of distribution
that are used for consumer and industrial
products.
2. Explain the concept of market coverage.
3. Understand how supply-chain management
facilitates partnering among channel
members.
4. Describe what a vertical marketing system is
and identify the types of vertical marketing
systems.
5. Discuss the need for wholesalers and
describe the services they provide to
retailers and manufacturers.
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Learning Objectives (cont’d)
6. Identify and describe the major types of
wholesalers.
7. Distinguish among the major types of
retailers.
8. Explain the wheel of retailing hypothesis.
9. Identify the categories of shopping centers
and the factors that determine how shopping
centers are classified.
10. Explain the five most important physical
distribution activities.
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Channels of Distribution
• Channel of distribution (marketing channel)
– A sequence of marketing organizations that directs
a product from the producer to the ultimate user
• Middleman (marketing intermediary)
– A marketing organization that links a producer and
user within a marketing channel
• Merchant middleman—takes title to products by buying
them
• Functional middleman—helps in the transfer of
ownership of products but does not take title to the
products
• Retailer—buys from producers or other middlemen and
sells to consumers
• Wholesaler—sells products to other firms
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Channels for Consumer Products
• Producer to consumer (direct channel)
– No intermediaries
– Used by all services and by a few
consumer goods
– Producers can control quality and price, do
not have to pay for intermediaries, and can
be close to their customers
– Examples: Dell Computer, Mary Kay
Cosmetics
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Channels for Consumer Products (cont’d)
• Producer to retailer to consumer
– Producers sell directly to retailers when
retailers can buy in large quantities
– Most often used for bulky products for
which additional handling would increase
selling costs, and for perishable or highfashion products that must reach
consumers quickly
– Wal-Mart
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Channels for Consumer Products (cont’d)
• Producer to wholesaler to retailer to
consumer
– The traditional channel
– Used when a producer’s products are
carried by so many retailers that the
producer cannot deal with them all
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Channels for Consumer Products (cont’d)
• Producer to agent to wholesaler to
retailer to consumer
– Agent—functional middlemen that do not
take title to products and are compensated
by commissions paid to the producers
– Often used for inexpensive, frequentlypurchased items, for seasonal products,
and by producers that do not have their
own sales forces
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Channels for Consumer Products (cont’d)
• A manufacturer may use multiple
channels
– To reach different market segments
• When the same product is sold to consumers
and businesses
– To increase sales or capture a larger
market share
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Channels for Business Products
• Producer to business user
– Usually used for heavy machinery,
airplanes, major equipment
– Allows the producer to provide expert and
timely services to customers
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Channels for Business Products (cont’d)
• Producer to agent middleman to
business user
– Usually used for operating supplies,
accessory equipment, small tools,
standardized parts
– Middleman often provides expertise and
brings buyer & seller together
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Market Coverage
• Intensity of market coverage
– Intensive distribution
• The use of ALL available outlets for a product
to saturate the market
– Selective distribution
• The use of only a portion of the available
outlets for a product in each geographic area
– Exclusive distribution
• The use of only a single retail outlet for a
product in a larger geographic area
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Market Coverage
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Partnering Through Supply Chain
Management
• Supply chain management
– Long-term partnership among channel members
working together to create a distribution system
that reduces inefficiencies, costs, and
redundancies while creating a competitive
advantage and satisfying customers
– Category management
• The retailer asks a supplier how to stock the shelvesd
(convenience stores)
– Technology
• Has enhanced implementation of
supply chain management
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Vertical Marketing Systems
• Vertical channel integration
– The combining of two or more stages of a
distribution channel under a single firm’s
management
• Vertical marketing system (VMS)
– A centrally managed distribution channel resulting
from vertical channel integration
– Administered
• One channel member dominates the others (Wal-Mart)
– Contractual
• Intermediary cooperation, rights, and obligations are
formalized in contracts
– Corporate
• The entire channel is owned by the producer
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Marketing Intermediaries: Wholesalers
• Justifications for marketing
intermediaries
– Intermediaries perform essential marketing
services
– Manufacturers would be burdened with
additional record keeping and maintaining
contact with numerous retailers
– Costs for distribution would not decrease,
and could possibly increase due to the
marketing inefficiencies of producers
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Efficiency Provided by an Intermediary
Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 12th ed. Copyright © 2003 by Houghton Mifflin Company,
Adapted with permission.
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Wholesalers’ Services to Retailers
• Buy in large quantities and then sell in
smaller quantities
• Deliver goods
• Stock a variety of goods in one place
• Promote products to retailers
• Provide market information for both
producers and retailers
• Provide financial aid in the form of
inventory management, loans, delayed
billing
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Wholesalers’ Services to Manufacturers
• Provide instant sales forces to manufacturers
• Reduce manufacturers’ inventory costs by
purchasing finished goods in sizable
quantities
• Assume the credit risks associated with
selling to retailers
• Furnish market information gleaned from the
market and customers to the manufacturers
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Types of Wholesalers
• Merchant wholesalers
– Middlemen that purchase goods in large quantities
and then sell them to other wholesalers or retailers
and to institutional, farm, government,
professional, or industrial users
– Operate in one or more warehouses where they
receive, take title to, and store goods
– Full-service wholesalers
• General merchandise wholesaler
• Limited-line wholesaler
• Specialty-line wholesaler
– Limited-service wholesalers
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Types of Wholesalers
• Commission merchants, agents, and brokers
– Functional middlemen that do NOT take title to
products
– Perform some marketing activities
– Paid a commission (percentage of sales price)
– Commission merchant
• Carries merchandise and negotiates sales for
manufacturers
– Agent
• Expedites exchanges, represents a buyer or a seller, and
is often hired permanently on a commission basis
– Broker
• Specializes in a particular commodity, represents a buyer
or a seller, and is likely to be hired on a temporary basis
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Types of Wholesalers
• Manufacturer’s sales branch
– Merchant wholesaler owned by a manufacturer
– Carries inventory, extends credit, delivers goods,
helps in promoting products
– Customers are retailers, other wholesalers, and
industrial purchasers
• Manufacturer’s sales office
– Sales agent owned by a manufacturer
– Sells goods manufactured by its own firm and also
others that complement its own product line
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Marketing Intermediaries: Retailers
• Retailers: The final link between
producers and consumers
• Approx 2.6 million retail firms in the U.S.
