1

DISTRIBUTION CHANNELS, RETAILING & WHOLESALING

2

INTRODUCTION• When we decide to buy a product, we will consider the availability and

ease of finding the product in almost any shop or supermarket we wanted to go.

• We wanted the product available almost everywhere we go whether in supermarket, big superstore or even at small bus-stand corner stall.

• The availability of the product needed is depend on the effectiveness of distribution processes implemented by the company of the product.

• If the distribution activities related to the product are effective and well succeed, we will definitely get the product available at anywhere we go for our consumption.

• Therefore, in this chapter, we will discuss the aspect of distribution of products from the manufacturer (factory) until the end consumers’ home or we called as MARKETING CHANNEL or DISTRIBUTION CHANNEL.

3

INTRODUCTION

Good distribution network is important because it creates a strong competitive advantage for the organization.

Without proper distribution, products and services will have no way of reaching the consumer.

Examples of network and channel: Banking Industry – brokers, financial advisors, internet service

providers Insurance Industry – agents, internet service providers Air-lines industry – travel agencies, internet service providers

4

Manufacturers/Producer

Agents/brokers

Wholesalers/distributors

RetailersRetailers

Consumers and organizational end users

Basic Distribution Channel

DIRECT CHANNEL RETAIL CHANNEL WHOLESALE CHANNEL MULTI CHANNEL

5

FACTORS OF SELECTING THE DISTRIBUTION CHANNELS

1. Market factors (target group customers, geographical areas, market size, market competition)

2. Product factors (nature of products, complexity of products, brand value, stages of product life cycle, perish ability level)

3. Producer factors (resources, control, facilities, costs, image sensitivity, brand sensitivity, marketing objectives)

6

IMPORTANCE OF DISTRIBUTION CHANNELS

1. Reduction of Distribution Cost

2. Increase the efficiency of distribution

3. Increase the customers satisfaction

4. Reduction of time consume in handling the goods

5. Reduce the risk of damage and risk of delay

7

THE BASIC FUNCTION OF CHANNEL MEMBERS

1. Transporting & sorting goods

2. Collecting & disseminating market information

3. Identifying & communicating the products to the buyers

4. Matching the products with buyers’ needs

5. Ensuring product are available

6. Carrying out channel roles

MAIN ROLES OF DISTRIBUTION CHANNEL

1. Buying and assortment building

2. Bulk breaking

3. Warehousing/ Storage

4. Financing

5. Risk bearing

6. Market information

7. Management services and advice8

9

CHANNEL CONFLICT

• Refers to any type of disagreement and argument among marketing channel members on the following:

1. Goals of distributing the products

2. Roles (who should do what)

3. Rewards

SOURCE OF CONFLICT

1. Various objectives among channel members

2. Overlap power of distribution

3. Overlap activities performed by channel members

4. Different perceptions of roles

5. Abuse of powers among channel members

10

11

TYPES OF CHANNEL CONFLICT

Horizontal conflictdisagreement between channel members located at

the same level of a distribution channel for a similar product and different products

Example: • Conflict between wholesaler of Maggi Instant Noodles and

Maggi Sauces• Conflict between Wholesaler of Maggi Instant Noodles in

Kepong and Wholesaler of Maggi Instant Noodles in Cheras

12

TYPES OF CHANNEL CONFLICT

Vertical conflict

disagreement between channel members located at different levels of a distribution channel for a similar products ONLY.

Example: conflict between wholesaler of Maggi Instant

Noodles and retailers of Maggi Instant noodles.

RETAILING

13

14

RETAILING

Shown above are two biggest retailers that you are familiar with. Here, you can find anything you want such as fresh and frozen food, groceries, household needs, and apparel all under one roof.Now, let us look at the definition of retailing.

15

RETAILING DEFINITION• Retailing refers to all the activities directly related

to the sale of goods and services to the ultimate consumer for personal, non-business use.

• It is very important activity in distribution process.

• A retailer or retails store is any business enterprise whose sales volume comes primarily from retailing activities.

• The retail stores owner are retailers. They are one of the important member in the marketing channel.

16

EXAMPLES OF MALAYSIAN RETAILERS

Shown above are well-known examples of retailers in Malaysia

17

EXAMPLES OF MALAYSIAN RETAILERS

Shown above are well-known examples of retailers in Malaysia

18

THE 7 TYPES OF RETAILERS

1. Specialty store retailers

2. Department store retailers

3. Supermarket retailers

4. Discount store retailers

5. Convenience store retailers

6. Drug store retailers

7. Food store retailers (restaurants)

19

SPECIALTY STORE RETAILERS

20

TYPES OF RETAILERS• Specialty store retailers

– A retail store that offers specific and specialized types of items.

