Chapter 14: Supply Systems

Wholesaling  wholesaling involves any sale that is not a retail sale; to other businesses for resale, for use in other products, or use in the business  wholesalers provide a valuable service in bringing manufacturers and retailers together  wholesaling requires bringing together the economies of skill, scale, and transactions  the wholesale market is bigger than the retail market.... how can that be?

Figure 14-1 The Economy of Transacting in Wholesaling

Figure 14-2 Types of Wholesaling Institutions

Figure 14-3 Wholesale Trade Customers

Categories of Wholesalers  merchant wholesalers take title to the products that they handle; perform wide range of services  manufacturers’ sales branches and offices are owned and operated by the manufacturers  agents and brokers negotiate sales but do not take title to the products they sell  primary products dealers deal primarily in raw materials such as agricultural products

Merchant Wholesalers  full-service wholesalers perform a wide range of services for the suppliers they represent  they take title to the products that they carry  they generally operate warehouses, create assortments, and arrange delivery  they buy in very large quantities and sell to small customers in the assortments they need  other wholesalers include truck jobbers and drop shippers

Agent Wholesalers  these are independent businesses which may represent a number of suppliers  they do not take title to the products they sell  manufacturers’ agents are generally smaller firms that operate on commission; they are usually assigned to a specific territory  brokers often do not work on a continuing basis with suppliers but will bring buyers and sellers together; may not ever see the product

Distribution Channels  the distribution channel includes both the producer or supplier and the customer  intermediaries perform a number of functions on behalf of both producers and consumers  some producers shorten the channel by performing distribution functions themselves  regardless of who performs them, the distribution functions must be performed

Designing the Channel  channel design is a strategic marketing tool  the firm must first decide what role distribution is to play in achieving objectives  what type of channel is needed? with or without intermediaries?  what level of intensity of distribution?  which specific intermediaries to use? which will be best suited to achieve objectives?

Figure 14-4 Sequence of Decisions to Design a Distribution Channel

Selecting the Type of Channel  some firms will distribute directly; others will use a number of intermediaries: producer  consumer (direct) producer  retailer  consumer producer  wholesaler  retailer  consumer producer  agent  retailer  consumer producer  agent  wholesaler  retailer  consumer  when would each of these be considered?

Figure 14-5 Major Marketing Channels for Different Categories of Products

Multiple Distribution Channels  some firms will use several distribution channels to reach specific markets or segments  dual distribution is used, for example, to reach business and consumer markets, or to carry different groups of products  or may be used to reach different segments of the seller’s market; different sizes of buyers or different regions of the country  some companies operate their own stores

Vertical Marketing Systems  VMS is a tightly-controlled distribution system  may be achieved through common ownership of firms at several levels of the channel (corporate)  a contractual VMS such as franchising involves channel members operating under contract  an administered VMS involves market co- ordination through the economic power of one channel member, usually the supplier, whose brand equity or market position is strong

Factors Affecting Channel Choice  the selection of the shape, length, and nature of the distribution channel depends on: the needs, structure and behaviour of the market, including number of customers the nature of the product or service nature and availability of intermediaries characteristics and situation of the company  these factors will point the company toward the selection of a certain channel type

Intensity of Distribution  the number of intermediaries to be used depends on how consumers buy the product  intensive distribution has convenience products sold in a large number of outlets  selective distribution involves using fewer outlets to sell mostly shopping goods  specialty products are usually sold through exclusive distribution as consumers are prepared to search for them

Figure 14-6 The Intensity-of-Distribution Continuum

Channel Conflict  conflicts occasionally arise in distribution channels  horizontal conflict involves firms competing at the same level of distribution  vertical conflict occurs when producers bypass intermediaries to sell direct, or set up dual distribution and compete with retailers  retailers have achieved considerable power in the distribution channel through information

Legal Aspects of Distribution  generally it is illegal for a supplier to refuse to supply an intermediary with products  exclusive dealing is not illegal unless it severely limits business in an area  tying contracts involve an intermediary being required to carry a supplier’s full line  exclusive sales territories are not considered to be illegal unless they lessen competition

Physical Distribution  firms have to be concerned with how products actually reach intermediaries and customers  physical distribution or logistics involves all activities that ensure that the right quantity of products get to the right place at the right time  activities include inventory handling and warehousing, materials handling, inventory control, order processing, and transportation  all of these activities are interrelated

Strategic Physical Distribution  good physical distribution systems can dramatically improve customer service  it is a very important component in an overall program to keep a company’s costs in line  it can provide a competitive advantage through the creation of time and place utility  it can serve to stabilize prices, can influence the firm’s channel selection decision, and reduce shipping and transportation costs

Figure 14-7 Economic Order Quantity