1. Distributing Products
CHAPTER 15
Distributing Products
McGraw-Hill/Irwin
Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.

2. LEARNING OBJECTIVES
Explain the concept of marketing channels and their value.
Demonstrate how intermediaries perform the six marketing utilities.
Identify the types of wholesale intermediaries in the distribution system.
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3. LEARNING OBJECTIVES Compare the distribution strategies retailers use.
Explain the various kinds of nonstore retailing.
Explain the various ways to build cooperation in channel systems.
Describe logistics and outline how intermediaries manage the transportation and storage of goods.
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4. REED HASTINGS Netflix
Almost singlehandedly ended the era of brick and mortar video rentals.
In college, Hastings spent his summers training with the Marines and joined the Peace Corps.
Was inspired to start Netflix after racking up a $40 late fee.
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5. NAME that COMPANY
This U.S. company is known for having low prices all the time. One way it keeps prices low is by eliminating as many wholesalers as possible and doing all the wholesale function itself.
Name that company!
Company: Walmart
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6. WHAT are MARKETING INTERMEDIARIES?
LO 15-1
Marketing Intermediaries -- Organizations that assist in moving goods and services from businesses to businesses (B2B) and from businesses to consumers (B2C).
They are called intermediaries because they’re in the middle of a series of firms that distribute goods.
See Learning Objective 1: Explain the concept of marketing channels and their value.
Ask students: How many of you think marketing intermediaries are an unnecessary cost?” (Often a majority of students will respond emphatically with a “yes.”)
Use this as a basis to begin this chapter and an opportunity to explain the benefits these intermediaries play.
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7. WHAT are MARKETING INTERMEDIARIES?
LO 15-1
Channel of Distribution -- A group of marketing intermediaries that joining together to transport and store goods from producers to consumers.
See Learning Objective 1: Explain the concept of marketing channels and their value.
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8. ANSWER MAY BE BLOWING in the WIND
IKEA was looking to cut down on shipping costs and to focus on renewable energy.
It has plans to construct a wind farm in Illinois with 49 wind turbines to generate electricity for 34,000 homes.
Started using paper pallets that weigh 90% less than the wood and can be recycled.
IKEA officials are not satisfied with the new pallets already and are looking for a new option.
See Learning Objective 1: Explain the concept of marketing channels and their value
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9. TYPES of MARKETING INTERMEDIARIES?
LO 15-1
Agents and Brokers -- Intermediaries who bring buyers and sellers together and assist in negotiating an exchange but do not take title to the goods.
Wholesaler -- An intermediary that sells products to other organizations such as retailers, manufacturers, and hospitals.
Retailer -- An organization that sells products to ultimate customers.
See Learning Objective 1: Explain the concept of marketing channels and their value.
There are different types of marketing intermediaries each with a different role.
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10. SELECTED CHANNELS of DISTRIBUTION
LO 15-1
See Learning Objective 1: Explain the concept of marketing channels and their value.
Different types of products will get to market via different channels of distribution.
Often small producers will bypass wholesalers and retailers taking their products directly to the marketplace.
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11. WHY MARKETING NEEDS INTERMEDIARIES
LO 15-1
Intermediaries perform marketing tasks faster and cheaper than most manufacturers could provide them.
Marketing intermediaries make markets more efficient by reducing transactions and contacts.
See Learning Objective 1: Explain the concept of marketing channels and their value.
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12. HOW INTERMEDIARIES CREATE EXCHANGE EFFICIENCY
LO 15-1
See Learning Objective 1: Explain the concept of marketing channels and their value.
1.This slide answers the question, “Why does marketing need intermediaries?”
2. Intermediaries do add cost, as many assume, but they also create an efficient exchange of product. Many students are surprised how intermediaries create value for the consumer.
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13. THREE KEY FACTS ABOUT MARKETING INTERMEDIARIES
LO 15-1
Marketing intermediaries can be eliminated but their activities cannot.
Intermediaries perform marketing functions faster and cheaper than other organizations can.
Marketing intermediaries add costs to products but they are generally offset by the values they provide.
See Learning Objective 1: Explain the concept of marketing channels and their value.
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14. DISTRIBUTION’S EFFECT on YOUR FOOD DOLLAR
LO 15-1
See Learning Objective 1: Explain the concept of marketing channels and their value.
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15. INTERMEDIARIES CREATE UTILITY
LO 15-2
Utility -- The want-satisfying ability, or value, that organizations add to goods and services by making them more useful or accessible to consumers.