– The retailers that only specializing in selling special and specific products brand or product category.

– It focuses on selling a particular brand, or a particular type of item.

– Specifically to cater the specific needs of customers and markets.

– The product line is not length but very deep inside.

21

EXAMPLES OF SPECIALTY STORE RETAILERS

Specialization Example

Shoes

Toys

Perfumes & Toiletries

Beauty & Cosmetics

22

EXAMPLES OF SPECIALTY STORE RETAILERS

•Al-Ikhsan - specializes in sporting goods. •Ms Read - focuses on plus size women's apparel.•Poney - specializes in children's apparel.

23

DEPARTMENT STORE RETAILERS

24

TYPES OF RETAILERS• Department store retailers

– This store usually carry a wide variety of product lines typically clothing, home furnishing, electronic goods, furniture, cosmetics and household goods.

– There are different departments that handle different types of product groups.

– Each of this department is has its own “buyer”, a department head, who is responsible in choosing the merchandise for the department, promotion and human resource of the department.

– Sales are made within each department rather than at one central checkout area.

– Each of the department is treated as separate buying centre to achieve economics in promotion, buying, services, and control.

25

EXAMPLES OF DEPARTMENT STORE

Metrojaya and SOGO are the good examples of a department stores in Malaysia

26

SUPERMARKET STORE RETAILERS

(SUPERSTORE)

27

TYPES OF RETAILERS• Supermarket retailers (Superstore)

– This store is large, self-service, low cost, low margin and high volume retailer.

– It is a self service stores.

– They serve customers’ total needs for fresh foods, dried food, and some non-food items such as laundry, and households maintenance products.

– Located normally at business centres in housing areas or in shopping centres.

– It also sometimes offer discounts at the end of every year or during festivals through mega sales or year end sales.

28

EXAMPLES OF SUPERMARKET STORE

Cold Storage, Parkson Grand, Jaya Jusco, Giant, Tops, Hankyu Jaya, The Store are the good examples of supermarket stores in Malaysia and they offer a great variety of groceries and fresh foods.

29

DISCOUNT STORE RETAILERS

30

TYPES OF RETAILERS• Discount store retailers

– This store is operated by retailers that offer goods to their customers with a special low price

– The purpose is to attract larger number of customers and catch high turnover of their merchandise.

– There are various types of discount stores including full line discount store or mass merchandisers, hypermarket and super center.

– Discounters can be classified into four major categories: • full-line discount stores, • speciality discount stores, • warehouse clubs,

• off-price discount retailers

31

EXAMPLES OF DISCOUNT STORE

Makro, Reject Shop, IKEA, TESCO and Toys “R” Us are the good examples of discount stores in Malaysia and they offer a great variety of products.

32

DISCOUNT STORE:FULL-LINE DISCOUNT STORES

• A retailer that offers very limited service and carries a broad assortment of well-known, nationally branded “hard goods”.

• The goods are housewares, toys, automotive parts, hardware, sporting goods, and garden items, as well as clothing, bedding, and linens.

33

EXAMPLES OF FULL-LINE DISCOUNT STORES

Carrefour and TESCO are the good examples of Full Line Discount Stores in Malaysia

34

DISCOUNT STORE:SPECIALITY DISCOUNT STORES

• A retail store that offers a nearly complete selection of single-line merchandise and uses self-service, discount prices, high volume, and high turnover to their advantage.

• Often termed category killers because they so heavily dominate their narrow merchandise segment.

• They generally offer an extensive selection of merchandise at prices so low that smaller stores cannot compete.

35

EXAMPLES OF SPECIALTY DISCOUNT STORES

Toy “R” Us and IKEA are the good examples of Specialty Discount Stores in Malaysia

36

DISCOUNT STORE:WAREHOUSE CLUBS

• A limited service merchant wholesaler that sells a limited selection of brand name appliances, household items, and groceries.

• The term of sales is the cash-and-carry basis to members, usually small businesses and groups.

• Member of warehouse clubs is charged low or no membership

37

EXAMPLES OF WAREHOUSE CLUBS

Makro which already ceased operations in Malaysia was an example of a warehouse club

38

DISCOUNT STORE:OFF-PRICE DISCOUNT RETAILERS

• A retailer that sells at prices 25 percent or more below traditional department store prices because it pays cash for its stock and usually doesn’t ask for return privileges.

