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ChapterDistributing Products Quickly and Efficiently

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Intermediaries and the Channel of Distribution Marketing Intermediaries Wholesaler Retailer Agents/Brokers

Channel of Distribution

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The Channel of Distribution

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Intermediaries and the Channel of Distribution Role of Intermediaries Create Efficiency Value vs. Cost

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Marketing IntermediariesTHREE BASIC FACTS ABOUT INTERMEDIARIES

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Marketing Intermediaries1.

Marketing Intermediaries can be eliminated, but their activities cannot be eliminated

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Marketing Intermediaries2. Intermediary organizations have survived because they have performed marketing functions faster and cheaper than others could

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Marketing Intermediaries3. Intermediaries add cost to products, but these costs are usually offset by the values they create

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UtilityThe want-satisfying power of a good or service

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UtilityWant-satisfying ability or value that organizations add to goods or services when the products are made more useful or accessible to consumers

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Four Major Types of UtilityTYPE DESCRIPTION EXAMPLES ORGANIZAITONAL FUNCTION RESPONSIBLEProduction*

Form

Conversion of raw materials and components into finished goods and services

Skippy Peanut Butter; State Farm automobile insurance policy; Boeing 767 aircraft

Time

Availability of goods and services when consumers want them

One-hour dry cleaning; LensCrafters eyeglass guarantee; Federal Express guarantee of package delivery by 10:30 a.m. the next daySoda machines in school lobbies; coffee and snacks in Barnes & Noble bookstores; day cares in office complexes; ATM machines in gas stations; mailboxes outside convenience stores

Marketing

Place

Availability of goods and services at convenient locations

Marketing

Ownership(possession)

Ability to transfer title to goods or services from marketer to buyer

Retail sales (in exchange for currency or credit-card payment); swap meets

Marketing

*Marketing provides inputs related to consumer preferences, but the actual creation of form utility is the responsibility of the production function.

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(production)

Form

UtilityTime

Possession

Information Place

Service

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Marketing Intermediaries Wholesalers Agent / Brokers Retailers

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Wholesale Intermediaries Merchant Wholesalers(a) Full-Service (b) Limited-Function

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Wholesale Intermediaries, cont.Merchant Wholesalers- Take TitleFull-Service 8 Distribution functions - transportation, storage, risk bearing, credit, market information, standardizing, grading, buying, and selling Limited-Function Selected functionsMcGraw-Hill/Irwin McGraw-Hill/Irwin Understanding Business, 7/e Understanding Business, 7/e 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

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Wholesale Intermediaries Limited Function Merchant Wholesalers Rack Jobbers Cash-and-Carry Drop Shippers Freight Forwarders

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Wholesale Intermediaries cont Brokers / Agents provide services in exchange for commissions Do not take title Agents maintain long-term relationship Brokers are usually hired on temporary basis

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Wholesale Intermediaries Manufacturers Agents / Sales Agents- Manufacturers Agents may represent several manufacturers in a specific territory - Sales Agents represent a single manufacturer in a larger territory15-18 15-18

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Retail Intermediaries Sell to Consumers

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Retail Competition Price Service Location Selection Category KillersMcGraw-Hill/Irwin McGraw-Hill/Irwin Understanding Business, 7/e Understanding Business, 7/e 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

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They All Started in 1962CompanyWal-Mart Target KmartSource: Business 2.0, June 2003, p. 38.

1st StoreRogers, Ark.July 1962

ObjectiveSlash prices. Makeup difference in volume Discount retailer with strong sense of value Bring discount store concept to suburban malls15-21 15-21

Roseville, MNMay 1962

Garden City, MIMarch 1962

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Retail Store Distribution Intensive-many outlets as possible -Convenience Goods

Selective-Preferred group of in an area -Shopping Goods

Exclusive-One retail outlet per area -Specialty GoodsMcGraw-Hill/Irwin McGraw-Hill/Irwin Understanding Business, 7/e Understanding Business, 7/e 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

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Largest Mall in USA THE MALL OF AMERICA in Bloomington, Minnesota Large enough to hold Thirty-two 747s Four Gap stores Aquarium Full-size amusement park More than 40 million visitors a year (more than Disney World, Graceland and the Grand Canyon combined)15-23 15-23

Source: The Week magazine, April 2004 McGraw-Hill/Irwin McGraw-Hill/Irwin

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RETAILING STRATEGY Of