Six types of utilities:
Form
Time
Place
Possession
Information
Service
See Learning Objective 2: Demonstrate how intermediaries perform the six marketing utilities.
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16. HOW MARKETERS USE UTILITY
LO 15-2
Form Utility -- Changes raw materials into useful products; producers generally provide form utility.
Starbucks makes coffee the way the customers want it.
Dell assembles computers according to customer needs.
Time Utility -- Makes products available when customers want them.
Many Walgreens stores are open 24-hours a day.
Colleges offer day and evening classes.
See Learning Objective 2: Demonstrate how intermediaries perform the six marketing utilities.
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17. HOW MARKETERS USE UTILITY
LO 15-2
Place Utility -- Adds value to products by placing them where people want them.
Banks place ATMs at convenient locations.
7-11 stores are found in easy-to-reach locations.
Possession Utility -- Helps transfer ownership from one party to another, including providing credit.
Pay for lunch at McDonalds with your Visa card.
A savings and loan office offers loans to home/car buyers.
See Learning Objective 2: Demonstrate how intermediaries perform the six marketing utilities.
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18. HOW MARKETERS USE UTILITY
LO 15-2
Information Utility -- Opens two-way flows of information between marketing participants.
Websites offer advice to shoppers.
Local government maps show tourist locations.
Service Utility -- Provides service during and after a sale and teaches customers how to best use products.
Apple offers classes to help computer buyers.
College placement offices help students find jobs.
See Learning Objective 2: Demonstrate how intermediaries perform the six marketing utilities.
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19. TEST PREP
What is a channel of distribution and what intermediaries participate in it?
Why do we need intermediaries? Illustrate how intermediaries create exchange efficiency.
How would you defend intermediaries to someone who said getting rid of them would save consumers millions of dollars?
Give examples of the utilities intermediaries create and how they provide them.
A channel of distribution consists of agents, brokers, wholesalers, and retailers that join together to transport and store goods in their path or channel.
Marketing intermediaries perform tasks such as transporting, storing, selling, advertising and relationship building. They are able to perform these tasks faster and more cheaply than most manufacturers creating a cost savings.
The reason that marketing intermediaries have not been eliminated is they add value that greatly exceeds their cost.
There are six types of utility provided by intermediaries:
Form utility occurs when raw materials are changed into useful products. For example, retail butchers cut pork chops from a larger piece of meat.
Time utility is added to products by making them available to consumers when they want them. Convenience stores like 7-Eleven and Quick Trip provide time utility since they are open 24 hours a day.
Place utility occurs when products are placed where people want them. Again 7-Eleven and Quick Trip provide place utility, since they are in easy to reach locations.
Possession utility is added by doing whatever is necessary to transfer ownership from one party to another. Activities associated with possession utility include delivery, installation, guarantees, and follow-up service.
Information utility is created by opening two-way flows of information between marketing participants. Newspapers, websites, and salespeople all provide information utility.
Service utility is added by providing fast, friendly service before and after the sale. This is a critical area for most retailers, since without service utility they would lose business to the Internet or to catalogs.
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20. WHOLESALE INTERMEDIARIES
LO 15-3
Wholesalers normally make B2B sales, however, stores like Staples and Costco also have retail functions.
Retail sales are sales of goods and services to customers for their own use.
Wholesale sales are sales of goods and services to other businesses for use in the business or resale.
Consumers are more familiar with retailers than wholesalers.
See Learning Objective 3: Identify the types of wholesale intermediaries in the distribution system.
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21. TYPES of WHOLESALE INTERMEDIARIES
LO 15-3
Merchant Wholesalers -- Independently owned firms that take title to the goods they handle. There are two types:
Full-service wholesalers perform all distribution functions.
Limited-function wholesalers perform only selected distribution functions.
See Learning Objective 3: Identify the types of wholesale intermediaries in the distribution system.
About 80% of wholesalers are merchant wholesalers.
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22. TYPES of LIMITED-FUNCTION WHOLESALERS
LO 15-3
Rack Jobbers -- Furnish racks or shelves of merchandise such as music and magazines for retailers for display and sell them on consignment.
Cash-and-Carry Wholesalers -- Serve mostly smaller retailers with a limited assortment of products.
Drop Shippers -- Take orders from retailers and other wholesalers and have the merchandise shipped from producer to buyer.
