copyright © 2003 by south-western. all rights reserved. chapter fifteen distributing goods and...

Copyright © 2003 by South-Western. All Rights Reserved.

CHAPTER FIFTEENCHAPTER FIFTEEN

DISTRIBUTING GOODS AND DISTRIBUTING GOODS AND SERVICESSERVICES

Text by Profs. Gene Boone & David KurtzText by Profs. Gene Boone & David KurtzMultimedia Presentation byMultimedia Presentation byProf. Milton PressleyProf. Milton PressleyThe University of New OrleansThe University of New Orleans

[email protected]@uno.edu


• Summarize the ways distribution creates value for Summarize the ways distribution creates value for customers and competitive advantage for customers and competitive advantage for businesses.businesses.

• Identify the various categories of distribution Identify the various categories of distribution channels and the factors that influence channel channels and the factors that influence channel selection.selection.

• Discuss the roles marketing intermediaries play in Discuss the roles marketing intermediaries play in distribution channels.distribution channels.

• Explain how retailers effectively use pricing, Explain how retailers effectively use pricing, promotion, location, and merchandise selection to promotion, location, and merchandise selection to compete.compete.

LEARNING GOALSLEARNING GOALSLEARNING GOALSLEARNING GOALS


• Identify and briefly describe each of the major Identify and briefly describe each of the major components of an effective distribution strategy.components of an effective distribution strategy.

• List the different types of conflict that can occur in List the different types of conflict that can occur in a distribution channel and the methods firms use to a distribution channel and the methods firms use to reduce channel conflict.reduce channel conflict.

• Describe the importance of logistics in controlling Describe the importance of logistics in controlling the supply chain.the supply chain.

• Explain how the components of a physical Explain how the components of a physical distribution system work together to reduce costs distribution system work together to reduce costs and meet customer service standards.and meet customer service standards.

• Compare the alternative transportation modes on Compare the alternative transportation modes on the bases of flexibility, dependability, and cost.the bases of flexibility, dependability, and cost.

LEARNING GOALSLEARNING GOALSLEARNING GOALSLEARNING GOALS


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CHAPTER OVERVIEWCHAPTER OVERVIEWCHAPTER OVERVIEWCHAPTER OVERVIEW

• Distribution: Distribution: process of process of moving goods and services moving goods and services from the producer to buyers.from the producer to buyers.


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CHAPTER OVERVIEWCHAPTER OVERVIEWCHAPTER OVERVIEWCHAPTER OVERVIEW• Examines the basic distribution Examines the basic distribution

strategies and marketing intermediaries strategies and marketing intermediaries that help to move goods and services that help to move goods and services from producers to buyers from producers to buyers

• Discusses criteria for making decisions Discusses criteria for making decisions about where to offer products for sale about where to offer products for sale and the contributions of successful and the contributions of successful distribution strategies to a firm’s distribution strategies to a firm’s competitiveness. competitiveness.

• Examines logistics, the process of Examines logistics, the process of physically moving information, goods, physically moving information, goods, and services.and services.


DISTRIBUTION STRATEGYDISTRIBUTION STRATEGYDISTRIBUTION STRATEGYDISTRIBUTION STRATEGY

• Distribution channel: Distribution channel: path through which path through which products -- and legal products -- and legal ownership of them -- ownership of them -- flow from producer to flow from producer to the final customerthe final customer


Figure 15.1Alternative Distribution Channels

Figure 15.1Alternative Distribution Channels


Types of Distribution ChannelsTypes of Distribution ChannelsTypes of Distribution ChannelsTypes of Distribution Channels

• Direct distribution channel: Direct distribution channel: distribution channel that moves distribution channel that moves goods directly from producer to goods directly from producer to ultimate user.ultimate user.

• MMarketing intermediary: arketing intermediary: channel member, either channel member, either wholesaler or retailer, that wholesaler or retailer, that moves goods between producer moves goods between producer and consumer or business user.and consumer or business user.

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Direct DistributionDirect DistributionDirect DistributionDirect Distribution

• Shortest and simplest means of Shortest and simplest means of connecting producers and connecting producers and customerscustomers

• Advantageous when marketing Advantageous when marketing relatively expensive, complex relatively expensive, complex goods that require demonstrationgoods that require demonstration

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Distribution Channels Using Distribution Channels Using Marketing IntermediariesMarketing IntermediariesDistribution Channels Using Distribution Channels Using Marketing IntermediariesMarketing Intermediaries

• Retailer: Retailer: channel member that channel member that sells goods and services to sells goods and services to individuals for their own use rather individuals for their own use rather than for resale.than for resale.

