Chapter 14:Supply Systems

Wholesaling

wholesaling involves any sale that is not a retail sale; to other businesses for resale, for use in other products, or use in the business

wholesalers provide a valuable service in bringing manufacturers and retailers together

wholesaling requires bringing together the economies of skill, scale, and transactions

the wholesale market is bigger than the retail market.... how can that be?

Figure 14-1 The Economy of Transacting in Wholesaling

Figure 14-2 Types of Wholesaling Institutions

Figure 14-3 Wholesale Trade Customers

Categories of Wholesalers

merchant wholesalers take title to the products that they handle; perform wide range of services

manufacturers’ sales branches and offices are owned and operated by the manufacturers

agents and brokers negotiate sales but do not take title to the products they sell

primary products dealers deal primarily in raw materials such as agricultural products

Merchant Wholesalers

full-service wholesalers perform a wide range of services for the suppliers they represent

they take title to the products that they carry they generally operate warehouses, create

assortments, and arrange delivery they buy in very large quantities and sell to small

customers in the assortments they need other wholesalers include truck jobbers and drop

shippers

Agent Wholesalers

these are independent businesses which may represent a number of suppliers

they do not take title to the products they sell manufacturers’ agents are generally smaller firms

that operate on commission; they are usually assigned to a specific territory

brokers often do not work on a continuing basis with suppliers but will bring buyers and sellers together; may not ever see the product

Distribution Channels

the distribution channel includes both the producer or supplier and the customer

intermediaries perform a number of functions on behalf of both producers and consumers

some producers shorten the channel by performing distribution functions themselves

regardless of who performs them, the distribution functions must be performed

Designing the Channel

channel design is a strategic marketing tool the firm must first decide what role

distribution is to play in achieving objectives what type of channel is needed? with or

without intermediaries? what level of intensity of distribution? which specific intermediaries to use? which

will be best suited to achieve objectives?

Figure 14-4 Sequence of Decisions to Design a Distribution Channel

Selecting the Type of Channel

some firms will distribute directly; others will use a number of intermediaries: producer consumer (direct) producer retailer consumer producer wholesaler retailer consumer producer agent retailer consumer producer agent wholesaler retailer consumer

when would each of these be considered?

Figure 14-5 Major Marketing Channels for Different Categories of Products

Multiple Distribution Channels

some firms will use several distribution channels to reach specific markets or segments

dual distribution is used, for example, to reach business and consumer markets, or to carry different groups of products

or may be used to reach different segments of the seller’s market; different sizes of buyers or different regions of the country

some companies operate their own stores

Vertical Marketing Systems

VMS is a tightly-controlled distribution system may be achieved through common ownership of

firms at several levels of the channel (corporate) a contractual VMS such as franchising involves

channel members operating under contract an administered VMS involves market co-

ordination through the economic power of one channel member, usually the supplier, whose brand equity or market position is strong

Factors Affecting Channel Choice

the selection of the shape, length, and nature of the distribution channel depends on:the needs, structure and behaviour of the

market, including number of customersthe nature of the product or servicenature and availability of intermediariescharacteristics and situation of the company

these factors will point the company toward the selection of a certain channel type

Intensity of Distribution

the number of intermediaries to be used depends on how consumers buy the product

intensive distribution has convenience products sold in a large number of outlets

selective distribution involves using fewer outlets to sell mostly shopping goods

specialty products are usually sold through exclusive distribution as consumers are prepared to search for them

Figure 14-6 The Intensity-of-Distribution Continuum

Channel Conflict conflicts occasionally arise in distribution

channels horizontal conflict involves firms competing at

the same level of distribution vertical conflict occurs when producers bypass

intermediaries to sell direct, or set up dual distribution and compete with retailers

retailers have achieved considerable power in the distribution channel through information

Legal Aspects of Distribution

generally it is illegal for a supplier to refuse to supply an intermediary with products

exclusive dealing is not illegal unless it severely limits business in an area

tying contracts involve an intermediary being required to carry a supplier’s full line

exclusive sales territories are not considered to be illegal unless they lessen competition

Physical Distribution

firms have to be concerned with how products actually reach intermediaries and customers

physical distribution or logistics involves all activities that ensure that the right quantity of products get to the right place at the right time

activities include inventory handling and warehousing, materials handling, inventory control, order processing, and transportation

all of these activities are interrelated

Strategic Physical Distribution

good physical distribution systems can dramatically improve customer service

it is a very important component in an overall program to keep a company’s costs in line

it can provide a competitive advantage through the creation of time and place utility

it can serve to stabilize prices, can influence the firm’s channel selection decision, and reduce shipping and transportation costs

Figure 14-7 Economic Order Quantity