Download Chapter 15 Wholesaling, Retaining, and Physical

Pride/Hughes/Kapoor Business, 10th Edition
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Chapter 14 Wholesaling, Retailing, and Physical Distribution
1. Identify the various channels of distribution that are used for consumer and industrial
products
Consumers are able to go to a store and buy what they want thanks to a hidden
world of intermediaries that works to move products from the manufacturer to the
consumer in the most efficient way possible. Let’s examine the various channels of
distribution available to producers. A channel of distribution, or marketing channel, is a
sequence of marketing organizations that directs a product from the producer to the
ultimate user. Every marketing channel begins with the producer and ends with either the
consumer or the business user. A middleman, or marketing intermediary, is a marketing
organization that links a producer and user within a marketing channel. Middlemen are
generally concerned with the transfer of ownership. One special type, the merchant
middleman, actually takes title to products by buying them. A functional middleman, on
the other hand, helps in the transfer of ownership of products but does not take title to the
products.
Depending on the type of products and the ultimate user, products may use one of
six types of channels, of which four are directed toward the consumer and two to
businesses. (1) Producer to consumer. This is often called the direct channel because it
includes no intermediaries. Practically all services are distributed this way, as well as a
few consumer goods. (2) Producer to retailer to consumer. A retailer is a middleman that
buys from producers or other middlemen and sells to consumers. This fairly short channel
is used for bulky, perishable, or high-fashion products. (3) Producer to wholesaler to
retailer to consumer. This is known as the traditional channel because many consumer
convenience goods pass through wholesalers to retailers. The wholesaler is a middleman
that sells products to other firms. (4) Producer to agent to wholesaler to retailer to
consumer. Agents are functional middlemen that do not take title to products and are
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compensated by commissions paid by producers. This channel is used for inexpensive,
frequently purchased items, seasonal items, and by producers that do not have their own
sales force. Manufacturers often use different channels, sometimes multiple channels, to
reach different market segments. The last two channels are business channels, which tend
to be shorter than consumer channels. (5) Producer to business user. In this direct
channel, the manufacturer’s sales force sells directly to businesses. And (6) producer to
agent middleman to business user. This channel is used to distribute operating supplies,
accessory equipment, and standardized parts. The agent is an independent intermediary
that generally represents the seller. (LO 1 ends)
2. Explain the concept of marketing coverage
After looking at the firm’s production capabilities, marketing resources, the target
market, and buying patterns, the firm must determine its intensity of market coverage.
Intensity can be measured in three degrees. Intensive distribution is the use of all
available outlets for a product. The manufacturer saturates the market by selling to any
intermediary willing to stock and sell the product. Many convenience goods are
intensively distributed, which means consumers can find them in multiple outlets.
Selective distribution is the use of only a portion of the available outlets for a product in
each geographic area. Furniture, major appliances, and clothing are distributed this way.
Exclusive distribution is the use of only a single retail outlet for a product in a geographic
area. This level is limited to very prestigious and specialty goods, such as fine jewelry,
pianos, and china. (LO 2 ends)
3. Understand how supply-chain management facilitates partnering among channel
members
With all the possibilities for channel choices and intermediaries, supply chain
management is critical. Supply-chain management is a 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
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satisfying customers. Traditionally, buyers and sellers have been adversarial when
negotiating purchases. But when buyers, sellers, marketing intermediaries, and
facilitating agencies work together, customers’ needs regarding delivery, scheduling,
packaging, and other requirements are better met. Technology, such as bar coding and
electronic data exchange (EDI), makes supply-chain management easier to implement.
