Distributing Products

Chapter 15

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

1. Explain the concept of marketing channels and their value.

2. Demonstrate how intermediaries perform the six marketing utilities.

3. Identify the types of wholesale intermediaries in the distribution system.

LEARNING GOALSChapter Fifteen

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4. Compare the distribution strategies retailers use.

5. Explain the various kinds of nonstore retailing.

6. Explain the various ways to build cooperation in channel systems.

7. Describe logistics and outline how intermediaries manage the transportation and storage of goods.

LEARNING GOALSChapter Fifteen

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Profile

• Hsieh sold his first company to Microsoft for $265 million, before becoming Zappos’ CEO.

• Changed Zappos’ corporate work environment so reps wow customers.

TONY HSIEHhttp://www.Zappos.com

• Zappos has total control over its inventory, and the service department knows exactly what is in stock.

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Although this automobile manufacturer builds its cars in South Korea, the 30,000 components come from all over the world. For example, the airbags come from a Swedish company that makes them in Utah. It’s supply chain is truly interfirm and international.

Name that company!

NAME that COMPANYChapter Fifteen

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The Emergence of Marketing Intermediaries

• Marketing Intermediaries -- Organizations that assist in moving goods and services from businesses to businesses (B2B) and from businesses to consumers (B2C).

• They are called intermediaries because they’re in the middle of a series of firms that distribute goods.

WHAT are MARKETING INTERMEDIARIES?LG1

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• Channel of Distribution -- A group of marketing intermediaries that joining together to transport and store goods from producers to consumers.

WHAT are MARKETING INTERMEDIARIES?LG1

The Emergence of Marketing Intermediaries

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• Companies can’t be successfully green without the help of the supply chain.

• Companies are pushing partners to come up with a distribution plan that would minimize pollution and optimize profits.

DISTRIBUTION and SUSTAINABILITY

(Thinking Green)

Photo Courtesy of: Jeff Kubina

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• Agents and Brokers -- Intermediaries who bring buyers and sellers together and assist in negotiating an exchange but do not take title to the goods.

• Wholesaler -- An intermediary that sells products to other organizations such as retailers, manufacturers, and hospitals.

• Retailer -- An organization that sells products to ultimate customers.

TYPES of MARKETING INTERMEDIARIES?LG1

The Emergence of Marketing Intermediaries

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SELECTED CHANNELS of DISTRIBUTIONLG1

The Emergence of Marketing Intermediaries

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Why Marketing Needs Intermediaries

• Intermediaries perform marketing tasks faster and cheaper than most manufacturers could provide them.

WHY MARKETING NEEDS INTERMEDIARIES

• Marketing intermediaries make markets more efficient by reducing transactions and contacts.

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HOW INTERMEDIARIES CREATE EXCHANGE EFFICIENCYLG1

How Intermediaries Create Exchange Efficiency

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The Value vs the Cost of Intermediaries

1) Marketing intermediaries can be eliminated but their activities can’t.

2) Intermediaries perform marketing functions faster and cheaper than other organizations can.

3) Marketing intermediaries add costs to products but they’re generally offset by the values they provide.

THREE KEY FACTS ABOUT MARKETING INTERMEDIARIES LG1

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DISTRIBUTION’S EFFECT on YOUR FOOD DOLLARLG1

The Value vs the Cost of Intermediaries

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The Utilities Created by Intermediaries

• Utility -- The want-satisfying ability, or value, that organizations add to goods and services by making them more useful or accessible to consumers.

• Six types of utilities:

1. Form

2. Time

3. Place

4. Possession

5. Information

6. Service

INTERMEDIARIES CREATE UTILITYLG2

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• Form Utility -- Changes raw materials into useful products; producers generally provide form utility.- Starbucks makes coffee the way the customers want it.

- Dell assembles computers according to customer needs.

• Time Utility -- Makes products available when customers want them.- Many Walgreens stores are open 24-hours a day.

- Colleges offer day and evening classes.

HOW MARKETERS USE UTILITYLG2

The Utilities Created by Intermediaries

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• Place Utility -- Adds value to products by placing them where people want them.- Banks place ATMs at convenient locations.

- 7-11 stores are found in easy-to-reach locations.

• Possession Utility -- Helps transfer ownership from one party to another, including providing credit.- Pay for lunch at McDonalds with your Visa card.

- A savings and loan office offers loans to home/car buyers.

HOW MARKETERS USE UTILITYLG2

The Utilities Created by Intermediaries

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• Information Utility -- Opens two-way flows of information between marketing participants.- Websites offer advice to shoppers.

- Local government maps show tourist locations.

• Service Utility -- Provides service during and after a sale and teaches customers how to best use products.- Apple offers classes to help computer buyers.

- College placement offices help students find jobs.

HOW MARKETERS USE UTILITYLG2

The Utilities Created by Intermediaries

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Progress Assessment

• What’s a channel of distribution and what intermediaries participate in it?