• Wholesaling intermediary: Wholesaling intermediary: channel member that sells goods channel member that sells goods primarily to retailers, other primarily to retailers, other wholesalers, or business users.wholesalers, or business users.

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Figure 15.2Figure 15.2Quill.com: An Online Quill.com: An Online Wholesaling Wholesaling Intermediary Intermediary

Figure 15.2Figure 15.2Quill.com: An Online Quill.com: An Online Wholesaling Wholesaling Intermediary Intermediary


Moving Goods through Moving Goods through Marketing IntermediariesMarketing IntermediariesMoving Goods through Moving Goods through Marketing IntermediariesMarketing Intermediaries

• Most commonly used channels Most commonly used channels using intermediaries are:using intermediaries are:• Producer to retailer to consumerProducer to retailer to consumer• Producer to wholesaler to retailer to Producer to wholesaler to retailer to

consumerconsumer• Producer to wholesaler to wholesaler to Producer to wholesaler to wholesaler to

retailer to consumerretailer to consumer• Producer to wholesaler to business userProducer to wholesaler to business user

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Functions of Marketing Functions of Marketing IntermediariesIntermediariesFunctions of Marketing Functions of Marketing IntermediariesIntermediaries

• Add utility to the Add utility to the distribution chain by distribution chain by smoothing the distribution smoothing the distribution process. process.

• Help ensure that products Help ensure that products are available for sale when are available for sale when and where customers want and where customers want to purchase them. to purchase them.

• Simplify exchanges of Simplify exchanges of ownership required to ownership required to complete transactions.complete transactions.

Creating Creating UtilityUtility




• Intermediaries often Intermediaries often specialize in certain specialize in certain functions, so they can functions, so they can perform these perform these activities more activities more efficiently than efficiently than producers or the final producers or the final customers could on customers could on their owntheir own


Providing Providing ServicesServices



Figure 15.3 Services Performed by Marketing Intermediaries

Figure 15.3 Services Performed by Marketing Intermediaries



• By representing By representing numerous producers, a numerous producers, a marketing intermediary marketing intermediary actually cuts the costs of actually cuts the costs of buying and sellingbuying and selling

• If they buy in large If they buy in large quantities, intermediaries quantities, intermediaries may qualify for quantity may qualify for quantity discounts, which can discounts, which can allow them to pass along allow them to pass along cost savings to customers. cost savings to customers.



Reducing Reducing CostsCosts

Reducing Reducing CostsCosts


Figure 15.4 Reducing Transactions through Marketing Intermediaries

Figure 15.4 Reducing Transactions through Marketing Intermediaries


Figure 15.5 Categories of Wholesaling Intermediaries

Figure 15.5 Categories of Wholesaling Intermediaries

WHOLESALINGWHOLESALINGWHOLESALINGWHOLESALING


WHOLESALINGWHOLESALINGWHOLESALINGWHOLESALING

• Manufacturer-Owned Manufacturer-Owned Wholesaling IntermediariesWholesaling Intermediaries• Two main types of manufacturer-Two main types of manufacturer-

owned wholesaling intermediariesowned wholesaling intermediaries• Sales branchesSales branches• Sales officesSales offices


WHOLESALINGWHOLESALINGWHOLESALINGWHOLESALING• Independent Wholesaling Independent Wholesaling

IntermediariesIntermediaries• Classified as either merchant wholesalers or Classified as either merchant wholesalers or

agents and brokers depending on whether agents and brokers depending on whether they take title to the products they handlethey take title to the products they handle

• Merchant wholesalersMerchant wholesalers• Full-functionFull-function

• Rack-jobberRack-jobber

• Limited-functionLimited-function• Drop-shipperDrop-shipper


WHOLESALINGWHOLESALINGWHOLESALINGWHOLESALING• Agents and BrokersAgents and Brokers

• Manufacturer’s agents Manufacturer’s agents (Manufacturers’ reps or (Manufacturers’ reps or Independent reps)Independent reps)

• Sales agentsSales agents• Auction housesAuction houses


Retailer-Owned Cooperatives Retailer-Owned Cooperatives and Buying Officesand Buying OfficesRetailer-Owned Cooperatives Retailer-Owned Cooperatives and Buying Officesand Buying Offices

• Retailers sometimes band together to Retailers sometimes band together to form their own wholesaling form their own wholesaling organizations in the form of aorganizations in the form of a• Buying group Buying group • Cooperative Cooperative

• Set up to reduce costs or to provide Set up to reduce costs or to provide some special service not readily some special service not readily available in the marketplace.available in the marketplace.


