Wholesaling, Retailing, and Physical Distribution

Transcription

1 Chapter Fourteen Wholesaling, Retailing, and Physical Distribution 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. 14 2

2 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 Chapter 14 Outline Channels of Distribution Channels for Consumer Products Channels for Business Products Market Coverage Partnering Through Supply-Chain Management Vertical Marketing Systems Marketing Intermediaries: Wholesalers Justifications for Marketing Intermediaries i Wholesalers Services to Retailers Wholesalers Services to Manufacturers Types of Wholesalers 14 4

3 Chapter 14 Outline (cont d) Marketing Intermediaries: Retailers Classes of In-Store Retailers Kinds of Nonstore Retailing Planned Shopping Centers Lifestyle Shopping Centers Neighborhood Shopping Centers Community Shopping Centers Regional Shopping Centers 14 5 Chapter 14 Outline (cont d) Physical Distribution Inventory Management Order Processing Warehousing Materials Handling Transportation 14 6

4 Channels of Distribution Channel of distribution (marketing channel) Middleman (marketing intermediary) A marketing organization that links a producer and user within a marketing channel Merchant middleman Functional middleman Retailer Wholesaler 14 7 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 14 8

5 Channels for Consumer Products (cont d) Producer to retailer to consumer Producers sell directly to retailers when retailers (Wal-Mart) 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 14 9 Channels for Consumer Products (cont d) 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 14 10

6 Channels for Consumer Products (cont d) Producer to agent to wholesaler to retailer to consumer Agent Often used for inexpensive, frequently purchased items, for seasonal products, and by producers that do not have their own sales forces Channels for Consumer Products (cont d) A manufacturer may use multiple channels To reach different market segments To increase sales or capture a larger market share 14 12

7 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 Channels for Business Products (cont d) Producer to agent middleman to business user Usually used for operating supplies, accessory equipment, small tools, standardized parts 14 14

8 Market Coverage Intensity of market coverage Intensive distribution Selective distribution Exclusive distribution Partnering Through Supply Chain Management Supply chain management Long-term partnership p among channel members Category management Technology 14 16

9 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 Contractual Corporate 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 14 18

10 Wholesalers Services to Retailers Buy in large quantities and then sell in smaller quantities Deliver goods Stock in one place a variety of goods Promote products to retailers Provide market information for both producers and retailers Provide financial aid in the form of inventory management, loans, delayed billing 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 14 20

11 Types of Wholesalers Merchant wholesalers 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 line wholesaler Limited-service wholesalers 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 Agent Broker 14 22

12 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 Marketing Intermediaries: Retailers Retailers: The final link between producers and consumers Approx. 2.6 million retail firms in the U.S. 90% have sales of less than $1 million 14 24

13 Classes of In-Store Retailers Independent retailer Chain retailer Department store Discount store Catalog showroom Classes of In-Store Retailers (cont d) Warehouse showroom Convenience store 14 26

14 Supermarket Classes of In-Store Retailers (cont d) Superstore Warehouse club Classes of In-Store Retailers (cont d) Traditional specialty store Off-price retailer Category killer 14 28

15 Kinds of Nonstore Retailing A type of retailing whereby consumers purchase products without visiting a store Direct selling Direct marketing Kinds of Nonstore Retailing (cont d) Catalog marketing Direct-response marketing Telemarketing 14 30

16 Kinds of Nonstore Retailing (cont d) Television home shopping Online retailing Automatic vending Planned Shopping Centers A self-contained retail facility constructed by independent owners and consisting of various stores Lifestyle shopping center Neighborhood shopping center Community shopping center Regional shopping center 14 32

17 Physical Distribution All those activities concerned with the efficient movement of products from the producer to the ultimate user 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 Stock-out out Order processing Activities involved in receiving and filling customers purchase orders Physical Distribution 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 Public warehouses 14 34

18 Physical Distribution (cont d) Materials handling Transportation The shipment of products to customers Carrier Common carriers Contract Private carriers Freight forwarders Railroads 14 35

19 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 14.1 Distribution Channels 190 Distribution Channels CONSUMER PRODUCTS Producer Consumer Producer Retailer Consumer Producer Wholesaler Retailer Consumer Producer Agent Wholesaler Retailer Consumer BUSINESS PRODUCTS Producer Business customer Producer Agent middleman Business customer 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_14_ch14_p indd 190 3/6/09 11:20:22 PM

20 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 14.2 Efficiency Provided by an Intermediary 191 Efficiency Provided by an Intermediary Producer Buyer Producer Buyer Producer Buyer Producer Middleman or intermediary Buyer Producer Buyer Producer Buyer Producer Buyer Producer Buyer Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 15th ed. (Mason, Ohio: South-Western/Cengage Learning, 2010). Adapted with permission Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_14_ch14_p indd 191 3/6/09 11:20:23 PM

21 Pride/Hughes/Kapoor, BUSINESS, 10th edition Table 14.2 Relative Ratings of Transportation Modes by Selection Criteria 192 Relative Ratings of Transportation Modes by Selection Criteria Selection Criteria Mode Cost Speed Dependability Load Flexibility Accessibility Frequency Railroads Moderate Average Average High High Low Trucks High Fast High Average Very high High Airplanes Very high Very fast High Low Average Average Waterways Very low Very slow Average Very high Limited Very low Pipelines Low Slow High Very low Very limited Very high 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_14_ch14_p indd 192 3/6/09 11:20:23 PM

