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Nickels_12e_UB_PPT_Student_Ch15.pptxChapter 15
Distributing Products
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Learning Objectives
LO 15-1 Explain the concept of marketing channels and their value.
LO 15-2 Demonstrate how intermediaries perform the six marketing utilities.
LO 15-3 Identify the types of wholesale intermediaries in the distribution system.
LO 15-4 Compare the distribution strategies retailers use.
LO 15-5 Explain the various kinds of nonstore retailing.
LO 15-6 Explain the various ways to build cooperation in channel systems.
LO 15-7 Describe logistics and outline how intermediaries manage the transportation and storage of goods.
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The Emergence of Marketing Intermediaries 1 of 3
LO 15-1
Marketing intermediaries — Organizations that assist in moving goods and services from producers to businesses (B2B) and from businesses to consumers (B2C).
They are called intermediaries because they’re in the middle of a series of firms that distribute goods.
Channel of distribution — A whole set of marketing intermediaries that join together to transport and store goods in their path from producers to consumers.
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The Emergence of Marketing Intermediaries 2 of 3
LO 15-1
Types of Marketing Intermediaries
Agents and brokers — Marketing intermediaries who bring buyers and sellers together and assist in negotiating an exchange but do not take title to the goods.
Wholesaler — A marketing intermediary that sells to other organizations.
Retailer — An organization that sells to ultimate consumers.
Why Marketing Needs Intermediaries
Intermediaries perform marketing tasks faster and cheaper than most manufacturers could provide them.
Intermediaries make the exchange process easier and more efficient and profitable.
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Figure 15.1 Selected Channels of Distribution
LO 15-1
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Figure 15.2 How Intermediaries Create Exchange Efficiency
LO 15-1
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The Emergence of Marketing Intermediaries 3 of 3
LO 15-1
The Value versus the Cost of Intermediaries
Three key facts about marketing intermediaries
Marketing intermediaries can be eliminated but their activities cannot.
Intermediaries perform marketing functions faster and cheaper than other organizations can.
Marketing intermediaries add costs to products, but these costs are generally offset by the values they provide.
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Figure 15.3 Distribution’s Effect on Your Food Dollar
LO 15-1
Jump to long description in appendix
Source: USDA Economic Research Service, ers.usda.gov, accessed October 2017.
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The Utilities Created by Intermediaries 1 of 4
LO 15-2
Utility — The want-satisfying ability, or value, that organizations add to goods and services when the products are made more useful or accessible to consumers than they were before.
Six types of utilities:
Form
Time
Place
Possession
Information
Service
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The Utilities Created by Intermediaries 2 of 4
LO 15-2
Form Utility
Producers provide form utility by changing raw materials into useful products.
Example: Starbucks makes coffee the way the customers want it.
Time Utility
Time utility — Adding value to products by making them available when they’re needed.
Example: Some grocery stores are open 24 hours.
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The Utilities Created by Intermediaries 3 of 4
LO 15-2
Place Utility
Place utility — Adding value to products by having them where people want them.
Example: 7-Eleven stores are found in easy-to-reach locations.
Possession Utility
Possession utility — Doing whatever is necessary to transfer ownership from one party to another, including providing credit, delivery, installation, guarantees, and follow-up service.
Example: A real estate broker and a savings and loan office provide possession utility.
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The Utilities Created by Intermediaries 4 of 4
LO 15-2
Information Utility
Information utility — Adding value to products by opening two-way flows of information between marketing participants.
Example: Newspapers, salespeople, libraries, and websites all act as intermediaries.
Service Utility
Service utility — Adding value by providing fast, friendly service during and after the sale and by teaching customers how to best use products over time.
Example: The Apple Genius Bar helps during and after a purchase.
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Wholesale Intermediaries 1 of 4
LO 15-3
Wholesalers normally make B2B sales; however, stores like Staples and Costco also have retail functions.
Retail sales are sales of goods and services to consumers for their own use.
Wholesale sales are sales of goods and services to other businesses for use in the business or resale.
Consumers are more familiar with retailers than wholesalers.
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Wholesale Intermediaries 2 of 4
LO 15-3
Merchant Wholesalers
Merchant wholesalers — Independently owned firms that take title to the goods they handle.