See Learning Objective 3: Identify the types of wholesale intermediaries in the distribution system.
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23. ROLES of AGENTS and BROKERS
LO 15-3
Agents generally maintain long-term relationships with the clients they represent.
Manufacturer’s agents represent several manufacturers in a specific territory.
Sales agents represent a single client in a larger territory.
Brokers usually represent clients on a temporary basis.
See Learning Objective 3: Identify the types of wholesale intermediaries in the distribution system.
Agents and brokers do not take title or possession of the product but simply represent the interest of their clients.
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24. RETAILING in the U.S.
LO 15-4
There are over 2 million retailers in the U.S., not including websites.
Retailers in the U.S. employ about 5 million people and operate under many different structures.
See Learning Objective 4: Compare the distribution strategies retailers use.
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25. TRUCKIN’ ON with SOCIAL MEDIA
Today, over 3 million trucks cruise around the U.S. with lots of specialty items.
The food truck craze hit around the same time as Twitter and Facebook blew up.
Social media sites and food truck-specific apps help link up hungry mouths with the nearest trucks.
See Learning Objective 4: Compare the distribution strategies retailers use.
Ask students: Should Very Vegetarian start food truck operations? What opportunities could that open up for the company?
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26. FASTEST GROWING RETAIL CATEGORIES
LO 15-4
Video games
Sports and fitness
Home, garden, and furniture
Event tickets
Consumer electronics
See Learning Objective 4: Compare the distribution strategies retailers use.
Fastest Growing Retail Categories
This slide presents the fastest growing retail categories.
Have students brainstorm reasons why they believe these categories are growing at a fast rate.
Ask students: What value do consumers see in these particular categories?
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27. HOW to PREVENT COUPON FRAUD
LO 15-4
Make sure your coupons are unique.
Have clear expiration dates and rules.
Train staff on how to spot fraudulent coupons.
See Learning Objective 4: Compare the distribution strategies retailers use.
How to Prevent Coupon Fraud
Retail fraud cost the industry approximately $10 billion a year.
In our current economic state, coupon fraud is becoming more and more prevalent.
This slide shows how businesses can protect themselves.
Ask students: Is it illegal to counterfeit coupons? Is it ethical?
Photo Credit: Walmart Stores
Source: Entrepreneur, accessed November 2014.
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28. HOW to PREVENT RETURN POLICY FRAUD
LO 15-4
Always require receipts for returns.
Shred receipts so they cannot be used to return stolen goods.
Check for tampering.
Have customers fill out a return form and check details.
See Learning Objective 4: Compare the distribution strategies retailers use.
How To Prevent Return Policy Fraud
Retail fraud cost the industry approximately $10 billion a year.
In our current economic state, more and more customers are returning products after personal use.
This slide shows how businesses can protect themselves.
Ask students: Should retailers have more strict return policies? What would you do if you owned a shop and customers were returning used goods?
Photo Credit: Bill Ballentyne
Source: Entrepreneur, accessed November 2014.
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29. TYPES of RETAIL STORES Types Examples Department Store
LO 15-4
Types
Examples
Department Store
Sears, JC Penney, Nordstom
Discount Store
Wal-Mart, Target
Supermarket
Safeway, Kroger, Albertson’s
Warehouse Club
Costco, Sam’s Club
Convenience Store
7-Eleven
Category Killer
Toys-R-Us, Bass Pro Shops, Office Depot
Outlet Store
Nordstrom Rack, TJ Maxx, Nike Outlet
Specialty Store
Jewelry store, shoe stores, bicycle shops
See Learning Objective 4: Compare the distribution strategies retailers use.
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30. RETAIL DISTRIBUTION STRATEGIES
LO 15-4
Intensive Distribution -- Puts products into as many retail outlets as possible.
Selective Distribution -- Uses only a preferred group of the available retailers in an area.
Exclusive Distribution -- The use of only one retail outlet in a given geographic area.
See Learning Objective 4: Compare the distribution strategies retailers use.
The retail strategy employed often depends on the product one is selling.
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31. PICK a STRATEGY… What’s the Correct Retail Strategy for These Products?
LO 15-4
Ralph Lauren Polo Shirts
Diet Pepsi
Rolls Royce Automobiles
Calloway Golf Clubs
Snickers Candy Bars
Steinway Pianos
See Learning Objective 4: Compare the distribution strategies retailers use.
