1. Channels of Distribution Channel Management LAP 1
Channel It
Channels of Distribution
Channel Management LAP 1

2. Channel It Explain the importance of channels of distribution.
Objectives:
Explain the importance of channels of distribution.
Describe types of channels of distribution.

3. Explain the importance of channels of distribution.

4. Making a special anniversary dinner for your grandparents
Lobster
Garlic mashed potatoes
Fresh fruit salad
You've benefited from channels of distribution!
Channels of distribution:
Save time
Save money
Allow us to enjoy a variety of products from around the world
All ingredients available at local grocery store

5. Channels of Distribution
The paths, or routes, that goods and services take from the producer to the ultimate consumer or industrial user
Not physical paths
Businesses or people who perform a variety of functions to enable products to be:
In the right places
At the right times

6. Channels of Distribution
Begin with producer and end with ultimate consumer or industrial user
Producer—makes or provides goods and services
Examples:
Appliance manufacturers
Health-care professionals
Farmers

7. Channels of Distribution
Ultimate consumer—anyone who personally uses a good or service to satisfy his/her own wants
Industrial user—business that buys materials, services, or goods that will be used to make other goods or used in the operation of the company
Channels also end when changes are made to the form of the good.

8. Neighborhood gas station
Channel Participants
Intermediaries
Operate between producer and consumer or user to help in movement of goods/services
Also known as middlemen
Types of middlemen:
Retailers
May also provide customer services such as credit, installation, and repair
Perform functions such as buying, selling, promoting, storing, and pricing goods
Businesses that buy consumer goods and sell them to ultimate consumers
Neighborhood gas station
McDonald's
Macy's
Examples:

9. Channel Participants Intermediaries Wholesalers
Businesses that buy goods from producers or agents and sell them to retailers
Buy a variety of goods from many producers and sell groups of related products to retailers
Important functions include packaging, transporting and storing, extending credit to retailers, and providing promotional and consulting services

10. Channel Participants Intermediaries Agents
Businesses or individuals that assist in the sale and/or promotion of goods and services
Do not take title to products— never actually own them
Instead, sell and promote a producer’s goods/services
Usually handle a limited number of noncompeting products

11. Channels of Distribution: A Closer Look
Primary objective of producers in distributing goods/services—have products:
In the right places
At the least cost
At the right times
In some cases, this means selling directly to ultimate consumers/industrial users.
In other cases, this means using intermediaries.
Regardless of distribution method, functions involved remain the same—buying, selling, pricing, financing, etc.

12. Channels of Distribution: A Closer Look
Selling directly:
Producer performs all necessary functions and incurs all costs.
Producer earns any and all income.
Using intermediaries:
Costs can be passed on to other channel members.
Producers' profits could decrease since income must be shared.
Producers' income might be higher if the intermediaries are able to sell more than the producers can sell on their own.

13. Channels of Distribution: A Closer Look
Not realistic for producers and consumers/industrial users to deal with each other directly all the time
Not practical for retailers to deal directly with producers all the time
Through agents/wholesalers, retailers reduce number of contracts with producers.

14. How Intermediaries Help in Channels of Distribution
Buy big and sell small
Buy large quantities of goods from producers
Sell smaller quantities to other intermediaries or consumers
By placing large orders with producers, are able to reduce the per-unit cost for goods, allowing them to make a profit and/or pass some of the savings along to consumers

15. How Intermediaries Help in Channels of Distribution
Develop an assortment of goods.
Most producers produce more than any consumer will purchase at one time.
Intermediaries collect goods from a variety of producers and divide them into quantities/assortments consumers want.
Consumers are then able to obtain the desired amounts/types of goods.

16. How Intermediaries Help in Channels of Distribution
Transport and store goods.
Enable goods to be on hand when consumer/ industrial users are ready to buy them rather than only when they are produced.

17. How Intermediaries Help in Channels of Distribution
Perform other functions:
Provide market information to producers
Promote sale of goods/services
Extend credit
Service sales
Provide management services
Plan inventories and store layouts
Help to train employees

18. Describe types of channels of distribution.

19. Types of Distribution
Direct distribution—straight from the producer to the ultimate consumer or industrial user
Indirect distribution—involves intermediaries

20. Channels of Distribution for Consumer Goods
Producer to consumer
Direct distribution
Simplest of all channels
Can take place:
Where the good is produced—a pumpkin farm, for example
In warehouses or outlets owned by producer
Through producers' catalogs or online sites
Producer maintains tight quality control.
Producer retains all distribution costs.

