1. Distributing Products
Chapter 15
Distributing Products
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2. LEARNING GOALS
Chapter Fifteen
Explain the concept of marketing channels and their value.
Demonstrate how intermediaries perform the six marketing utilities.
Identify the types of wholesale intermediaries in the distribution system.
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3. LEARNING GOALS Compare the distribution strategies retailers use.
Chapter Fifteen
Compare the distribution strategies retailers use.
Explain the various kinds of nonstore retailing.
Explain the various ways to build cooperation in channel systems.
Describe logistics and outline how intermediaries manage the transportation and storage of goods.
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4. TONY HSIEH http://www.Zappos.com
Profile
Hsieh sold his first company to Microsoft for $265 million, before becoming Zappos’ CEO.
Changed Zappos’ corporate work environment so reps wow customers.
Zappos has total control over its inventory, and the service department knows exactly what is in stock.
If a customer wants a pair of shoes Zappos doesn’t have, an employee may even direct them to a competitor that does!
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5. NAME that COMPANY
Chapter Fifteen
Although this automobile manufacturer builds its cars in South Korea, the 30,000 components come from all over the world. For example, the airbags come from a Swedish company that makes them in Utah. It’s supply chain is truly interfirm and international.
Name that company!
Company: Kia
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6. WHAT are MARKETING INTERMEDIARIES?
The Emergence of Marketing Intermediaries
WHAT are MARKETING INTERMEDIARIES?
LG1
Marketing Intermediaries -- Organizations that assist in moving goods and services from businesses 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.
See Learning Goal 1: Explain the concept of marketing channels and their value.
Ask students: How many of you think marketing intermediaries are an unnecessary cost?” (Often a majority of students will respond emphatically with a “yes.”)
Use this as a basis to begin this chapter and an opportunity to explain the benefits these intermediaries play.
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7. WHAT are MARKETING INTERMEDIARIES?
The Emergence of Marketing Intermediaries
WHAT are MARKETING INTERMEDIARIES?
LG1
Channel of Distribution -- A group of marketing intermediaries that joining together to transport and store goods from producers to consumers.
See Learning Goal 1: Explain the concept of marketing channels and their value.
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8. DISTRIBUTION and SUSTAINABILITY (Thinking Green)
Companies can’t be successfully green without the help of the supply chain.
Companies are pushing partners to come up with a distribution plan that would minimize pollution and optimize profits.
See Learning Goal 1: Explain the concept of marketing channels and their value
Photo Courtesy of: Jeff Kubina
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9. TYPES of MARKETING INTERMEDIARIES?
The Emergence of Marketing Intermediaries
TYPES of MARKETING INTERMEDIARIES?
LG1
Agents and Brokers -- Intermediaries who bring buyers and sellers together and assist in negotiating an exchange but do not take title to the goods.
Wholesaler -- An intermediary that sells products to other organizations such as retailers, manufacturers, and hospitals.
Retailer -- An organization that sells products to ultimate customers.
See Learning Goal 1: Explain the concept of marketing channels and their value.
There are different types of marketing intermediaries each with a different role.
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10. SELECTED CHANNELS of DISTRIBUTION
The Emergence of Marketing Intermediaries
SELECTED CHANNELS of DISTRIBUTION
LG1
See Learning Goal 1: Explain the concept of marketing channels and their value.
Different types of products will get to market via different channels of distribution.
Often small producers will bypass wholesalers and retailers taking their products directly to the marketplace.
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11. WHY MARKETING NEEDS INTERMEDIARIES
LG1
Intermediaries perform marketing tasks faster and cheaper than most manufacturers could provide them.
Marketing intermediaries make markets more efficient by reducing transactions and contacts.
See Learning Goal 1: Explain the concept of marketing channels and their value.
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12. HOW INTERMEDIARIES CREATE EXCHANGE EFFICIENCY
LG1
See Learning Goal 1: Explain the concept of marketing channels and their value.
1.This slide answers the question, “Why does marketing need intermediaries?”
2. Intermediaries do add cost, as many assume, but they also create an efficient exchange of product. Many students are surprised how intermediaries create value for the consumer.
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13. THREE KEY FACTS ABOUT MARKETING INTERMEDIARIES
The Value vs the Cost of Intermediaries
THREE KEY FACTS ABOUT MARKETING INTERMEDIARIES
LG1
Marketing intermediaries can be eliminated but their activities can’t.
Intermediaries perform marketing functions faster and cheaper than other organizations can.
Marketing intermediaries add costs to products but they’re generally offset by the values they provide.
