Chapter 21 Channels of Distribution1 April 8, 2015 Channels of Distribution Marketing Essentials

Chapter 21 Channels of Distribution2 SECTION 21.1 Brainstorm Distribution What are the four Ps of the marketing mix? Product, Place, Price, Promotion Which of the four P’s deals with distribution planning? Place

Chapter 21 Channels of Distribution3 SECTION 21.1 Distribution Why It's Important As you know, the marketing mix includes decisions about product, price, place, and promotion. In this chapter you will explore the place decision—that is, how the product will be distributed and sold in the marketplace. Making the correct place decision has an impact on the entire operation of a business.

Chapter 21 Channels of Distribution4 SECTION 21.1 Brainstorm Distribution What are some products you buy directly from the person who produces them?

Chapter 21 Channels of Distribution5 SECTION 21.1 What You'll Learn Distribution  The concept of a channel of distribution  Who channel members are  Non-store retailing methods  How channels of distribution differ for consumer and business-to-business products

Chapter 21 Channels of Distribution6 SECTION 21.1 Distribution Key Terms  channel of distribution  intermediaries  wholesalers  rack jobbers  drop shippers  retailers  brick and mortar retailers  e-tailing  agents  direct distribution  indirect distribution

Chapter 21 Channels of Distribution7 SECTION 21.1 Distribution Key Terms  rack jobbers - Wholesaler that provides racks of merchandise for retail locations and splits the profits from sales between the two parties. Example: Convenience stores are often made up various rack jobbers from large and small wholesalers. For example, the rack of chips in a store from Frito Lay would be a considered a rack jobber.  drop shippers – A service offered by some wholesalers where the retailer does not keep goods in stock but instead transfers customer orders and shipment details to the wholesaler, who then ships the goods directly to the customer.

Chapter 21 Channels of Distribution8 SECTION 21.1 Distribution Key Terms  brick and mortar - refers to businesses that have physical presences - in other words, stores (built of physical material such as bricks and mortar) that you can drive to and enter physically to see, touch, and purchase merchandise  e-tailing – electronic retailing – the selling of goods on the Internet.

Chapter 21 Channels of Distribution9 SECTION 21.1 Distribution The channel of distribution is the path a product takes from producer or manufacturer to final user. This is a place decision, one of the four Ps of the marketing mix. Distribution—How It Works

Chapter 21 Channels of Distribution10 SECTION 21.1 Distribution Channel Members All the businesses involved in sales transactions that move products from the manufacturer 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.

Chapter 21 Channels of Distribution11 SECTION 21.1 Distribution Intermediaries Intermediaries reduce the number of transactions required by manufacturers to reach their final customers. What expenses of doing business are lowered by this reduction in transactions?

Chapter 21 Channels of Distribution12 SECTION 21.1 Distribution Intermediaries Intermediaries are classified on the basis of whether they take title (ownership) of the goods. Merchant intermediaries (wholesalers and retailers) take title Agent intermediaries do not take title but receive a commission Slide 1 of 3

Chapter 21 Channels of Distribution13 SECTION 21.1 Distribution Wholesalers Wholesalers buy large quantities of goods (taking title) from manufacturers, store the goods, and then resell them to other businesses. Their customers are called retailers. They may be called distributors when their customers are professional or commercial users, manufacturers, governments, institutions, or other wholesalers. Slide 1 of 3

Chapter 21 Channels of Distribution14 SECTION 21.1 Distribution Two specialized wholesalers are:  rack jobbers  drop shippers Wholesalers Slide 2 of 3

Chapter 21 Channels of Distribution15 SECTION 21.1 Distribution Rack jobbers manage inventory and merchandising for retailers by counting stock, filling it in when needed, and maintaining store displays. They provide the display racks and bill the retailer only for the goods sold. Wholesalers Slide 2 of 3

Chapter 21 Channels of Distribution16 SECTION 21.1 Distribution Drop shippers deal in bulk items such as coal, lumber, and chemicals that require special handling. Drop shippers sell the goods to other businesses and have the producer ship the merchandise directly to the buyers. The products are owned, but never handled, by the drop shipper. Wholesalers Slide 3 of 3

Chapter 21 Channels of Distribution17 SECTION 21.1 Distribution Retailers sell goods to the final consumer for personal use. Goods may be purchased from the manufacturer or from a wholesaler. Traditional retailers, called brick and mortar retailers, sell goods to the customer from their own physical stores. Non-store retailing operations include automatic retailing (vending machines), direct mail and catalog retailing, TV home shopping, and online retailing (e-tailing). Retailers

Chapter 21 Channels of Distribution18 SECTION 21.1 Distribution Note the millions of dollars attributed to online sales by e-tailers in one month. Shopping on the Web Top e-tailing sectors Air Travel Books Hardware Software Apparel Hotels Toys/games Music Health, beauty Electronics Source: Dow Jones MILLIONS OF DOLLARS $318 $224 $187 $182 $164 $146 $143 $126

Chapter 21 Channels of Distribution19 SECTION 21.1 Distribution Unlike wholesalers and retailers, agents do not own the goods they sell. Agents act as intermediaries by bringing buyers and sellers together. Agents Example Real estate agents, food brokers, independent manufacturer’s representatives.

Chapter 21 Channels of Distribution20 SECTION 21.1 Distribution Channels of distribution are classified as direct or indirect. Direct distribution occurs when the goods or services are sold from the producer directly to the customer; no intermediaries are involved. Indirect distribution involves one or more intermediaries. Direct and Indirect Channels

Chapter 21 Channels of Distribution21 SECTION 21.1 Distribution Different channels of distribution are generally used to reach the customer in the consumer and industrial markets. Both markets make use of direct and indirect distribution. Example: Selling Napkins Industrial market – manufacturer sells napkins to an industrial distributors who, in turn, sell the napkins to restaurants Consumer market – manufacturer sells napkins to a wholesaler who sells a retailer such as a grocery store Channels in the Consumer and Industrial Markets

Chapter 21 Channels of Distribution Graphic Organizer Channels of Distribution ConsumersConsumers WholesalersWholesalers AgentsAgents RetailersRetailers Manufacturers / Producers

Chapter 21 Channels of Distribution A SSESSMENT Thinking Critically Do you think e-tailing will eventually replace brick and mortar retailers? Explain.

Chapter 21 Channels of Distribution24 SECTION 21.1 Distribution Amazon The Future of Distribution

Chapter 21 Channels of Distribution25 End of Section 21.1 Marketing Essentials

Chapter 21 Channels of Distribution A SSESSMENT Reviewing Key Terms and Concepts 1. What is a channel of distribution? 2. Name two major types of merchant intermediaries. 3. What type of intermediary is a rack jobber? A drop shipper? 4. Distinguish between brick and mortar and online retailers. 5. Which type of distribution channel—direct or indirect—is used more frequently for consumer products? For industrial products?