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*Chapter Fifteen

Distributing Products

Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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*The Emergence of Marketing Intermediaries

• Marketing Intermediaries -- Organizations that assist in moving goods and services from businesses to businesses (B2B) and from businesses to consumers (B2C).

• They are called intermediaries because they’re in the middle of a series of firms that distribute goods.

WHAT are MARKETING INTERMEDIARIES?

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*The Emergence of Marketing Intermediaries

• Channel of Distribution -- A group of marketing intermediaries that joining together to transport and store goods from producers to consumers.

WHAT are MARKETING INTERMEDIARIES?

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*The Emergence of Marketing Intermediaries

• Agents and Brokers -- Intermediaries who bring buyers and sellers together and assist in negotiating an exchange but do not take title to the goods they offer.

• Wholesaler -- An intermediary that sells products to other organizations such as retailers, manufacturers, and hospitals.

• Retailer -- An organization that sells products to ultimate customers.

TYPES of MARKETING INTERMEDIARIES?

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*Why Marketing Needs Intermediaries

• Intermediaries perform marketing tasks faster and cheaper than most manufacturers could provide them.

WHY MARKETING NEEDS INTERMEDIARIES

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• Marketing intermediaries make markets more efficient by reducing transactions and contacts.

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*HOW INTERMEDIARIES CREATE

EXCHANGE EFFICIENCYLG1

Why Marketing Needs Intermediaries

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*The Value vs the Cost of Intermediaries

• Marketing intermediaries can be eliminated but their activities can’t.

• Intermediaries perform marketing functions faster and cheaper than other organizations can.

• Marketing intermediaries add costs to products but they’re generally offset by the values they provide.

THREE KEY FACTS ABOUT MARKETING INTERMEDIARIES

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*The Utilities Created by Intermediaries

• Utility -- The want-satisfying ability, or value, that organizations add to goods and services by making them more useful or accessible to consumers.

• Six types of utilities:

1. Form

2. Time

3. Place

4. Possession

5. Information

6. Service

INTERMEDIARIES CREATE UTILITY

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*The Utilities Created by Intermediaries

• Form Utility -- Changes raw materials into useful products; producers generally provide form utility.- Starbucks makes coffee the way the customers want it.

- Levi-Strauss transforms denim into clothes.

• Time Utility -- Makes products available when customers want them.- Many Walgreens stores are open 24-hours a day.

- Colleges offer day and evening classes.

HOW MARKETERS USE UTILITY

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*The Utilities Created by Intermediaries

• Place Utility -- Adds value to products by placing them where people want them.- Banks place ATMs at convenient locations.

- Pepsi is available in campus vending machines.

• Possession Utility -- Helps transfer ownership from one party to another, including providing credit.- Pay for lunch at McDonalds with your Visa card.

- Car dealers offer loans to buyers.

HOW MARKETERS USE UTILITY

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*The Utilities Created by Intermediaries

• Information Utility -- Opens two-way flows of information between marketing participants.- Dell’s website offers advice to PC buyers.

- Local government maps show tourist locations.

• Service Utility -- Provides service during and after a sale and teaches customers how to best use products.- Apple offers classes to help computer buyers.

- College placement offices help students find jobs.

HOW MARKETERS USE UTILITY

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*Wholesale Intermediaries

• Wholesalers normally make B2B sales, however, stores like Staples and Costco also have retail functions.

- Retail sales are sales of goods and services to customers for their own use.

- Wholesale sales are sales of goods and services to other businesses for use in the business or resale.

• Consumers are more familiar with retailers than wholesalers.

WHOLESALE INTERMEDIARIES

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*Wholesale Intermediaries

• Merchant Wholesalers -- Independently owned firms that take title to the goods they handle. There are two types:

1. Full-service wholesalers perform all distribution functions.

2. Limited-function wholesalers perform only selected distribution functions.

• About 80% of wholesalers are merchant wholesalers.

TYPES of WHOLESALE INTERMEDIARIES

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*Wholesale Intermediaries

• Rack Jobbers -- Furnish racks or shelves of merchandise such as music, magazines, and hosiery for retailers for display and sell them on consignment.

• Cash-and-Carry Wholesalers -- Serve mostly smaller retailers with a limited assortment of products.

• Drop Shippers -- Take orders from retailers and other wholesalers and have the merchandise shipped from producer to buyer.

TYPES of LIMITED-FUNCTION WHOLESALERS

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*Agents and Brokers

• Agents generally maintain long-term relationships with the clients they represent.

ROLES of AGENTS and BROKERS

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- Manufacturer’s agents represent several manufacturers in a specific territory.

- Sales agents represent a single client in a larger territory.

• Brokers usually represent clients on a temporary basis.

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*Retail Intermediaries

• There are approximately 2.3 million retailers in the U.S., not including websites.

RETAILING in the U.S.

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• Retailers in the U.S. employ over 11 million people and operate under many different structures.

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• eBay

• Amazon

• Wal-Mart

• Target

• Netfilx

TOP ONLINE RETAILERSLG4

Source: Nielsen Online, www.nielsenonline.com.

Retail Intermediaries

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• Video games

• Sports and fitness

• Home, garden, and furniture

• Event tickets

• Consumer electronics

FASTEST GROWING RETAIL CATEGORIES

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Retail Intermediaries

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*Retail Distribution Strategy

• Intensive Distribution -- Puts products into as many retail outlets as possible including vending machines.

• Selective Distribution -- Uses only a preferred group of the available retailers in an area.

• Exclusive Distribution -- The use of only one retail outlet in a given geographic area.