(LO 3 ends)
4. Describe what a vertical marketing system is and identify the types of vertical
marketing systems
When two or more stages of a distribution channel are combined under the
management of a single firm, it is called vertical channel integration. A vertical
marketing system, or VMS, is a centrally managed distribution channel resulting from
vertical channel integration. Merging eliminates the need for certain intermediaries and
provides better control. The three types of VMSs are an administered VMS, where one
channel member dominates the others; a contractual VMS, where cooperative
arrangements and the rights and obligations of channel members are defined by contract;
and a corporate VMS, in which the producer owns the distribution vehicle. (LO 4 ends)
5. Discuss the need for wholesalers and describe the services they provide to retailers and
manufacturers
Wholesalers are intermediaries that purchase from producers or other
intermediaries and sell to industrial users, retailers, or other wholesalers. If producers
would like to eliminate so many intermediaries, is there really a need for wholesalers? In
a word, absolutely. Wholesalers perform many services that would still need to be done,
even if they themselves were eliminated. And prices would not necessarily fall. In fact,
they could rise. Wholesalers provide services to both retailers and manufacturers.
Wholesalers help retailers by buying in large quantities and then selling and
delivering to retailers in smaller quantities. They stock in one place the variety of goods
that retailers would otherwise have to buy from many producers. They help promote the
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products they sell to retailers. They are a constant source of market information. And they
provide indirect financial aid by allowing retailers to maintain smaller inventories.
To manufacturers, wholesalers provide an instant sales force, they reduce
inventory costs, they assume credit risks, and they provide market information. (LO 5
ends)
6. Identify and describe the major types of wholesalers
Some wholesalers provide all of these services, some offer fewer. It all depends
on the type of wholesaler, and there are several types. They generally fall into three
categories: (1) merchant wholesalers; (2) commission merchants, agents, and brokers;
and (3) manufacturers’ sales branches and sales offices. A merchant wholesaler purchases
goods in large quantities and then sells them to other wholesalers or retailers and to
institutional, farm, government, professional, or industrial users. They are sometimes
called distributors or jobbers. A full-service merchant wholesaler performs the entire
range of wholesaler functions. Within this group are general merchandise wholesalers,
who deal in a wide variety of products; limited-line wholesalers, who stock only a few
product lines but carry numerous product items in each line; and specialty-line
wholesalers, who carry a select group of products within a single line. In contrast to a
full-service wholesaler, a limited-service wholesaler assumes responsibility for only a
few wholesale services.
The second group of wholesalers are functional middlemen who do not take title
to products. A commission merchant carries merchandise and negotiates sales for
manufacturers. An agent expedites exchanges, represents a buyer or seller, and often is
hired permanently on a commission basis. When agents represent producers, they are
called sales agents or manufacturer’s agents. A broker specializes in a particular
commodity, represents either a buyer or a seller, and is likely to be hired on a temporary
basis.
The third type of wholesaler consists of a manufacturer’s sales branch, which is
essentially a merchant wholesaler that is owned by the manufacturer, and a
manufacturer’s sales office, which is essentially a sales agent owned by a manufacturer.
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Branches carry inventory, extend credit, deliver goods, and help in promotion. (LO 6
ends)
7. Distinguish among the major types of retailers
Retailers are the final link between producers and consumers, selling both goods
and services. An independent retailer is a firm that operates only one retail outlet, as
opposed to a chain retailer, which operates more than one. As with wholesalers, there are
several major types of retailers. There are approximately 10 ways to classify retailers,
generally based on store size and the kind and number of products carried.
A department store is a retail store that employs 25 or more people, and sells at
least home furnishings, appliances, family apparel, and household linens and dry goods,
each in a different part of the store. Discount stores are self-service, general merchandise
outlets that sell goods at lower-than-usual prices. A catalog showroom displays wellknown brands and sells them at discount prices through catalogs within the store. A
warehouse showroom is in a large, low-cost building with large on-premises inventories
and minimal service.
A convenience store is a small food store that sells a limited variety of products
but remains open well beyond normal business hours. Supermarkets are large, selfservice stores that sell primarily food and household products. A superstore is a large
retail store that carries not only food and non-food products ordinarily found in
supermarkets, but also additional product lines. A warehouse club is a large-scale,
members-only establishment that combines features of cash-and-carry wholesaling with
discount retailing.
Traditional specialty stores carry a narrow product mix with deep product lines.
They are sometimes called limited-line retailers; if they carry depth in one particular
product category, they may be called single-line retailers. An off-price retailer buys
manufacturers’ seconds, overruns, returns, and off-season merchandise for resale to
consumers at deep discounts. Finally, category killers are very large specialty stores that
concentrate on a single product line and compete on the basis of low prices and product
availability.
