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Chapter 2 The Channel Participants
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Major Participants in the Marketing Channel
Objective 1: 2 Major Participants in the Marketing Channel * Commercial Channel * Target Markets
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Why shift distribution tasks to intermediaries?
Objective 2: 1 Why shift distribution tasks to intermediaries? Producers & Manufacturers Intermediaries • lack expertise • lack economies of scale • spread high fixed costs over large quantities of diverse products • achieve economies of scope and economies of scale
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Example: Distribution of Crayons
2 Manufacturer direct to customers • Huge order processing facility • Huge inventory • Several warehouse locations • Transportation of product to consumers = cost prohibitive
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Major Types of Wholesalers
Objective 3: 2 Major Types of Wholesalers
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Merchant Wholesalers 2 Buy Take title to Store Handle
Large quantities of products Resell to Industrial, commercial, or institutional concerns other Wholesalers Retailers
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Agents, Brokers, & Commission Merchants
2 Involved in buying & selling while acting on behalf of clients Commissions on sales or purchases
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Manufacturers’ Sales Branches & Offices
2 Separated from manufacturing plants Distribute manufacturer’s products at wholesale Owned & operated by manufacturers Some wholesale allied & supplementary products purchased from other manufacturers.
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Major Trends in Wholesale Structure
Objective 4: 2 Major Trends in Wholesale Structure 1987—1997 69.7% Manufacturer’s sales branches & offices 60.8% Wholesale trade 57.8% Merchant wholesalers 50.0% Agents, brokers, & commission merchants
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Trends in Size & Concentration
2 Measured by: Types of Wholesalers Size of wholesaler Majority are small businesses Sales volume Nearly 40% of all firms have annual sales of less than $1 million # of Employees per firm Almost 50% of firms had fewer than 5 employees Economic concentration in terms of % of total sales 50 largest manufacturers’ sales branches & offices garnered nearly 53% of sales for this type
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Merchant Wholesalers Specialize in Performance Distribution Tasks
Objective 5: 2 Merchant Wholesalers Specialize in Performance Distribution Tasks Provide market coverage Make sales contacts Hold inventory Process orders Gather market information Offer customer support • Operate at high levels of effectiveness and efficiency • Average cost curves lower than those for their suppliers
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Merchant Wholesalers’ Distribution Tasks Serve Customers
2 Assure product availability Provide customer service Extend credit & financial assistance Offer assortment convenience Break bulk Help customers with advice & technical support
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Agent Wholesalers’ Distribution Tasks
2 Manufacturers’ Agents Market coverage Sales contacts
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Agent Wholesalers’ Distribution Tasks
2 Agent Wholesalers’ Distribution Tasks Selling agents Market coverage Sales contacts Order processing Marketing information Product availability Customer services
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Agent Wholesalers’ Distribution Tasks
2 Brokers Market coverage Sales contacts Order processing Marketing information Product availability Customer services
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Agent Wholesalers’ Distribution Tasks
2 Commission Merchant Market coverage Sales contacts Order processing Breaking bulk Credit Holding inventory
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Retail Structure 2 Alternative Bases for Classifying Retailers
Objective 6: Retail Structure 2 Alternative Bases for Classifying Retailers By Ownership of Establishment By Kind of Business (Merchandise Handled) By Size of Establishment By Degree of Vertical Integration By Type of Relationship with other Business Organizations By Method of Consumer Contact By Type of Location By Type of Service Rendered By Legal Form of Organization By Management Organizations or Operational Technique
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Kind-of-Business Classifications
2 Retail Trade Motor vehicle & parts dealers Furniture & home furnishings stores Electronics & appliance stores Building material & garden equip. & supply dealers Food & beverage stores Health & personal care stores Gasoline stations Clothing & clothing accessories stores Sporting goods, hobby, book, & music stores General merchandise stores Miscellaneous store retailers Nonstore retailers
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Retail Structure Trends
Objective 7: Retail Structure Trends 1 Decreasing number of establishments Increasing sales = increase in size of retail establishments measured by average sales volume per store
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Concentration in Retailing
1 In 1997 4% of all retail firms accounted for nearly 80% of total sales!!
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Distribution Tasks Performed by Retailers
Objective 8: Distribution Tasks Performed by Retailers 2 The role of the retailer in the distribution channel, regardless of his size or type, is to interpret the demands of his customers and to find and stock the goods these customers want, when they want them, and in the way they want them. This adds up to having the right assortments at the time customers are ready to buy. — Charles Y. Lazarus
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Distribution Tasks Performed by Retailers
2 Distribution Tasks Performed by Retailers Offer manpower & physical facilities close to consumers’ residences Provide personal assistance to help sell products Interpret and relay consumer demand Divide large quantities into consumer-sized lots Offer storage Remove risk by ordering in advance of the season
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Retailers’ Growing Power in Marketing Channels
Objective 9: 2 Retailers’ Growing Power in Marketing Channels Increased size & buying power Become power retailers & category killers Application of advanced Technologies Information technology & the Internet; threetailing Use of modern marketing strategies Modern techniques; relationship marketing
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Facilitating Agencies in Marketing Channels
Objective 10: 2 Facilitating Agencies in Marketing Channels Transportation agencies Storage agencies Order processing agencies Advertising agencies Financial agencies Insurance companies Marketing research firms
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