RETAIL DISTRIBUTION STRATEGIES

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• Ralph Lauren Polo Shirts

• Diet Pepsi

• Rolls Royce Automobiles

• Calloway Golf Clubs

• Snickers Candy Bars

• Steinway Pianos

PICK a STRATEGY…What’s the Correct Retail Strategy for These Products?

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Retail Distribution Strategy

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• Electronic Retailing -- Selling goods and services to ultimate consumers over the Internet.

• Telemarketing -- The sale of goods and services via the telephone.

FORMS of NON-STORE RETAILING

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Non-Store Retailing

• Vending machines, kiosks, and carts dispense convenience goods when consumers deposit sufficient funds.

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• Direct Selling -- Selling goods and services to customers in their homes or workplaces.

• Multilevel marketing uses salespeople who work as independent contractors.

• Direct Marketing -- Any activity that directly links manufacturers or intermediaries with ultimate customers.

FORMS of NON-STORE RETAILING

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Non-Store Retailing

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• Convenient return policies

• Established brands

• User reviews

• Professional site design

• Alternative payment options

WHAT ONLINE SITES NEEDImportant Features on E-Commerce Web Sites

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Electronic Retailing

Source: GSI Commerce; Harris Interactive.

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• Amazon

• Netflix

• QVC

• Apple

• L.L. Bean

COME BACK AGAIN!Retail Web Sites with the Highest Customer Satisfaction

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Electronic Retailing

Source: ForeSee Results, www.forseeresults.com.

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• Circuit City - Now Bankrupt!

• Gap

• Home Shopping Network

• Overstock

• Home Depot

RETAIL WEB SITES with the LOWEST CUSTOMER RATING

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Electronic Retailing

Source: ForeSee Results, www.forseeresults.com.

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*Building Cooperation in Channel Systems

1. Corporate Distribution Systems

2. Contractual Distribution Systems

3. Administered Distribution Systems

4. Supply Chains

The FOUR SYSTEMS of CHANNEL RELATIONSHIPS

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*Building Cooperation in Channel Systems

• Corporate Distribution Systems -- Exist when one firm owns all the organizations in a channel of distribution.

• Examples:

- Goodyear

- Sherwin Williams

CORPORATE DISTRIBUTION SYSTEMS

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*Building Cooperation in Channel Systems

• Contractual Distribution Systems -- Exist when members are bound to cooperate through contractual agreements.

• Examples:

- Franchise System: McDonald’s, Subway, Sonic

- Wholesale-Sponsored Chain: IGA, Ace Hardware

- Retail Cooperative: Associated Grocers, True Value

CONTRACTUAL DISTRIBUTION SYSTEMS

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*Building Cooperation in Channel Systems

• Administered Distribution Systems -- Exist when producers manage all the marketing functions at the retail level.

• Examples:

- Kraft

- Ralph Lauren

ADIMINISTERED DISTRIBUTION SYSTEMS

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*Building Cooperation in Channel Systems

• Supply Chain -- All the linked activities various organizations must perform to move goods and services from the source of raw materials to ultimate consumers.

• Supply Chain Management -- The process of managing the movement of raw materials, parts, work in progress, finished goods, and related information through all the organizations in the supply chain.

SUPPLY CHAINS

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*The SUPPLY CHAIN

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Building Cooperation in Channel Systems

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*Logistics: Getting Goods to Consumers Efficiently

• Logistics -- The planning, implementing and controlling of the physical flow of material, final goods and related information from points of origin to points of consumption.

USING LOGISTICS

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• Firms may outsource to companies specializing in trade compliance to determine what is needed to market products to global customers.

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*Logistics: Getting Goods to Consumers Efficiently

• Inbound Logistics -- Brings raw materials, packaging, other goods and services and information from suppliers to producers.

LOGISTICS APPLICATIONS

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• Materials Handling -- Movement of goods within a warehouse, from warehouse to the factory floor and from the factory floor to workstations.

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*Logistics: Getting Goods to Consumers Efficiently

• Outbound Logistics -- Manages the flow of finished products and information to business buyers and consumers.

• Reverse Logistics -- Brings goods back to the manufacturer because of defects or for recycling.

LOGISTICS APPLICATIONS

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*Logistics: Getting Goods to Consumers Efficiently

COMPARING TRANSPORTATION MODES

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Mode Cost Speed Dependability Flexibility Frequency Reach

Rail Med. Slow Medium High Low High

Trucks High Fast High Medium High Highest

Pipeline Low Medium Highest Lowest Highest Lowest

Ships Lowest Slowest Lowest Highest Lowest Low

Air Highest Fastest Low Low Medium Medium

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*Logistics: Getting Goods to Consumers Efficiently

• Freight Forwarder -- Puts many small shipments together to create a single large shipment that can be transported cost-effectively by truck or train.

LOGISTICS SPECIALISTS

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• Intermodal Shipping -- Uses multiple modes of transportation to complete a single long-distance movement of freight.

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*Logistics: Getting Goods to Consumers Efficiently

• Piggybacking: Truck trailers placed on trains

• Fishybacking: Truck trailers placed on ships

• Birdybacking: Truck trailers placed on planes

TYPES of INTERMODAL SHIPPING

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*GET YOUR PRODUCT THERE

Most Popular Modes of Freight TransportLG7

Source: U.S. Freight Transportation Forecast 2008.

Method % of Distributors

Trucks 69%

Trains 15%

Pipelines 10%

Ships 6%

Air Under 1%

Logistics: Getting Goods to Consumers Efficiently

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*The Storage Function

• Storage warehouses hold products for a relatively long period of time.

• Distribution warehouses are used to gather and redistribute products such as:

- Beer and soft drinks

- Package deliveries

STORAGE WAREHOUSES

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