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There are a few non-store retailers as well. A nonstore retailer is a type of
retailing whereby consumers purchase products without visiting a store. Nonstore
retailers use direct selling, direct marketing, and vending machines. Direct selling is the
marketing of products to consumers through face-to-face sales presentations at home or
in the workplace. Direct marketing is the use of computers, telephones, and non-personal
media to show products to customers, who can then purchase them by mail, telephone, or
online. Types of direct marketing include catalog marketing, direct-response marketing,
telemarketing, television home shopping, and online marketing. With catalog marketing,
an organization provides a catalog from which customers make selections and place
orders by mail or phone. Direct-response marketing occurs when a retailer advertises a
product and makes it available through mail, telephone, or online orders. Telemarketing
is using the telephone to perform marketing-related activities. Television home shopping
presents products to TV viewers, who can then order them by calling a toll-free number
and paying by credit card. Online marketing makes products available to buyers through
computer connections.
The last type of non-store retailing is by automatic vending, the use of machines
to dispense products. (LO 7 ends)
8. Identify the categories of shopping centers and the factors that determine how
shopping centers are classifiedSo where do you go if you want to shop at one or more
stores? Many people go to shopping centers. A planned shopping center is a selfcontained retail facility, constructed by independent owners and consisting of various
stores. Shopping centers offer a complementary mix of stores in order to generate
consumer traffic, and they generally come in four types. A lifestyle shopping center is an
open-air environment shopping center with upscale chain specialty stores. They place an
emphasis on architecture and creating a pleasant shopping environment, primarily in
affluent neighborhoods. Neighborhood shopping centers consist of several small
convenience and specialty stores. They serve customers who live 2 to 3 miles away. A
community shopping center includes one or two department stores and some specialty
stores, along with convenience stores. These shopping centers are carefully coordinated
and often generate traffic with special events. Management’s objective is to maintain a
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center that offers wide product mixes and deep product lines. Finally, the regional
shopping center contains large department stores, numerous specialty stores, restaurants,
movie theaters, and sometimes even hotels. They advertise, hold special events, and
provide transportation to certain groups of customers. (LO 8 ends)
9. Explain the five most important physical distribution activities
In order to get the goods to where the customers are, they have to be moved. All
the activities concerned with the efficient movement of products from the producer to the
ultimate user is called physical distribution. The five most important of these activities
are (1) inventory management, (2) order processing, (3) warehousing, (4) materials
handling, and (5) transportation. Inventory management, you may recall, is 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 are the costs of storing products
until they are purchased or shipped. Stock-out costs are the costs of sales lost when items
are not in inventory, available for sale.
Order processing activities involve receiving and filling customers’ purchase
orders. Fast, efficient order processing can provide a real competitive edge.
Warehousing is the set of activities involved in receiving and storing goods and
preparing them for shipment. Warehousing includes receiving, identifying, sorting,
dispatching, holding, recalling, picking, and assembling goods. A firm may own its own
private warehouse, or use a public warehouse.
Materials handling is the actual physical handling of goods, in warehouses as well
as during transportation. Proper handling techniques can increase the usable capacity of a
warehouse and reduce breakage and spoilage.
Transportation is the shipment of products to customers. The greater the distance
between the seller and the buyer, the more important the choice of carrier. A carrier is a
firm that offers transportation services. The services of a common carrier are available to
all shippers. A contract carrier is available for hire to one or more shippers, though the
number at any one time is limited by law. A private carrier is owned and operated by the
shipper. Shippers may also hire freight forwarders to pick up shipments, ensure that the
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goods are loaded, and assume responsibility for safe delivery. Parcel post, offered by the
US Post Office, is widely used by mail-order houses. Depending on the nature and needs
of various products, the five common modes of transportation are railroads, trucks,
planes, waterways, and pipelines. Choices are made using certain criteria, namely cost,
speed, dependability, load flexibility, accessibility, and frequency. (LO 9 ends)
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