Channels of Distribution

• Channel of distribution


  The path a product takes from the producer to the final user
• Channel members


  • Industrial market (products purchased for business use)
  • Consumer market (products purchased for personal use)
  • Intermediaries (channel members that move the product through the channel)
• Merchant intermediaries


  Wholesalers - Purchase large quantities of goods from manufacturers, store the goods, and resell them to other businesses
• Distribution intensity


  • Intensive (using all suitable outlets for a product, complete market coverage)
  • Selective (limited number of outlets in a given geographic area, maintains some control over product movement)
  • Exclusive (total control to sell a product within an identified protected location, single intermediary, image, channel control)
• Integrated distribution


  Manufacturer acts as wholesaler and retailer for its own products
• Physical distribution


  The process of transporting, storing, and handling goods to make them available to customers
• Physical distribution includes


  • Freight transportation
  • Order processing
  • Warehouse site selection
  • Warehousing
  • Materials handling
  • Customer service
  • Protective packaging
  • Inventory control
• Trucking


  • Advantages: Convenient, less protective packaging, rapid deliveries, reduces inventory costs

  Disadvantages: Possible shipment delays, long distances - costly
• Railways

  • Advantages: Large quantities - lower costs, few delays

  Disadvantages: Lack of flexibility
• Waterways


  • Advantages: Low cost

  Disadvantages: Slow, lack of flexibility, weather delays
• Pipelines


  • Advantages: Lower long-term costs, dependable

  Disadvantages: High initial costs, risk of breakage or leaking, costs for any damages
• Air transportation


  • Advantages: Speed, reduction of storage & inventory expenses

  Disadvantages: Costs, delays
• Other carriers


  • U.S. Postal Service
  • Express Carriers
  • Bus Package Carriers
  • Freight Forwarders
• Warehousing or storage


  Holding goods until they are sold
• Reasons for storing goods

  • Sell to customers
  • Surplus of goods
  • Stabilize prices
  • Obtain discounts
  • Faster delivery
• Types of warehouses


  • Private warehouses
  • Public warehouses
  • Distribution centers
  • Bonded warehouses
• Purchasing


  Determining what to buy & making arrangements with sources regarding final price, delivery, services expected, and method of payment
• Purchasing situations


  • New task purchase
  • Modified rebuy
  • Straight rebuy
• Channels of distribution


  • Producer
  • Wholesaler
  • Agent
  • Retailer
  • Industrial distribution
  • Consumer/industrial user
• Industrial user


  Market consisting of all customers who make purchases for business purposes; also called the business-to-business market
• Consumers


  Those who buy and actually use the product
• Intermediaries


  Channel members that help move products from the producer or manufacturer to the final user; "Middlemen"
• Retailers


  Sell goods to the ultimate consumer through their own stores
• Wholesalers


  Buy large quantities of goods from manufacturers, store the goods, and resell them to other businesses
• Agents


  Independent manufacturers' agent - Represent several non-competing manufacturers in a specific industry

  Broker - Sales agent for different manufacturers (May merchandise products as well as sell)
• Distributors


  Similar to wholesalers, but only carry complementary product lines, either Pepsi or Coke products. Distributors usually maintain close relationships with their suppliers and customers. Distributors will take title to products and store them until they are sold.
• Direct distribution


  Goods or services are sold from the producer directly to the final user - no intermediaries are involved
• Indirect distribution


  Goods or services are sold through the use of intermediaries
• Channels for consumer products

  A - Direct sales from manufacturer to consumer (Avon)

  B - Manufacturer to retailer to consumer (Polo)

  C - Manufacturer to wholesaler to retailer to consumer (SuperValu)

  D - Manufacturer to agent to wholesaler to retailer to consumer (Small retailers)

  E - Manufacturer to agent to retailer to consumer (Cookware, meat, cosmetics, supermarkets)
• Channels for industrial products

  • A - Manufacturer to industrial user (Office machine companies)

  B - Manufacturer to industrial distributor to industrial user (Loy's Office Supplies)

  C - Manufacturer to agent to industrial distributor to industrial user (Building supplies)

  D - Manufacturer to agent to industrial user (Construction equipment)
• Considerations in distribution planning

  Decisions involving a product's physical movement and transfer of ownership from producer to consumer

  Distribution decisions affect a firm's marketing program, Nontraditional and multiple channels

  Control vs. costs

  Intensity of distribution
• The agent as a marketing intermediary is an independent individual or company whose main function is to act as the primary selling arm of the producer and represent the producer to users. Agents take possession of products but do not actually own them. Agents usually make profits from commissions or fees paid for the services they provide to the producer and users.