• Off-price retailers buy manufacturers’ overruns at cost or even less.

• They also absorb goods from bankrupt stores, irregular merchandise, and unsold end-of-season output.

39

EXAMPLES OF OFF-PRICE DISCOUNT STORE

Reject Shop in Malaysia,T.J. Maxx, and Factory 2 U in the United States are the good examples of Off-Price Discount Stores .

40

CONVENIENCE STORE RETAILERS

41

TYPES OF RETAILERS• Convenience store retailers

– A miniature supermarket, carrying only a limited line of high-turnover convenience goods.

– This store is small.

– It is usually set up near residential areas and remain open long hour (24 hours), seven days a week.

– It is usually charging high prices to make up for higher operating costs and lower sales volume.

– Typically located near residential areas and are open 24 hours, seven days a week.

42

EXAMPLES OF CONVENIENCE STORE

7-Eleven, Tiger-Mart Esso, Mobil-Mart, Kedai Mesra Petronas, ProJet and KK Super Mart are examples of convenience stores that are open 24-hours and seven days a week .

43

DRUG STORE RETAILERS

44

TYPES OF RETAILERS

• Drug store retailers

– Also known as pharmacies

– Sell medicines, healthcare products like vitamins, treatment oil, and toiletries.

– Have pharmacists that give advises and distribute controlled and doctors’ prescribed medicines.

45

EXAMPLES OF DRUG STORE

Guardian, and Vitacare pharmacy are examples of drug stores in Malaysia . They can be found throughout Malaysia.

46

FOOD RETAILERS

(RESTAURANTS)

47

TYPES OF RETAILERS

• Food retailers

– Restaurants overlap between retailing establishments and service establishments.

– Apart of selling tangible products such as food and drink, they also provide a valuable service for consumers in the form of food preparation and food service.

– Restaurants could even fall into the definition of a speciality retailer if they concentrate their menu offerings to a distinctive type of cuisine.

48

EXAMPLES OF FOOD STORE

Starbucks coffeehouse, Chicken Rice shop, and Pizza Hut pizza are examples of food stores in Malaysia . They can be found throughout Malaysia. they are the type of restaurants offer speciality in their menu offerings.

49

FACTORS FOR CLASSIFYING RETAILERS : OWNERSHIP

OWNERSHIP EXAMPLES

Independent Retailers

Laundry shop Shoe storesFlorists shop

Chain Stores The Store, The Parkson GroupStarbucks

Franchises Daily FreshEngland OpticalSecret Recipes

50

FACTORS FOR CLASSIFYING RETAILERS: LEVEL & AMOUNT OF SERVICE

• Retail stores can be categorized in accordance to the level of service they provide. They are:– Self-service:

– Self-service retailers allow customers to perform the process of search, compare, and collect goods for saving time or money purpose.

– For some consumers self-service is considered a benefit while others may view it as an inconvenience.

– It is mostly used in discount stores and by sellers of convenience goods and fast moving shopping goods.

– Full-service: – Full-service retailers offer full retail-related customer services in a store.– They hire salespeople to assist customers in every phase of shopping

process.

– Limited-service:– The store offers some of the services provided by the full-service stores. – It is suitable for stores that sell shopping goods because customers may

need information about products in store.

51

FACTORS FOR CLASSIFYING RETAILERS : LEVEL & AMOUNT OF SERVICE

LEVEL EXAMPLES

Self-service 7-11Tiger MartMesra Petronas

Full-service Vuitton KLCC Gucci stores KLCC

Limited-service Cold StorageJaya JuscoGiant

52

FACTORS FOR CLASSIFYING RETAILERS : PRODUCT LINE & ASSORTMENT

• Retail stores are divided based on the width (number of different product lines) and depth (number of different products within a product line) of the products they carry.

– Specialty stores - narrow product lines with deep assortment

– Department stores - wide variety of product lines

– Convenience stores - limited line of high turnover goods

– Superstores - large assortment of routinely purchased food products, non-food items and services

53

FACTORS FOR CLASSIFYING RETAILERS : PRODUCT LINE & ASSORTMENT

PRODUCT LINE EXAMPLES

Narrow Specialty stores

Wide Department stores

Limited Convenience stores

Large assortment Supermarket stores

54

FACTORS FOR CLASSIFYING RETAILERS : PRICE

• Retailers can also be classified according to the pricing strategy they adopt.

