Distribution Unit 3 Classification of Marketing Channels PDF

**Unit 3** **Classification of Marketing Channels** **Wholesaling** Wholesaling can be defined as all those activities performed by persons or establishments which sell to retailers and other merchants, and /or to industrial, institutional, and commercial users, but do not sell in large amounts t...

**Unit 3** **Classification of Marketing Channels** **Wholesaling** Wholesaling can be defined as all those activities performed by persons or establishments which sell to retailers and other merchants, and /or to industrial, institutional, and commercial users, but do not sell in large amounts to final consumers. We may define wholesaler as a distributor or middlemen who sells mainly to retailers and institutions, rather than consumers. **Roles of wholesaler** a. **a) Ware housing** A wholesale warehouse is a stocks reservoir from which retailers can draw the required merchandise, considerably reducing the need for their own large inventories to maintain adequate supply. Manufacturers can hold stocks or arrange for storage near retailers, but this is costlier than the specialization of a wholesaler's operation. a. **b) Financing** The wholesaler provides finance to producers and manufacturers by sending money in advance to them. He also sells goods to the retailer on credit. Thus, at both ends the wholesaler acts as a financier. a. **c) Provide Information** This function of wholesalers is often neglected. Companies spend fortunes in getting marketing information by conducting surveys and similar activities. Much of the information they require is easily available with the wholesaler, since he is in direct contact with the market. Many companies are able to get customers insights simply by talking to their wholesalers. Wholesalers are able to send to the company various information such as: - Market demand conditions in different seasons Problems encountered in the market by sales personnel Product launches and local promotional activities of competitors Preference of consumers for particular brands or companies Estimated market shares of different products and brands Advice on local promotional activities that can be conducted - **d) Efficiency and distribution** It is the primary role of wholesaler. Once the goods are received, the wholesaler sells in small quantities to retailers in his area. **Unit 3** **Classification of Marketing Channels** **Wholesaling** Wholesaling can be defined as all those activities performed by persons or establishments which sell to retailers and other merchants, and /or to industrial, institutional, and commercial users, but do not sell in large amounts to final consumers. We may define wholesaler as a distributor or middlemen who sells mainly to retailers and institutions, rather than consumers. **Roles of wholesaler** b. **a) Ware housing** A wholesale warehouse is a stocks reservoir from which retailers can draw the required merchandise, considerably reducing the need for their own large inventories to maintain adequate supply. Manufacturers can hold stocks or arrange for storage near retailers, but this is costlier than the specialization of a wholesaler's operation. **b) Financing** The wholesaler provides finance to producers and manufacturers by sending money in advance to them. He also sells goods to the retailer on credit. Thus, at both ends the wholesaler acts as a financier. b. **c) Provide Information** This function of wholesalers is often neglected. Companies spend fortunes in getting marketing information by conducting surveys and similar activities. Much of the information they require is easily available with the wholesaler, since he is in direct contact with the market. Many companies are able to get customers insights simply by talking to their wholesalers. Wholesalers are able to send to the company various information such as: - Market demand conditions in different seasons - Problems encountered in the market by sales personnel - Product launches and local promotional activities of competitors - Preference of consumers for particular brands or companies - Estimated market shares of different products and brands - Advice on local promotional activities that can be conducted **d) Efficiency and distribution** It is the primary role of wholesaler. Once the goods are received, the wholesaler sells in small quantities to retailers in his area. **Types of wholesalers** A. **A. Wholesaler merchants** The first type, known as \'wholesaler merchants\' or \'merchant wholesalers\', buy the products in large quantities and store them until they are sold. They take the actual title of the goods. Their customers are not end users; they sell to firms and other wholesalers. There are two types of merchant wholesalers. There are full-service wholesalers who provide all the services relating to the marketing, carry stock, and make deliveries. The second is limited-service wholesalers who provide limited services, i.e., who just stock the goods and do not undertake any marketing activities. Full-Service Wholesalers The full-service wholesaler offers a wide range of wholesale activities. Customers rely on them for services such as product availability, assortments of products and services, bulk-breaking, financial assistance, and technical advice. Full-service wholesalers often obtain higher earnings than other wholesalers, but their expenses also are higher due to the wider range of services offered by them. There are three types of full-service merchant wholesalers. - **Industrial Distributors** - Industrial distributors trade in a complete line of industrial materials and sell mainly to industrial users such as factories and