Download Chapter Fourteen

Chapter Fourteen
Wholesaling, Retailing, and
Physical Distribution
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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. Identify the categories of shopping centers
and the factors that determine how shopping
centers are classified.
9. 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 (Wal-Mart) can buy in large quantities
– Most often used for bulky products for which
additional handling would increase selling
costs, and for perishable or high-fashion
products that must reach consumers quickly
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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, frequently
purchased 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
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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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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 shelves
– 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
– 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, 15th ed. (Mason, Ohio: South-Western/Cengage
Learning, 2010). Adapted with permission.
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Wholesalers’ Services to Retailers
• Buy in large quantities and then sell in smaller
quantities
• Deliver goods
• Stock in one place a variety of goods
• 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
– These wholesalers are sometimes called distributors or
jobbers
– Full-service wholesalers
• General merchandise wholesaler
• Limited-line wholesaler
• Specialty-line wholesaler
– Limited-service wholesalers
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Types of Wholesalers (cont’d)
• 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 (cont’d)
• 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
Source: “2008 Top 100 Retailers,” Stores, July 2008, p. T5, www.stores.org/pdf/08TOP100.pdf. Reprinted with permission from
Wrights Reprints.
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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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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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Planned Shopping Centers
• A self-contained retail facility constructed by
independent owners and consisting of various stores
– Lifestyle shopping center
• Has an open-air configuration and is occupied by
upscale national chain specialty 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
• 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
– Railroads—in terms of total freight carried, these are
America’s most important mode of transportation
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Ratings of Transportation Modes
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Changes in Ton-Miles for Various
Transportation Modes
Source: U.S. Bureau of Transportation Statistics, National Transportation Statistics 2005 , www.bts.gov ; accessed January 30, 2006
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