Week 8 Placement & Distribution PDF

Chapter 11 Monday, November 18, 2024 8:06 PM Placement and Distribution Types of Distribution Channels & Wholesale Intermediaries Types of Distribution Channels and Wholesale Intermediaries Physical Distribution: activities that move finishe...

Chapter 11 Monday, November 18, 2024 8:06 PM Placement and Distribution Types of Distribution Channels & Wholesale Intermediaries Types of Distribution Channels and Wholesale Intermediaries Physical Distribution: activities that move finished goods from manufacturers to final 11.1 Explain what a distribu on channel is, iden fy types of wholesaling intermediaries, and describe the different types of distribution Develop a Channel Strategy customers channels. 11.2 List and explain the steps to plan a distribution channel strategy. Logistics and the Supply Chain The delivery of goods to customers involves physical distribution, which refers to the activities that move finished goods from manufacturers 11.3 Discuss the concepts of logistics and supply chain. Channel of distribution planning works best when marketers follow the steps in Figure 11.4. In this section, Channel of distribution: series of firms or individuals that facilitate movement of a to final customers, including order processing, warehousing, materials handling, transportation, and inventory control. we first look at how firms decide on distribution objectives, then we examine what influences distribution Marketing success is very much the art of getting the timing right and delivering on promises—implementation. product to a final consumer decisions, and finally we talk about how firms select different distribution strategies and tactics. Direct channels channel of distribution is the series of firms or individuals that facilitates the movement of a product from the producer to the final customer. Indirect channels In many cases, these channels include an organized network of producers (or manufacturers), wholesalers, and retailers that develop That’s why marketers place so much emphasis on efficient logistics: the process of designing, managing, and improvin relationships and work together to make products conveniently available to eager buyers products through the supply chain. Logistics includes purchasing, manufacturing, storage, and transport. From a comp Functions of distribution channels logistics takes place both inbound to the firm (raw materials, parts, components, and supplies) and outbound from th Provide time, place, and ownership utility Distribution channels come in different shapes and sizes. and finished goods). Provide logistics and or physical distribution Create efficiencies by reducing the number of transactions A channel of distribution consists of, at a minimum, a producer—the individual or firm that manufactures or produces a good or service—and a customer. This is a direct channel: channel of distribution in which a manufacturer of a product or creator of a service distributes directly to Logistics is also a relevant consideration regarding product returns, recycling and material reuse, and waste disposal— Distribution channel functions the end customer Breaking bulk this is becoming even more important as firms start to more seriously consider sustainability as a competitive advant Creating assortments Firms that sell their own products directly to customers through websites, catalogs, toll-free numbers, or factory outlet stores also use direct into maximizing the efficiency of recycling to save money and the environment at the same time. Transportation and storage channels. Risk taking Communication and transaction Another approach to distribution is through an indirect channel: firms sell their products through third parties. These outside entities often The Lowdown on Logistics include one or more channel intermediaries—firms or individuals, such as wholesalers, agents, brokers, and retailers, who in some way help Have you ever heard the saying, “An army travels on its stomach”? Logistics was originally a term the military used to move the product to the consumer or business user; older term for intermediaries middlemen. necessary to deliver troops and equipment to the right place, at the right time, and in the right condition. Manufacturers can choose multiple channels Distribution Channels and the Marketing Mix Channel intermediaries reduce the number of transactions when they create assortments-they provide a variety of products in one location. In business, logistics is similar in that its objective is to deliver exactly what the customer wants—at the right time, in so that customers can conveniently buy many different items from one seller at one time Firms that operate within a channel of distribution—manufacturers, wholesalers, and retailers—do the right price. logistics activities include order processing, warehousing, materials handling, transportation, and inve Functions of Distribution Channels distribution planning, which is a process of developing distribution objectives, evaluating internal and process impacts how marketers physically get products where they need to be, when they need to be there, and at th Channels that include one or more organizations or intermediaries often can accomplish certain distribution functions more effectively and external environmental influences on distribution, and choosing a distribution strategy. efficiently than can a single organization channels provide the place, time, and possession utility Step 1: Develop Distribution Objectives The first step in a distribution plan is to develop objectives that support the organization’s overall marketing They make desired products available when, where, and in the sizes and quantities that customers desire goals. Distribution channels provide a number of logistics or physical distribution functions that increase the efficiency of the flow of goods from In general, the overall objective of any distribution plan is to make a firm’s product available when, where, Will have an affect on marketing mix producer to customer and in the quantities customers want at the minimum cost. More specific distribution objectives, however, The channel decisions the pricing depend on the characteristics of the product and the market. The complexity of the products Distribution channels create efficiencies because they reduce the number of transactions necessary for goods to flow from many different manufacturers to large numbers of customers. This occurs in two ways. The first is breaking bulk. (dividing larger quantities of goods into if the product is bulky, a primary distribution objective may be to minimize shipping costs. If the product is Channels of Distribution smaller lots in order to meet the needs of buyers) Wholesalers and retailers purchase large quantities (usually cases) of goods from fragile, a goal may be to develop a channel that minimizes handling. In introducing a new product to a mass Facilitate movements of goods and services from producer to end consumer manufacturers but sell only one or a few at a time to many different customers. Second, channel intermediaries reduce the number of market, a channel objective may be to provide maximum product exposure (like BDP’s work with its client Direct v Indirect transactions when they create assortments; they provide a variety of products in one location to meet the needs of buyers so that customers Quaker) or to make the product available close to where customers live and work. Sometimes marketers Intermediaries can conveniently buy many different items from one seller at one time. make their product available where similar products are sold so that consumers can compare prices. ○ Ownership ○ Functions ○ Title Step 2: Evaluate Internal and External Environmental Influences After they set their distribution objectives, marketers must consider their internal and external Steps in distribution planning environments to develop the best channel structure. 