1. Wholesaling, Retailing, and Physical Distribution
Chapter Fifteen
Wholesaling, Retailing, and Physical Distribution

2. Learning Objectives
Identify the various channels of distribution that are used for consumer and industrial products.
Explain the concept of market coverage.
Understand how supply-chain management facilitates partnering among channel members.
Describe what a vertical marketing system is and identify the types of vertical marketing systems.
Discuss the need for wholesalers and describe the services they provide to retailers and manufacturers.
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3. Learning Objectives (cont’d)
Identify and describe the major types of wholesalers.
Distinguish among the major types of retailers.
Identify the categories of shopping centers and the factors that determine how shopping centers are classified.
Explain the five most important physical distribution activities.
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4. Channels of Distribution
Channel of distribution (marketing channel)
A sequence of marketing organizations that directs a product from the producer to the ultimate user
Middleman (marketing intermediary)
A marketing organization that links a producer and user within a marketing channel
Merchant middleman—takes title to products by buying them
Functional middleman—helps in the transfer of ownership of products but does not take title to the products
Retailer—buys from producers or other middlemen and sells to consumers
Wholesaler—sells products to other firms
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5. Channels for Consumer Products
Producer to consumer (direct channel)
No intermediaries
Used by all services and by a few consumer goods
Producers can control quality and price, do not have to pay for intermediaries, and can be close to their customers
Examples: Dell Computer, Mary Kay Cosmetics
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6. Channels for Consumer Products (cont’d)
Producer to retailer to consumer
Producers sell directly to retailers when retailers (Wal-Mart) can buy in large quantities
Most often used for bulky products for which additional handling would increase selling costs, and for perishable or high-fashion products that must reach consumers quickly
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7. Channels for Consumer Products (cont’d)
Producer to wholesaler to retailer to consumer
The traditional channel
Used when a producer’s products are carried by so many retailers that the producer cannot deal with them all
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8. Channels for Consumer Products (cont’d)
Producer to agent to wholesaler to retailer to consumer
Agent—functional middlemen that do not take title to products and are compensated by commissions paid to the producers
Often used for inexpensive, frequently-purchased items, for seasonal products, and by producers that do not have their own sales forces
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9. Channels for Consumer Products (cont’d)
A manufacturer may use multiple channels
To reach different market segments
When the same product is sold to consumers and businesses
To increase sales or capture a larger market share
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10. Channels for Business Products
Producer to business user
Usually used for heavy machinery, airplanes, major equipment
Allows the producer to provide expert and timely services to customers
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11. Channels for Business Products (cont’d)
Producer to agent middleman to business user
Usually used for operating supplies, accessory equipment, small tools, standardized parts
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12. Market Coverage Intensity of market coverage Intensive distribution
The use of all available outlets for a product to saturate the market
Selective distribution
The use of only a portion of the available outlets for a product in each geographic area
Exclusive distribution
The use of only a single retail outlet for a product in a larger geographic area
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13. Partnering Through Supply Chain Management
Long-term partnership among channel members working together to create a distribution system that reduces inefficiencies, costs, and redundancies while creating a competitive advantage and satisfying customers
Category management
The retailer asks a supplier how to stock the shelves
Technology
Has enhanced implementation of supply chain management
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14. Vertical Marketing Systems
Vertical channel integration
The combining of two or more stages of a distribution channel under a single firm’s management
Vertical marketing system (VMS)
A centrally managed distribution channel resulting from vertical channel integration
Administered
One channel member dominates the others
Contractual
Intermediary cooperation, rights, and obligations are formalized in contracts
Corporate
The entire channel is owned by the producer
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15. Marketing Intermediaries: Wholesalers
Justifications for marketing intermediaries
Intermediaries perform essential marketing services
Manufacturers would be burdened with additional record keeping and maintaining contact with numerous retailers
Costs for distribution would not decrease, and could possibly increase due to the marketing inefficiencies of producers
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16. Efficiency Provided by an Intermediary
Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 12th ed. Copyright © 2003 by Houghton Mifflin Company, Adapted with permission.
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17. Wholesalers’ Services to Retailers
Buy in large quantities and then sell in smaller quantities
Deliver goods
Stock in one place a variety of goods
Promote products to retailers
Provide market information for both producers and retailers
Provide financial aid in the form of inventory management, loans, delayed billing
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18. Wholesalers’ Services to Manufacturers
Provide instant sales forces to manufacturers
Reduce manufacturers’ inventory costs by purchasing finished goods in sizable quantities
Assume the credit risks associated with selling to retailers
Furnish market information gleaned from the market and customers to the manufacturers
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19. Types of Wholesalers Merchant wholesalers
Middlemen that purchase goods in large quantities and then sell them to other wholesalers or retailers and to institutional, farm, government, professional, or industrial users
Operate in one or more warehouses where they receive, take title to, and store goods
Full-service wholesalers
General merchandise wholesaler
Limited-line wholesaler
Specialty-line wholesaler
Limited-service wholesalers
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20. Types of Wholesalers (cont’d)
Commission merchants, agents, and brokers
Functional middlemen that do not take title to products
Perform some marketing activities
Paid a commission (percentage of sales price)
Commission merchant
Carries merchandise and negotiates sales for manufacturers
Agent
Expedites exchanges, represents a buyer or a seller, and is often hired permanently on a commission basis
Broker
Specializes in a particular commodity, represents a buyer or a seller, and is likely to be hired on a temporary basis
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21. Types of Wholesalers (cont’d)
Manufacturer’s sales branch
Merchant wholesaler owned by a manufacturer
Carries inventory, extends credit, delivers goods, helps in promoting products
Customers are retailers, other wholesalers, and industrial purchasers
Manufacturer’s sales office
Sales agent owned by a manufacturer
Sells goods manufactured by its own firm and also others that complement its own product line
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22. Marketing Intermediaries: Retailers
Retailers: The final link between producers and consumers
Approx 2.6 million retail firms in the U.S.