21. Producer to retailer to consumer
Channels of Distribution for Consumer Goods
Producer to retailer to consumer
Used when it is not possible for producer to reach a large number of consumers on a direct basis
Retailers provide wide distribution of products at lower costs than producers can.
Most retailers who deal directly with producers buy in large quantities due to:
The size of their businesses
The great demand for products

22. Producer to wholesaler to retailer to consumer
Channels of Distribution for Consumer Goods
Producer to wholesaler to retailer to consumer
Most common channel of distribution for consumer goods
Used because:
Many producers cannot offer small shipments.
So, they require buyers to place large orders for goods.
However, most retailers cannot buy the large quantities required.
Producers use wholesalers to sell to smaller retailers.

23. Producer to wholesaler to retailer to consumer
Channels of Distribution for Consumer Goods
Producer to wholesaler to retailer to consumer
Wholesalers:
Buy large quantities from producers
Divide them into smaller units for sale to retailers
Provide retailers with a variety of products from which to choose

24. Producer to agent to retailer to consumer
Channels of Distribution for Consumer Goods
Producer to agent to retailer to consumer
Used by producers who do not want to sell their goods but are prepared to handle other marketing functions
They contract with an agent to sell goods to retailers.
Agent brings buyer and seller together.
Once sales are made, producer processes goods to retailers.
Frequently used by producers to reach large retailers

25. Used to reach small retailers
Channels of Distribution for Consumer Goods
Producer to agent to wholesaler to retailer to consumer
Used to reach small retailers
Producers contract with agents to sell goods to wholesalers.
Wholesalers buy large quantities and sell smaller amounts to many small retailers.

26. Channels of Distribution for Industrial Goods
Separate from channels for consumer goods, but similar
Producer to industrial user
Direct distribution
Most common channel for industrial goods since producers often provide specialized services

27. Industrial distributors—similar to wholesalers for consumer goods
Channels of Distribution for Industrial Goods
Producer to industrial distributor to user
Industrial distributors—similar to wholesalers for consumer goods
Frequently carry small, standardized parts and operating supplies that industrial users need on a continuous basis
By having supplies on hand, are able to help industrial users obtain goods faster than from producers
Buy large quantities of goods/raw materials from producers
Sell small quantities to industrial users
Unlike wholesalers, tend to specialize in selling a limited number of products

28. Channels of Distribution for Industrial Goods
Producer to agent to user
Producers without sales forces contract with agents to promote/sell goods to industrial users.
Shipment is direct from producer to industrial user since agent does not take title to goods.
Frequently used for industrial goods with unit prices high enough to justify selling directly to industrial users

29. Often used by small producers of items such as building supplies
Channels of Distribution for Industrial Goods
Producer to agent to industrial distributor to user
Used when a good’s unit cost is not high enough to justify selling directly to industrial users
Industrial distributor buys large quantities of a good from an agent and sells smaller quantities to industrial users.
Often used by small producers of items such as building supplies

30. Channels for Services Services:
Intangible activities performed by other people for money
Productive acts that satisfy economic wants
Usually consumed when they are produced
Most follow a direct channel of distribution
Agents can assist with the distribution of services.
Examples:
Travel agents
Insurance agents
Stock brokers

31. Five products you've consumed in the past week:
Where were they produced?
Who produced them?
What channel members were involved in getting them to you?
How would you have obtained these products without channels of distribution?

32. Because of supply and demand, channel members may be able to charge higher prices for coveted products.
Let's say there is a hurricane or tornado in a certain part of the country, and many people need to repair their homes or roofs.
Is it OK for channel members to mark up hardware products during this time to make a bigger profit?
Channels of distribution do not guarantee that consumers will be able to purchase anything they want, any time they want.
Certain products may only be available in limited supplies.

33. Copyright © 2009 MBA Research and Curriculum Center
Acknowledgments
Original Developers:
Lelia Ventling and Sarah Bartlett Borich, MBAResearch
Version 1.0
Copyright © 2009 MBA Research and Curriculum Center

34. Digital-based photography sources:
DIGITAL JUICE
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750 Second Street
Encinitas, CA USA
LIQUID LIBRARY
Various images used in this presentation are ©2004 Liquid Library. All rights reserved

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