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Introduction to Business

Dr. H. Ronald Moser

Cumberland University

Distributing Products

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

Chapter 15

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PROFILETONY HSIEH

http://www.Zappos.com

• Hsieh sold his first company to Microsoft for $265 million, before becoming Zappos’ CEO.

• Changed Zappos’ corporate work environment so reps wow customers.

• Zappos has total control over its inventory, and the service department knows exactly what is in stock.

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

businesses to consumers (B2C). They are merely manufacturing helpers.

WHAT ARE MARKETING INTERMEDIARIES?

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THE EMERGENCE OF MARKETING INTERMEDIARIES

Manufacturing Consumer

• These intermediaries or sometimes called middlemen because they’re in the middle of a

series of firms that distribute goods in a traditional channel of distribution. They block

the gap between the producer and the consumer.

Wholesaler Retailer

• A traditional channel of distribution

• Channel of Distribution -- A group of marketing intermediaries that join together to

transport and store goods as they move through their path from producer to

consumers

WHAT ARE MARKETING INTERMEDIARIES?

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THE EMERGENCE OF MARKETING INTERMEDIARIES

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THE EMERGENCE OF MARKETING INTERMEDIARIES

Distribution and Sustainability(Thinking Green)

• Companies can’t be successfully green without the help of the supply chain.

• Companies are pushing partners to come up with a distribution plan that would minimize pollution and optimize profits.

• 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.

TYPES of MARKETING INTERMEDIARIES?

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THE EMERGENCE OF MARKETING INTERMEDIARIES

Manufacturing Wholesaler Retailer Consumer

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

SELECTED CHANNELS of DISTRIBUTION

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THE EMERGENCE OF MARKETING INTERMEDIARIES

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

provide them. We said they were merely helper of the manufacturers so the manufacturers can

spent more time on productions.

WHY MARKETING NEEDS INTERMEDIARIES

• Marketing intermediaries make

markets more efficient by reducing

transactions and contacts.

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THE EMERGENCE OF MARKETING INTERMEDIARIES

Why Marketing Needs Intermediaries

HOW INTERMEDIARIES CREATE EXCHANGE EFFICIENCY

Why Marketing Needs Intermediaries

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THE EMERGENCE OF MARKETING INTERMEDIARIES

This figure shows that adding a wholesaler

to the channel of distribution cuts

the number of contacts from 25 to 10. This improves the efficiency of

distribution.

The Value versus 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.

THREE KEY FACTS ABOUT MARKETING

INTERMEDIARIES

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THE EMERGENCE OF MARKETING INTERMEDIARIES

Sears

Federal GovernmentInternet

• Marketing intermediaries add costs to products but they’re generally offset by

values they provide.

DISTRIBUTION’S EFFECT ON YOUR FOOD DOLLAR

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THE EMERGENCE OF MARKETING INTERMEDIARIES

The Value versus the Cost of Intermediaries

• Here we are talking about

people.

INTERMEDIARIES CREATE UTILITY

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THE UTILITIES CREADED 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

• 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.

HOW MARKETERS USE UTILITY

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THE UTILITIES CREADED BY INTERMEDIARIES

• Time Utility – Makes products available when customers want them.

- Wholesalers store goods 24 hours a day.

- Colleges offer day and evening classes.

Wholesaler Retailer ConsumerManufacturing

Wholesaler

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

- 7-11 stores are found in easy-to-reach locations.

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THE UTILITIES CREADED BY INTERMEDIARIESHOW MARKETERS USE UTILITY

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

- A saving and loan office loans to home/car buyer..

Transportation

Manufacturing Wholesaler ConsumerRetailer

• Information Utility -- Opens two-way flows of information between marketing participants.- Websites offer advice to shoppers..

- Local government maps show tourist locations.

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HOW MARKETERS USE UTILITY

THE UTILITIES CREADED BY INTERMEDIARIES

• Service Utility -- Provides service during and after a sale and teaches customers how to best

use products. Service utility is becoming crucial to traditional retailers as they try to

prevent their customers from defecting to firms using direct marketing.

- Apple offers classes to help computer buyers.

- College placement offices help students find jobs.

Apple

• Wholesalers normally make B2B sales; however, stores like Staples and Costco also

have retail functions.

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

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

WHOLESALE INTERMEDIARIES

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DISTINGUISHING BETWEEN WHOLING AND RETAILING

Moser’s Small Retail

store

• Consumers are more familiar with retailers than wholesalers because wholesalers

normally do not sell to the ultimate consumers.

• 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.