RETAILINGRETAILINGRETAILINGRETAILING

• Wheel of Retailing:Wheel of Retailing: theory theory explaining changes in retailing as a explaining changes in retailing as a process in which new retailers gain process in which new retailers gain a competitive foothold by offering a competitive foothold by offering low prices and limited services, low prices and limited services, then add services and raise prices, then add services and raise prices, creating opportunities for new low-creating opportunities for new low-price competitors.price competitors.


Figure 15.6 The Wheel of Retailing

Figure 15.6 The Wheel of Retailing


Types of RetailersTypes of RetailersTypes of RetailersTypes of Retailers

• Nonstore retailers:Nonstore retailers: do not sell through do not sell through physical storefrontsphysical storefronts

• Store retailers: Store retailers: maintain traditional, maintain traditional, physical storefrontsphysical storefronts

• Many retailers span Many retailers span both categoriesboth categories


• Reaching prospective Reaching prospective customers through customers through catalogs, telemarketing, catalogs, telemarketing, ads in magazines, ads in magazines, newspapers, and on TVnewspapers, and on TV

• Customers choose this Customers choose this method of shopping for method of shopping for convenience and, convenience and, typically, superior typically, superior customer servicecustomer service

Nonstore RetailersNonstore RetailersNonstore RetailersNonstore Retailers

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Direct-Response Retailing

Direct-Response Retailing


• Selling directly to Selling directly to customers via sites on customers via sites on the World Wide Webthe World Wide Web

• Many operate from Many operate from virtual storefrontsvirtual storefronts• Maintain little or no Maintain little or no

inventoryinventory• Order directly from vendors Order directly from vendors

to fill customer ordersto fill customer orders

• Has grown rapidlyHas grown rapidly• Sales forecasted to exceed Sales forecasted to exceed

$140 billion within the next $140 billion within the next few yearsfew years


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Direct-Response Direct-Response RetailingRetailing

Internet RetailingInternet Retailing


• Automatic merchandising Automatic merchandising through vending machinesthrough vending machines

• More than $1 out of every More than $1 out of every $10 spent on soft drinks $10 spent on soft drinks goes into vending machinesgoes into vending machines

• Appropriate for convenience Appropriate for convenience productsproducts

• Ability of machines to Ability of machines to accept paper currency or accept paper currency or credit cards has expanded credit cards has expanded salessales


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Automatic Merchandising

Automatic Merchandising


• Salespeople offer products Salespeople offer products directly to consumersdirectly to consumers

• Examples:Examples:• Kirby and ElectroluxKirby and Electrolux• AvonAvon• AmwayAmway

• Another form of direct Another form of direct retailing is Party-plan retailing is Party-plan selling as practiced by:selling as practiced by:• TupperwareTupperware• Mary Kay CosmeticsMary Kay Cosmetics


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Automatic Automatic MerchandisingMerchandising

Direct RetailingDirect Retailing


Store RetailersStore Retailers


How Retailers CompeteHow Retailers CompeteHow Retailers CompeteHow Retailers Compete

• First step in developing a First step in developing a competitive retailing strategycompetitive retailing strategy

• Requires careful evaluation of :Requires careful evaluation of :• Size and profit potential of the Size and profit potential of the

chosen market segmentchosen market segment• Current level of competition for Current level of competition for

the segment’s businessthe segment’s business

Identifying aIdentifying aTarget MarketTarget Market



Figure 15.8 Clothing for the babyGap Target MarketFigure 15.8 Clothing for the babyGap Target MarketFigure 15.8 Clothing for the babyGap Target MarketFigure 15.8 Clothing for the babyGap Target Market



ProductProductStrategyStrategy


• Determining the best mix Determining the best mix of merchandise to carry to of merchandise to carry to satisfy the target marketsatisfy the target market

• Deciding onDeciding on• General product categoriesGeneral product categories• Product LinesProduct Lines• VarietyVariety





