1. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-1 n Definition >Any series of firms and/or individuals who participate in the flow of goods and services from producers to the final users. n The role of distribution is to get the product to the firm’s target market, which entails: >Arranging for its sale and transfer of title >Promoting the product >Storing the product >Delivering the product n Two Primary Functional Areas >Channels of Distribution >Physical Distribution Chapters 14, 15, 16 Distribution

2. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-2 What is a Distribution Channel? n A distribution channel consists of the set of people and firms involved in transfer of title/ownership to a product as it moves from producer to ultimate consumer or business user. n Every firm wants to have a distribution channel that meets customer needs and also provides a competitive advantage.

3. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-3 Fig. 14-3a - Major Distribution Channels ULTIMATE CONSUMERS CONSUMER GOODS PRODUCERS OF CONSUMER GOODS Retailers Merchant wholesalers Merchant wholesalers Agents

4. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-4 BUSINESS USERS BUSINESS GOODS PRODUCERS OF BUSINESS GOODS Merchant wholesalers (industrial distributors) Agents Merchant wholesalers (industrial distributors) Fig. 14-3b - Major Distribution Channels Merchant wholesalers (industrial distributors) Resellers

5. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-5 ULTIMATE CONSUMERS OR BUSINESS USERS SERVICES PRODUCERS OF SERVICES Agents Fig. 14-3c - Major Distribution Channels

6. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-6 Middlemen and Distribution Channels n A middleman is a firm that renders services related directly to the sale and/or purchase of a product as it flows from producer to consumer. n Independent/Corporate Chain Middlemen >Merchant middlemen take title to products. »Make profits through resale »Ralph’s, Robinson’s/May, Sav-on’s >Agent middlemen do not take title to products, but arrange the transfer of title. »Make commissions on sales »Real estate agents, stock brokers, auctioneers n Manufacturer-Owned Middlemen >Radio Shack, many McDonald’s

7. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-7 Fig. 14-1 - Typical Middlemen Activities Provides market information Interprets consumers’ wants Promotes producers’ products Creates assortments Stores products Negotiates with customers Provides financing Owns products Shares risks Anticipates wants Subdivides large quantities of a product Stores products Transports products Creates assortments Provides financing Makes products readily available Guarantees products Shares risks Acts as SALES SPECIALIST FOR PRODUCERS Acts as PURCHASING AGENT FOR BUYERS M I D L E M A N

8. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-8 n n Distributors help with product planning for the future. n n They warehouse the wine and promote it. n n They often publish and make available to retailers a catalog that includes Sutter and other products. n n They set up countertop displays and racks. n n Many do “detailing” — checking supply on retailers’ shelves and restocking when necessary. n n They select the most efficient means of transportation and make sure deliveries are made on time. Example of What a Middleman Does According to CEO Bob Trinchero, a major factor in Sutter Home Winery’s success has been the ability to choose good distributors and build a cooperative relationship with them. What do distributors do for Sutter Home?

9. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-9 Fig 14-2 - Designing a Distribution Channel Copyright © 1997 by The McGraw-Hill Companies, Inc. Specify the role of distribution within the marketing mix Select type and control of distribu- tion channel Determine appropriate intensity of distri- bution Choose specific channel members WELL-DESIGNEDDISTRIBUTIONCHANNEL

10. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-10 The Role and Control of Channels n The Role >Your channel design and make-up can be your competitive advantage. n Control >Who sets the terms of the relationship? >Manufacturers must decide how much control they need/want. >Can a middleman control the channel decisions? n A channel viewed as a partnership >Collaborative planning (Chapter 16) >Relationship marketing

11. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-11 Fig. 14-4 - Intensity-of-Distribution Continuum INTENSIVESELECTIVEEXCLUSIVE Distribution through every reasonable outlet in a market Distribution through multiple, but not all, reasonable outlets in a market Distribution through a single wholesaling middleman and/or retailer in a market

12. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-12 Criteria for Selecting Middlemen n Target market coverage n Image compatibility n Product mix fit and experience n Promotion and service ability n Your product’s importance n Sufficient order size n Credit worthiness

13. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-13 Recruiting Middlemen n n Why would a middleman choose to sell your product? They must be convinced that... > >Their customers will buy your product at a profitable price. > >You will provide consistent quality. > >You will deliver the correct amount of the product on time.

14. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-14 Wholesaling versus Retailing n Wholesaling is the sale of products and services to those who buy for... >resale >business purposes/use n Retailing is the sale of products and services to those who buy for... >personal, non-business reasons. n Who does what... >Can a manufacturer do retailing? >Can a wholesaler do retailing? >Can a retailer do wholesaling?

15. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-15 Fig. -- Major Distribution Channels End Customers PRODUCER Retailers Merchant wholesalers Merchant wholesalers Agents

16. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-16 Retailers Classified by Marketing Strategies Type of storeAssortmentPrice levelCustomer service Department storeBroad, deepAvoid price competition Extensive Discount storeBroad, shallowLowFew Limited-lineNarrow, deepVaries SpecialtyVery narrow, deep Avoid price competition Moderate to extensive Off-priceNarrow, deepLowFew Category killerNarrow, deepLowFew to moderate SupermarketBroad, deepVariesFew Convenience storeNarrow, shallowHighFew Warehouse clubBroad, shallowVery lowFew

17. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-17 Nonstore Retailing n Nonstore retailing: Retailing activities conducted away from a retail store. n Nonstore sales equal about 10 percent of retail trade. >Direct selling: Door-to-door and party plan >Telemarketing >Vending machines >Online retailing >Direct marketing: Direct mail, catalog retailing, televised shopping

18. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-18 The Nature and Importance of Physical Distribution n Physical distribution: All activities concerned with moving the right amount of the right products to the right place at the right time. n Physical distribution can strengthen a firm’s market position by providing more customer satisfaction and/or reducing operating costs: >Improve customer service. >Reduce distribution costs. >Create time and place utilities >Stabilize prices >Influence channel decisions. >Control shipping costs.

19. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-19 Tasks in Physical Distribution Management n Physical distribution management: Development and operation of processes resulting in effective and efficient physical flow of products. n Five interdependent tasks >Inventory location and warehousing — decisions must be made about size, location, handling, and transporting of inventories. >Inventory control — the goal is to minimize both investment and fluctuations in inventories, while filling customers’ orders promptly and accurately. »Economic Order Quantity »Just-In-Time

20. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-20 Tasks in Physical Distribution Management (Con’t.) >Materials handling — proper equipment can minimize losses from breakage, spoilage, and theft and can reduce handling costs as well as time required for handling. >Order processing — procedures for handling and filling orders should cover billing, granting credit, preparing invoices, and collecting past- due accounts. >Transportation — shipping products to customers involves decisions on both the form of transportation and particular carriers.

21. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-21 Transportation Modes n Modes >Railroads >Trucks >Pipelines >Water Vessels >Airplanes >Electronic n Transportation Assistance Firms >Freight Forwarders >Package-Delivery Firms

22. McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-22 Supply Chain Management n A total systems approach to distribution >Coordinated Logistics Activities - production, purchasing, warehousing, transportation, order processing, customer service, profit/loss, etc. >Contract Logistics - (third-party logistics) involves outsourcing logistics to experts in the field. >Total Cost Concept - evaluate costs of the entire physical distribution system, not the individual parts.