offices, and sometimes to retailers. They provide storage sales personnel, delivery, order-taking, credit, and repair services. - **Farm product assemblers** - **Importers and Exporters** Limited-service wholesalers Limited-service wholesalers specialize in a few wholesale activities, while the rest are left for the manufacturer or the retailer. Limited-service wholesalers take ownership of the goods, but often do not deliver the merchandise, extend credit, provide marketing information, store inventory, or plan ahead for customers\' future needs. The main advantage of this category of wholesalers is the lower cost. In the case of limited-service wholesalers, the manufacturer or retailer must take on the responsibility of performing some of the required wholesale functions. Examples of limited-service wholesalers are: electrical, hardware, and pharmaceutical merchants who stock goods but do not provide any services. A. **B. Agents and Brokers** There are many kinds of agents and brokers that operate in markets. They offer limited services and are specialized in their areas. The different types of agents and brokers are described below: a. **a) Manufacturer's agents** Manufacturer\'s agents are firms owned by the companies themselves for distribution but are considered as a separate entity. They distribute the goods made by the manufacturer. These include manufacturer\'s sale branches and factory (Aides that sell goods both to traders and customers. Manufacturer\'s agents sometimes sell di, the output of two or more companies whose goods do not compete but complement one another. It is their duty to locate potential buyers and sell to them. They are restricted to a, geographical area. a. **b) Brokers** Brokers or agents are firms that work independently and do not take the title of the goods They assist in the negotiation process of selling the goods and help in procuring buyers. The broker\'s powers over prices and payment terms are limited and must seek confirmation from their principals before finalizing the sale. Since they do not take the title of the goods, brokers avoid all risks related to price fluctuations, changes in market demand, and damages. They earn a commission on the total value of the deal, which is usually a small percentage. In some cases, it may be as small as 0.05 percent. Brokers do not provide any service apart from assisting in the sales process. a. **c) Cash-and-carry wholesalers** Cash-and-carry wholesalers sell primarily to retailers and do not provide credit or delivery services. The services provided by cash-and-carry wholesalers include buying, re-sorting of goods, and maintenance of inventory. Products are displayed and sold on cash basis. a. **d) Rack jobbers** Rack jobbers arrange with retailers to put up a display and sales counter of their product lines in shops. They specialize in non-food items such as cosmetics and pay a certain percentage of the sales of their products to the retailer. Ownership of the goods remains with the wholesaler until the sale to the final customer is made. Such displays can be seen in supermarkets and large stores. a. **e) Truck jobbers** Truck jobbers combine sales and delivery functions. They have a limited product line of fast-moving items of a perishable or semi-perishable nature and supply to restaurants, grocery stores, and convenience stores the driver of the truck also performs the tasks of the salesman. Payments are collected and deliveries made, some Limes on a daily basis. a. **f) Mail order Wholesalers** These wholesalers circulate a catalogue or describe the good on a website. Deals are made on the phone and goods are dispatched on cash-on-delivery (COD) basis. a. **g) Purchasing agents** Companies appoint resident buyers who collect goods and sent them to the factory. They are responsible for quality; and so, they buy a wide variety of requirements, stock them, and send the goods. They are especially useful when factories are located in remote areas. a. **h) Selling agents** Selling agents are appointed by a manufacturing company for selling its entire output a. **i) Auction Companies** Auction companies are the oldest wholesaling establishment, operate traditionally in agricultural output. They provide the staff and the facilities where„ auctions can take place. a. **j) Export agents** Companies appoint export agents to sell products to companies in different countries. They provide services such as foreign market research, identification of markets and customers, exhibitions and trade fairs, and so on, to help companies export their goods. A. **C. Manufacturers' sales branches** Certain companies operate through their own offices\-- these being operated in cities and towns---by the company\'s own personnel. These offices collect orders from agents and dealers in their respective areas and send them to the head office, which in turn, sends the goods to the dealers directly. The local offices monitor the dealers directly and also serve to solve any problems that may arise. For example, companies like Reliance Industries Ltd and Maruti Suzuki Ltd, have their offices in towns even though the actual task of selling and delivery is done by their agents. A. **D. Specialized Wholesalers** Specialized wholesalers deal in specific range of items. They offer more specialized services than general merchandise wholesalers. Specially wholesalers know their customers closely and understand their needs. For example, wholesalers of building materials open their offices near building sites. They stock supplies, timber supplies, and hardware products and are often in a position to offer advice to their customers. **Retailing** Retailing encompasses the business activities