• Why do we need intermediaries? Illustrate how intermediaries create exchange efficiency.

• How would you defend intermediaries to someone who said getting rid of them would save consumers millions of dollars?

• Give examples of the utilities intermediaries create and how they provide them.

PROGRESS ASSESSMENT

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Wholesale Intermediaries

• Wholesalers normally make B2B sales, however, stores like Staples and Costco also have retail functions.

- Retail sales are sales of goods and services to customers for their own use.

- Wholesale sales are sales of goods and services to other businesses for use in the business or resale.

• Consumers are more familiar with retailers than wholesalers.

WHOLESALE INTERMEDIARIES LG3

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• Merchant Wholesalers -- Independently owned firms that take title to the goods they handle. There are two types:

1. Full-service wholesalers perform all distribution functions.

2. Limited-function wholesalers perform only selected distribution functions.

TYPES of WHOLESALE INTERMEDIARIES LG3

Wholesale Intermediaries

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• Rack Jobbers -- Furnish racks or shelves of merchandise such as music and magazines for retailers for display and sell them on consignment.

• Cash-and-Carry Wholesalers -- Serve mostly smaller retailers with a limited assortment of products.

• Drop Shippers -- Take orders from retailers and other wholesalers and have the merchandise shipped from producer to buyer.

TYPES of LIMITED-FUNCTION WHOLESALERSLG3

Wholesale Intermediaries

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Agents and Brokers

• Agents generally maintain long-term relationships with the clients they represent.

ROLES of AGENTS and BROKERS

- Manufacturer’s agents represent several manufacturers in a specific territory.

- Sales agents represent a single client in a larger territory.

• Brokers usually represent clients on a temporary basis.

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Retail Intermediaries

• There are approximately 2.3 million retailers in the U.S., not including websites.

RETAILING in the U.S.

• Retailers in the U.S. employ over 11 million people and operate under many different structures.

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• Pop-up stores are temporary outlets that remain open for a short amount of time and offer items not found in traditional stores.

• Toys ‘R ’ Us opened more than 600 pop-up stores during the 2010 holiday season.

• Procter & Gamble’s pop-up in New York was solely for promotion; free Cover Girl makeovers samples of Febreze candles were offered.

POP! GOES the RETAIL STORE(Spotlight on Small Business)

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• Video games

• Sports and fitness

• Home, garden, and furniture

• Event tickets

• Consumer electronics

FASTEST GROWING RETAIL CATEGORIESLG4

Retail Intermediaries

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- Make sure your coupons are unique.

- Have clear expiration dates and rules.

- Train staff on how to spot fraudulent coupons.

HOW to PREVENT COUPON FRAUDLG4

Retail Intermediaries

Source: Entrepreneur, December 2010.

Photo Courtesy of: Walmart Stores

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- Always require receipts for returns.

- Shred receipts so they cannot be used to return stolen goods.

- Check for tampering.

- Have customers fill out a return form and check details.

HOW to PREVENT RETURN POLICY FRAUDLG4

Retail Intermediaries

Source: Entrepreneur, December 2010.

Photo Courtesy of: Bill Ballentyne

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TYPES of RETAIL STORES

Types Examples

Department Store Sears, JC Penney, Nordstom

Discount Store Wal-Mart, Target

Supermarket Safeway, Kroger, Albertson’s

Warehouse Club Costco, Sam’s Club

Convenience Store 7-Eleven

Category Killer Toys-R-Us, Bass Pro Shops, Office Depot

Outlet Store Nordstrom Rack, TJ Maxx, Nike Outlet

Specialty Store Jewelry store, shoe stores, bicycle shops

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Retail Intermediaries

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Retail Distribution Strategy

• Intensive Distribution -- Puts products into as many retail outlets as possible.

• Selective Distribution -- Uses only a preferred group of the available retailers in an area.

• Exclusive Distribution -- The use of only one retail outlet in a given geographic area.

RETAIL DISTRIBUTION STRATEGIESLG4

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• Ralph Lauren Polo Shirts

• Diet Pepsi

• Rolls Royce Automobiles

• Calloway Golf Clubs

• Snickers Candy Bars

• Steinway Pianos

PICK a STRATEGY…What’s the Correct Retail Strategy for These Products?LG4

Retail Distribution Strategy

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Progress Assessment

• Describe the activities of rack jobbers and drop shippers?

• What kinds of products would call for each of the different distribution strategies: intensive, selective, and exclusive?

PROGRESS ASSESSMENT

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• Electronic Retailing -- Selling goods and services to ultimate consumers over the Internet.

• Telemarketing -- The sale of goods and services via the telephone.

FORMS of NON-STORE RETAILING

Non-Store Retailing

• Vending machines dispense convenience goods when consumers deposit sufficient money.

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• Convenient return policies

• Established brands

• User reviews

• Professional site design

• Alternative payment options

WHAT ONLINE STORES NEEDImportant Features on E-Commerce Web Sites

Source: GSI Commerce; Harris Interactive.

