THE IMPORTANCE OF CHANNELS OF DISTRIBUTION

THE IMPORTANCE OF CHANNELS OF DISTRIBUTION

There are hundreds of thousands of marketing intermediaries whose job it is to help move goods from the raw-material state to producers and then on to consumers.
1. MARKETING INTERMEDIARIES are organization that assist in moving goods and services from producer to industrial and consumer users.
  1. They are organizations (formerly called "middlemen") in the middle of a series of organizations that join together to help distribute goods.
  2. A CHANNEL OF DISTRIBUTION is the whole series of marketing intermediaries who join together to transport and store goods in their path from producers to consumers.
  3. A WHOLESALER is a marketing intermediary that sells to other organizations.
  4. A RETAILER is an organization that sells to ultimate consumers.
2. CHANNELS OF DISTRIBUTION enhance communication flows and the flow of money and title to goods.
3. The latest trend is to try to eliminate wholesalers and the need for retail stores by selling over the Internet.
WHY MARKETING NEED INTERMEDIARIES
1. Manufacturers don’t always need marketing intermediaries to sell their goods to consumer and industrial markets.
2. Intermediaries perform certain functions better than most manufacturers. These functions include transportation, storage, selling, advertising, and relationship building.
3. Companies often outsource distribution to others.
4. BROKERS are marketing intermediaries who bring buyers and sellers together and assist in negotiating an exchange, but do not take title to the goods.
HOW INTERMEDIARIES CREATED EXCHANGE EFFICIENCY.
1. Intermediaries CREATE EXCHANGE EFFICIENCY by decreasing the number of contacts needed to establish marketing exchanges.
2. Not only are intermediaries more efficient, but they are more effective than manufacturers.
3. Intermediaries were often better at performing their functions than a manufacturer or consumer could be.
4. Recently, technology has made it possible for manufacturers to reach consumers much more efficiently.
  1. Some manufacturers reach consumers directly on the Internet.
  2. Retailers are now so closely linked with manufacturers that they can get delivery several times a day.
5. Wholesalers are not yet obsolete, but must change their functions to remain viable.
THE VALUE VERSUS THE COST OF INTERMEDIARIES.
1. Some people think that if we could get rid of intermediaries, we could greatly reduce the cost of the things we buy.
2. The text uses the example of Fiberiffic to illustrate how marketing intermediaries facilitate the movement of goods.
3. Values discussed include: the value of not driving to Michigan to buy a box of cereal, the value of saving time, and effort by not having to drive to a wholesaler’s on the outskirts of town.
4. The text emphasizes three basic facts about intermediaries:
  1. Intermediaries CAN BE ELIMINATED, BUT THEIR ACTIVITIES CANNOT BE ELIMINATED.
    1. Someone else still has to perform the tasks.
    2. Today many activities are being performed on the World Wide Web, and intermediaries ARE being eliminated.
  2. Intermediaries have survived in the past BECAUSE THEY PERFORM FUNCTIONS MORE EFFECTIVELY AND EFFICIENTLY THAN MOST MANUFACTURERS.
  3. Intermediaries ADD COSTS TO PRODUCTS, BUT THESE COSTS ARE OFFSET BY VALUES THEY CREATE.

THE UTILITIES CREATED BY INTERMEDIARIES

UTILITY is an economic term for the value, or want-satisfying ability, that is added to goods or services by organizations because the products are made more useful or accessible to consumers.
FORM UTILITY.
1. FORM UTILITY consists of taking raw materials and changing their form so that they become useful products.
2. It is performed by producers; the other forms of utility (time, place, possession, and information) are performed by marketers.
TIME UTILITY—Intermediaries, such as retailers, add TIME UTILITY to products by making them available when they are needed.
PLACE UTILITY—Intermediaries add PLACE UTILITY to products by having them where people want them. CONCEPT CHECK
POSSESSION UTILITY—Intermediaries add POSSESSION UTILITY by doing whatever is necessary to transfer ownership from one party to another, including providing credit.
1. Activities include delivery, installation, guarantees, and follow-up service.
2. For those who don’t want to own goods, possession utility makes it possible for them to use goods through renting.
INFORMATION UTILITY—Intermediaries add INFORMATION UTILITY by opening two-way flows of information between participants.
SERVICE UTILITY.
1. Intermediaries add SERVICE UTILITY by providing fast, friendly service during and after the sale and teaching customers how to best use products.
2. Service utility is fast becoming the most important utility for retailers.
For consumers to receive the maximum benefit from marketing intermediaries, the organizations must work together.

WHOLESALE INTERMEDIARIES.