involved in selling goods and services to consumers for their personal, family, or household use. It includes every sale to the final consumer. **Role of retailer** a. **a) Location** A retailer invests in a location that is most convenient for Customers. Small retailers offer goods where consumers can buy quickly in small lots without the bother of placing advance orders or waiting for supplies. a. **b) Display** The retailer arranges for the latest goods to be displayed in a manner that appeals to customers the most. Sometimes events are arranged around certain products and brands to encourage customer interest in those brands. Retailers are also in a position to arrange point-of-purchase (POP) publicity that educates the customer and entices him to buy. For example, retailers put up posters and cut-outs in their stores highlighting the features of certain products to induce customers to try out these products. a. **c) Home delivery** A retailer transports goods from wholesalers to ultimate consumers. s Some retailers provide a free home delivery service to their customers, thereby creating place-utility. a. **d) Regular supplies** By ensuring uninterrupted and fresh supply of goods, the retailer saves the customers from the bother of buying goods in bulk and storing them and maintains adequate supply of goods so that customers are sure of getting supplied at the time of their need. a. **e) Credit Supplies** Although retailers mostly sell goods for cash, they also supply goods on credit to their regular customers. Small stores score over large supermarkets by virtue of this facility. a. **f) Interaction with customers** A retailer at least the small retailer---acts as a friend and guide to his customers. He is able to recommend products and is at the frontline to receive complaints. The retailer is the best place to study consumer behavior. a. **g) Offering choice to customers** The retailer buys goods from different sources and stocks different varieties of products. In this way, he offers a wide choice to customers. Further, the customers can touch and feel the products and make their purchase decisions. a. **h) Availability of goods in micro quantities** Sometimes retailers offer smaller packs- smaller than those offered by the manufacturer- to individuals who want to purchase less, customers can buy according to their purchasing power and requirements. **Types of Retailers** a. **a) Traditional Retailers** Specialty Store Specialty stores are thus called because they specialize in a single product line. Examples of such stores are those specializing in music instruments, furniture, flowers, hobby items, sporting goods, pet supplies, and books. Specialty stores are few in numbers and are able to attract a committed clientele. Stores that carry an even more limited range of products are called super specialty stores. Such stores, though rare in India, do exist. For instance, stores exist for sports shoes only and that sell clothes only for over size people. Their product lines are very narrow but very deep -- that is to say, a variety of products are offered within the single product line. Department Store Department stores carry a range of product lines, each organized as a separate department. They carry a wide a range of goods required by the customer and save the buyer the time and bother of going to different shops to buy his daily or monthly needs. Department stores carry products like cosmetics and personal care products, food products, packaged items, and household goods at various price points, arranged as distinct sections under one roof. Larger department stores have a common sales staff. There is a common check-out area, usually at the front of the store. Services such as free home delivery and loyalty schemes make them attractive to customers. Supermarkets Supermarkets are self- service stores that stock a very large variety of food and household merchandise. It is distinguishable from a department store in the sense that it is much larger and carries a wider range of product lines. Supermarkets stock food products such as meat, fruit and vegetables, dairy products, canned and packaged goods, baked goods, household cleaners, toiletries, cosmetics, and so on. They are usually located on a single floor and may have different sections for good like furnishing and apparel. Some supermarkets also sell imported items and wines and alcohol, depending on permissions obtained from local authorities. Supermarkets attract customers because of their extremely broad range of goods that are displayed on shelves for ease of buying. They are also able to offer low prices and various schemes and deals. Customers can 'touch and feel' the products without the presence of nosy salesman and hence, offer ease of shopping. Supermarkets offer cheap products as they are able to achieve economies of scale. They buy in bulk, thus getting discounts and better terms from manufacturers apart from savings in transportation costs. a. **b) Mass Merchandisers** ** Discount stores** These retail outlets offer all goods at discounted prices. An assortment of products such as umbrella, plastic items, cosmetics, crockery, decoration items, etc. is put on sale at fixed prices. Such stores sometimes stock Chinese goods or goods obtained from factories at cheap prices. 