90% have sales of less than $1 million
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23. The Ten Largest Retail Firms in the United States
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24. Classes of In-Store Retailers
Independent retailer
A firm that operates only one retail outlet
Chain retailer
A company that operates more than one retail outlet
Department store
A retail store that (1) employs 25 or more persons and (2) sells at least home furnishing, appliances, family apparel, and household linens and dry goods, each in a different part of the store
Discount store
A self-service, general merchandise outlet that sells products at lower-than-usual prices
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25. Classes of In-Store Retailers (cont’d)
Catalog showroom
A retail outlet that displays well-known brands and sells them at discount prices through catalogs within the store
Warehouse showroom
A retail facility in a large, low-cost building with large on-premises inventories and minimal service
Convenience store
A small food store that sells a limited variety of products but remains open well beyond normal business hours
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26. Classes of In-Store Retailers (cont’d)
Supermarket
A large self-service store that sells primarily food and household products
Superstore
A large retail store that carries not only food and nonfood products ordinarily found in supermarkets but also additional product lines
Warehouse club
A large-scale, members-only establishment that combines features of cash-and-carry wholesaling with discount retailing
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27. Classes of In-Store Retailers (cont’d)
Traditional specialty store
A store that carries a narrow product mix with deep product lines
Off-price retailer
A store that buys manufacturers’ seconds, overruns, returns, and off-season merchandise for resale to consumers at deep discounts
Category killer
A very large specialty store that concentrates on a single product line and competes on the basis of low prices and product availability
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28. Kinds of Nonstore Retailing
A type of retailing whereby consumers purchase products without visiting a store
Direct selling
The marketing of products to ultimate consumers through face-to-face sales presentations at home or in the workplace
Direct marketing
Using computers, telephones, and nonpersonal media to show products to customers, who can then purchase them by mail, telephone, or online
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29. Kinds of Nonstore Retailing (cont’d)
Catalog marketing
An organization provides a catalog from which customers make selections and place orders by mail or telephone
Direct-response marketing
A retailer advertises a product and makes it available through mail or telephone orders
Telemarketing
The performance of marketing-related activities by telephone
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30. Kinds of Nonstore Retailing (cont’d)
Television home shopping
Products are displayed to television viewers, who can then order the products by calling a toll-free number and paying by credit card
Online retailing
Presenting and selling products through computer connections
Automatic vending
The use of machines to dispense products
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31. Planned Shopping Centers
A self-contained retail facility constructed by independent owners and consisting of various stores
Lifestyle shopping center
Has an open-air configuration and is occupied by upscale national chain specialty stores
Neighborhood shopping center
Comprises several small convenience and specialty stores
Community shopping center
Includes one or two department stores and some specialty stores, along with convenience stores
Regional shopping center
Contains large department stores, numerous specialty stores, restaurants, movie theaters, and sometimes hotels
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32. Physical Distribution
All those activities concerned with the efficient movement of products from the producer to the ultimate user
Inventory management
The process of managing inventories in such a way as to minimize inventory costs, including both holding costs and potential stock-out costs
Holding costs—the costs of storing products until they are purchased or shipped to customers
Stock-out costs—the costs of sales lost when items are not in inventory when needed
Order processing
Activities involved in receiving and filling customers’ purchase orders
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33. Physical Distribution
Warehousing
The set of activities involved in receiving and storing goods and preparing them for reshipment
Receiving goods
Identifying goods
Sorting goods
Dispatching goods to storage
Holding goods
Recalling, picking, and assembling goods
Dispatching shipments
Types of warehouses
Private warehouses—owned and operated by a firm
Public warehouses—offer their services to all firms
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34. Physical Distribution (cont’d)
Materials handling
The physical handling of goods, in warehousing as well as during transportation
Transportation
The shipment of products to customers
Carrier—a firm that offers transportation services
Common carriers—services are available for hire to all shippers
Contract carriers—available for hire by one or several shippers; not available to the general public
Private carriers—owned and operated by the shipper
Freight forwarders—agents who facilitate the transportation process for shippers by handling the details of the process
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35. Ratings of Transportation Modes
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36. Changes in Ton-Miles for Various Transportation Modes
Source: U.S. Bureau of Transportation Statistics, National Transportation Statistics 2005 , ; accessed January 30, 2006
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