Ralph Lauren Polo Shirts - selective strategy
Diet Pepsi - intensive strategy
Rolls Royce Automobiles - exclusive strategy
Calloway Golf Clubs - selective strategy
Snickers Candy Bars - intensive strategy
Steinway Pianos - exclusive strategy
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32. TEST PREP Describe the activities of rack jobbers and drop shippers?
What kinds of products would call for each of the different distribution strategies: intensive, selective, and exclusive?
Rack jobbers furnish racks full of merchandise like toys, health and beauty aids to retailers. They display the items and sell them on consignment, keeping title to the goods until they are sold. Drop shippers solicit orders and have the merchandise shipped directly from producer to the buyer. They own the merchandise but do not handle it, stock it or deliver it.
Intensive distribution includes convenience items such as gum, magazines, candy and cigarettes. Selective distribution includes items such as appliances, furniture, and clothing. Exclusive distribution includes specialty products such as fly-fishing gear or equipment for snow skiing.
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33. FORMS of NON-STORE RETAILING
LO 15-5
Electronic Retailing -- Selling goods and services to ultimate consumers online.
Telemarketing -- The sale of goods and services via the telephone.
Vending machines dispense convenience goods when consumers deposit sufficient money.
See Learning Objective 5: Explain the various kinds of non-store retailing.
In many countries vending machines, kiosks and carts are more popular than in the United States. The Japanese Vending Machine Manufacturers Association estimates there is one vending machine for every 23 people, selling everything from soft drinks to umbrellas. You can even purchase gold from vending machines in Abu Dhabi!
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34. FORMS of NON-STORE RETAILING
LO 15-5
Social Commerce – A form of electronic commerce that involves using social media, online media that supports social interaction, and user contributions to assist in the online buying and selling of products.
See Learning Objective 5: Explain the various kinds of non-store retailing.
In many countries vending machines, kiosks and carts are more popular than in the United States. The Japanese Vending Machine Manufacturers Association estimates there is one vending machine for every 23 people, selling everything from soft drinks to umbrellas. You can even purchase gold from vending machines in Abu Dhabi!
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35. WHAT ONLINE STORES NEED Important Features on E-Commerce Web Sites
LO 15-5
Convenient return policies
Established brands
User reviews
Professional site design
Alternative payment options
See Learning Objective 5: Explain the various kinds of non-store retailing.
What Online Sites Need
Online retailing is relatively new and is evolving to be more customer friendly.
This slide gives students an idea of the important features on e-commerce web sites.
The lack of these features often causes people to shy away from making purchases online.
Ask the students: Do you have hesitations about shopping online? Why or why not?
Source: GSI Commerce; Harris Interactive.
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36. FORMS of NON-STORE RETAILING
LO 15-5
Direct Selling -- Selling goods and services to customers in their homes or workplaces.
Multilevel marketing uses salespeople who work as independent contractors.
Direct Marketing -- Any activity that directly links manufacturers or intermediaries with ultimate customers.
See Learning Objective 5: Explain the various kinds of non-store retailing.
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37. The FOUR SYSTEMS of CHANNEL RELATIONSHIPS
LO 15-6
Corporate Distribution Systems
Contractual Distribution Systems
Administered Distribution Systems
Supply Chains
See Learning Objective 6: Explain the various ways to build cooperation in channel systems.
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38. CORPORATE DISTRIBUTION SYSTEMS
LO 15-6
Corporate Distribution Systems -- Exist when one firm owns all the organizations in a channel of distribution.
Examples:
Goodyear
Sherwin Williams
See Learning Objective 6: Explain the various ways to build cooperation in channel systems.
Photo Credit: Doug Wilson
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39. CONTRACTUAL DISTRIBUTION SYSTEMS
LO 15-6
Contractual Distribution Systems -- Exist when members are bound to cooperate through contractual agreements.
Forms of Contractual Systems:
Franchise Systems: McDonald’s, Baskin-Robbins
Wholesale-Sponsored Chains: IGA, Ace Hardware
Retail Cooperatives: Associated Grocers, True Value
See Learning Objective 6: Explain the various ways to build cooperation in channel systems.
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40. ADIMINISTERED DISTRIBUTION SYSTEMS
LO 15-6
Administered Distribution Systems -- Exist when producers manage all the marketing functions at the retail level.
Examples:
Kraft
Ralph Lauren
See Learning Objective 6: Explain the various ways to build cooperation in channel systems.