Customer Customer Service StrategyService Strategy


• Some stores offer customers a Some stores offer customers a wide variety of services, such wide variety of services, such as gift wrapping, alterations, as gift wrapping, alterations, return privileges, interior return privileges, interior design services and deliverydesign services and delivery• Less obvious service includes Less obvious service includes

making shopping easy, fast and making shopping easy, fast and convenientconvenient

• Alternative is to offer only Alternative is to offer only bare-bones service – stressing bare-bones service – stressing low prices instead low prices instead






PricingPricingStrategyStrategy


• Based on costs and services Based on costs and services offered to customersoffered to customers

• Pricing can play a major role in Pricing can play a major role in consumer's perceptions of a consumer's perceptions of a retailerretailer

• Pricing strategy must support Pricing strategy must support the firm’s overall marketing the firm’s overall marketing objectives and policiesobjectives and policies







LocationLocationStrategyStrategy


• Can make the difference Can make the difference between success and failurebetween success and failure

• Depends on the retailer’s size, Depends on the retailer’s size, financial resources, product financial resources, product offerings, competition, and offerings, competition, and target markettarget market

• Planned shopping center: Planned shopping center: group of retail stores planned, group of retail stores planned, coordinated, and marketed as a coordinated, and marketed as a unit to shoppers in a geographic unit to shoppers in a geographic trade areatrade area





PromotionalPromotionalStrategyStrategy





• Advertisements and other Advertisements and other promotions developed to both:promotions developed to both:• Stimulate demandStimulate demand• Provide informationProvide information

• Store personnel also play a key Store personnel also play a key role in a retailer’s promotional role in a retailer’s promotional strategystrategy






StoreStoreAtmosphereAtmosphere

StoreStoreAtmosphereAtmosphere




• Store atmospherics: Store atmospherics: the physical the physical characteristics of a store and its characteristics of a store and its amenities -- influences consumer amenities -- influences consumer perceptionsperceptions

• Begins with the store’s exteriorBegins with the store’s exterior• Interior elements include layout, Interior elements include layout,

merchandise, presentation, merchandise, presentation, lighting, color, sounds, and lighting, color, sounds, and cleanlinesscleanliness



Global RetailingGlobal RetailingGlobal RetailingGlobal Retailing• U.S. market’s saturation limits U.S. market’s saturation limits

opportunitiesopportunities• Some U.S. retails developing Some U.S. retails developing

markets overseasmarkets overseas• Toys ‘R’ UsToys ‘R’ Us• Wal-MartWal-Mart• Pier 1 ImportsPier 1 Imports

• Foreign retailers operate in U.S.Foreign retailers operate in U.S.• BenettonBenetton• Food LionFood Lion• IKEAIKEA• CarrefourCarrefour


Distribution Strategy DecisionsDistribution Strategy DecisionsDistribution Strategy DecisionsDistribution Strategy Decisions

• Most basic strategic decisions Most basic strategic decisions include:include:• Selection of a specific distribution Selection of a specific distribution

channelchannel• Level of distribution intensityLevel of distribution intensity

• Also, need to pinpoint strategies to:Also, need to pinpoint strategies to:• Manage distribution channelsManage distribution channels• Limit conflict between channel Limit conflict between channel

membersmembers

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Selecting a Distribution ChannelSelecting a Distribution ChannelSelecting a Distribution ChannelSelecting a Distribution Channel

Figure 15.9Figure 15.9Factors Factors Affecting Affecting Channel Channel ChoiceChoice

Figure 15.9Figure 15.9Factors Factors Affecting Affecting Channel Channel ChoiceChoice


Selecting Distribution IntensitySelecting Distribution IntensitySelecting Distribution IntensitySelecting Distribution Intensity

• Distribution intensity: Distribution intensity: the number the number of intermediaries or outlets through of intermediaries or outlets through which a manufacturer distributes its which a manufacturer distributes its goodsgoods

• Levels of intensity include:Levels of intensity include:• Intensive distributionIntensive distribution• Selective distributionSelective distribution• Exclusive distributionExclusive distribution

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Figure 15.10Figure 15.10Selective Distribution Selective Distribution of Godiva Ice Creamof Godiva Ice Cream

Figure 15.10Figure 15.10Selective Distribution Selective Distribution of Godiva Ice Creamof Godiva Ice Cream


Managing Distribution ChannelsManaging Distribution ChannelsManaging Distribution ChannelsManaging Distribution Channels

• Channel captain: Channel captain: dominant dominant company that exerts the most company that exerts the most power in a distribution channelpower in a distribution channel