99 shops at Basantapur is an example of a discount stores. All the goods sold at footpath of Ason, in front of Kathmandu mall are also the example of discount stores in Nepal. Off-price retailers offer a different approach to discount retailing. As discount houses tried to increase services and offerings in order to upgrade, off-price retailers invaded this low-price, high-volume sector. Off-price retailers purchase at below-wholesale prices and charge less than retail prices. This practice is quite different from that of ordinary discounters, who buy at the market wholesale price and simply accept lower margins by pricing their products below retail costs. Off-price retailers carry a constantly changing collection of overruns, irregulars, and leftover goods and have made their biggest forays in the clothing, footwear, and accessories industries. ** Super Stores** Superstores are very large supermarkets or shops selling household goods and equipment. Superstores are usually built outside city centers away from other shops **Superstore vs Super market** A supermarket is mainly food, and will have fresh food areas such as produce, meat, deli, bakery. They may sell non-food items such as health and beauty care, household cleaning, pet food, but the focus is on food. A superstore will potentially have a grocery section of varying size, but it will also have many other non-food areas, and the focus is often on clothing, home decor, and many other areas. Grocery is just one small area of many in a superstore. ** Warehouse showroom** A warehouse store or warehouse supermarket is a food and grocery retailer that operates stores geared toward offering deeper discounted prices than a traditional supermarket. These stores offer a no-frills experience and warehouse shelving stocked well with merchandise intended to move at higher volumes. - **Catalogue showroom** Catalogue showroom usually refers to retail outlets which deal in hard goods like electronics, jewelry, houseware etc. They are located next to or in close proximity to their warehouses. The merchandise is not displayed to save costs instead the customers have to browse a catalogue to place order for any specific item. Latter is then fetched from the warehouse and sold to the customer. The price range is low as only a narrow range of goods is displayed. The location of the showrooms is also in low-cost areas. a. **c) Non-store Retailing** ** Direct Marketing** Direct marketing is generally a form of advertising where organizations communicate directly to customers through a variety of media including cell phone text messaging, email, websites, online adverts, database marketing, fliers, catalog distribution, promotional letters, and targeted television, newspaper, and magazine advertisements, as well as outdoor advertising. Among practitioners, it is also known as direct response. ** Vending Machine** A Vending machine is an automatic machine that sells food or drink or other items. Vending machine foods include snacks such as potato chips, chocolate bars, and candy. Hot vending machine drinks include coffee, tea, and hot chocolate. Cold vending machine drinks include juice, bottled water, soft drinks. Other merchandise includes newspapers or cigarettes. Vending machines in bathrooms sometimes sell mouthwash, or toothpaste and toothbrushes. - **Kiosks** Kiosks are temporary or permanent structures located in high traffic areas such as busy markets and airports. Kiosks provides convenience goods to the customers who is either in a hurry or who does not have the inclination to visit a store or restaurants. They are owned and operated by Individuals. Sometimes they are mobile while some kiosks operate from fixed structures. **Agent Middlemen** Manufacturers may use brokers and agents, who do not take title possession of the goods, in marketing their products. Brokers and agents typically perform only a few of the marketing flows, and their main function is to ease buying and selling---that is, to bring buyers and sellers together and negotiate between them. Brokers, most commonly found in the food, real estate, and insurance industries, may represent either a buyer or a seller and are paid by the party who hires them. Brokers often can represent several manufacturers of noncompeting products on a commission basis. They do not carry inventory or assume risk. Unlike merchant wholesalers, agent middlemen do not take legal ownership of the goods they sell; nor do they generally take physical possession of them. **Types of Agent Middlemen** a. **a) Manufacturer Agent** Manufacturers' agents, who represent two or more manufacturers' complementary lines on a continuous basis, are usually compensated by commission. As a rule, they carry only part of a manufacturer's output, perhaps in areas where the manufacturer cannot maintain full-time salespeople. Many manufacturers' agents are businesses of only a few employees and are most commonly found in the furniture, electric, and apparel industries. a. **b) Sales Agent** Sales agents are given contractual authority to sell all of a manufacturer's output and generally have considerable autonomy to set prices, terms, and conditions of sale. Sometimes they perform the duties of a manufacturer's marketing department, although they work on a commission basis. Sales agents often provide market feedback and product information to the manufacturers and play an important role in product development. They are found in such product areas as chemicals, metals, and industrial machinery and equipment. a. **c) Purchase Agent** Purchasing agents, who routinely have long-term relationships with buyers, typically receive, inspect, store, and ship goods to their buyers. a. **d) Commission Houses** A commission house provides services for buying and selling all kinds of assets, including stocks, mutual funds and bonds --- and charges fees for doing so. Unlike self-directed brokerages that allow customers to place trades on their own and pay nominal fees, the commissions charged by these full-service providers are often steep and unnecessary.