4.01 Explain the nature of channels of distribution Topic: Nature and Scope Unit: Distribution

Definitions Channel of distribution – path a product takes from producer (or manufacturer) to final user (consumer) Producer – maker of the product Ultimate consumer – individual or group who actually uses a good or service Industrial user – individual or group who uses a good or service within a business setting

Definitions cont’d Middlemen/intermediaries – firm or person who acts as a link between parties in a business deal Retailers – A business that sells goods to a consumer. Can be large or small. For example, Target or a family run diner. Wholesaler – buy large quantities of goods from manufacturers then resell them to other businesses

Definitions cont’d Agent – party that has express or implied permission to act on the behalf of another. For example a real estate agent acts on behalf of their client negotiating terms of the sale/purchase of property Direct channel – producer supplies directly to the ultimate consumer Indirect channel – involves one or more intermediaries

Types of channel members Wholesalers Rack jobbers – manage inventory and merchandising for retailers by counting stock, filling in when needed, and maintaining store displays. Drop shippers – own the good they sell but don’t physically handle the products Retailers Brick-and-mortar – sell goods to customers from their physical stores Automatic retailer – vending machines Direct mail, catalog, home shopping networks, & e- tailing

Types cont’d Agents – Independent Manufacturers’ Representative Work with several related, noncompeting, manufacturers in a specific industry. They are paid commission based on what they sell. For example, may carry fishing rods, hunting gear, or outdoor shirts all from different manufacturers – Broker Purpose is to bring buyers and sellers together in order for a sale to take place. The relationship is temporary

Importance of channel members Cost savings in specialization – these people know what they’re doing and can often perform tasks better and at lower costs Reduce exchange time – in other words faster product delivery. Imagine if every manufacturer delivered their products! Customers want convenience and variety. Resellers sell small quantities

Importance cont’d Create sales – retailers use creative means to drive customers into their stores Offer financial support – allow customers options in purchasing products. i.e. payment programs Provide information

the channels Marketing Essentials textbook pages Look at the consumer channel (pg. 378). Which channel is used most often for items that go out of date quickly or need servicing? Look at the industrial channel (pg. 379). Which channel is most often used to distribute major equipment used in manufacturing? Which distribution channel, direct or indirect is used more frequently for consumer products? Industrial products?