channel management lap 1 channels of distribution

Channel Management

LAP 1

Channel Management

LAP 1

Channels of DistributionChannels of Distribution

Explain the importance of channels of distribution.

Objectives:

Describe types of channels of distribution.

Explain the importance of channels of distribution.

Lobster

Making a special anniversary dinner for your grandparents

Garlic mashed potatoes

Fresh fruit salad

All ingredients available at local grocery store

Save time

Save money

Allow us to enjoy a variety of products from around the world

You've benefited from channels of distribution!

Channels of distribution:

The paths, or routes, that goods and services take from the producer to the ultimate consumer or industrial user

• In the right places

• At the right times

Channels of Distribution

Not physical paths

Businesses or people who perform a variety of functions to enable products to be:

Begin with producer and end with ultimate consumer or industrial user

• Producer—makes or provides goods and services

Examples:


Appliance manufacturers

Farmers Health-care

professionals

Channels also end when changes are made to the form of the good.

• Ultimate consumer—anyone who personally uses a good or service to satisfy his/her own wants


• Industrial user—business that buys materials, services, or goods that will be used to make other goods or used

in the operation of the company

Operate between producer and consumer or user to help in movement of goods/servicesRetailers

McDonald's

Intermediaries

Channel ParticipantsChannel Participants

Also known as middlemen Types of middlemen:

• Businesses that buy consumer goods and sell them to ultimate consumers

• Perform functions such as buying, selling, promoting, storing, and pricing goods

• May also provide customer services such as credit, installation, and repair

Examples: Macy's

Neighborhood gas station

Wholesalers

Intermediaries

Channel Participants

• Businesses that buy goods from producers or agents and sell them to retailers

• Buy a variety of goods from many producers and sell groups of related products to retailers

• Important functions include packaging, transporting and storing, extending credit to retailers, and providing promotional and consulting services

Agents

Intermediaries

Channel ParticipantsChannel Participants

• Businesses or individuals that assist in the sale and/or promotion of goods and services

• Do not take title to products—never actually own them

• Instead, sell and promote a producer’s goods/services

• Usually handle a limited number of noncompeting products

In some cases, this means selling directly to ultimate consumers/industrial users.

Channels of Distribution: A Closer Look

Primary objective of producers in distributing goods/services—have products:

In other cases, this means using intermediaries.

• In the right places

• At the right times

• At the least cost

Regardless of distribution method, functions involved remain the same—buying, selling, pricing, financing, etc.

Using intermediaries:

Channels of Distribution: A Closer Look

Selling directly:

• Producer performs all necessary functions and incurs all costs.

• Producer earns any and all income.

• Costs can be passed on to other channel members.

• Producers' profits could decrease since income must be shared.

• Producers' income might be higher if the intermediaries are able to sell more than the producers can sell on their own.

Not practical for retailers to deal directly with producers all the time

Channels of Distribution: A Closer LookChannels of Distribution: A Closer Look

Not realistic for producers and consumers/industrial users to deal with each other directly all the time

Through agents/wholesalers, retailers reduce number of contracts with producers.

How Intermediaries Help in Channels of DistributionHow Intermediaries Help in Channels of Distribution

Buy big and sell small

• Buy large quantities of goods from producers

• Sell smaller quantities to other intermediaries or consumers

• By placing large orders with producers, are able to reduce the per-unit cost for goods, allowing them to make a profit and/or pass some of the savings along to consumers


Develop an assortment of goods.

• Most producers produce more than any consumer will purchase at one time.

• Intermediaries collect goods from a variety of producers and divide them into quantities/assortments consumers want.

• Consumers are then able to obtain the desired amounts/types of goods.


Transport and store goods.

• Enable goods to be on hand when consumer/industrial users are ready to buy them rather than only when they are produced.


Perform other functions:

• Provide market information to producers

• Promote sale of goods/services

• Extend credit

• Service sales

• Provide management services

Plan inventories and store layouts

Help to train employees

Describe types of channels of distribution.