DIFFERENCES BETWEEN WHOLESALERS AND RETAILERS.
1. Some producers won’t sell directly to retailers but only to wholesalers.
2. Some organizations sell much of their merchandise to other intermediaries, but also sell to ultimate consumers
3. A RETAIL SALE is the sale of goods and services to consumers for their own use.
4. A WHOLESALE SALE is the sale of goods and services to businesses and institutions for use in the business to others for resale.
MERCHANT WHOLESALERS are independently-owned firms that take title to goods that they handle.
1. FULL-SERVICE WHOLESALERS perform all eight distribution functions: transportation, storage, risk bearing, credit, market information, standardizing, grading, buying, and selling.
2. LIMITED-FUNCTION WHOLESALERS perform only selected functions, but do them especially well.
3. RACK JOBBERS furnish racks or shelves full of merchandise to retailers, display products, and sell on consignment.
4. CASH-AND-CARRY WHOLESALERS serve mostly smaller retailers with a limited assortment of products.
5. DROP SHIPPERS solicit orders from retailers and other wholesalers and have the merchandise shipped directly from a producer to a buyer.
6. A FREIGHT FORWARDER puts many small shipments together to create a single, large shipment that can be transported more cost-efficiently to the final destination.
BUSINESS-TO-BUSINESS (B2B) WHOLESALING.
1. Companies are building e-commerce sites aimed at small and midsize businesses.
2. They hope to sell PCS and other items to businesses just like they do to consumers.
3. The business-to-business market is bigger than the consumer market.

RETAIL INTERMEDIARIES

A RETAILER is a marketing middleman that sells to consumers.
1. The U.S. has about 2.3 million retail stores.
2. About 11 million people work for retail organizations.
HOW RETAILERS COMPETE
1. PRICE COMPETITION.
  1. Discount stores such as Wal-Mart succeed with low prices.
  2. Service organizations, such as Southwest Airlines, also compete on price.
  3. Price competition is getting fiercer as Internet firms help consumers find the best prices on a variety of items.
2. SERVICE COMPETITION.
  1. Retail service involves putting the customer first and providing follow-up service.
  2. Consumers are frequently willing to pay a little more if the retailer offers outstanding service.
  3. The benchmark companies are Dayton’s, Lord & Taylor, Dillard’s, and Nordstrom.
3. LOCATION COMPETITION
  1. Many services compete effectively by having good locations.
  2. Nothing is more convenient than shopping online.
  3. Competition between brick-and-mortar retailers and online retailers is intensifying.
4. SELECTION COMPETITION.
  1. Selection is the offering of a wide variety of items in the same product category, such as Toys "R" Us.
  2. CATEGORY KILLER STORES offer wide selection at competitive prices.
  3. Smaller retailers compete with category killers by offering more selection within a smaller category of items.
  4. Many category killer stores are in turn being "killed" by discount department stores like Wal-Mart.
  5. Internet stores can offer products from dozens of suppliers and offer almost unlimited selection.
  6. Service organizations that compete successfully on selection include Blockbuster Video and most community colleges.
5. ENTERTAINMENT COMPETITION.
  1. The Internet isn’t as much fun as a brick-and-mortar store designed to provide entertainment.
  2. More and more malls are offering this "shoppertainment"
RETAIL DISTRIBUTION STRATEGY.
1. Different products call for different retail distribution strategies.
2. INTENSIVE DISTRIBUTION puts products into as many retail outlets as possible, including vending machines.
3. SELECTIVE DISTRIBUTION is the use of only a preferred group of the available retailers in an area.
4. EXCLUSIVE DISTRIBUTION is the use of only one retail outlet in a geographic area.

NONSTORE RETAILING.

E-Tailing is another step in the evolution of retailing away from traditional stores to nonstore retailing.
E-TAILING.
1. E-TAILING means selling goods and services to ultimate consumers over the Internet.
2. Getting customers is only half the battle; the other half is delivering the goods, providing service, and keeping your customers.
3. E-tailers are often not adept at SERVICE AFTER THE SALE.
4. The latest trend in e-commerce is for the traditional retailers like Kmart to go online.
5. Old brick-and-mortar stores are going online; these are sometimes called "CLICK-AND-MORTAR" STORES.
TELEMARKETING.
1. TELEMARKETING is the sale of goods and services by telephone.
2. Telemarketing is predicted to be one of the fastest-growing areas in marketing.
VENDING MACHINES, KIOSKS, AND CARTS.
1. The benefit of vending machines is their CONVENIENT LOCATION.
2. CARTS and KIOSKS have lower costs that stores, so they can offer lower prices.
DIRECT SELLING
1. DIRECT SELLING is selling to consumers in their homes or where they work.
2. Because so many women now work, many companies are sponsoring parties at workplaces and on weekends and evenings.
MULTILEVEL MARKETING.
1. Each MLM salesperson works as an independent contractor.
2. They EARN COMMISSIONS on their own sales and create commissions for the "upliners" who recruited them.
3. They also RECEIVE COMMISSIONS from "downliners" who they recruit to sell.
4. Multilevel marketing has been successful around the world.
5. The main attraction of multilevel marketing is the LOW COST OF ENTRY.
6. Be careful not to confuse multilevel marketing with "pyramid" schemes that are illegal.
DIRECT MARKETING
1. One of the fastest-growing aspects of retailing is DIRECT MARKETING, includes any marketing activity that directly links manufacturers or intermediaries with the ultimate consumer.
2. Direct retail marketing includes direct mail, catalog sales, telemarketing, and on-line shopping.
3. Examples are L.L. Bean, Lands’ End, Dell Computers, and Gateway 2000.
4. Direct marketing has become popular because it is more convenient for consumers.
5. Interactive online selling is expected to provide major competition for retail stores in the future.