See Learning Goal 1: Explain the concept of marketing channels and their value.
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14. DISTRIBUTION’S EFFECT on YOUR FOOD DOLLAR
The Value vs the Cost of Intermediaries
DISTRIBUTION’S EFFECT on YOUR FOOD DOLLAR
LG1
See Learning Goal 1: Explain the concept of marketing channels and their value.
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15. INTERMEDIARIES CREATE UTILITY
The Utilities Created by Intermediaries
INTERMEDIARIES CREATE UTILITY
LG2
Utility -- The want-satisfying ability, or value, that organizations add to goods and services by making them more useful or accessible to consumers.
Six types of utilities:
Form
Time
Place
Possession
Information
Service
See Learning Goal 2: Demonstrate how intermediaries perform the six marketing utilities.
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16. HOW MARKETERS USE UTILITY
The Utilities Created by Intermediaries
LG2
Form Utility -- Changes raw materials into useful products; producers generally provide form utility.
Starbucks makes coffee the way the customers want it.
Dell assembles computers according to customer needs.
Time Utility -- Makes products available when customers want them.
Many Walgreens stores are open 24-hours a day.
Colleges offer day and evening classes.
See Learning Goal 2: Demonstrate how intermediaries perform the six marketing utilities.
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17. HOW MARKETERS USE UTILITY
The Utilities Created by Intermediaries
LG2
Place Utility -- Adds value to products by placing them where people want them.
Banks place ATMs at convenient locations.
7-11 stores are found in easy-to-reach locations.
Possession Utility -- Helps transfer ownership from one party to another, including providing credit.
Pay for lunch at McDonalds with your Visa card.
A savings and loan office offers loans to home/car buyers.
See Learning Goal 2: Demonstrate how intermediaries perform the six marketing utilities.
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18. HOW MARKETERS USE UTILITY
The Utilities Created by Intermediaries
LG2
Information Utility -- Opens two-way flows of information between marketing participants.
Websites offer advice to shoppers.
Local government maps show tourist locations.
Service Utility -- Provides service during and after a sale and teaches customers how to best use products.
Apple offers classes to help computer buyers.
College placement offices help students find jobs.
See Learning Goal 2: Demonstrate how intermediaries perform the six marketing utilities.
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19. PROGRESS ASSESSMENT
Progress Assessment
What’s a channel of distribution and what intermediaries participate in it?
Why do we need intermediaries? Illustrate how intermediaries create exchange efficiency.
How would you defend intermediaries to someone who said getting rid of them would save consumers millions of dollars?
Give examples of the utilities intermediaries create and how they provide them.
A channel of distribution consists of agents, brokers, wholesalers, and retailers that join together to transport and store goods in their path or channel.
Marketing intermediaries perform tasks such as transporting, storing, selling, advertising and relationship building. They are able to perform these tasks faster and more cheaply than most manufacturers creating a cost savings.
The reason that marketing intermediaries have not been eliminated is they add value that greatly exceeds their cost.
There are six types of utility provided by intermediaries:
Form utility occurs when raw materials are changed into useful products. For example, retail butchers cut pork chops from a larger piece of meat.
Time utility is added to products by making them available to consumers when they want them. Convenience stores like 7-Eleven and Quick Trip provide time utility since they are open 24 hours a day.
Place utility occurs when products are placed where people want them. Again 7-Eleven and Quick Trip provide place utility, since they are in easy to reach locations.
Possession utility is added by doing whatever is necessary to transfer ownership from one party to another. Activities associated with possession utility include delivery, installation, guarantees, and follow-up service.
Information utility is created by opening two-way flows of information between marketing participants. Newspapers, websites, and salespeople all provide information utility.
Service utility is added by providing fast, friendly service before and after the sale. This is a critical area for most retailers, since without service utility they would lose business to the Internet or to catalogs.
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20. WHOLESALE INTERMEDIARIES
LG3
Wholesalers normally make B2B sales, however, stores like Staples and Costco also have retail functions.
Retail sales are sales of goods and services to customers 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.
See Learning Goal 3: Identify the types of wholesale intermediaries in the distribution system.
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21. TYPES of WHOLESALE INTERMEDIARIES
LG3
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.
See Learning Goal 3: Identify the types of wholesale intermediaries in the distribution system.
About 80% of wholesalers are merchant wholesalers.
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22. TYPES of LIMITED-FUNCTION WHOLESALERS
Wholesale Intermediaries
LG3
Rack Jobbers -- Furnish racks or shelves of merchandise such as music and magazines for retailers for display and sell them on consignment.
