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Channel Management LAP 1 Channels of Distribution.

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Presentation on theme: "Channel Management LAP 1 Channels of Distribution."— Presentation transcript:

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2 Channel Management LAP 1 Channels of Distribution

3 Explain the importance of channels of distribution. Objectives: Describe types of channels of distribution.

4 Explain the importance of channels of distribution.

5 Lobster Making a special anniversary dinner for your grandparents Garlic mashed potatoes Fresh fruit salad All ingredients available at local grocery store Save time Save money Allow us to enjoy a variety of products from around the world You ' ve benefited from channels of distribution! Channels of distribution:

6 The paths, or routes, that goods and services take from the producer to the ultimate consumer or industrial user In the right places At the right times Channels of Distribution Not physical paths Businesses or people who perform a variety of functions to enable products to be:

7 Begin with producer and end with ultimate consumer or industrial user Producermakes or provides goods and services Examples: Channels of Distribution Appliance manufacturers Farmers Health-care professionals

8 Channels also end when changes are made to the form of the good. Ultimate consumeranyone who personally uses a good or service to satisfy his/her own wants Channels of Distribution Industrial userbusiness that buys materials, services, or goods that will be used to make other goods or used in the operation of the company

9 Operate between producer and consumer or user to help in movement of goods/services Retailers McDonald's Intermediaries Channel Participants Also known as middlemen Types of middlemen: Businesses that buy consumer goods and sell them to ultimate consumers Perform functions such as buying, selling, promoting, storing, and pricing goods May also provide customer services such as credit, installation, and repair Examples: Macy's Neighborhood gas station

10 Wholesalers Intermediaries Channel Participants Businesses that buy goods from producers or agents and sell them to retailers Buy a variety of goods from many producers and sell groups of related products to retailers Important functions include packaging, transporting and storing, extending credit to retailers, and providing promotional and consulting services

11 Agents Intermediaries Channel Participants Businesses or individuals that assist in the sale and/or promotion of goods and services Do not take title to products never actually own them Instead, sell and promote a producers goods/services Usually handle a limited number of noncompeting products

12 In some cases, this means selling directly to ultimate consumers/industrial users. Channels of Distribution: A Closer Look Primary objective of producers in distributing goods/serviceshave products: In other cases, this means using intermediaries. In the right places At the right times At the least cost Regardless of distribution method, functions involved remain the samebuying, selling, pricing, financing, etc.

13 Using intermediaries: Channels of Distribution: A Closer Look Selling directly: Producer performs all necessary functions and incurs all costs. Producer earns any and all income. Costs can be passed on to other channel members. Producers' profits could decrease since income must be shared. Producers' income might be higher if the intermediaries are able to sell more than the producers can sell on their own.

14 Not practical for retailers to deal directly with producers all the time Channels of Distribution: A Closer Look Not realistic for producers and consumers/industrial users to deal with each other directly all the time Through agents/wholesalers, retailers reduce number of contracts with producers.

15 How Intermediaries Help in Channels of Distribution Buy big and sell small Buy large quantities of goods from producers Sell smaller quantities to other intermediaries or consumers By placing large orders with producers, are able to reduce the per-unit cost for goods, allowing them to make a profit and/or pass some of the savings along to consumers

16 How Intermediaries Help in Channels of Distribution Develop an assortment of goods. Most producers produce more than any consumer will purchase at one time. Intermediaries collect goods from a variety of producers and divide them into quantities/assortments consumers want. Consumers are then able to obtain the desired amounts/types of goods.

17 How Intermediaries Help in Channels of Distribution Transport and store goods. Enable goods to be on hand when consumer/ industrial users are ready to buy them rather than only when they are produced.

18 How Intermediaries Help in Channels of Distribution Perform other functions: Provide market information to producers Promote sale of goods/services Extend credit Service sales Provide management services Plan inventories and store layouts Help to train employees

19 Describe types of channels of distribution.

20 Types of Distribution Direct distributionstraight from the producer to the ultimate consumer or industrial user Indirect distribution involves intermediaries

21 Direct distribution Simplest of all channels Can take place: Where the good is produceda pumpkin farm, for example In warehouses or outlets owned by producer Through producers' catalogs or online sites Channels of Distribution for Consumer Goods Producer to consumer Producer maintains tight quality control. Producer retains all distribution costs.

