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

22Objective 2:

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

Producers &

Manufacturers

• lack expertise• lack economies of scale

(or investment to gaineconomies is too large)

Intermediaries

• spread high fixed costs over large quantities of

diverse products• achieve economies of

scope and economies of scale

22Objective 3:

Major Types of WholesalersMajor Types of Wholesalers

M erch a n tw h o lesa le r

A g en ts , b ro kers ,&

co m m iss io nm erch a n ts

In d ep en d en tm id d lem e n

M a n u fa c tu rers 'sa les b ra n ch es

&o ffice s

M an u fac tu re ro w n ed

A ll W h o le s a le F ir m s

22Merchant WholesalersMerchant Wholesalers

Buy,Take title to,

Store, &Handle

Large quantities of products

Resell to

Retailers

Industrial,commercial,

orInstitutional

concerns

otherWholesalers

22Agents, Brokers, & Commission MerchantsAgents, Brokers, & Commission Merchants

Involved in buying & sellingwhile acting on behalf of

clients

Involved in buying & sellingwhile 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 & OfficesManufacturers’ Sales Branches & Offices

Separated from manufacturing plants

Major Trends in Wholesale StructureMajor Trends in Wholesale Structure22Objective 4:

42.0% Wholesale trade overall

26.5% Manufacturer’s sales branches& offices

51.7% Merchant wholesalers

36.7% Agents, brokers, & commission

merchants

1992-2002

22Trends in Trends in SizeSize & & ConcentrationConcentration

Measured by: Types of Wholesalers

Size of wholesaler

Majority are small businesses

Sales volume Nearly 45% 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 63% of sales for this

type

22

Merchant Wholesalers’ Distribution TasksMerchant Wholesalers’ Distribution TasksServe Manufacturers/ProducersServe Manufacturers/Producers

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’ Distribution Tasks Merchant Wholesalers’ Distribution Tasks Serve Customers (e.g., retailers)Serve Customers (e.g., retailers)

22

Assure product availability Provide customer service Extend credit & financial

assistance (e.g., cut ICCs) Offer assortment convenience Break bulk Help customers with advice &

technical support

22Agent Wholesalers’ Distribution TasksAgent Wholesalers’ Distribution Tasks

Manufacturers’ Agents

or “Reps”

Market coverageSales contacts

22Agent Wholesalers’ Distribution TasksAgent Wholesalers’ Distribution Tasks

Selling Agents

Market coverageSales contacts Order processingMarketing

information Product availabilityCustomer services

22Agent Wholesalers’ Distribution TasksAgent Wholesalers’ Distribution Tasks

Brokers

Marketing information

------------------------------Market coverageSales contacts Order processingProduct availabilityCustomer services

** “Demand - Collection” channels are a new form of “true” brokers – Priceline.com

22Agent Wholesalers’ Distribution TasksAgent Wholesalers’ Distribution Tasks

CommissionMerchant

Market coverageSales contacts Order processingBreaking bulkCreditHolding inventory

** Typical mainly in agriculture**

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

Definition of Retailing and Retailers*Definition of Retailing and Retailers*

• Retailing – consists of the final activities and steps needed to place merchandise made elsewhere in the hands of the consumer or to provide services to the consumer. (Dunne, Lusch, and Carver 2009)

• Retailer – any firm that sells merchandise or services to the final consumer. (Dunne, Lusch, and Carver 2009)

• Requires more than 50% of one’s business to come from retailing

• E.g. Costco and Sam’s are wholesalers, not a retailers

22

*Note this is different from your text, but will be the definition

used throughout the remainder of the course.

Retail Structure TrendsRetail Structure TrendsObjective 7: 22

Decreasing number of establishments

Increasing sales

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

per store

22Concentration in RetailingConcentration in Retailing

In 2002

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:

22

Distribution Tasks Performed by RetailersDistribution Tasks Performed by Retailers

• 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 Marketing ChannelsRetailers’ Growing Power in Marketing 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 ChannelsFacilitating Agencies in Marketing Channels

Objective 10: 22

• Transportation agencies

• Storage agencies

• Order processing agencies

• Advertising agencies

• Financial agencies

• Insurance companies

• Marketing research firms