Photo Credit: Stephen Boisvert
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41. SUPPLY CHAINS
LO 15-6
Supply Chain -- All the linked activities various organizations must perform to move goods and services from the source of raw materials to ultimate consumers.
Supply Chain Management -- The process of managing the movement of raw materials, parts, work in progress, finished goods, and related information through all the organizations in the supply chain.
See Learning Objective 6: Explain the various ways to build cooperation in channel systems.
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42. The SUPPLY CHAIN
LO 15-6
See Learning Objective 6: Explain the various ways to build cooperation in channel systems.
Supply chain management is a key to effective distribution in the 21st century.
This slide illustrates to students how supply chains are structured and implemented in the market.
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43. WEAK LINKS CAN BREAK a CHAIN
When nothing goes wrong, supply chains can be a smashing success.
But, natural disasters can wreak havoc and cause billions of dollars in damage.
Managing the integrity of products throughout the whole chain is difficult too
These weak links could cause a chain to break.
See Learning Objective 6: Explain the various ways to build cooperation in channel systems.
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44. USING LOGISTICS
LO 15-7
Logistics -- The planning, implementing and controlling of the physical flow of material, final goods and related information from points of origin to points of consumption.
Firms outsource to others specializing in trade compliance to determine what is needed to market products to global customers.
See Learning Objective 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
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45. LOGISTICS APPLICATIONS
Inbound Logistics -- Brings raw materials, packaging, other goods and services and information from suppliers to producers.
Materials Handling -- Movement of goods within a warehouse, from warehouse to the factory floor and from the factory floor to workstations.
See Learning Objective 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
Logistics perform the 7 Rs: Getting the right product to the right place, to the right customer, at the right time, in the right quantity, in the right condition, and at the right price.
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46. LOGISTICS APPLICATIONS
Outbound Logistics -- Manages the flow of finished products and information to business buyers and consumers.
Reverse Logistics -- Brings goods back to the manufacturer because of defects or for recycling.
See Learning Objective 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
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47. COMPARING TRANSPORTATION MODES
LO 15-7
Mode
Cost
Speed
Dependability
Flexibility
Frequency
Reach
Rail
Med.
Slow
Medium
High
Low
Trucks
Fast
Highest
Pipeline
Lowest
Ships
Slowest
Air
Fastest
See Learning Objective 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
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48. LOGISTICS SPECIALISTS
Freight Forwarder -- Puts many small shipments together to create a single large shipment that can be transported cost-effectively by truck or train.
Intermodal Shipping -- Uses multiple modes of transportation to complete a single long-distance movement of freight.
See Learning Objective 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
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49. TYPES of INTERMODAL SHIPPING
LO 15-7
Piggybacking: Truck trailers placed on trains
Fishybacking: Truck trailers placed on ships
Birdybacking: Truck trailers placed on planes
See Learning Objective 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
A truck driver from North Carolina, Malcolm McLean invented container shipping in 1956.
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50. GET YOUR PRODUCT THERE Most Popular Modes of Freight Transport
LO 15-7
Method
% of Distributors
Trucks
69%
Trains
15%
Pipelines
10%
Ships 6%
Air
Under 1%
See Learning Objective 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
Get Your Product There
Not only must a manufacturer produce a product, they then must figure out the best way to ship the product.
This slide gives students insight into the most popular methods of freight transportation.
To make sure students understand this slide, discuss with the class the advantages and disadvantages of each method of transportation.
Source: U.S. Freight Transportation Forecast.
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51. STORAGE WAREHOUSES
LO 15-7
Storage warehouses hold products for a relatively long period of time.
Distribution warehouses are used to gather and redistribute products such as:
Beer and soft drinks
Package deliveries
See Learning Objective 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
Seasonal items, like snow shovels and lawnmowers, are often held in storage warehouses.
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52. TEST PREP
What four systems have evolved to tie together members of the channel of distribution?
How does logistics differ from distribution?
What are inbound logistics, outbound logistics, and reverse logistics?
The four systems that have emerged to tie firms together are: corporate systems, contractual systems, administered systems, and supply chains.
Logistics differs from distribution in many ways. Logistics is the planning, implementing, and controlling of the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit. Distribution is much less complex than logistics and simply involves moving the product from the manufacturer to the end consumer.
Inbound logistics is the process of bringing raw materials, packaging, other goods and services, and information from suppliers to producers. Outbound logistics manages the flow of finished products and information to business buyers and them to consumers. Reverse logistics brings goods back to the manufacturer because of defects or for recycling.
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