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Non-Store Retailing

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• Direct Selling -- Selling goods and services to customers in their homes or workplaces.

• Multilevel marketing uses salespeople who work as independent contractors.

• Direct Marketing -- Any activity that directly links manufacturers or intermediaries with ultimate customers.

FORMS of NON-STORE RETAILINGLG5

Non-Store Retailing

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Building Cooperation in Channel Systems

1. Corporate Distribution Systems

2. Contractual Distribution Systems

3. Administered Distribution Systems

4. Supply Chains

The FOUR SYSTEMS of CHANNEL RELATIONSHIPSLG6

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• Corporate Distribution Systems -- Exist when one firm owns all the organizations in a channel of distribution.

• Examples:

- Goodyear

- Sherwin Williams

CORPORATE DISTRIBUTION SYSTEMSLG6

Corporate Distribution Systems

Photo Courtesy of: Doug Wilson

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• Contractual Distribution Systems -- Exist when members are bound to cooperate through contractual agreements.

• Forms of Contractual Systems:

- Franchise Systems: McDonald’s, Baskin-Robbins

- Wholesale-Sponsored Chains: IGA, Ace Hardware

- Retail Cooperatives: Associated Grocers, True Value

CONTRACTUAL DISTRIBUTION SYSTEMSLG6

Contractual Distribution Systems

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• Administered Distribution Systems -- Exist when producers manage all the marketing functions at the retail level.

• Examples:

- Kraft

- Ralph Lauren

ADIMINISTERED DISTRIBUTION SYSTEMSLG6

Administered Distribution Systems

Photo Courtesy of: Stephen Boisvert

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• Supply Chain -- All the linked activities various organizations must perform to move goods and services from the source of raw materials to ultimate consumers.

• Supply Chain Management -- The process of managing the movement of raw materials, parts, work in progress, finished goods, and related information through all the organizations in the supply chain.

SUPPLY CHAINSLG6

Supply Chains

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The SUPPLY CHAINLG6

Supply Chains

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• Much movie animation takes place in the Philippines while companies in China provide research and development services.

• The competition among foreign suppliers is intense, including the need to find workers with strong language skills.

• One country that could be a leader in supplying supply-chain services is the U.S.

The GLOBAL SUPPLY CHAIN for SERVICES

(Reaching Beyond Our Borders)

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Logistics: Getting Goods to Consumers Efficiently

• Logistics -- The planning, implementing and controlling of the physical flow of material, final goods and related information from points of origin to points of consumption.

USING LOGISTICS

• Firms outsource to others specializing in trade compliance to determine what is needed to market products to global customers.

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• Inbound Logistics -- Brings raw materials, packaging, other goods and services and information from suppliers to producers.

LOGISTICS APPLICATIONS

• Materials Handling -- Movement of goods within a warehouse, from warehouse to the factory floor and from the factory floor to workstations.

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Logistics: Getting Goods to Consumers Efficiently

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• Outbound Logistics -- Manages the flow of finished products and information to business buyers and consumers.

• Reverse Logistics -- Brings goods back to the manufacturer because of defects or for recycling.

LOGISTICS APPLICATIONSLG7

Logistics: Getting Goods to Consumers Efficiently

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COMPARING TRANSPORTATION MODES

Mode Cost Speed Dependability Flexibility Frequency Reach

Rail Med. Slow Medium High Low High

Trucks High Fast High Medium High Highest

Pipeline Low Medium Highest Lowest Highest Lowest

Ships Lowest Slowest Lowest Highest Lowest Low

Air Highest Fastest Low Low Medium Medium

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Logistics: Getting Goods to Consumers Efficiently

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• Freight Forwarder -- Puts many small shipments together to create a single large shipment that can be transported cost-effectively by truck or train.

LOGISTICS SPECIALISTS

• Intermodal Shipping -- Uses multiple modes of transportation to complete a single long-distance movement of freight.

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Logistics: Getting Goods to Consumers Efficiently

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• Piggybacking: Truck trailers placed on trains

• Fishybacking: Truck trailers placed on ships

• Birdybacking: Truck trailers placed on planes

TYPES of INTERMODAL SHIPPINGLG7

Logistics: Getting Goods to Consumers Efficiently

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GET YOUR PRODUCT THEREMost Popular Modes of Freight Transport

Source: U.S. Freight Transportation Forecast.

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Logistics: Getting Goods to Consumers Efficiently

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The Storage Function

• Storage warehouses hold products for a relatively long period of time.

STORAGE WAREHOUSESLG7

• Distribution warehouses are used to gather and redistribute products such as:

- Beer and soft drinks

- Package deliveries

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Progress Assessment

• What four systems have evolved to tie together members of the channel of distribution?

• How does logistics differ from distribution?

• What are inbound logistics, outbound logistics, and reverse logistics?

PROGRESS ASSESSMENT

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