Cash-and-Carry Wholesalers -- Serve mostly smaller retailers with a limited assortment of products.
Drop Shippers -- Take orders from retailers and other wholesalers and have the merchandise shipped from producer to buyer.
See Learning Goal 3: Identify the types of wholesale intermediaries in the distribution system.
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23. ROLES of AGENTS and BROKERS
LG3
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.
See Learning Goal 3: Identify the types of wholesale intermediaries in the distribution system.
Agents and brokers do not take title or possession of the product but simply represent the interest of their clients.
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24. RETAILING in the U.S.
Retail Intermediaries
LG4
There are approximately 2.3 million retailers in the U.S., not including websites.
Retailers in the U.S. employ over 11 million people and operate under many different structures.
See Learning Goal 4: Compare the distribution strategies retailers use.
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25. POP! GOES the RETAIL STORE (Spotlight on Small Business)
Pop-up stores are temporary outlets that remain open for a short amount of time and offer items not found in traditional stores.
Toys ‘R’ Us opened more than 600 pop-up stores during the 2010 holiday season.
Procter & Gamble’s pop-up in New York was solely for promotion; free Cover Girl makeovers samples of Febreze candles were offered.
See Learning Goal 4: Compare the distribution strategies retailers use.
The aim of these types of pop-ups is to create lasting relationships with customers, rather than just distribute the products.
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26. FASTEST GROWING RETAIL CATEGORIES
Retail Intermediaries
LG4
Video games
Sports and fitness
Home, garden, and furniture
Event tickets
Consumer electronics
See Learning Goal 4: Compare the distribution strategies retailers use.
Fastest Growing Retail Categories
This slide presents the fastest growing retail categories.
Have students brainstorm reasons why they believe these categories are growing at a fast rate.
Ask students: What value do consumers see in these particular categories?
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27. HOW to PREVENT COUPON FRAUD
Retail Intermediaries
LG4
Make sure your coupons are unique.
Have clear expiration dates and rules.
Train staff on how to spot fraudulent coupons.
See Learning Goal 4: Compare the distribution strategies retailers use.
How to Prevent Coupon Fraud
Retail fraud cost the industry approximately $10 billion a year.
In our current economic state, coupon fraud is becoming more and more prevalent.
This slide shows how businesses can protect themselves.
Ask students: Is it illegal to counterfeit coupons? Is it ethical?
Photo Courtesy of: Walmart Stores
Source: Entrepreneur, December 2010.
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28. HOW to PREVENT RETURN POLICY FRAUD
Retail Intermediaries
LG4
Always require receipts for returns.
Shred receipts so they cannot be used to return stolen goods.
Check for tampering.
Have customers fill out a return form and check details.
See Learning Goal 4: Compare the distribution strategies retailers use.
How To Prevent Return Policy Fraud
Retail fraud cost the industry approximately $10 billion a year.
In our current economic state, more and more customers are returning products after personal use.
This slide shows how businesses can protect themselves.
Ask students: Should retailers have more strict return policies? What would you do if you owned a shop and customers were returning used goods?
Photo Courtesy of: Bill Ballentyne
Source: Entrepreneur, December 2010.
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29. TYPES of RETAIL STORES Types Examples Department Store
Retail Intermediaries
LG4
Types
Examples
Department Store
Sears, JC Penney, Nordstom
Discount Store
Wal-Mart, Target
Supermarket
Safeway, Kroger, Albertson’s
Warehouse Club
Costco, Sam’s Club
Convenience Store
7-Eleven
Category Killer
Toys-R-Us, Bass Pro Shops, Office Depot
Outlet Store
Nordstrom Rack, TJ Maxx, Nike Outlet
Specialty Store
Jewelry store, shoe stores, bicycle shops
See Learning Goal 4: Compare the distribution strategies retailers use.
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30. RETAIL DISTRIBUTION STRATEGIES
Retail Distribution Strategy
RETAIL DISTRIBUTION STRATEGIES
LG4
Intensive Distribution -- Puts products into as many retail outlets as possible.
Selective Distribution -- Uses only a preferred group of the available retailers in an area.
Exclusive Distribution -- The use of only one retail outlet in a given geographic area.
See Learning Goal 4: Compare the distribution strategies retailers use.
The retail strategy employed often depends on the product one is selling.
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31. Retail Distribution Strategy
PICK a STRATEGY… What’s the Correct Retail Strategy for These Products?
