Chapter 2Chapter 2

The Channel Participants

Major Participants in the Marketing Major Participants in the Marketing

ChannelChannel

22Objective 1:

Producers&

Manufacturers

WholesaleIntermediaries

RetailIntermediaries

Intermediaries

Consumers Industries

Final Users

* Commercial Channel * Target Markets

11Objective 2:

Why shift distribution tasks to Why shift distribution tasks to intermediaries?intermediaries?

Producers &

Manufacturers

• lack expertise• lack economies of scale

Intermediaries

• spread high fixed costs over large quantities of

diverse products• achieve economies of

scope and economies of scale

22Example:Example: Distribution of Distribution of CrayonsCrayons

• Huge order processing facility• Huge inventory• Several warehouse locations• Transportation of product to consumers

= cost prohibitive

Manufacturer directto customers

22Objective 3:

Major Types of WholesalersMajor Types of Wholesalers

Merchantwholesaler

Agents, brokers,&

commissionmerchants

Independentmiddlemen

Manufacturers'sales branches

&offices

Manufacturerowned

All Wholesale Firms

22Merchant WholesalersMerchant Wholesalers

BuyTake title to

StoreHandle

Large quantities of products

Resell to

Retailers

Industrial,commercial, orinstitutional concerns

otherWholesalers

22Agents, Brokers, & Commission Agents, Brokers, & Commission MerchantsMerchants

Involved in buying & selling

while acting on behalf of clients

Involved in buying & selling

while acting on behalf of clients

Commissions on

sales or purchases

Commissions on

sales or purchases

22

Owned & operated by manufacturers

Distribute manufacturer’s

products at wholesale

Some wholesale allied & supplementary products

purchased from other manufacturers.

Manufacturers’ Sales Branches & Manufacturers’ Sales Branches & OfficesOffices

Separated from manufacturing plants

Major Trends in Wholesale StructureMajor Trends in Wholesale Structure22Objective 4:

69.7% Manufacturer’s sales branches& offices

60.8% Wholesale trade

57.8% Merchant wholesalers

50.0% Agents, brokers, & commission

merchants

1987—1997

22Trends in Trends in SizeSize & & ConcentrationConcentration

Measured by: Types of Wholesalers

Size of wholesaler

Majority are small businesses

Sales volume Nearly 40% of all firms have annual sales of less than $1 million

# of Employees per firm Almost 50% of firms had fewer than 5 employees

Economic concentration in terms of % of total

sales

50 largest manufacturers’ sales branches & offices garnered nearly 53% of sales for this

type

22

Merchant Wholesalers Merchant Wholesalers SpecializeSpecialize in in Performance Distribution TasksPerformance Distribution Tasks

Objective 5:

• Operate at high levels of effectiveness and efficiency • Average cost curves lower than those for their suppliers

Provide market coverage Make sales contacts Hold inventory Process orders Gather market information Offer customer support

Merchant Wholesalers’ Merchant Wholesalers’ Distribution Tasks Serve Distribution Tasks Serve

CustomersCustomers

22

Assure product availability

Provide customer service Extend credit & financial

assistance Offer assortment

convenience Break bulk Help customers with

advice &technical support

22Agent Wholesalers’ Distribution Agent Wholesalers’ Distribution TasksTasks

Manufacturers’ Agents

Market coverage

Sales contacts

22Agent Wholesalers’ Distribution Agent Wholesalers’ Distribution TasksTasks

Market coverage

Sales contacts Order

processingMarketing

information

Product availability

Customer services

Selling agents

22Agent Wholesalers’ Distribution Agent Wholesalers’ Distribution TasksTasks

Brokers

Market coverage

Sales contacts Order

processingMarketing

information

Product availability

Customer services

Agent Wholesalers’ Distribution Agent Wholesalers’ Distribution TasksTasks

22

CommissionMerchant

Market coverage

Sales contacts Order

processingBreaking bulkCreditHolding

inventory

Retail StructureRetail Structure22Objective 6:

• By Ownership of Establishment

• By Kind of Business (Merchandise Handled)

• By Size of Establishment• By Degree of Vertical

Integration• By Type of Relationship with

other Business Organizations

• By Method of Consumer Contact

• By Type of Location• By Type of Service Rendered• By Legal Form of

Organization• By Management

Organizations or Operational Technique

Alternative Bases for Classifying Retailers

Kind-of-Business ClassificationsKind-of-Business Classifications22

Retail Trade

• Motor vehicle & parts dealers• Furniture & home furnishings

stores• Electronics & appliance

stores• Building material & garden

equip. & supply dealers• Food & beverage stores• Health & personal care

stores

• Gasoline stations• Clothing & clothing

accessories stores• Sporting goods, hobby, book,

& music stores• General merchandise stores• Miscellaneous store retailers• Nonstore retailers

Retail Structure TrendsRetail Structure TrendsObjective 7: 11

Decreasing number of establishments

Increasing sales

= increase in size of retail establishments measured by average sales volume

per store

11Concentration in RetailingConcentration in Retailing

In 1997

4% of all retail firms accounted for nearly 80%

of total sales!!

Distribution Tasks Performed by Retailers Distribution Tasks Performed by Retailers 22

The role of the retailer in the distribution channel, regardless of his size or type, is to interpret the demands of his customers and to find and stock the goods these customers want, when they want them, and in the way they want them. This adds up to having the right assortments at the time customers are ready to buy.

— Charles Y. Lazarus

Objective 8:

22Distribution Tasks Performed by Distribution Tasks Performed by

RetailersRetailers

• Offer manpower & physical facilities close to consumers’ residences

• Provide personal assistance to help sell products

• Interpret and relay consumer demand• Divide large quantities into consumer-sized

lots• Offer storage• Remove risk by ordering in advance of the

season

• Offer manpower & physical facilities close to consumers’ residences

• Provide personal assistance to help sell products

• Interpret and relay consumer demand• Divide large quantities into consumer-sized

lots• Offer storage• Remove risk by ordering in advance of the

season

Retailers’ Growing Power in Retailers’ Growing Power in Marketing ChannelsMarketing Channels

22Objective 9:

Increased size & buying power

Become power retailers &

category killers

Application of advancedTechnologies

Information technology & the Internet;

threetailing

Use of modern marketing strategies

Modern techniques; relationship marketing

Facilitating Agencies in Marketing Facilitating Agencies in Marketing ChannelsChannels

Objective 10: 22

• Transportation agencies• Storage agencies• Order processing agencies• Advertising agencies• Financial agencies• Insurance companies• Marketing research firms