Marketing Real People, Real Choices: Ch. 11- Deliver the Goods: Determine the Distribution Strategy

Steps in Distribution Planning

1. develop distribution objectives 2. evaluate internal and external environmental influences 3. choose a distribution strategy 4. develop distribution tactics

Five Functions of Logistics

1. order processing 2. warehousing 3. materials handling 4. transportation 5. inventory control

Types of Intermediaries: Independent Intermediaries

Do business with many different manufacturers and many different customers; used by most small to medium sized firms Merchant Wholesalers -Cash-and-carry wholesalers -Truck jobbers -Drop shippers -Mail-order wholesalers -Rack jobbers Merchandise agents and brokers -Manufacturers' agents -Selling agents, including export/import agents -Commission merchants -Merchant brokers, including export/import brokers

channel intermediaries

Firms or individuals such as wholesalers, agents, brokers, or retailers who help move a product from the producer to the consumer or business user. An older term for intermediaries is middlemen.

11.2 Objective Summary: List and explain the steps to plan a distribution channel strategy.

Firms that operate within a channel of distribution-manufacturers, wholesalers, and retailers-do distribution planning, which is a process of developing distribution objectives, evaluating internal and external environmental influences on distribution, and choosing a distribution strategy. Marketers begin channel planning by developing distribution channel objectives and considering important internal and external environmental factors. The next step is to decide on a distribution strategy, which involves determining the type of distribution channel that is best. Finally, distribution tactics include the selection of individual channel members and management of the channel.

11.3 Objective Summary: Discuss the concepts of logistics and supply chain.

Logistics is the process of designing, managing, and improving supply chains, including all the activities that are required to move products through the supply chain. Logistics contributes to the overall supply chain through activities including order processing, warehousing, materials handling, transportation, and inventory control. A supply chain includes all the activities necessary to turn raw materials into a good or service and put it into the hands of the consumer or business customer. Supply chain management is the coordination of flows among the firms in a supply chain to maximize total profitability.

Types of Intermediaries: Manufacturer-owned intermediaries

Manufacturer-owned intermediaries: limit operations to one manufacturer; create efficiencies for large firms -sales branches -sales offices -manufacturers' showrooms

cash-and-carry wholesalers

Provide low-cost merchandise for retailers and industrial customers that are too small for other wholesalers' sales representatives to call on

logistics

The process of designing, managing, and improving the movement of products through the supply chain. Logistics includes purchasing, manufacturing, storage, and transport.

manufacturers' agents

Use independent salespeople; carry several lines of noncompeting products

direct channel

a channel of distribution in which a manufacturer of a product or creator of a service distributes directly to the end customer

vertical marketing system (VMS)

a channel of distribution in which there is formal cooperation among members at the manufacturing, wholesaling, and retailing levels

knowledge management

a comprehensive approach to collecting, organizing, storing, and retrieving a firm's information assets

franchise organization

a contractual vertical marketing system that includes a franchiser (a manufacturer or a service provider) who allows an entrepreneur (the franchisee) to use the franchise name and marketing plan for a fee

gray market

a distribution channel in which a product's sale to a customer may be technically legal, but is at a minimum considered inappropriate by the manufacturer of the related product. Gray markets often emerge around high-end luxury goods sold through exclusive distribution

slotting allowance

a fee paid in exchange for agreeing to place a manufacturer's products on a retailer's valuable shelf space

retailer cooperative

a group of retailers that establishes a wholesaling operation to help them compete more effectively with the large chains

level loading

a manufacturing approach intended to balance the inventory holding capabilities and production capacity constraints of a manufacturer for a particular product through the implementation of a consistent production schedule, employed both during and beyond periods of peak demand

hybrid marketing system

a marketing system that uses a number of different channels and communication methods to serve a target market

conventional marketing system

a multiple-level distribution channel in which channel members work independently of one another

subscription boxes

a new business model for distribution that supplies surprises by sending out a box each month filled with items you never knew you wanted but you just have to have

insourcing

a practice in which a company contracts with a specialist firm to handle all or part of its supply chain operations

Enterprise Resource Planning (ERP) Systems

a software system that integrates information from across the entire company, including finance, order fulfillment, manufacturing, and transportation, and then facilitates sharing of the data throughout the firm

dual or multiple distribution systems

a system where producers, dealers, wholesalers, retailers, and customers participate in more than one type of channel

Corporate VMS

a vertical marketing system in which a single firm owns manufacturing, wholesaling, and retailing operations

Administered VMS

a vertical marketing system in which channel members remain independent but voluntarily work together because of the power of a single channel member

Contractual VMS

a vertical marketing system in which cooperation is enforced by contracts (legal agreements) that spell out each member's rights and responsibilities and how they will cooperate

distribution center

a warehouse that stores goods for short periods of time and that provides other functions, such as breaking bulk

inventory control

activities to ensure that goods are always available to meet customers' demands

supply chain

all the activities necessary to turn raw materials into a good or service and put it in the hands of the consumer or business customer

horizontal marketing system

an arrangement within a channel of distribution in which two or more firms at the same channel level work together for a common purpose

diverter

an entity that facilitates the distribution of a product through one or more channels not authorized for use by the manufacturer of the product

intranet

an internal corporate communication network that uses internet technology to link company departments, employees, and databases

truck jobbers

carry their products to small business customer locations for their inspection and selection

independent intermediaries

channel intermediaries that are not controlled by any manufacturer but instead do business with many different manufacturers and many different customers

merchandise agents or brokers

channel intermediaries that provide services in exchange for commissions but never take title to the product

manufacturer' showrooms

display products attractively for customers to visit

selective distribution

distribution using fewer outlets than intensive distribution but more than exclusive distribution

breaking bulk

dividing larger quantities of goods into smaller lots in order to meet the needs of buyers

wholesaling intermediaries

firms that handle the flow of products from the manufacturer to the retailer or business user

facilitating functions

functions of channel intermediaries that make the purchase process easier for customers and manufacturers

