chapter sixteen

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Chapter SixteenWholesaling, Retailing, and

Physical Distribution

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PRIDE HUGHES KAPOOR

INTRODUCTION TOBUSINESS

ELEVENTH EDITION


Learning Objectives

1. Identify the various channels of distribution that are used for consumer and industrial products.

2. Explain the concept of market coverage.

3. Understand how supply-chain management facilitates partnering among channel members.

4. Describe what a vertical marketing system is and identify the types of vertical marketing systems.

5. Discuss the need for wholesalers and describe the services they provide to retailers and manufacturers.

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Learning Objectives (cont’d)

6. Identify and describe the major types of wholesalers.

7. Distinguish among the major types of retailers.

8. Identify the categories of shopping centers and the factors that determine how shopping centers are classified.

9. Explain the five most important physical distribution activities.

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Channels of Distribution

Channel of distribution (marketing channel)• A sequence of marketing organizations that directs a

product from the producer to the ultimate user Middleman (marketing intermediary)

• A marketing organization that links a producer and user within a marketing channel

- Merchant middleman—takes title to products by buying them- Functional middleman—helps in the transfer of ownership of

products but does not take title to the products- Retailer—buys from producers or other middlemen and sells

to consumers- Wholesaler middleman—sells products to other firms

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Channels for Consumer Products

Producer to consumer (direct channel)• No intermediaries• Used by all services and by a few consumer goods• Producers can control quality and price, do not have

to pay for intermediaries, and can be close to their customers

• Examples: Dell Computer, Mary Kay Cosmetics

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Figure 16.1


Channels for Consumer Products (cont’d)

Producer to retailer to consumer• Producers sell directly to retailers when retailers

(Walmart) can buy in large quantities• Most often used for bulky products for which

additional handling would increase selling costs, and for perishable or high-fashion products that must reach consumers quickly

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Figure 16.1



Producer to wholesaler to retailer to consumer• The traditional channel• Used when a producer’s products are carried by

so many retailers that the producer cannot deal with them all

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Figure 16.1



Producer to agent to wholesaler to retailer to consumer• Agent—functional middlemen that do not take title to

products and are compensated by commissions paid to the producers

• Often used for inexpensive, frequently purchased items, for seasonal products, and by producers that do not have their own sales forces

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Figure 16.1



A manufacturer may use multiple channels• To reach different market segments

- When the same product is sold to consumers and businesses• To increase sales or capture a larger market share

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Consumer Products

Figure 16.1


Channels for Business Products

Producer to business user• Usually used for heavy machinery, airplanes,

major equipment• Allows the producer to provide expert and timely

services to customers

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Figure 16.1


Channels for Business Products (cont’d)

Producer to agent middleman to business user• Usually used for operating supplies, accessory

equipment, small tools, standardized parts

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Figure 16.1


Levels of Market Coverage

Source: William M. Pride and O. C. Ferrell, Foundations of Marketing, (Mason, OH: South-Western/Cengage Learning, 2011), p. 319.

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Figure 16.2


Level of Market Coverage

Intensity of market coverage• Intensive distribution

- The use of all available outlets for a product to saturate the market

• Selective distribution- The use of only a portion of the available outlets

for a product in each geographic area

• Exclusive distribution- The use of only a single retail outlet for a product

in a larger geographic area

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Partnering Through Supply- Chain Management

Supply-chain management• Long-term partnership among channel members

working together to create a distribution system that reduces inefficiencies, costs, and redundancies while creating a competitive advantage and satisfying customers

• Category management- The retailer asks a supplier how to stock the shelves

• Technology- Has enhanced implementation of supply-chain

management

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Vertical Marketing Systems

Vertical channel integration• The combining of two or more stages of a distribution

channel under a single firm’s management Vertical marketing system (VMS)

• A centrally managed distribution channel resulting from vertical channel integration

• Administered- One channel member dominates the others

• Contractual- Intermediary cooperation, rights, and obligations are

formalized in contracts• Corporate

- The entire channel is owned by the producer

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Marketing Intermediaries: Wholesalers

Justifications for marketing intermediaries• Intermediaries perform essential marketing services• Manufacturers would be burdened with additional

record keeping and maintaining contact with numerous retailers

• Costs for distribution would not decrease and could possibly increase due to the marketing inefficiencies of producers

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Efficiency Provided by an Intermediary

Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 16th ed. (Mason, Ohio: South-Western/Cengage Learning, 2012). Adapted with permission.