LG4
Ralph Lauren Polo Shirts
Diet Pepsi
Rolls Royce Automobiles
Calloway Golf Clubs
Snickers Candy Bars
Steinway Pianos
See Learning Goal 4: Compare the distribution strategies retailers use.
Ralph Lauren Polo Shirts - selective strategy
Diet Pepsi - intensive strategy
Rolls Royce Automobiles - exclusive strategy
Calloway Golf Clubs - selective strategy
Snickers Candy Bars - intensive strategy
Steinway Pianos - exclusive strategy
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32. PROGRESS ASSESSMENT
Progress Assessment
Describe the activities of rack jobbers and drop shippers?
What kinds of products would call for each of the different distribution strategies: intensive, selective, and exclusive?
Rack jobbers furnish racks full of merchandise like toys, health and beauty aids to retailers. They display the items and sell them on consignment, keeping title to the goods until they are sold. Drop shippers solicit orders and have the merchandise shipped directly from producer to the buyer. They own the merchandise but do not handle it, stock it or deliver it.
Intensive distribution includes convenience items such as gum, magazines, candy and cigarettes. Selective distribution includes items such as appliances, furniture, and clothing. Exclusive distribution includes specialty products such as fly-fishing gear or equipment for snow skiing.
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33. FORMS of NON-STORE RETAILING
LG5
Electronic Retailing -- Selling goods and services to ultimate consumers over the Internet.
Telemarketing -- The sale of goods and services via the telephone.
Vending machines dispense convenience goods when consumers deposit sufficient money.
See Learning Goal 5: Explain the various kinds of non-store retailing.
In many countries vending machines, kiosks and carts are more popular than in the United States. The Japanese Vending Machine Manufacturers Association estimates there is one vending machine for every 23 people, selling everything from soft drinks to umbrellas. You can even purchase gold from vending machines in Abu Dhabi!
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34. WHAT ONLINE STORES NEED Important Features on E-Commerce Web Sites
Non-Store Retailing
LG5
Convenient return policies
Established brands
User reviews
Professional site design
Alternative payment options
See Learning Goal 5: Explain the various kinds of non-store retailing.
What Online Sites Need
Online retailing is relatively new and is evolving to be more customer friendly.
This slide gives students an idea of the important features on e-commerce web sites.
The lack of these features often causes people to shy away from making purchases online.
Ask the students: Do you have hesitations about shopping online? Why or why not?
Source: GSI Commerce; Harris Interactive.
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35. FORMS of NON-STORE RETAILING
LG5
Direct Selling -- Selling goods and services to customers in their homes or workplaces.
Multilevel marketing uses salespeople who work as independent contractors.
Direct Marketing -- Any activity that directly links manufacturers or intermediaries with ultimate customers.
See Learning Goal 5: Explain the various kinds of non-store retailing.
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36. The FOUR SYSTEMS of CHANNEL RELATIONSHIPS
Building Cooperation in Channel Systems
The FOUR SYSTEMS of CHANNEL RELATIONSHIPS
LG6
Corporate Distribution Systems
Contractual Distribution Systems
Administered Distribution Systems
Supply Chains
See Learning Goal 6: Explain the various ways to build cooperation in channel systems.
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37. CORPORATE DISTRIBUTION SYSTEMS
LG6
Corporate Distribution Systems -- Exist when one firm owns all the organizations in a channel of distribution.
Examples:
Goodyear
Sherwin Williams
See Learning Goal 6: Explain the various ways to build cooperation in channel systems.
Photo Courtesy of: Doug Wilson
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38. CONTRACTUAL DISTRIBUTION SYSTEMS
LG6
Contractual Distribution Systems -- Exist when 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, True Value
See Learning Goal 6: Explain the various ways to build cooperation in channel systems.
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39. ADIMINISTERED DISTRIBUTION SYSTEMS
Administered Distribution Systems
ADIMINISTERED DISTRIBUTION SYSTEMS
LG6
Administered Distribution Systems -- Exist when producers manage all the marketing functions at the retail level.
Examples:
Kraft
Ralph Lauren
See Learning Goal 6: Explain the various ways to build cooperation in channel systems.
Photo Courtesy of: Stephen Boisvert
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40. SUPPLY CHAINS
Supply Chains
LG6
Supply Chain -- All the linked activities various organizations must perform to move goods and services from the source 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 in the supply chain.
See Learning Goal 6: Explain the various ways to build cooperation in channel systems.
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41. The SUPPLY CHAIN Supply Chains LG6
See Learning Goal 6: Explain the various ways to build cooperation in channel systems.