. BUILDING COOPERATION IN CHANNEL SYSTEMS.

Firms are often linked together in formal relationships to form efficient DISTRIBUTION SYSTEMS.
A CORPORATE DISTRIBUTION SYSTEM is one in which all the organizations in the channel are owned by one firm.
CONTRACTUAL DISTRIBUTION SYSTEM is one in which members are bound to cooperate through contractual agreements.
1. In FRANCHISING SYSTEMS (such as McDonald’s, KFC, Baskin-Robbins, and AAMCO), the franchisee agrees to all of the rules, regulations, and procedures established by the franchisor.
2. In WHOLESALER-SPONSORED CHAINS (Western Auto and IGA food stores), each store agrees to use the name, participate in chain promotions, and cooperate even though each store is independently owned.
3. RETAIL COOPERATES (Associated Grocers) is like a wholesaler-sponsored chain except it is initiated by the retailers.
ADMINISTERED DISTRIBUTION SYSTEM.
1. The management by producers of all the marketing functions at the retail level is called an ADMINISTERED DISTRIBUTION SYSTEM.
2. Retailers cooperate because they get so much free help.
SUPPLY CHAINS.
1. The SUPPLY CHAIN is the sequence of linked activities performed by various organizations to move goods from the sources to ultimate consumers.
2. Channels of distribution are part of the overall supply chain.
3. Software is available that coordinates the movement of goods so products reach consumers with the least amount of materials, inventory, and time.
4. By sharing information and providing fast service, these united firms are becoming competitive entities in the global market.

SUPPLY CHAIN MANAGEMENT

SUPPLY-CHAIN MANAGEMENT
1. SUPPLY CHAIN MANAGEMENT (SCM) is the process of managing the movement of raw materials, parts, work in progress, finished goods, and related information through all the organizations involved in the supply chain.
2. INBOUND LOGISTICS brings raw materials, packaging, other goods and services, and information from suppliers to producers.
3. FACTORY PROCESSES change raw materials and parts into outputs.
4. OUTBOUND LOGISTICS manages the flow of finished products and information to business buyers and consumers.
THE NEW CHALLENGES IN SUPPLY-CHAIN MANAGEMENT.
1. 1. Outbound logistics has been the biggest problem for new online retailers.
2. The text uses the example of Peapod Inc. and its problems with order satisfaction.
3. Those who best manage the supply chain will have a real advantage.

CHOOSING THE RIGHT DISTRIBUTION MODE AND STORAGE UNITS

METHODS USED TO MOVE RAW MATERIALS AND FINISHED GOODS.
1. One concern is selecting a transporting mode that will minimize costs and ensure a certain level of service.
2. The largest volume of goods is shipped by RAIL.
  1. Railroad shipment is best for bulky items.
  2. Railroads continue to handle about 35 to 40% of the total volume of goods in the U.S.
  3. PIGGYBACK refers to shipping the cargo- carrying part of a truck on a railroad car.
3. The second-largest surface transportation mode is MOTOR VEHICLES (a little over 25% of the volume.)
  1. Trucks can deliver almost any commodity door-to-door.
  2. Now piggybacking methods involve railroad cars 20 feet high called double-stacks
4. WATER TRANSPORTATION carries 15 to 17% of the total.
  1. When truck trailers are placed on ships, the process is called FISHYBACK.
  2. When they are placed in airplanes, the process is called BIRDYBACK.
5. About 21% of the total volume moves by PIPELINE.
  1. Pipelines are used primarily for transporting petroleum and petroleum products.
  2. There have been experiments with sending other solids in pipelines.
6. Only a small part of shipping is done by AIR.
  1. The primary benefit is SPEED.
  2. The air freight industry is starting to focus on global distribution.
INTERMODAL SHIPPING.
1. INTERMODAL SHIPPING uses multiple modes of transportation to complete a single long-distance movement of freight.
2. Railroads are merging with each other and other transportation companies to offer intermodal distribution.
THE STORAGE FUNCTION.
1. Storage accounts for 25 to 30% of physical distribution costs.
2. A STORAGE WAREHOUSE stores products for a relatively long time.
3. DISTRIBUTION WAREHOUSE gather and redistribute products (UPS).
MATERIALS HANDLING is the movement of goods within a warehouse, factory, or store.
WHAT ALL THIS MEANS TO YOU.
1. The success of a firm often depends on its ability to take orders, process them, and get the goods to customers.
2. There are many new jobs available in the area of supply-chain management.