Chapter 21: Channels of Distribution

agents

intermediaries who do not own the goods they sell; they act as intermediaries. 2 types: manufacturers' reps & brokers.

direct distribution

involves no intermediaries.

indirect distribution

involves one or more intermediaries.

emarketplace

an online shopping location. Provides smaller businesses with exposure they couldn't get elsewhere.

brokers

bring buyers and sellers together for a sale but don't have a continued relationship with either party. Negotiate the sale and receive a commission. i.e. food brokers, real estate brokers

manufacturer/producer directly to consumer (Channel A)

For consumer goods: 1) selling products at the production site - factory outlets, roadside farm stands 2) having a sales force call on consumers - Avon, Tupperware 3) using catalogs or ads to generate sales 4) using telemarketing 5) using internet for online sales and 6) using TV infomercials

how distribution works

The path a product takes from producer or manufacturer to final user is called the channel of distribution. Channel members include wholesalers, retailers, agents, independent manufacturers' representatives. Intermediaries reduce number of contacts required to reach the final user. Wholesalers and retailers are major intermediaries. Retailers can be brick-and-mortar businesses or e-tailers, and brokers.

examples of channels of distribution

When selling to the industrial market, manufacturers sell to industrial distributors who sell to the final customer. When selling to the consumer market, a company sells to a wholesaler who then sells to a retailer. Industrial and consumer markets have different needs and use different channels.

control vs. costs

control over distribution with internal sales force allows for set sales quotas & monitor salesforce's performance, but that's expensive (payroll, benefits, reimbursement of expenses) compared to independent agents & distributors but that's less control over where products are sold and for how much. But agents are paid a set % based on what they sell which ensures the cost of selling is always the same in relation to sales generated.

Manufacturer/Producer to Agents to Retailer to Consumer (Channel E)

distribution channel for consumer products/services for manufacturers who don't want to handle their sales to retailers. The agent brings the buyer and seller together. i.e. used for expensive cookware, meat, cosmetics, and many supermarket items. Allows manufacturers to spend time and money creating the best products.

Manufacturer/Producer to Wholesaler to Retailer to Consumer (Channel C)

distribution channel for consumer products/services used for staple goods, which are items that are always carried in stock and whose styles do not change frequently. Manufacturer sells to wholesaler who then handles the sales, warehousing, and distribution of the goods to retailers. i.e. supermarket items, flowers, candy, and stationery.

Manufacturer/Producer to Agents to Wholesaler to Retailer to Consumer (Channel D)

distribution channel for consumer products/services where manufacturers prefer to concentrate on production and leave sales/distribution to others. The agent sells to wholesalers who are involved in storage, sale, and transportation to retailers who then sell to consumers.

Manufacturer/Producer to Agents to Industrial Users (Channel D)

distribution channel for industrial products and services for manufacturers who cannot afford a salesforce or who don't want to manage one. They cut out the distributor and ship directs the user which keeps distribution costs low. i.e. construction equipment, farm products, dry goods, etc.

exclusive distribution

level of distribution that involves protected territories for product distribution in a given geographic area. Reasons: prestige, image, channel control, and higher profit margins (decreased competition) for both manufacturer & intermediaries. Encourages distributors to advertise the products and provide service after the sale. Used by franchises.

selective distribution

level of distribution that involves use of a limited number of outlets in an area to sell product. Goal is to select channel members/intermediaries that can maintain the image of the product who are good credit risks, aggressive marketers, and good inventory planners.

intensive distribution

level of distribution that involves use of all suitable outlets to sell a product. Objective is complete market coverage and to sell to as many customers as possible in all various locations. i.e. motor oil is sold in quick-lube shops, farm stores, auto parts retailers, supermarkets, drugstores, hardware stores, wholesale clubs, etc.

distribution planning

means making decisions about a product's physical movement and transfer of ownership from producer to consumer such as the use of multiple channels, control vs. costs, intensity of distribution desired, and involvement in ecommerce.

retailer

merchant intermediary that sells goods to final consumer

wholesaler

merchant intermediary/business that buys large quantities of goods and resells to retailers. aka Those who buy large quantities of goods from manufacturers and store the goods to resell them to other businesses.

intermediaries

middlemen who move products from manufacturer to final user

Foreign market distribution

must consider cultural considerations

channel of distribution

place decision: the path a product takes from its manufacturer to the final user. When a product is purchased for use in a business, the final user is an industrial user. When a product is purchased for personal use, the final user is a consumer.

Clayton Antitrust Act of 1914

prevents exclusive arrangements that substantially lessen competition, create a monopoly, or in which one party did not commit to the agreement voluntarily. Allows businesses to use whatever channel arrangement they desire in most cases.

manufacturer/producer to retailer to consumer (Channel B)

quick & efficient distribution channel for consumer products/services used for products that become out of date quickly or need regular servicing: clothing & automobiles. Used by chain stores and online retailers.

brick-and-mortar retailer

sells goods in physical stores

e-tailor

sells products via the Internet

multiple channels

used when its produce fits the needs of both industrial and consumer markets (i.e. snack food company sells its products to supermarkets, schools, movie theaters, and stadiums.

integrated distribution

variation of exclusive distribution when a manufacturer acts as wholesalers and retailers for its products; they run and own their own retail operations. i.e. Gap

rack jobbers

wholesalers that manage inventory and merchandising for retailers

drop shippers

wholesalers that own the goods they sell but do not physically handle the actual product. They deal in bulk or large quantities of items that require special handling. They sell goods to other businesses and have the producer ship the merchandise directly to the buyers.

independent manufacturers' reps

work with several related by noncompeting manufacturers in a specific industry who are paid commission on what they sell.

Manufacturer/Producer to Agents to Industrial Dist. To Industrial User (Channel C)

distribution channel for industrial products and services used by small manufacturers who prefer to use an agent who coordinates a large supply of the product. The agent doesn't take possession/title but sells the goods to the industrial wholesaler who stores, resells, and ships to the user. Agents can work for several producers at one time.

Manufacturer/Producer directly to Industrial users (Channel A)

distribution channel for industrial products and services used for major equipment used in manufacturing & other businesses. Manufacturer's salesforce calls on the industrial user. i.e. Xerox sales rep sells copier machines directly to manufacturer & commercial businesses.

Manufacturer/Producer to industrial distributor to industrial user (Channel B)

distribution channel for industrial products and services used for small standardized parts & operational supplies. Industrial wholesalers (distributors) take ownership of the products, stock them, and sell them. i.e. restaurant supply wholesaler buys pots, pans, utensils, paper products, from various manufacturers to sell to restaurant owners who chooses from a variety of small standardized products for its businesses. Shopping at many different man. or producers is too much time/money.

non-store retailing operations

e-tailing, direct mail, and catalog retailing, TV home shopping, and automatic retailing (vending machines)