• Most retailers charge regular prices and offer normal-quality goods and customer service.

• Others offer higher-quality goods and service at higher prices.

• Discount stores-sell standard merchandise at lower prices

• Off-price retailers-low-price, high volume

55

FACTORS FOR CLASSIFYING RETAILERS : PRICE

PRICE EXAMPLES

Higher Specialty storesSupermarket storesConvenience stores

Lower Discount stores “Off-price” retailers

56

NONE-STORE RETAILING

57

NON-STORE RETAILING• Although store retailing is still popular in

Malaysia, non-store retailing is making its presence felt in Malaysia.

• Non-store retailing is shopping without visiting a store

• Among the popular mediums of non-store retailers which are popular today are vending machine, mail-order, television, telephone and on-line shopping

58

EXAMPLES OF NON-STORE RETAILING

Non Store Description Example

Automatic Vending Machine

Selling through coin or currency-operated machines

Can be found in college, shopping mall, hospitals, bus and train stations, and office.

Examples of goods sell are drink, candy, and snack

Direct

Retailing

The selling of products by representatives who work door-to-door, office-to-office, or at home parties.

59

EXAMPLES OF NON-STORE RETAILING

Non Store Description Example

Direct

Marketing

So called as direct-response marketing Refers to the techniques used to get consumers to make a purchase from their home, office, or other non retail setting Examples Direct mail, catalogues and mail order, and telemarketing

Online

Retailing

Growing tremendously with the fast growth of Internet technology and increasing

access worldwide.

Online shopping is made easy 24 hours per day at a click as payment and security issues improve.

Example: Amazon.Com

WHOLESALING

60

61

WHOLESALING

• It is the process of making a product or service available for use or consumption by the consumer or business user.

• It is also known as the reselling of new and used goods to other business users such as retailers, to industrial, commercial, institutional or professional users, or to other wholesalers,

• The parties that practice wholesaling is called wholesalers and they act as an agent or broker in buying merchandise for, or selling merchandise to other channel members such as retailers.

• They can be persons or companies.

ROLES OF WHOLESALING

1. Selling & promoting manufacturers’ products

2. Breaking bulk in a small quantities based on specific categories for resell to retailers

3. Providing logistic functions such as transportation, warehousing, inventory management.

4. Offering credit services to buyers (other business buyers such as retailers and other wholesalers)

62

63

CONCLUSIONS

• Distribution is very important in marketing because the availability of the product needed is depend on the effectiveness of distribution processes implemented by the company of the product.

• If the distribution activities related to the product are effective and well succeed, we will definitely get the product available at anywhere we go for our consumption.

64

List of References

Topics

Victor Ong (2010) Marketing Strategy: Module, Center for Graduate Studies, Open University Malaysia.

Subash C. Jain (2004) Marketing: Planning & Strategy, 7th Edition, Thomson.

Boone, L., & Kurtz, D. (2009). Contemporary Business. Denvers: John Wiley & Sons, Inc.

Cravens, D.W. (2000), Strategic Marketing, 6th Edition, McGraw Hill.

Kotler P& Armstrong.G., (2004) Principles of Marketing, 10th edition, Pearson.

Kotabe, Masaki & Kristian Helsen (2001). Global Marketing Management 2nd Edition John Wiley & Son. Inc New York.

65

List of References

Topics

Ebert, R., & Griffin, R. (2003). Business Essential, 4th Edition. New Jersey: Prentice Hall.

Ferrel, O., Hirt, G., & Ferrel, L. (2009). Business: A Changing World. New York: McGraw Hill.

khalid, K. e. (2008). Business Management: A Malaysian Perspective. Kuala Lumpur: Oxford University Press.

McDaniel, C., & Gitman, L. (2008). The Future of Business. Ohio: Thomson- South Western.(2008). The Future of Business. Ohio: Thomson- South Western.

66

List of References

Topics

(n.d.). Retrieved April 13, 2009, from BuckInvestor.com: http://www.buckinvestor.com/basics/economic_systems.shtml

(n.d.). Retrieved April 13, 2009, from EconGuru Economics Guide: http://www.econguru.com/econ/production-factors.shtml

(n.d.). Retrieved April 13, 2009, from tutor2u: http://tutor2u.net/economics/gcse/revision_notes/basics_factors_of_production.htm

Boone, L., & Kurtz, D. (2009). Contemporary Business. Denvers: John Wiley & Sons, Inc.