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Figure 16.3


Wholesalers’ Services to Retailers

Buy in large quantities and then sell in smaller quantities

Deliver goods Stock a variety of goods in one place Promote products to retailers Provide market information for both producers

and retailers Provide financial aid in the form of inventory

management, loans, delayed billing

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Wholesalers’ Services to Manufacturers

Provide instant sales forces to manufacturers Reduce manufacturers’ inventory

costs by purchasing finished goods in sizable quantities

Assume the credit risks associated with selling to retailers

Furnish market information gleaned from the market and customers to the manufacturers

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Types of Wholesalers

Merchant wholesalers• Middlemen that purchase goods in large quantities

and then sell them to other wholesalers or retailers and to institutional, farm, government, professional, or industrial users

• Operate in one or more warehouses where they receive, take title to, and store goods

• These wholesalers are sometimes called distributors or jobbers

• Full-service wholesalers- General merchandise wholesaler- Limited-line wholesaler- Specialty-line wholesaler

• Limited-service wholesalers

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Types of Wholesalers (cont’d)

Commission merchants, agents, and brokers• Functional middlemen that do not take title to products• Perform some marketing activities• Paid a commission (percentage of sales price)• Commission merchant

- Carries merchandise and negotiates sales for manufacturers• Agent

- Expedites exchanges, represents a buyer or a seller, and is often hired permanently on a commission basis

• Broker- Specializes in a particular commodity, represents a buyer or a

seller, and is likely to be hired on a temporary basis

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Types of Wholesalers (cont’d)

Manufacturer’s sales branch• Merchant wholesaler owned by a manufacturer• Carries inventory, extends credit, delivers goods,

helps in promoting products• Customers are retailers, other wholesalers, and

industrial purchasers Manufacturer’s sales office

• Sales agent owned by a manufacturer• Sells goods manufactured by its own firm and also

others that complement its own product line

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Marketing Intermediaries: Retailers

Retailers: The final link between producers and consumers

Approx. 2.6 million retail firms in the U.S. 90 percent have sales of less than $1 million

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The Ten Largest Retail Firms in the United States

Source: Top 100 Retailers,” Stores, July 2009, www.stores.org/2009/Top-100-Retailers. Reprint with permission from Wrights Reprints.

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Table 16.1


Classes of In-Store Retailers

Independent retailer• A firm that operates only one retail outlet

Chain retailer• A company that operates more than one retail outlet

Department store• A retail store that

- employs twenty-five or more persons- sells at least home furnishing, appliances, family apparel,

and household linens and dry goods, each in a different part of the store

Discount store• A self-service, general-merchandise outlet that sells

products at lower-than-usual prices

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Classes of In-Store Retailers (cont’d)

Catalog showroom• A retail outlet that displays well-known brands and

sells them at discount prices through catalogs within the store

Warehouse showroom• A retail facility in a large, low-cost building with large

on-premises inventories and minimal service Convenience store

• A small food store that sells a limited variety of products but remains open well beyond normal business hours

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Supermarket• A large self-service store that sells primarily food

and household products Superstore

• A large retail store that carries not only food and nonfood products ordinarily found in supermarkets but also additional product lines

Warehouse club• A large-scale members-only establishment that

combines features of cash-and-carry wholesaling with discount retailing

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Traditional specialty store• A store that carries a narrow product mix with deep

product lines Off-price retailer

• A store that buys manufacturers’ seconds, overruns, returns, and off-season merchandise for resale to consumers at deep discounts

Category killer• A very large specialty store that concentrates on a

single product line and competes on the basis of low prices and product availability

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Will you pay more for a luxury item at a brand store than at a discount store?