There are two types:
Full-service wholesalers perform all distribution functions.
Limited-function wholesalers perform only selected distribution functions.
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Wholesale Intermediaries 3 of 4
LO 15-3
Merchant Wholesalers continued
Types of limited-function wholesalers:
Rack jobbers — Furnish racks or shelves full of merchandise to retailers, display products, and sell on consignment.
Cash-and-carry wholesalers — Serve mostly smaller retailers with a limited assortment of products.
Drop shippers — Solicit orders from retailers and other wholesalers and have the merchandise shipped directly from a producer to a buyer.
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Wholesale Intermediaries 4 of 4
LO 15-3
Agents and Brokers
Agents generally maintain long-term relationships with the clients they represent.
Manufacturer’s agents represent several manufacturers in a specific territory.
Sales agents represent a single client in a larger territory.
Brokers usually represent clients on a temporary basis.
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Retail Intermediaries
LO 15-4
Retailing in the United States
Retailers in the U.S. employ about 42 million people and operate under many different structures.
There are over 3.7 million retail stores in the U.S.
Retail Distribution Strategy
Intensive distribution — Puts products into as many retail outlets as possible.
Selective distribution — Sends products only to a preferred group of retailers in an area.
Exclusive distribution — Sends products to only one retail outlet in a given geographic area.
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Figure 15.4 Types of Retail Stores
LO 15-4
| Type | Example |
| Department store | Sears, JC Penney, Nordstrom |
| Discount store | Wal-Mart, Target |
| Supermarket | Safeway, Kroger, Albertsons |
| Warehouse club | Costco, Sam’s Club |
| Convenience store | 7-Eleven |
| Category killer | Bass Pro Shops, Office Depot/Office Max |
| Outlet store | Nordstrom Rack, Liz Claiborne, Nike, TJ Maxx |
| Specialty store | Jewelry stores, shoe stores, bicycle shops |
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Online Retailing and Other Nonstore Retailing 1 of 3
LO 15-5
Online Retailing
Online retailing — Selling goods and services to ultimate customers over the Internet.
Social commerce — A form of electronic commerce that involves using social media, online media that supports social interaction, and user contributions to assist in the online buying and selling of products and services.
Telemarketing
Telemarketing — The sale of goods and services by telephone.
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Figure 15.5 Types of Social Commerce
LO 15-5
Peer-to-peer sales platforms
Social network shops and shopping apps
Group buyings and daily deals
Peer recommendations
User-curated shopping
Crowdfunding/crowdsourcing
Social shopping
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Online Retailing and Other Nonstore Retailing 2 of 3
LO 15-5
Vending Machine, Kiosks, Carts, and Pop-Ups
Vending machines dispense convenience goods when consumers deposit sufficient money.
Carts and kiosks have lower overhead than stores, so they can offer lower prices on items.
Pop-ups are temporary outlets that remain open for a short amount of time in small spaces.
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Online Retailing and Other Nonstore Retailing 3 of 3
LO 15-5
Direct Selling
Direct selling — Selling to consumers in their homes or where they work.
Multilevel Marketing
Multilevel marketing uses salespeople who work as independent contractors.
Direct Marketing
Direct marketing — Any activity that directly links manufacturers or intermediaries with the ultimate consumer.
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Building Cooperation in Channel Systems 1 of 5
LO 15-6
The Four Systems of Channel Relationships
Corporate distribution systems
Contractual distribution systems
Administered distribution systems
Supply chains
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Building Cooperation in Channel Systems 2 of 5
LO 15-6
Corporate Distribution Systems
Corporate distribution system — A distribution system in which all of the organizations in a channel of distribution are owned by one firm.
Example: Sherwin Williams
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Building Cooperation in Channel Systems 3 of 5
LO 15-6
Contractual Distribution Systems
Contractual distribution system — A distribution system in which members are bound to cooperate through contractual agreements.
Forms of contractual systems:
Franchise systems: McDonald’s, Baskin-Robbins
Wholesale-sponsored chains: IGA, Ace Hardware
Retail cooperatives: Associated Grocers
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Building Cooperation in Channel Systems 4 of 5
LO 15-6
Administered Distribution Systems
Administered distribution system — A distribution system in which producers manage all of the marketing functions at the retail level.