Selling agents, including export/import agents

handle entire output of one or more products

communication and transaction functions

happens when channel members develop and execute both promotional and other types of communication among members of the channel

Merchandise brokers, including export/import brokers

identify likely buyers and bring buyers and sellers together

reverse logistics

includes product returns, recycling and material reuse, and waste disposal

channel conflict

incompatible goals, poor communication, and disagreement over roles, responsibilities, and functions among firms at different levels of the same distribution channel that may threaten a manufacturer's distribution strategy

merchant wholesalers

intermediaries that buy goods from manufacturers (take title to them) and sell to retailers and other B2B customers

Just-in-time (JIT)

inventory management and purchasing processes that manufacturers and resellers use to reduce inventory to very low levels and ensure that deliveries from suppliers arrive only when needed

drop shippers

limited-function wholesalers that take title to merchandise but do not take physical possession

sales branches

maintain some inventory in different geographic areas (similar to wholesalers)

channel cooperation

occurs when producers, wholesalers, and retailers depend on one another for success

transportation and storage

occurs when retailers and other channel members move the goods from the production point to other locations where they can hold them until consumers want them

Radio Frequency Identification (RFID)

product tags with tiny chips containing information about the item's content, origin, and destination

commission merchants

receive commission on sales price of product

mail-order wholesalers

sell products to small retailers and other industrial customers, often located in remote areas, through catalogs rather than a sales force

exclusive distribution

selling a product only through a single outlet in a particular region

intensive distribution

selling a product through all suitable wholesalers or retailers that are willing to stock and sell the product

warehousing

storing goods in anticipation of sale or transfer to another member of the channel of distribution

rack jobbers

supply retailers with specialty items, such as health and beauty products and magazines

channel power

the ability of one channel member to influence, control, and lead the entire channel based on one or more sources of power

physical distrubition

the activities that move finished goods from manufacturers to final customers, including order processing, warehousing, materials handling, transportation, and inventory control

risk-taking functions

the chance retailers take on the loss of a product when they buy a product from a manufacturer because the product sits on the shelf because no customers want it

product diversion

the distribution of a product through one or more channels not authorized for use by the manufacturer of the product

channel leader or channel captain

the dominant firm that controls the channel

disintermediation (of the channel of distribution)

the elimination of some layers of the channel of distribution in order to cut costs and improve the efficiency of the channel

Supply Chain Management

the management of flows among firms in the supply chain to maximize total profitability

transportation

the mode by which products move among channel members

materials handling

the moving of products into, within, and out of warehouses

channel levels

the number of distinct categories of intermediaries that make up a channel of distribution

distribution intensity

the number of intermediaries at each level of the channel

inventory turnover or inventory turns

the number of times a firm's inventory completely cycles through during a defined time frame

distribution planning

the process of developing distribution objectives, evaluating internal and external environmental influences on distribution, and choosing a distribution strategy

order processing

the series of activities that occurs between the time an order comes into the organization and the time a product goes out the door

online distribution piracy

the theft and unauthorized repurposing of intellectual property via the internet

take title

to accept legal ownership of a product and assume the accompanying rights and responsibilities of ownership

create assortments

to provide a variety of products in one location to meet the needs of buyers

full-service merchant wholesalers

wholesalers that provide a wide range of services for their customers, including delivery, credit, product-use assistance, repairs, advertising, and other promotional support

limited-service merchant wholesalers

wholesalers that provide fewer services for their customers

stock-outs

zero-inventory situations resulting in lost sales and customer dissatisfaction

11.1 Objective Summary: Explain what a distribution channel is, identify types of wholesaling intermediaries, and describe the different types of distribution channels.

A channel of distribution is a series of firms or individuals that facilitate the movement of a product from the producer to the final customer. Channels provide place, time, and possession utility for customers and reduce the number of transactions necessary for goods to flow from many manufacturers to large numbers of customers by breaking bulk and creating assortments. Channel members make the purchasing process easier by providing important customer services. Wholesaling intermediaries are firms that handle the flow of products from the manufacturer to the retailer or business user. Merchant wholesalers are independent intermediaries that take title to a product and include both full service merchant wholesalers and limited service merchant wholesalers. Merchandise agents and brokers are independent intermediaries that do not take title to the products. Manufacturer-owned channel members include sales branches, sales offices, and manufacturer showrooms. Distribution channels vary in length from the simplest two-level channel to longer channels with three or more channel levels. Distribution channels include direct distribution, in which the producer sells directly to consumers, and to indirect channels, which may include a retailer, wholesaler, or other intermediary. B2B distribution channels facilitate the flow of goods from a producer to an organizational or business customer. Producers, dealers, wholesalers, retailers, and customers may participate in more than one type of channel, called a dual or multiple distribution system. Finally, some companies combine channels-direct sales, distributors, retail sales, and direct mail-to create a hybrid marketing system.

sales offices

Carry no inventory; availability in different geographic areas