22 Used when it is not possible for producer to reach a large number of consumers on a direct basis Retailers provide wide distribution of products at lower costs than producers can. Most retailers who deal directly with producers buy in large quantities due to: The size of their businesses The great demand for products Channels of Distribution for Consumer Goods Producer to retailer to consumer

23 Most common channel of distribution for consumer goods Used because: Many producers cannot offer small shipments. So, they require buyers to place large orders for goods. However, most retailers cannot buy the large quantities required. Producers use wholesalers to sell to smaller retailers. Channels of Distribution for Consumer Goods Producer to wholesaler to retailer to consumer

24 Wholesalers: Buy large quantities from producers Divide them into smaller units for sale to retailers Provide retailers with a variety of products from which to choose Channels of Distribution for Consumer Goods Producer to wholesaler to retailer to consumer

25 Used by producers who do not want to sell their goods but are prepared to handle other marketing functions They contract with an agent to sell goods to retailers. Agent brings buyer and seller together. Once sales are made, producer processes goods to retailers. Frequently used by producers to reach large retailers Channels of Distribution for Consumer Goods Producer to agent to retailer to consumer

26 Used to reach small retailers Producers contract with agents to sell goods to wholesalers. Wholesalers buy large quantities and sell smaller amounts to many small retailers. Channels of Distribution for Consumer Goods Producer to agent to wholesaler to retailer to consumer

27 Channels of Distribution for Industrial Goods Direct distribution Most common channel for industrial goods since producers often provide specialized services Separate from channels for consumer goods, but similar Producer to industrial user

28 Producer to industrial distributor to user Channels of Distribution for Industrial Goods Buy large quantities of goods/raw materials from producers Sell small quantities to industrial users Unlike wholesalers, tend to specialize in selling a limited number of products Frequently carry small, standardized parts and operating supplies that industrial users need on a continuous basis By having supplies on hand, are able to help industrial users obtain goods faster than from producers Industrial distributorssimilar to wholesalers for consumer goods

29 Producer to agent to user Channels of Distribution for Industrial Goods Producers without sales forces contract with agents to promote/sell goods to industrial users. Shipment is direct from producer to industrial user since agent does not take title to goods. Frequently used for industrial goods with unit prices high enough to justify selling directly to industrial users

30 Producer to agent to industrial distributor to user Channels of Distribution for Industrial Goods Used when a goods unit cost is not high enough to justify selling directly to industrial users Industrial distributor buys large quantities of a good from an agent and sells smaller quantities to industrial users. Often used by small producers of items such as building supplies

31 Intangible activities performed by other people for money Productive acts that satisfy economic wants Usually consumed when they are produced Most follow a direct channel of distribution Services: Agents can assist with the distribution of services. Channels for Services Examples: Travel agents Insurance agents Stock brokers

32 Where were they produced? Who produced them? What channel members were involved in getting them to you? Five products you ' ve consumed in the past week: How would you have obtained these products without channels of distribution?

33 Channels of distribution do not guarantee that consumers will be able to purchase anything they want, any time they want. Certain products may only be available in limited supplies. Because of supply and demand, channel members may be able to charge higher prices for coveted products. Let's say there is a hurricane or tornado in a certain part of the country, and many people need to repair their homes or roofs. Is it OK for channel members to mark up hardware products during this time to make a bigger profit?

34 Acknowledgments Original Developers: Lelia Ventling and Sarah Bartlett Borich, MBA Research Version 1.0 Copyright © 2009 MBA Research and Curriculum Center

35 DIGITAL JUICE #090, 056, 096, 439, 606 Photos ©1998 Corbis Corp. 750 Second Street Encinitas, CA USA LIQUID LIBRARY Various images used in this presentation are ©2004 Liquid Library. All rights reserved Digital-based photography sources:

36 Copyright: All photographic digital images on this CD are owned by the aforementioned photographic resources or their licensors and are protected by the United States copyright laws, international treaty provisions, and applicable laws. No title to or intellectual property rights to the images on this CD are transferred to you. These sources retain all rights and are not to be used, digitally copied, transferred, or manipulated in any way. To do so is a violation of federal copyright laws.

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