22 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 14.3 Changes in Ton-Miles for Various Transportation Modes 193 Changes in Ton-Miles for Various Transportation Modes 4,357 2, , , Total ton miles (in billions) Railroads Coal Grain Lumber Automobiles Iron Steel Trucks Clothing Paper goods Computers Books Fresh fruit Livestock Airplanes Flowers Food (highly perishable) Technical instruments Emergency parts and equipment Overnight mail Waterways (Rivers/canals and Great Lakes) Chemicals Grain Large equipment Motor vehicles Pipelines Oil Processed coal Natural gas Source: U.S. Bureau of Transportation Statistics, National Transportation Statistics 2005, (accessed January 30, 2006) Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_14_ch14_p indd 193 3/6/09 11:20:24 PM

23 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 14.A Chapter Outline 194 Chapter 14 Outline Wholesaling, Retailing, and Physical Distribution Channels of Distribution Channels for Consumer Products Channels for Business Products Market Coverage Partnering Through Supply-Chain Management Vertical Marketing Systems Marketing Intermediaries: Wholesalers Justifications for Marketing Intermediaries Wholesalers Services to Retailers Wholesalers Services to Manufacturers Types of Wholesalers Marketing Intermediaries: Retailers Classes of In-Store Retailers Kinds of Nonstore Retailing Planned Shopping Centers Lifestyle Shopping Centers Neighborhood Shopping Centers Community Shopping Centers Regional Shopping Centers Physical Distribution Inventory Management Order Processing Warehousing Materials Handling Transportation 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_14_ch14_p indd 194 3/6/09 11:20:24 PM

24 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 14.B Class Exercise Class Exercise 195 Which channel(s) of distribution would you use for the following products? Product 1. A new reduced-fat candy bar Channel(s) of Distribution Why? 2. Fine china that costs $550 for a set 3. A video ipod 4. A line of jeans that sells between $30 and $ Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_14_ch14_p indd 195 3/6/09 11:20:24 PM

25 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 14.C Debate Issue Debate Issue 196 If a wholesaler is eliminated from a distribution channel, will consumer prices decrease? YES NO The fewer marketing intermediaries in a distribution channel, the lower the price. Today, wholesalers are not needed because the marketing functions they perform can be performed by others. Like all business firms, wholesalers are in business to make a profit and this profit causes higher prices. Those who believe that the elimination of wholesalers would lower prices do not understand the functions performed by them. While it is true that the marketing functions must be performed, wholesalers can provide services more efficiently and cheaper than others in the distribution cycle. Wholesalers are entitled to profits if they provide services more efficiently than others in the distribution channel Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_14_ch14_p indd 196 3/6/09 11:20:24 PM

26 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 14.D Chapter Quiz Chapter Quiz Highly perishable products such as fruits and vegetables are typically channeled from producer to a. retailer to consumer. b. wholesaler to consumer. c. wholesaler to retailer to consumer. d. consumer. e. functional middleman to consumer. 2. VMS is an acronym that stands for a. vertical monitoring system. b. vital manufacturing system. c. variable management system. d. vertical marketing system. e. variable manufacturing service. 3. A mail-order wholesaler is an example of a wholesaler. a. limited-service b. full-service c. general merchandise d. limited-line e. specialty-line 4. A firm that operates only one retail outlet is called a(n) retailer. a. chain b. specialty c. independent d. merchant e. single 5. High employee turnover is a major problem that reduces the effectiveness of a. direct-response marketing. b. telemarketing. c. direct selling. d. online retailing. e. catalog marketing Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_14_ch14_p indd 197 3/6/09 11:20:24 PM

27 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 14.E Types of Merchant Wholesalers 198 Types of Merchant Wholesalers Merchant wholesalers Take title, assume risk, and buy and resell products to other wholesalers, to retailers, or to other business customers Full-service wholesalers General-merchandise Limited-line Specialty-line Limited-service wholesalers Cash-and-carry Truck Drop shipper Mail-order Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 15th ed. (Mason, Ohio: South-Western/Cengage Learning, 2010). Reprinted with permission Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_14_ch14_p indd 198 3/6/09 11:20:24 PM

28 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 14.F Types of Agents and Brokers 199 Types of Agents and Brokers Agents and brokers Do not take title to products and are compensated with commissions for negotiating exchanges between sellers and buyers Agents Represent either buyer or seller, usually on a permanent basis Manufacturers' agents Selling agents Commission merchants Brokers Bring buyers and sellers together on a temporary basis Food brokers Real-estate brokers Other brokers, e.g., securities, insurance Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 15th ed. (Mason, Ohio: South-Western/Cengage Learning, 2010). Reprinted with permission Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_14_ch14_p indd 199 3/6/09 11:20:24 PM

29 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 14.G Types of In-Store and Nonstore Retailers Retailers 200 IN-STORE Department stores Discount stores Catalog and warehouse showrooms Convenience stores Supermarkets Superstores Warehouse clubs Traditional specialty stores Off-price retailers Category killers NONSTORE Direct selling Direct marketing Automatic vending 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_14_ch14_p indd 200 3/6/09 11:20:24 PM

30 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 14.H Retail Sales Categorized by Merchant Type 201 Retail Sales Categorized by Merchandise Type Source: U.S. Bureau of the Census, Monthly Retail Trade: Sales and Inventories, January 2006: Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_14_ch14_p indd 201 3/6/09 11:20:25 PM

31 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 14.I Definition of Channel of Distribution 202 CHANNEL OF DISTRIBUTION OR MARKETING CHANNEL A sequence of marketing organizations that directs a product from the producer to the ultimate user 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_14_ch14_p indd 202 3/6/09 11:20:29 PM

32 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 14.J If a Retailer s Return Policy Is Inconvenient, Will You Continue to Shop There? 203 If a retailer s return policy was inconvenient, would you shop there? Source: Data from Newgistic survey of 1,061 adults 18 and older, as published in USA Today, May 4, Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_14_ch14_p indd 203 3/6/09 11:20:29 PM