Examples:
Kraft
Scotts
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Building Cooperation in Channel Systems 5 of 5
LO 15-6
Supply Chains
Supply chain — The sequence of linked activities that must be performed by various organizations to move goods from the sources of raw materials to ultimate consumers.
Supply-chain management — 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; managing the return of such goods, if necessary; and recycling materials when appropriate.
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Figure 15.6 The Supply Chain
LO 15-6
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Logistics: Getting Goods to Consumers Efficiently 1 of 3
LO 15-7
Logistics — The marketing activity that involves planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit.
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Logistics: Getting Goods to Consumers Efficiently 2 of 3
LO 15-7
Logistics Applications
Inbound logistics — The area of logistics that involves bringing raw materials, packaging, other goods and services, and information from suppliers to producers.
Materials handling — The movement of goods within a warehouse, from warehouses to the factory floor, and from the factory floor to various workstations.
Outbound logistics — The area of logistics that involves managing the flow of finished products and information to business buyers and consumers.
Reverse logistics — The area of logistics that involves bringing goods back to the manufacturer because of defects or for recycling materials.
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Figure 15.7 Comparing Transportation Modes
LO 15-7
| Mode | Cost | Speed | On-time Dependability | Products | Shipments | Reach |
| Railroads | Medium | Slow | Medium | High | Low | High |
| Trucks | High | Fast | High | Medium | High | Highest |
| Pipelines | Low | Medium | Highest | Lowest | Highest | Lowest |
| Ships (water) | Lowest | Slowest | Lowest | Highest | Lowest | Low |
| Airplanes | Highest | Fastest | Low | Low | Medium | Medium |
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Logistics: Getting Goods to Consumers Efficiently 3 of 3
LO 15-7
Logistics Specialists
Freight forwarder — An organization that puts many small shipments together to create a single large shipment that can be transported cost-effectively to the final destination.
Intermodal shipping — The use of multiple modes of transportation to complete a single long-distance movement of freight.
Tracking Goods
Storage warehouses hold products for a relatively long period of time.
Distribution warehouses are used to gather and redistribute products such as package deliveries.
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Appendix of Long Image Descriptions
©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
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Appendix 1 Figure 15.1 Selected Channels of Distribution
There are six channels of distribution for consumer goods.
Channel 1: The manufacturer sells directly to consumers. This channel is used by craftspeople and small farmers.
Channel 2: The manufacturer sells to a retailer who then sells to consumers. This channel is used for cars, furniture, and clothing.
Channel 3: The manufacturer sells to a wholesaler, who then sells to a retailer, who then sells to consumers. This channel is the most common channel for consumer goods such as groceries, drugs, and cosmetics.
Channel 4: A farmer sells to a broker who then sells to a wholesaler, who then sells to a retailer, who then sells to consumers. This is a common channel for food items such as produce.
Channel 5: A service organization sells to a broker who then sells to consumers. This is a common channel for consumer services such as real estate, stocks and bonds, insurance, and nonprofit theater groups.
Channel 6: A nonprofit organization sells to a store who then sells to consumers. This is a common channel for nonprofit organizations that want to raise funds. Included are museums, government services, and zoos.
There are two channels of distribution for industrial goods.
Channel 1: The manufacturer sells directly to industrial users. This is the common channel for industrial products such as glass, tires, and paint for automobiles.
Channel 2: The manufacturer sells to a wholesaler who then sells to industrial users. This is the way that lower-cost items such as supplies are distributed. The wholesaler is called an industrial distributor.
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Appendix 2 Figure 15.3 Distribution’s Effect on Your Food Dollar
From lowest to highest cost:
Packaging: 2.5 cents
Finance and insurance: 3.1 cents
Transportation: 3.2 cents
Other: 3.2 cents
Energy: 5.1 cents
Wholesale trade: 9.1 cents
Farm production: 10.4 cents
Retail trade: 12.9 cents
Food processing: 15.3 cents
Food services: 32.7 cents
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Appendix 3 Figure 15.6 The Supply Chain
The supply chain sequence is as follows:
Suppliers’ plants
Manufacturers
Wholesalers
Retailers
Consumers
The channel of distribution begins with manufacturers and goes to consumers.
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