Presentation on theme: "Channels of Distribution Channel Management LAP 1"— Presentation transcript:
1 Channels of Distribution Channel Management LAP 1 Channel ItChannels of DistributionChannel Management LAP 1
2 Channel It Explain the importance of channels of distribution. Objectives:Explain the importance of channels of distribution.Describe types of channels of distribution.
3 Explain the importance of channels of distribution.
4 Making a special anniversary dinner for your grandparents LobsterGarlic mashed potatoesFresh fruit saladYou've benefited from channels of distribution!Channels of distribution:Save timeSave moneyAllow us to enjoy a variety of products from around the worldAll ingredients available at local grocery store
5 Channels of Distribution The paths, or routes, that goods and services take from the producer to the ultimate consumer or industrial userNot physical pathsBusinesses or people who perform a variety of functions to enable products to be:In the right placesAt the right times
6 Channels of Distribution Begin with producer and end with ultimate consumer or industrial userProducer—makes or provides goods and servicesExamples:Appliance manufacturersHealth-care professionalsFarmers
7 Channels of Distribution Ultimate consumer—anyone who personally uses a good or service to satisfy his/her own wantsIndustrial user—business that buys materials, services, or goods that will be used to make other goods or used in the operation of the companyChannels also end when changes are made to the form of the good.
8 Neighborhood gas station Channel ParticipantsIntermediariesOperate between producer and consumer or user to help in movement of goods/servicesAlso known as middlemenTypes of middlemen:RetailersMay also provide customer services such as credit, installation, and repairPerform functions such as buying, selling, promoting, storing, and pricing goodsBusinesses that buy consumer goods and sell them to ultimate consumersNeighborhood gas stationMcDonald'sMacy'sExamples:
9 Channel Participants Intermediaries Wholesalers Businesses that buy goods from producers or agents and sell them to retailersBuy a variety of goods from many producers and sell groups of related products to retailersImportant functions include packaging, transporting and storing, extending credit to retailers, and providing promotional and consulting services
10 Channel Participants Intermediaries Agents Businesses or individuals that assist in the sale and/or promotion of goods and servicesDo not take title to products— never actually own themInstead, sell and promote a producer’s goods/servicesUsually handle a limited number of noncompeting products
11 Channels of Distribution: A Closer Look Primary objective of producers in distributing goods/services—have products:In the right placesAt the least costAt the right timesIn some cases, this means selling directly to ultimate consumers/industrial users.In other cases, this means using intermediaries.Regardless of distribution method, functions involved remain the same—buying, selling, pricing, financing, etc.
12 Channels of Distribution: A Closer Look Selling directly:Producer performs all necessary functions and incurs all costs.Producer earns any and all income.Using intermediaries: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.
13 Channels of Distribution: A Closer Look Not realistic for producers and consumers/industrial users to deal with each other directly all the timeNot practical for retailers to deal directly with producers all the timeThrough agents/wholesalers, retailers reduce number of contracts with producers.
14 How Intermediaries Help in Channels of Distribution Buy big and sell smallBuy large quantities of goods from producersSell smaller quantities to other intermediaries or consumersBy 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
15 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.
16 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.
17 How Intermediaries Help in Channels of Distribution Perform other functions:Provide market information to producersPromote sale of goods/servicesExtend creditService salesProvide management servicesPlan inventories and store layoutsHelp to train employees
19 Types of DistributionDirect distribution—straight from the producer to the ultimate consumer or industrial userIndirect distribution—involves intermediaries
20 Channels of Distribution for Consumer Goods Producer to consumerDirect distributionSimplest of all channelsCan take place:Where the good is produced—a pumpkin farm, for exampleIn warehouses or outlets owned by producerThrough producers' catalogs or online sitesProducer maintains tight quality control.Producer retains all distribution costs.
21 Producer to retailer to consumer Channels of Distribution for Consumer GoodsProducer to retailer to consumerUsed when it is not possible for producer to reach a large number of consumers on a direct basisRetailers 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 businessesThe great demand for products
22 Producer to wholesaler to retailer to consumer Channels of Distribution for Consumer GoodsProducer to wholesaler to retailer to consumerMost common channel of distribution for consumer goodsUsed 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.
23 Producer to wholesaler to retailer to consumer Channels of Distribution for Consumer GoodsProducer to wholesaler to retailer to consumerWholesalers:Buy large quantities from producersDivide them into smaller units for sale to retailersProvide retailers with a variety of products from which to choose
24 Producer to agent to retailer to consumer Channels of Distribution for Consumer GoodsProducer to agent to retailer to consumerUsed by producers who do not want to sell their goods but are prepared to handle other marketing functionsThey 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
25 Used to reach small retailers Channels of Distribution for Consumer GoodsProducer to agent to wholesaler to retailer to consumerUsed to reach small retailersProducers contract with agents to sell goods to wholesalers.Wholesalers buy large quantities and sell smaller amounts to many small retailers.
26 Channels of Distribution for Industrial Goods Separate from channels for consumer goods, but similarProducer to industrial userDirect distributionMost common channel for industrial goods since producers often provide specialized services
27 Industrial distributors—similar to wholesalers for consumer goods Channels of Distribution for Industrial GoodsProducer to industrial distributor to userIndustrial distributors—similar to wholesalers for consumer goodsFrequently carry small, standardized parts and operating supplies that industrial users need on a continuous basisBy having supplies on hand, are able to help industrial users obtain goods faster than from producersBuy large quantities of goods/raw materials from producersSell small quantities to industrial usersUnlike wholesalers, tend to specialize in selling a limited number of products
28 Channels of Distribution for Industrial Goods Producer to agent to userProducers 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
29 Often used by small producers of items such as building supplies Channels of Distribution for Industrial GoodsProducer to agent to industrial distributor to userUsed when a good’s unit cost is not high enough to justify selling directly to industrial usersIndustrial 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
30 Channels for Services Services: Intangible activities performed by other people for moneyProductive acts that satisfy economic wantsUsually consumed when they are producedMost follow a direct channel of distributionAgents can assist with the distribution of services.Examples:Travel agentsInsurance agentsStock brokers
31 Five products you've consumed in the past week: Where were they produced?Who produced them?What channel members were involved in getting them to you?How would you have obtained these products without channels of distribution?
32 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?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.
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