Introduction to Business 3e 13 Part V: Marketing Copyright © 2004 South-Western. All rights reserved. Distributing Products

Copyright © 2004 South-Western. All rights reserved.13–2 Distributing Products

Copyright © 2004 South-Western. All rights reserved.13–3 Learning Goals Explain advantages and disadvantages of direct distribution channel. Identify factors that could determine optimal channel of distribution. Differentiate between types of market coverage. Explain how to accelerate the distribution process.

Copyright © 2004 South-Western. All rights reserved.13–4 Learning Goals (cont’d) Explain how retailers serve customers. Explain how wholesalers can serve. manufacturers and retailers. Explain the strategy and benefits of vertical channel integration.

Copyright © 2004 South-Western. All rights reserved.13–5 Distributing Products

Copyright © 2004 South-Western. All rights reserved.13–6 Channels of Distribution Determine how the firm’s products will be accessible to customers –Convenience of place Direct channel –Allows full control over price –Provides first-hand customer feedback –Requires more employees –Incurs more expenses to promote product –May require selling on credit

Copyright © 2004 South-Western. All rights reserved.13–7 Channels of Distribution One-Level Channel –One marketing intermediary is between the producer and the customer  Merchants  Agents Two-Level Channel –Two marketing intermediaries are between the producer and the customer  Small businesses may use agents to generate sales to retailers

Copyright © 2004 South-Western. All rights reserved.13–8 One-Level Distribution Channel Exhibit 13.1

Copyright © 2004 South-Western. All rights reserved.13–9 Two-Level Distribution Channel Exhibit 13.2

Copyright © 2004 South-Western. All rights reserved.13–10 Comparison of Common Distribution Systems Exhibit 13.3

Copyright © 2004 South-Western. All rights reserved.13–11 Optimal Distribution Channel Depends on product’s characteristics –Ease of transporting  If product is easy to transport, use of intermediary is more likely  If product is difficult to transport, use of direct channel is more likely –Degree of standardization  Standardized products more likely to use intermediary –Ability to fulfill Internet orders  Internet ordering allows use of direct channel

Copyright © 2004 South-Western. All rights reserved.13–12 Degree of Market Coverage Degree of product distribution among outlets –Provide easy customer access to products –Ensure that outlet is capable –Intensive distribution across most or all possible outlets –Selective distribution through selected outlets –Exclusive distribution through only one or a few outlets

Copyright © 2004 South-Western. All rights reserved.13–13 Alternative Degrees of Market Coverage Exhibit 13.4

Copyright © 2004 South-Western. All rights reserved.13–14 Selecting Transportation Mode Cost of transporting products can exceed production costs –Important to select most efficient mode of transportation that is appropriate –Firm should estimate timing, cost, and availability before selecting a mode of transportation  Truck, rail, air, water, pipeline

Copyright © 2004 South-Western. All rights reserved.13–15 Additional Transportation Decisions Determine efficient way to load products Create best route to distribute product to outlets Determine appropriate number of transporters Decide if all of the company’s products should be delivered at the same time, or separately Estimate costs of all possible transportation modes and select most efficient

Copyright © 2004 South-Western. All rights reserved.13–16 Accelerate Distribution Process Important to get products into the hands of customers as quickly as possible –Slow delivery may cause customers to buy from a competitor –Reduction in distribution time can enhance firm’s value  Allows firm to get paid sooner and be able to reinvest those funds

Copyright © 2004 South-Western. All rights reserved.13–17 A Restructured Distribution Process Exhibit 13.5

Copyright © 2004 South-Western. All rights reserved.13–18 Relationship between Production and Distribution Exhibit 13.6

Copyright © 2004 South-Western. All rights reserved.13–19 Methods of Acceleration Streamline distribution channels –Eliminate warehouses –Deliver direct to customers Integrate production and distribution processes –Maintain adequate inventory to avoid shortages –Use E-marketing to process orders and keep track of inventory

Copyright © 2004 South-Western. All rights reserved.13–20 Retailers Valuable intermediaries that distribute products directly to customers –Number of outlets  Independent retail store versus chain store  Chain stores get lower prices by buying in bulk  Chain stores gain national reputation –Quality of service  Full-service store versus self-service store –Variety of products offered  Specialty retailer versus variety retail store

Copyright © 2004 South-Western. All rights reserved.13–21 Non-Store Retailers Mail-order retailers –Receive orders over the phone or through the mail –Works well for products that are light, somewhat standardized, and do not need to be serviced Websites –Firm does not have to send out catalogs –Cuts costs and allows changes to be made easily and often Vending machines

Copyright © 2004 South-Western. All rights reserved.13–22 Wholesalers Intermediaries who purchase products from manufacturers and sell them to retailers Serve manufacturers –Warehousing –Providing sales expertise –Delivery to retailers –Assumption of credit risk –Information

Copyright © 2004 South-Western. All rights reserved.13–23 Wholesalers Serve retailers –Warehousing  Allows retailer to order in smaller quantities –Promotion  Increase sales by retailers –Displays  Attract customer attention –Credit –Information  Inform retailers about competitors’ policies

Copyright © 2004 South-Western. All rights reserved.13–24 Steps Involved in the Production and Distribution of Products Exhibit 13.7

Copyright © 2004 South-Western. All rights reserved.13–25 Vertical Channel Integration Two or more levels of distribution are managed by a single firm –Manufacturer decides to open its own retail stores –Retailer decides to produce its own products, rather than buying products from a manufacturer –Must consider costs and benefits before deciding to vertically integrate

Copyright © 2004 South-Western. All rights reserved.13–26 Trade-off from Using Vertical Integration. Exhibit 13.8

Copyright © 2004 South-Western. All rights reserved.13–27 Chapter Summary Advantages and disadvantages of using a direct channel of distribution Optimal channel depends on product characteristics. Firms must choose appropriate type of market coverage. Accelerating the distribution channel can add value to the firm.

Copyright © 2004 South-Western. All rights reserved.13–28 Chapter Summary (cont’d) Retailers serve as intermediaries and are distinguished by characteristics. Wholesalers provide valuable services to manufacturers and retailers. Vertical channel integration occurs when a single firm manages more than one level of distribution.