Distributing Products in a Timely Distributing Products in a Timely and Efficient Mannerand Efficient Manner

Distributing Products in a Timely Distributing Products in a Timely and Efficient Mannerand Efficient Manner

Chapter 15

Chapter 15 Learning GoalsChapter 15 Learning Goals

1.1. WWhat are physical distribution (logistics) and logistics management?

2.2. WWhat are distribution channels and their functions?

3.3. HHow can channels be organized?4.4. WWhen would a marketer use exclusive,

selective, or intensive distribution?5.5. WWhat is wholesaling, and what are the

types of wholesalers?

Chapter 15 Learning Goals Chapter 15 Learning Goals (cont’d.)(cont’d.)

6.6. WWhat are the different kinds of retail operations?

7.7. WWhat are the components of a successful retailing strategy?

8.8. WWhat are the functions of physical distribution?

9.9. WWhat are the trends in distribution?

Learning Goal 1Learning Goal 1

• WWhat are physical distribution (logistics) and logistics management?– Physical distribution

• Movement of products from the producer to industrial users and consumers

– Logistics management is managing the• Movement of raw materials

• Movement of materials and products within plants and warehouses

• Movement of finished goods to intermediaries and buyers

– Supply chain management• Helps increase the efficiency of logistics service by minimizing

inventory and moving goods efficiently

Physical Distribution (logistics)Physical Distribution (logistics)::

The movement of products from the producer to industrial users and consumers

Supply Chain ManagementSupply Chain Management::

Management of activities in a supply chain to minimize inventory and move goods efficiently

Logistics ManagementLogistics Management::

Management of the physical distribution process:– movement of raw materials– movement of materials and products within plants and

warehouses– movement of finished goods to intermediaries and buyers

Supply Chain for Compact DiscsSupply Chain for Compact Discs

Suppliers ofraw materials

Compact discfactory

Wholesaler orDistribution

Center

Retailers,Wholesalers,Distribution

Customers

Learning Goal 2Learning Goal 2

• WWhat are distribution channels and their functions?– Distribution channels are the series of

marketing entities through which goods and services pass on their way from producers to end users

– Channels• Reduce the number of transactions• Ease the flow of goods• Increase channel efficiency

Distribution ChannelsDistribution Channels::

A series of marketing entities through which goods and services pass on their way from producers to end users

Some Different Distribution ChannelsSome Different Distribution Channels

• Agents & brokers– electronic marketplaces on the Internet are doing what

brokers have traditionally done• requests for proposals, verifying credit, lining up

financing, arranging inspections, scheduling deliveries, collecting payment (Source: Entrepreneur, Jan. 2000, p. 22)

• Industrial distributors• Wholesalers• Retailers

Functions of Distribution ChannelsFunctions of Distribution Channels

• Reduce number of transactions• Ease the flow of goods

– account numbers help keep track of goods• individual digits can indicate type of account,

locations & addresses, & delivery routes• 15-digit numbers provide a quadrillion unique

combinations (Source: Fortune, Sept. 28, 1998, p. 66)

• Perform needed functions

Learning Goal 3Learning Goal 3

• HHow can channels be organized?– Vertical marketing systems

• Corporate system– One firm owns the entire channel

• Administrative system– A strong organization takes over as leader– Sets channel policies

• Contractual system– Independent firms coordinate their distribution activities by written contract

– Forward integration • When a manufacturer acquires a marketing intermediary closer to the

customer

– Backward integration • When wholesaler or retailer gains control over the production process

Vertical Marketing SystemVertical Marketing System::

An organized, formal distribution channel in which firms are aligned in a hierarchy from manufacturer to wholesaler to retailer

Types of VerticalTypes of VerticalMarketing SystemsMarketing Systems

• Corporate Distribution Systems– forward integration, backward

integration

• Administrative Distribution Systems

• Contractual Distribution Systems

Learning Goal 4Learning Goal 4

• WWhen would a marketer use exclusive, selective, or intensive distribution?– Exclusive distributionExclusive distribution (one or two dealers in an area)

• Used when products are in high demand in the target market

– Selective distributionSelective distribution• Limited number of dealers per area, but more than one or two

• Used for consumer shopping goods, some specialty goods, and some industrial accessories