Types of Distribution

Direct distribution—straight from the producer to the ultimate consumer or industrial user

Indirect distribution—involves intermediaries

Direct distribution

Simplest of all channels

Can take place:

• Where the good is produced—a pumpkin farm, for example

• In warehouses or outlets owned by producer

• Through producers' catalogs or online sites

Channels of Distribution for Consumer Goods

Producer to consumer

Producer maintains tight quality control.

Producer retains all distribution costs.

Used when it is not possible for producer to reach a large number of consumers on a direct basis

Retailers provide wide distribution of products at lower costs than producers can.

Most retailers who deal directly with producers buy in large quantities due to:

• The size of their businesses

• The great demand for products


Producer to retailer to consumer

Most common channel of distribution for consumer goods

Used because:

• Many producers cannot offer small shipments.

• So, they require buyers to place large orders for goods.

• However, most retailers cannot buy the large quantities required.

• Producers use wholesalers to sell to smaller retailers.


Producer to wholesaler to retailer to consumer

Wholesalers:

• Buy large quantities from producers

• Divide them into smaller units for sale to retailers

• Provide retailers with a variety of products from which to choose


Producer to wholesaler to retailer to consumer

Used by producers who do not want to sell their goods but are prepared to handle other marketing functions

They contract with an agent to sell goods to retailers.

Agent brings buyer and seller together.

Once sales are made, producer processes goods to retailers.

Frequently used by producers to reach large retailers


Producer to agent to retailer to consumer

Used to reach small retailers

Producers contract with agents to sell goods

to wholesalers.

Wholesalers buy large quantities and sell smaller amounts to many small retailers.


Producer to agent to wholesaler to retailer to consumer

Channels of Distribution for Industrial Goods

Direct distribution

Most common channel for industrial goods since producers often provide specialized services

Separate from channels for consumer goods, but similar

Producer to industrial user

Producer to industrial distributor to user

Channels of Distribution for Industrial GoodsChannels of Distribution for Industrial Goods

• Buy large quantities of goods/raw materials from producers

• Sell small quantities to industrial users

• Unlike wholesalers, tend to specialize in selling a limited number of products

• Frequently carry small, standardized parts and operating supplies that industrial users need on a continuous basis

• By having supplies on hand, are able to help industrial users obtain goods faster than from producers

Industrial distributors—similar to wholesalers for consumer goods

Producer to agent to user


Producers without sales forces contract with agents to promote/sell goods to industrial users.

Shipment is direct from producer to industrial user since agent does not take title to goods.

Frequently used for industrial goods with unit prices high enough to justify selling directly to industrial users

Producer to agent to industrial distributor to user


Used when a good’s unit cost is not high enough to justify selling directly to industrial users

Industrial distributor buys large quantities of a good from an agent and sells smaller quantities to industrial users.

Often used by small producers of items such as building supplies

• Intangible activities performed by other people for money

• Productive acts that satisfy economic wants

• Usually consumed when they are produced

• Most follow a direct channel of distribution

Services:

Agents can assist with the distribution of services.

Channels for Services

• Examples:

• Travel agents • Insurance agents • Stock brokers

Where were they produced?

Who produced them?

What channel members were involved in getting them to you?

Five products you've consumed in the past week:

How would you have obtained these products without channels of distribution?

Channels of distribution do not guarantee that consumers will be able to purchase anything they want, any time they want.

Certain products may only be available in limited supplies.

Because of supply and demand, channel members may be able to charge higher prices for coveted products.

Let's say there is a hurricane or tornado in a certain part of the country, and many people need to repair their homes or roofs.

Is it OK for channel members to mark up hardware products during this time to make a bigger profit?

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channel management lap 1 channels of distribution

Documents

channels of distribution

time channels of distribution

consumer goods

distribution method

types of channels

importance of channels

variety of goods

store goods