Source: Accenture Consumer Luxury survey of 1,002 adults, as cited in USA Today, February 18, 2010, p. 1B.

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Kinds of Nonstore Retailing

A type of retailing whereby consumers purchase products without visiting a store

Direct selling• The marketing of products to consumers through

face-to-face sales presentations at home or in the workplace

Direct marketing• The use of the telephone, Internet, and nonpersonal

media to introduce products to customers, who can then purchase them via mail, telephone, or the Internet

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Kinds of Nonstore Retailing (cont’d)

Catalog marketing• An organization provides a catalog from which

customers make selections and place orders by mail, telephone, or the Internet

Direct-response marketing• A seller advertises a product and makes it available,

usually for a short time period, through mail, telephone, or online orders

Telemarketing• The performance of marketing-related activities by

telephone

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Kinds of Nonstore Retailing (cont’d)

Television home shopping• Products are presented to television viewers, who can

buy them by calling a toll-free number and paying by credit card

Online retailing• Makes products available to buyers through computer

connections Automatic vending

• The use of machines to dispense products

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Planned Shopping Centers

A self-contained retail facility constructed by independent owners and consisting of various stores• Lifestyle shopping center

- Has an open-air configuration and is occupied by upscale national chain specialty stores

• Neighborhood shopping center- Consists of several small convenience and specialty stores

• Community shopping center- Includes one or two department stores and some specialty

stores, along with convenience stores• Regional shopping center

- Contains large department stores, numerous specialty stores, restaurants, movie theaters, and sometimes hotels

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Physical Distribution

All those activities concerned with the efficient movement of products from the producer to the ultimate user

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Proportional Cost of Each Physical Distribution Function

From Davis Database, 2005. Reprinted by permission of Establish Inc./Herbert W. David and Company.

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Figure 16.4


Physical Distribution (cont’d)

Inventory management• The process of managing inventories in such a way

as to minimize inventory costs, including both holding costs and potential stock-out costs

- Holding costs—the costs of storing products until they are purchased or shipped to customers

- Stock-out costs—the costs of sales lost when items are not in inventory when needed

• Technology and software help manage inventory• Efficiency is crucial for firms using just-in-time

(JIT) approach Order processing

• Activities involved in receiving and filling customers’ purchase orders

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Warehousing• The set of activities involved in receiving and

storing goods and preparing them for reshipment- Receiving goods- Identifying goods- Sorting goods- Dispatching goods to storage- Holding goods- Recalling, picking, and assembling goods- Dispatching shipments

• Types of warehouses- Private warehouses—owned and operated by a firm- Public warehouses—offer their services to all firms

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Materials handling• The physical handling of goods, in warehouses as well

as during transportation Transportation

• The shipment of products to customers• Carrier—a firm that offers transportation services

- Common carriers—services available for hire to all shippers- Contract carriers—available for hire by one or several

shippers; not available to the general public- Private carriers—owned and operated by the shipper

• Freight forwarders—agents who facilitate the transportation process for shippers by handling the details of the process

• Railroads—in terms of total freight carried, these are America’s most important mode of transportation

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Transportation• Trucks

- Tremendous expansion since creation of national highways- Often favored by offering door-to-door service, less stringent

packaging requirements than other services, flexible schedules• Airplanes

- Fastest but most expensive- Used to ship high-value or perishable goods

• Waterways- Slowest but least expensive- Used mainly for bulky, nonperishable goods- Use limited to cities located on navigable waterways

• Pipelines- used primarily to carry petroleum and natural gas

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Characteristics and Ratings of Transportation Modes

Source: U.S. Bureau of Transportation Statistics, National Transportation Statistics (Washington, CC: U.S. Government Printing Office, www.bts.gov/pulications/national_transportation_statistics/html/table_01_46a.html

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Table 16.2

chapter sixteen

Documents

cengage learning

accessible website

producers products

bulky products

industrial products

learning objectivesidentify

highfashion products

consumer productsproducer