Channels of Distribution

Getting goods to the consumer

The 4 P’sProductPrice

PlacePromotionAlso known as the Marketing Mix

What is a Channel of Distribution?

The path a product takes from the producer to the final user.

Channels of DistributionProducer WholesalerAgentRetailerIndustrial DistributionConsumer/Industrial User

Industrial UsersMarket consisting of all customers who make purchases for business purposes; also called the business-to-business market

ConsumersThose who buy and actually use the product.

IntermediariesIntermediaries are channel members that help move products from the producer or manufacturer to the final user.“Middlemen”

Types of IntermediariesAgent Intermediaries Independent

Manufacturer’s Agents

Brokers

Merchant Intermediaries Wholesalers Retailers

Electronic Retail Outlets

Vending Service Companies

Wholesalers & RetailersWholesalers Buy large quantities

of goods from manufacturers, store the goods, and resell them to other businesses.

Retailers Sell goods to the

ultimate consumer through their own stores.

Electronic ShoppingInternet ShoppingHome Shopping Networks

Vending Service Companies

Buy manufacturers’ products and sell them through machines that dispense goods to consumers. Vending Machines

AgentsIndependent Manufacturers’ Agent – Represent several

non-competing manufacturers in a specific industry

Broker Sales Agent for

different manufacturers

May merchandise products as well as sell.

Transportation Companies & Storage Warehouses

Not part of the channel of distribution because they do not take title to the goods nor are they involved in negotiating that title.

Direct vs. Indirect Distribution

Direct - Goods or services are sold from the producer directly to the final user – no intermediaries are involved.

Indirect - Goods or services are sold through the use of intermediaries.

5 Channels for Consumer Products

A – Direct sales from manufacturer to consumer – AvonB – Manufacturer to Retailer to Consumer – Mansour’sC – Manufacturer to Wholesaler to Retailer to Consumer – SuperValu

D – Manufacturer to Agent to Wholesaler to Retailer to Consumer – Small RetailersE – Manufacturer to Agent to Retailer to Consumer – Cookware, Meat, Cosmetics, Supermarkets

4 Channels for Industrial Products

A – Manufacturer to Industrial User – Office Machine CompaniesB – Manufacturer to Industrial Distributor to Industrial User – Loy’s Office Supplies

C – Manufacturer to Agent to Industrial Distributor to Industrial User – Building SuppliesD – Manufacturer to Agent to Industrial User – Construction Equipment

Computer Companies Go Direct – A Case Study

Dell: manufacturer to consumer or manufacturer to industrial user (both direct). Big three: catalog sales – (same as Dell); retail sales – manufacturer to retailer to consumer or manufacturer to industrial distributor to industrial user (indirect).The big three feared the competition from Dell, Gateway and similar companies who are able to create custom-built computers at competitive prices.Could be either way – Is it a good idea?

Rack JobbersManage inventory and merchandising by counting stock, filling it in when needed and maintaining store displays. – Grocery Store

Considerations in Distribution Planning

Decisions involving a product’s physical movement and transfer of ownership from producer to consumerDistribution decisions affect a firm’s marketing programNontraditional and multiple channels, control vs. costs, intensity of distribution

Nontraditional and Multiple Channels

Selling in various types of outlets L’eggs

Selling both retail and industrial – Loy’s Office Supplies, SAM’s

Control vs. CostsWho Does the Selling? In-house sales force Agents

Who Dictates the Terms? Mass Merchandisers Small Retailers

Distribution IntensityIntensive Complete market coverage All suitable outlets

Selective Limited number of outlets More control

Exclusive Protected Territories Franchises Retail serviced line Integrated Distribution

Distribution Planning in Foreign Markets

Foreign Markets Deliver Additional Problems Japan – Intensive

personal relationships, saving face, distribution networks

Latin America – Bribes, Lack of Skills, Lack of Financing