2Distribution – How It Works Channel of Distribution: the path a product takes from producer or manufacturer to final user.When the product is purchased from a business, the final user is classified as an industrial user.When the product is purchased for personal use, the final user is classified as a consumer.Example: shampoo products could be classified as both a consumer and industrial product. Manufacturers of Shampoo sell their product to the customer through retail operations.
3Channel MembersAll businesses involved in a sales transaction that move products from the manufacturers to the final user are called intermediaries or middlemen.Intermediaries provide value to producers because they often have expertise in certain areas that producers do not have.Intermediaries provide the following roles:Experts in displaying, merchandising, and providing convenient shopping locationsReduce the number of contacts required to reach the final user of the product
4Channel MembersWholesalers – buy large quantities of goods from manufacturers, store the goods, and then resell them to other businesses.Two specialized wholesalers are called rack jobbers and drop shippers.Rack jobbers: manage inventory and merchandising for retailers by counting stock, filling it when needed, and maintaining store displays. Examples: compact discs, hosiery, health products, and beauty aids.Drop shippers: own the goods they sell but do not physically handle the actual products. Example: coal, lumber, chemicals that require special handling.
5Channel MembersRetailers – sell goods to the final consumer for personal use.Sell goods to the customer from their own physical stores.Serve as final link between manufacturer and consumer.Provide special services, such as offering credit or providing delivery to help solidify customer relationships.Types of retailers: brick and mortar, vending service, e-tailing,.s
6Channel MembersAgents: act as intermediaries by bringing buyers and sellers together.Do not own the goods they sell.Real estate agents, brokers, independent manufacturer’s representative (fishing rods, lures)Brokers can be in the line of the food industry as well
7Direct and Indirect Channels Direct distribution: when the goods or services are sold from the producer directly to the customer.Indirect distribution: involves one or more intermediaries.Example: independent insurance agent sells insurance policies from different insurance companies to consumers or businesses.
9Physical Distribution All the activities that help to ensure that the right amount of product is delivered to the right place at the right time.Involves moving products quickly with minimal handling to reduce costs and maximize customer satisfaction20-25 percent of the value of a product can be assigned to distribution expenses.
10Types of Transportation Transportation: marketing function of moving products from a seller to a buyer.Five major transportation forms that move products:Motor carriersRailroadsWaterwaysPipelinesAir carriers
11Trucking Most frequently used form of transportation. Carry higher-valued products that are expensive to carry in inventory.AdvantagesConvenientCan deliver to any geographical location – door to door, wholesale or retail orientedCan make rapid deliveries of large amounts of goods and reduce the need to carry large inventories between shipments.DisadvantagesDelays due to traffic jams, equipment breakdown and accidentsSubject to size and weight restrictions enforced by states
12Rail Transportation Major type in the US Accounts for 38 percent of total intercity of freight.Important for moving heavy and bulky freight such as coal, steel, lumber, chemicals, grain, farm equipmentAdvantagesCan ship at low costs by handling large quantitiesSeldom slowed or stopped by bad weatherDisadvantagesLack of flexibilityCan pick up and deliver goods only at stations along designated rail linesCan not reach as many places as motor carriers do
13Water Transportation Oldest methods of transporting merchandise Internal shipping from one port to another on connecting river and lakes. (Agricultural products get shipped from Midwest to other parts of the world)Intracoastal shipping – between ports along the Atlantic or Pacific coastsAdvantagesLow cost – ships and barges are the cheapest form of freight transportationDisadvantagesSlowest form of transportationBuyers that are located far from port city must have products off-loaded from ships onto railroad cars or motor carriers to reach destination.Water transportation is affected by bad weather. Great Lakes shipping is usually closed for 2-3 months in the winter.
14PipelineNormally owned by the company using them. Considered private carriers.There are more than 200,000 miles of pipelines in the USMost frequently used to transport oil and natural gasCarry approximately 20 percent of the ton-miles of freight transported in the USAdvantagesOperational costs are small, but high initial investmentRisk of pipeline leak is small, but when a leak does occur the damage to the environment can be extensive.Not subjected to delivery delays due to bad weather
15Air TransportationLess than one percent of the total ton-miles of freight shippedHigh value, low-weight items such as overnight mail are often shipped by air.FAA regulates air transportation – does not regulate charges for air freight.AdvantagesSpeedSatisfies customers who need something quicklyReduces inventory expenses and storage costs for warehousing products.DisadvantagesCostMechanical breakdowns and delays in delivery caused by bad weather.
16Inventory StorageStorage is the marketing function of holding goods until they are sold.Essential for most businesses – needs to store products until orders are received from customers.Storing goods adds time and place utility to products.Costs involved in storing products include space, equipment and personnel.
17Private WarehousesA facility designed to meet the specific needs of its owner.Valuable for companies that move a large volume of products.Costly to build and maintain.Stores that use private warehouses are: Sears, Radio Shack, Kmart.
18Public WarehousesOffers storage and handling facilities to individuals or companies.Available to any company that will pay for its use.Public warehouses not only rent space but provide services to businesses.Good for businesses that have low storage needs or seasonal production.
19Distribution CentersWarehouse designed to speed delivery of goods and to minimize storage costs.Planned around markets instead of transportation requirements.Sherwin-Williams, Benjamin Moore paints, WalMart
20Distribution for International Markets Critical in global marketing.Exports now support one-sixth of the manufacturing and agricultural output of the USRequires even more planning than for selling within domestic marketsSome countries have legal restrictions about how products may be transportedBusinesses must understand other countries’ physical transportation systems.