– Intensive distributionIntensive distribution• Manufacturer sells its products in virtually every store willing to

carry them

• Used mainly for consumer convenience goods

Levels of Market CoverageLevels of Market Coverage

• ExclusiveExclusive distribution– 1-2 dealers market all products

• SelectiveSelective distribution– a few dealers market all products

• IntensiveIntensive distribution– products sold wherever possible

Learning Goal 5Learning Goal 5

• WWhat is wholesaling, and what are the types of wholesalers?– Wholesalers sell finished products to retailers or other

institutions such as manufacturers, schools, and hospitals– Provide a wide variety of services such as storing

merchandise, financing inventory, breaking bulk, providing rapid delivery, and supplying market information

– Types of wholesalers• Merchant wholesalers

– Buy from manufacturers and sell to other businesses

• Agents and Brokers– Independents who provide buying and selling services– Receive commissions according to their sales

WholesalersWholesalers::

Channel members that buy finished products from manufacturers and sell the products to consumers–merchant wholesalers

–agents and brokers

WholesalingWholesalingWholesaling

Intermediaries

MerchantWholesalers

Agents &Brokers

Full-service Limited service

Retailers orindustrial users

Customers

Manufacturer

Learning Goal 6Learning Goal 6

• WWhat are the different kinds of retail operations?– In-store operations In-store operations

• Department stores• Mass-merchandising shopping chains• Specialty stores• Discount stores• Off-price retailers• Factory outlets• Catalog showrooms

– Nonstore retailingNonstore retailing• Vending machines• Direct sales• Direct-response marketing• Internet retailing (e-commerce)

Types of RetailersTypes of RetailersIn-store:In-store:

• department store

• specialty store

• variety store

• convenience store

• supermarket

• discount store

• factory outlet

• hypermart

Non-store:Non-store:

• vending machine

• direct selling

• direct-response marketing

• home shopping network

• e-commerce

Learning Goal 7Learning Goal 7

• WWhat are the components of a successful retailing strategy?– DefiningDefining a target market– DevelopingDeveloping a product offering– CreatingCreating an image and a promotional strategy– ChoosingChoosing a location– SettingSetting prices– Important factors in creating a store’s atmosphere:

• Employee types and density• Merchandise type and density• Fixture type and density• Sound and odors

Components of Retailing StrategyComponents of Retailing Strategy

• Define target market

• Develop product offering– efficient consumer response (ECR)

• Create image & promotional strategy

• Choose location

• Set prices

Gillette’s Retailing StrategyGillette’s Retailing Strategy

Gillette’s retail strategy involves:– targeting a new market overseas– open the new market with shaving

products– distributing several other Gilette

products through the same pipeline• the strategy steadily reduces

distribution costs in the new market

Source: Neff & Citrin, Lessons from the Top, 1999, p. 348.

Learning Goal 8Learning Goal 8

• WWhat are the functions of physical distribution?– Choosing a warehouse location and type– Setting up a materials-handling system– Choosing modes of transportation

• Criteria for selecting a mode of transportation include:– Cost– Transit time– Reliability– Capability – Accessibility– Traceability

Physical Distribution to Increase Physical Distribution to Increase Efficiency & SatisfactionEfficiency & Satisfaction

• Choose warehouse location & type

• Set up materials-handling system

• Make transport decisions– cost

– transit time

– reliability

–capability

–accessibility

–traceability

Efficiency Afforded by FedExEfficiency Afforded by FedEx

• FedEx can trace packages so well that it has replaced the need for some companies to store goods in warehouses at all

• This enables direct distribution to customers, a strategy that was pioneered by Dell Computers

Source: Neff & Citrin, Lessons from the Top, 1999, p. 278.

Comparing Modes of TransportationComparing Modes of Transportation

Highest Lowest

Relative cost airair truck rail pipe water

Transit time water rail pipepipe truck airair

Reliability pipepipe truck rail airair water

Capability water rail truck airair pipepipe

Accessibility truck rail airair water pipepipe

Traceability airair truck rail water pipepipe

Learning Goal 9Learning Goal 9

• WWhat are the trends in distribution?– Stocklifting or buyback

• Company buys all of its competitor’s stock from a retailer• Replaces inventory with its own merchandise

– Physical distribution for services • Becoming increasingly important • Service providers must build good relationships with customers

– Minimizing wait times– Managing service capacity– Improving service delivery through new distribution channels

– E-Commerce• Web shopping is safe, quick, and convenient• Enables consumers to compare product features and prices easily• Consumers can use the Internet to shop all over the world

Trends in DistributionTrends in Distribution

Increase in stocklifting practice purchasing all of a competitor’s products &

replacing it with their own CAM International sells stocklifted automotive

parts to wholesalers at 30%-75% discount (Source: CAM International, www.caminternational.com)

Growth in service distribution minimize waiting, increase capacity, new

distribution channels