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Managing Distribution ChannelsManaging Distribution ChannelsManaging Distribution ChannelsManaging Distribution Channels

• Horizontal channel Horizontal channel conflict: conflict: when when disagreements erupt among disagreements erupt among members at the same level members at the same level in the distribution chain in the distribution chain

• Vertical channel conflict: Vertical channel conflict: occurs between members at occurs between members at different levels in the different levels in the distribution chaindistribution chain


LOGISTICS AND PHYSICAL LOGISTICS AND PHYSICAL DISTRIBUTIONDISTRIBUTIONLOGISTICS AND PHYSICAL LOGISTICS AND PHYSICAL DISTRIBUTIONDISTRIBUTION

• Supply chain: Supply chain: complete sequence complete sequence of suppliers that contribute to of suppliers that contribute to creating and delivering a good or creating and delivering a good or serviceservice

• Logistics: Logistics: all business activities all business activities involved in managing movements involved in managing movements of goods through the supply chain.of goods through the supply chain.

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Physical DistributionPhysical DistributionPhysical DistributionPhysical Distribution• Physical distribution: Physical distribution: activities aimed activities aimed

at efficiently moving finished goods at efficiently moving finished goods from the production line to the consumerfrom the production line to the consumer

Figure 15.11 Elements of a Physical Distribution Figure 15.11 Elements of a Physical Distribution SystemSystemFigure 15.11 Elements of a Physical Distribution Figure 15.11 Elements of a Physical Distribution SystemSystem


Physical DistributionPhysical DistributionPhysical DistributionPhysical Distribution

• Customer service standards: Customer service standards: the the quantitative guidelines set by a firm quantitative guidelines set by a firm to specify the quality of service it to specify the quality of service it intends to provide for its customers intends to provide for its customers

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Transporting GoodsTransporting GoodsTransporting GoodsTransporting Goods

• Which transportation Which transportation option to use to ship option to use to ship products depends on products depends on several factors as outlined several factors as outlined in Table 15.2in Table 15.2

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Figure 15.10 Mergers in the Railroad IndustryFigure 15.10 Mergers in the Railroad IndustryFigure 15.10 Mergers in the Railroad IndustryFigure 15.10 Mergers in the Railroad Industry


WarehousingWarehousingWarehousingWarehousing

• Warehousing: Warehousing: storing products as storing products as they move through the distribution they move through the distribution channelchannel

• Two types of warehouses: Two types of warehouses: • Storage warehouses:Storage warehouses: hold goods for hold goods for

moderate to long periodsmoderate to long periods• Distribution warehouses: Distribution warehouses: temporary temporary

storage facilities, often holding goods storage facilities, often holding goods for 24 hours or lessfor 24 hours or less

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Materials HandlingMaterials HandlingMaterials HandlingMaterials Handling• Materials handling: Materials handling: physical physical

distribution activity that moves items distribution activity that moves items within plants, warehouses, transportation within plants, warehouses, transportation terminals, and stores terminals, and stores

• Unitization: Unitization: involves combining as involves combining as many packages as possible into one load many packages as possible into one load to be handled by a single truck or forkliftto be handled by a single truck or forklift

• Containerization:Containerization: collects packages, collects packages, usually from several unitized loads, into usually from several unitized loads, into a compact form that is relatively easy to a compact form that is relatively easy to transfer.transfer.

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Inventory ControlInventory ControlInventory ControlInventory Control

• Inventory: Inventory: the amount of the amount of finished goods the company finished goods the company has ready for distributionhas ready for distribution

• Inventory control: Inventory control: involves involves balancing the priority of balancing the priority of limiting costs of holding limiting costs of holding stocks with that of meeting stocks with that of meeting customer demandcustomer demand

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Order ProcessingOrder ProcessingOrder ProcessingOrder Processing

• Order processing (Fulfillment): Order processing (Fulfillment): includes all of the tasks required to includes all of the tasks required to prepare customer orders for prepare customer orders for shipment. It also involves the steps shipment. It also involves the steps involved in receiving shipments involved in receiving shipments when they arrive when they arrive

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WHAT’S AHEADWHAT’S AHEADWHAT’S AHEADWHAT’S AHEAD

• A look at how businesses use A look at how businesses use advertising, selling, and other advertising, selling, and other promotional methods to inform, promotional methods to inform, persuade, and remind customers persuade, and remind customers to buy their offeringsto buy their offerings

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