Supply chain management is a key to effective distribution in the 21st century.
This slide illustrates to students how supply chains are structured and implemented in the market.
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42. The GLOBAL SUPPLY CHAIN for SERVICES (Reaching Beyond Our Borders)
Much movie animation takes place in the Philippines while companies in China provide research and development services.
The competition among foreign suppliers is intense, including the need to find workers with strong language skills.
One country that could be a leader in supplying supply-chain services is the U.S.
See Learning Goal 6: Explain the various ways to build cooperation in channel systems.
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43. USING LOGISTICS
Logistics: Getting Goods to Consumers Efficiently
LG7
Logistics -- The planning, implementing and controlling of the physical flow of material, final goods and related information from points of origin to points of consumption.
Firms outsource to others specializing in trade compliance to determine what is needed to market products to global customers.
See Learning Goal 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
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44. LOGISTICS APPLICATIONS
Logistics: Getting Goods to Consumers Efficiently
LG7
Inbound Logistics -- Brings raw materials, packaging, other goods and services and information from suppliers to producers.
Materials Handling -- Movement of goods within a warehouse, from warehouse to the factory floor and from the factory floor to workstations.
See Learning Goal 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
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45. LOGISTICS APPLICATIONS
Logistics: Getting Goods to Consumers Efficiently
LG7
Outbound Logistics -- Manages the flow of finished products and information to business buyers and consumers.
Reverse Logistics -- Brings goods back to the manufacturer because of defects or for recycling.
See Learning Goal 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
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46. COMPARING TRANSPORTATION MODES
Logistics: Getting Goods to Consumers Efficiently
COMPARING TRANSPORTATION MODES
LG7
Mode
Cost
Speed
Dependability
Flexibility
Frequency
Reach
Rail
Med.
Slow
Medium
High
Low
Trucks
Fast
Highest
Pipeline
Lowest
Ships
Slowest
Air
Fastest
See Learning Goal 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
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47. LOGISTICS SPECIALISTS
Logistics: Getting Goods to Consumers Efficiently
LG7
Freight Forwarder -- Puts many small shipments together to create a single large shipment that can be transported cost-effectively by truck or train.
Intermodal Shipping -- Uses multiple modes of transportation to complete a single long-distance movement of freight.
See Learning Goal 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
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48. TYPES of INTERMODAL SHIPPING
Logistics: Getting Goods to Consumers Efficiently
TYPES of INTERMODAL SHIPPING
LG7
LG7
Piggybacking: Truck trailers placed on trains
Fishybacking: Truck trailers placed on ships
Birdybacking: Truck trailers placed on planes
See Learning Goal 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
A truck driver from North Carolina, Malcolm McLean invented container shipping in 1956.
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49. GET YOUR PRODUCT THERE Most Popular Modes of Freight Transport
Logistics: Getting Goods to Consumers Efficiently
GET YOUR PRODUCT THERE Most Popular Modes of Freight Transport
LG7
Method
% of Distributors
Trucks
69%
Trains
15%
Pipelines
10%
Ships 6%
Air
Under 1%
See Learning Goal 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
Get Your Product There
Not only must a manufacturer produce a product, they then must figure out the best way to ship the product.
This slide gives students insight into the most popular methods of freight transportation.
To make sure students understand this slide, discuss with the class the advantages and disadvantages of each method of transportation.
Source: U.S. Freight Transportation Forecast.
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50. STORAGE WAREHOUSES
The Storage Function
LG7
Storage warehouses hold products for a relatively long period of time.
Distribution warehouses are used to gather and redistribute products such as:
Beer and soft drinks
Package deliveries
See Learning Goal 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
Seasonal items, like snow shovels and lawnmowers, are often held in storage warehouses.
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51. PROGRESS ASSESSMENT
Progress Assessment
What four systems have evolved to tie together members of the channel of distribution?
How does logistics differ from distribution?
What are inbound logistics, outbound logistics, and reverse logistics?
The four systems that have emerged to tie firms together are: corporate systems, contractual systems, administered systems, and supply chains.
Logistics differs from distribution in many ways. Logistics is the planning, implementing, and controlling of 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. Distribution is much less complex than logistics and simply involves moving the product from the manufacturer to the end consumer.
Inbound logistics is the process of bringing raw materials, packaging, other goods and services, and information from suppliers to producers. Outbound logistics manages the flow of finished products and information to business buyers and them to consumers. Reverse logistics brings goods back to the manufacturer because of defects or for recycling.
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