• 90% have sales of less than $1 million
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The Ten Largest Retail Firms in the
United States
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Classes of In-Store Retailers
• Independent retailer
– A firm that operates only ONE retail outlet
• Chain retailer
– A company that operates more than one retail
outlet
• Department store
– A retail store that (1) employs 25 or more persons
and (2) sells at least home furnishing, appliances,
family apparel, and household linens and dry
goods, each in a different part of the store
• Discount store
– A self-service, general merchandise outlet that
sells products at lower-than-usual prices
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Classes of In-Store
Retailers (cont’d)
• Catalog showroom
– A retail outlet that displays well-known brands and
sells them at discount prices through catalogs
within the store
• Warehouse showroom
– A retail facility in a large, low-cost building with
large on-premises inventories and minimal service
• Convenience store
– A small food store that sells a limited variety of
products but remains open well beyond normal
business hours
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Classes of In-Store
Retailers (cont’d)
• Supermarket
– A large self-service store that sells primarily food
and household products
• Superstore
– A large retail store that carries not only food and
nonfood products ordinarily found in supermarkets
but also additional product lines
• Warehouse club
– A large-scale, members-only establishment that
combines features of cash-and-carry wholesaling
with discount retailing
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Classes of In-Store
Retailers (cont’d)
• Traditional specialty store
– A store that carries a narrow product mix with
deep product lines
• Off-price retailer
– A store that buys manufacturers’ seconds,
overruns, returns, and off-season merchandise for
resale to consumers at deep discounts
• Category killer
– A very large specialty store that concentrates on a
single product
line and competes on the basis of low prices and
product availability
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Retail Sales Categorized by Merchandise Type
Source: U.S, Bureau of the Census, Monthly Retail Trade: Sales and Inventories, January 14, 2003, www.census.gov.
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Kinds of Nonstore Retailing
• A type of retailing whereby consumers
purchase products without visiting a store
• Direct selling
– The marketing of products to ultimate consumers
through face-to-face sales presentations at home
or in the workplace
• Direct marketing
– Using computers, telephones, and nonpersonal
media to show products to customers, who can
then purchase them by mail telephone, or online
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Kinds of Nonstore Retailing (cont’d)
• Catalog marketing
– An organization provides a catalog from
which customers make selections and
place orders by mail or telephone
• Direct-response marketing
– A retailer advertises a product and makes it
available through mail or telephone orders
• Telemarketing
– The performance of marketing-related
activities by telephone
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Kinds of Nonstore
Retailing (cont’d)
• Television home shopping
– Products are displayed to television
viewers, who can then order the products
by calling a toll-free number and paying by
credit card
• Online retailing
– Presenting and selling products through
computer connections
• Automatic vending
– The use of machines to dispense products
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The Wheel of Retailing
• A hypothesis that suggests that new
retail operations usually follow a pattern
by beginning at the bottom—in price,
profits, and prestige—and gradually
moving up the cost/price scale,
competing with newer businesses that
are evolving in the same way
• The hypothesis is not universally
applicable. It cannot predict what new
retailing developments will occur or
when.
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The Wheel of Retailing
Source: Adapted from Robert F. Hartley, Retailing: Challenge and Opportunity, 3rd ed., p.42. Copyright © 1984 by Houghton Mifflin
Company. Used by permission.
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Planned Shopping Centers
• A self-contained retail facility constructed by
independent owners and consisting of
various stores
– Neighborhood shopping center
• Comprises several small convenience and specialty
stores
– Community shopping center
• Includes one or two department stores and some
specialty stores, along with convenience stores
– Regional shopping center
• Contains large department stores, numerous specialty
stores, restaurants, movie theaters, and sometimes
hotels
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Physical Distribution
• All those activities concerned with the efficient
movement of products from the producer to
the ultimate user
• Inventory management
– The process of managing inventories in such a
way as to minimize inventory costs, including both
holding costs and potential stock-out costs
• Holding costs—the costs of storing products until they
are purchased or shipped to customers
• Stock-out costs—the costs of sales lost when items are
not in inventory when needed
• Order processing
– Activities involved in receiving and filling
customers’ purchase orders
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Physical Distribution (cont’d)
• Warehousing
– The set of activities involved in receiving and
storing goods and preparing them for reshipment
•
•
•
•
•
•
•
Receiving goods
Identifying goods
Sorting goods
Dispatching goods to storage
Holding goods
Recalling, picking, and assembling goods
Dispatching shipments
– Types of warehouses
• Private warehouses—owned and operated by a firm
• Public warehouses—offer their services to all firms
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Physical Distribution (cont’d)
• Materials handling
– The physical handling of goods, in warehousing as
well as during transportation
• Transportation
– The shipment of products to customers
– Carrier—a firm that offers transportation services
• Common carriers—services are available for hire to all
shippers
• Contract carriers—available for hire by one or several
shippers; not available to the general public
• Private carriers—owned and operated by the shipper
– Freight forwarders—agents who facilitate the
transportation process for shippers by handling
the details of the process
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Changes in Ton-Miles for Various
Transportation Modes
Source: U.S. Bureau of Transportation Statistics, National Transportation Statistics 1999 and
Statistical Abstract of the United States, 2001.
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