Marketing article assignment

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CHAPTER 2 The Channel Participants

Part 1: Marketing Channel Systems

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Le ar

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O bj

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es ① Major participants in marketing channels

② Why shift distribution tasks to intermediaries?

③ Major types of wholesalers

④ Major Trends in Wholesale Structure

⑤ Merchant Wholesalers Specialize in Performance Distribution Tasks

⑥ Retail structure

⑦ Retail structure trends

⑧ Distribution Tasks Performed by Retailers

⑨ Retailers’ Growing Power in Marketing Channels

⑩ Facilitating Agencies in Marketing Channels 2

Objective Major Participants in Marketing Channels1

Producers &

Manufacturers

Wholesale Intermediaries

Retail Intermediaries

Intermediaries

Consumers Industries

Final Users

* Commercial Channel * Target Markets

Objective Why shift distribution tasks to intermediaries? 2

Producers &

Manufacturers

• Lack expertise • Lack economies of scale

Intermediaries

• Spread high fixed costs over large quantities of

diverse products • Achieve economies of scope and economies of

scale

• Huge order processing facility

• Huge inventory • Several warehouse

locations • Transportation of

product to consumers

= cost prohibitive

Manufacturer direct to customers

Example: Distribution of Crayons

Objective Major Types of Wholesalers 3

Merchant wholesaler

Agents, brokers, &

commission merchants

Independent middlemen

Manufacturers' sales branches

& offices

Manufacturer owned

All Wholesale Firms

Merchant Wholesalers Tasks Performed:

Buy Take title

Hold Inventory Handle

Large quantities of products

Resell to:

Retailers

Industrial, commercial,

or institutional concerns

Other Wholesalers

Agents, Brokers, & Commission Merchants Involved in buying &

selling while acting on behalf

of clients

Commissions on

sales or purchases

Owned & operated by manufacturers

Distribute manufacturer’s

products at wholesale

Some wholesale allied & supplementary products

purchased from other manufacturers.

Manufacturers’ Sales Branches & Offices

Separated from manufacturing plants

Objective

Major Trends in Wholesale Structure

42.0% Wholesale trade

26.5% Manufacturer’s sales branches & offices

51.7% Merchant wholesalers

36.7% Agents, brokers, & commission merchants

1992—2002

Trends in Size & Concentration Measured by: Types of Wholesalers

Size of wholesaler

Majority are small businesses

Sales volume Nearly 45% of all firms have annual sales of less than $1 million

# of Employees per firm

About 50% of firms had fewer than 5 employees

Economic concentration in terms

of % of total sales

50 largest manufacturers’ sales branches & offices garnered nearly 63% of sales for

this type

Objective Merchant Wholesalers Specialize in Performance Distribution Tasks

• Operate at high levels of effectiveness and efficiency • Average cost curves lower than those for their suppliers

1. Provide market coverage 2. Make sales contacts 3. Hold inventory 4. Process orders 5. Gather market information 6. Offer customer support

Merchant Wholesalers’ Distribution Tasks Serve Customers

1. Assure product availability 2. Provide customer service 3. Extend credit & financial

assistance 4. Offer assortment convenience 5. Break bulk 6. Help customers with advice &

technical support

Agent Wholesalers’ Distribution Tasks

Manufacturers’ Agents

Ø Market coverage

Ø Sales contacts

Agent Wholesalers’ Distribution Tasks

Ø Market coverage Ø Sales contacts Ø Order processing Ø Marketing Information Ø Product availability Ø Customer services

Selling Agents

Agent Wholesalers’ Distribution Tasks

Ø Market coverage Ø Sales contacts Ø Order processing Ø Marketing Information Ø Product availability Ø Customer services

Brokers

Agent Wholesalers’ Distribution Tasks

Ø Market coverage Ø Sales contacts Ø Order processing Ø Breaking bulk Ø Credit Ø Holding inventory

Commission Merchant

Objective Retail Structure

• By Ownership of Establishment • By Kind of Business

(Merchandise Handled) • By Size of Establishment • By Degree of Vertical

Integration • By Type of Relationship with

other Business Organizations

• By Method of Consumer Contact

• By Type of Location • By Type of Service

Rendered • By Legal Form of

Organization • By Management

Organizations or Operational Technique

Alternative Bases for Classifying Retailers 6

Kind-of-Business Classifications

• Motor vehicle & parts dealers

• Furniture & home furnishings stores

• Electronics & appliance stores

• Building material & garden equip. & supply dealers

• Food & beverage stores • Health & personal care

stores

• Gasoline stations • Clothing & clothing

accessories stores • Sporting goods, hobby,

book, & music stores • General merchandise

stores • Miscellaneous store

retailers • Non store retailers

Retail Trade

Objective Retail Structure Trends

Decreasing number of establishments

Increasing sales

= increase in size of retail establishments measured by average sales volume

per store

Concentration in Retailing

In 2002 4% of all retail firms

accounted for nearly 80% of total sales!!

Objective Distribution Tasks Performed by Retailers

The role of the retailer in the distribution channel, regardless of his size or type, is to interpret the demands of his customers and to find and stock the goods these customers want, when they want them, and in the way they want them. This adds up to having the right assortments at the time customers are ready to buy.

— Charles Y. Lazarus

Distribution Tasks Performed by Retailers

• Offer manpower & physical facilities close to consumers’ residences

• Provide personal assistance to help sell products • Interpret and relay consumer demand • Divide large quantities into consumer-sized lots • Offer storage • Remove risk by ordering in advance of the season

Objective Retailers’ Growing Power in Marketing Channels9

Increased size & buying power

Become power retailers &

category killers

Application of advanced Technologies

Information technology & the Internet; threetailing

Use of modern marketing strategies

Modern techniques; relationship marketing

Objective Facilitating Agencies in Marketing Channels

• Transportation agencies • Storage agencies • Order processing agencies • Advertising agencies • Financial agencies • Insurance companies • Marketing research firms

Best Buy is by far the largest consumer electronics retailer in the world with sales of over $45 billion and almost 4,000 stores world wide. Best Buy enjoys tremendous power in the marketing channels within which it operates. All manufacturers and other suppliers providing products to Best Buy have to pay close attention to what this 1,000 pound gorilla of a retailer wants. But even when suppliers go out of their way to meet the demands of Best Buy, they are finding that the giant retailer could block them from getting their products to consumers because Best Buy may favor certain suppliers with which it can make especially attractive deals. In addition, Best Buy is increasing its emphasis on offering its own private brand products such as the thinnest laptop on the market and an all-electrical motorcycle. Some of Best Buy’s own products may even compete directly with famous supplier brands, such as Apple and Sony.

Why do you think Best Buy is flexing its muscles in the channel? Do you think this type of behavior is inevitable on the part of giant dominant retailers?

Discussion Question #5