Merchant Wholesalers

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WHOLESALE INTERMEDIARIES

• “I have the title – I own it.”

• About 80% of wholesalers are

merchant wholesalers.

• 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.

Merchant Wholesalers

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WHOLESALE INTERMEDIARIES

Ron’s Place

Agents and Brokers

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

represent.

ROLES of AGENTS and BROKERS

- 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

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WHOLESALE INTERMEDIARIES

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

websites.

RETAILING in the U.S.

• Retailers in the U.S. employ over 11 million

people and operate under many different

structures. The recent recession has affected retailers, forcing many

to cut back on employees.

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RETAIL INTERMEDIARIES

Most

• Most are small retailers.

• Pop-up stores are temporary outlets that remain open for a short amount of time and offer items not found in traditional stores.

• Toys ‘R ’ Us opened more than 600 pop-up stores during the 2010 holiday season.

• Procter & Gamble’s pop-up in New York was solely for promotion; free Cover Girl makeovers samples of Febreze candles were offered.

POP Goes the Retail Store (Spotlight on Small Business)

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RETAIL INTERMEDIARIES

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RETAIL INTERMEDIARIES

TOP ONLINE RETAILERS

• eBay

• Amazon

• Wal-Mart

• Target

• Netfilx

Source: Nielsen Online, www.nielsenonline.com.

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RETAIL INTERMEDIARIES

FASTEST GROWING RETAIL CATEGORIES

• Video games

• Sports and fitness

• Home, garden, and furniture

• Event tickets

• Consumer electronics

TYPES of RETAIL STORES

Types Examples

Department Store Dillards, JC Penney, Richeys

Discount Store Wal-Mart, Target

Supermarket Safeway, Kroger, Albertson’s

Warehouse Club Costco, Sam’s Club

Convenience Store 7-Eleven

Category Killer Toys-R-Us, Bass Pro Shops, Office Depot

Outlet Store Nordstrom Rack, TJ Maxx, Nike Outlet

Specialty Store Jewelry store, shoe stores, bicycle shops sell a wide selection of goods in one category

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RETAIL INTERMEDIARIES

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

machines. Producers of snack foods (such as candy bars) are most likely to use

this strategy for their products.

• 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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RETAIL INTERMEDIARIES

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

Internet.

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

telephone.

Electronic/ Telemarketing Retailing

• Vending machines, kiosks, and carts dispense

convenience goods when consumers deposit

sufficient funds.15-27

NON-STORE RETAILING

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

or workplaces.

Forms of Non-Store Retailing

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NON-STORE RETAILING

• Multilevel Marketing uses salespeople who work as independent contractors who not

only sell the product, but also recruit additional salespeople.

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

ultimate customers.

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NON-STORE RETAILING

Electronic RetailingCOME BACK AGAIN!

Retail Web Sites with the Highest Customer Satisfaction

• Amazon

• Netflix

• QVC

• Apple

• L.L. Bean

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NON-STORE RETAILING

Electronic RetailingRETAIL WEB SITES with the LOWEST

CUSTOMER RATING • Circuit City –

Now Bankrupt!

• Gap

• Home Shopping Network

• Overstock

• Home Depot Source: ForeSee Results, www.forseeresults.com.

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. If the manufacturer owns the retail firm, clearly it can maintain a

great deal of control over its operations.

• Examples:

- Goodyear

Corporate Distribution System

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BUILDING COOPERATION IN CHANNEL SYSTEMS

- Sherwin Williams

• I sell paint for Sherwin Williams!

• 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 System

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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

Administered 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 Chains

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BUILDING COOPERATION IN CHANNEL SYSTEMS

• 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.

• 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

• Firms may outsource to companies specializing in trade compliance to

determine what is needed to market products to global

customers.15-36

LOGISTICS: GETTING GOODS TO CONSUMERS EFFICIENTLY

Cumberland University, Lebanon, Tennessee

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

LOGISTICS APPLICATIONS

• 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

• 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

• 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

Trains Are Great for Large Shipments

• 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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LOGISTICS: GETTING GOODS TO CONSUMERS EFFICIENTLY

Intermodal Shipping

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GET YOUR PRODUCT THEREMost Popular Modes of Freight Transport

LOGISTICS: GETTING GOODS TO CONSUMERS EFFICIENTLY

Method % of Distributors

Trucks 69%

Trains 15%

Pipelines 10%

Ships 6%

Air Under 1%

Source: U.S. Freight Transportation Forecast 2008.

• 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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LOGISTICS: GETTING GOODS TO CONSUMERS EFFICIENTLY

The Storage Function

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The End!