1. Develop distribution objectives 2. Evaluate internal and external environmental influences often direct channels may be better suited for B2B marketers for whom customers are geographically When a firm does logistics planning, however, the focus also should be on the customer. In the old days when manag 3. Choose a distribution strategy concentrated and require high levels of technical know-how and service. Companies frequently sell physical distribution only, the objective was to deliver the product at the lowest cost. Today, forward-thinking firms c ○ Number of channel levels expensive or complex products directly to final customers. Short channels with selective distribution also customer first. The customer’s goals become the logistics provider’s priorities. And this means that when they make m ○ Conventional, vertical or horizontal marketing system make more sense with perishable products because getting the product to the final user quickly is a priority. firms must decide on the best trade-off between low costs and high customer service. The appropriate goal is not jus ○ Intensive, exclusive, or selective distribution However, longer channels with more intensive distribution are generally best for inexpensive, standardized market needs at the lowest cost but rather to provide the product at the lowest cost possible as long as the firm mee 4. Develop distribution tactics consumer goods that need to be distributed broadly and that require little technical expertise. Although it would be nice to transport all goods quickly by air (even by drone), that is certainly not practical. But som ○ Select channel partners necessary to meet the needs of the customer, no matter the cost. ○ Manage the channel The organization must also examine issues such as its own ability to handle distribution functions, what ○ Develop logistics strategies channel intermediaries are available, the ability of customers to access these intermediaries, and how the  Order processing competition distributes its products. they develop logistics strategies, marketers must make decisions related to each of the five functions of logistics depi  Warehousing he transportation and storage of goods is another type of physical distribution function. That is, retailers and other channel members move each decision, managers need to consider how to minimize costs while maintaining the service customers want. Let’s  Materials handling the goods from the production point to other locations where they can hold them until consumers want them. Should a firm use the same retailers as its competitors? It depends. Sometimes, to ensure customers’ the five logistics functions.  Transportation Channel intermediaries also perform a number of facilitating functions that make the purchase process easier for customers and undivided attention, a firm sells its products in outlets that don’t carry the competitors’ products. In other Order Processing  Inventory control cases, a firm uses the same intermediaries as its competitors because customers expect to find the product Order processing includes the series of activities that occurs between the time an order comes into the organization manufacturers there goes out the door. After a firm receives an order, it typically sends it electronically to an office for record keeping and What matters? intermediaries often provide customer services, such as offering credit to buyers. warehouse to fill it. When the order reaches the warehouse, personnel there check to see if the item is in stock. If it is Company distribution network Finally, when they study competitors’ distribution strategies, marketers learn from their successes and on back-order status. That information goes to the office and then to the customer. If the item is available, the compa Where consumers are buying like products These same customer services are even more important in business-to-business (B2B) markets where customers purchase larger quantities failures. If the biggest complaint of competitors’ customers is delivery speed, developing a system that warehouse, packages it for shipment, and schedules it for pickup by either in-house or external shippers. Impact of online v brick and mortar of higher-priced products. And channel members perform risk-taking functions (the chance retailers when they buy a product from a allows same-day delivery can make the competition pale in comparison. manufacturer as the product might just sit on the shelf if no customers want) Glade is expanding the distribution of its products by selling fragrance candles along Step 3: Choose a Distribution Strategy Fortunately, many firms automate this process with enterprise resource planning (ERP) systems. An ERP system is a s Planning a distribution strategy means making several decisions. First, of course, distribution planning integrates information from across the entire company, including finance, order fulfillment, manufacturing, and trans with its well-known product its aerosols. Since customers are not familiar with Glades Intermediaries perform communication and transaction functions by which channel members develop and execute both promotional and includes decisions about the number of levels in the distribution channel. be entered into the system only once, and then the organization automatically shares this information and links it to fragrance candles, the goal is to have customers become familiar with the product other types of communication among members of the channel. Wholesalers buy products to make them available for retailers, and they sell therefore selecting to sell in the grocery store where SCJ company is strong is the best products to other channel members. Retailers handle transactions with final consumers. Channel members can provide two-way choice. Selling at a grocery store will be tactical to ensure that the brand is recognized communication for manufacturers. They may supply the sales force, advertising, and other types of marketing communication necessary to distribution strategies also involve two additional decisions about channel relationships: (1) whether a conventional system or a highly integrated system will work best and (2) the proper distribution intensity, Warehousing by the consumer. Consumers are already familiar with Glades aerosol products and inform consumers and persuade them that a product will meet their needs. And the channel members can be invaluable sources of meaning the number of intermediaries at each level of the channel. The next sections provide insight into storing goods allows marketers to match supply with demand. would purchase the candles to test out more of Glades products. It makes it more information on consumer complaints, changing tastes, and new competitors in the market. making these two distribution strategy decisions. Warehousing—storing goods in anticipation of sale or transfer to another member of the channel of distribution—en accessible to the consumers and increase brand recognition. Grocery stores functions as provide time utility to consumers by holding onto products until consumers need them. a distribution channel for the product and makes the product efficient for its The Evolution of Distribution Functions Decision 1: Conventional, Vertical, or Horizontal Marketing System? Part of developing effective logistics means making decisions about how many warehouses are needed and where an availability. Participants in any distribution channel form an interrelated system. In general, these marketing systems warehouse each should be. A firm determines the location of its warehouse(s) by the location of customers and acces In the future, channel intermediaries that physically handle the product may become obsolete. Already companies are eliminating many traditional intermediaries because they find that they don’t add enough value in the distribution channel—a process we call take one of three forms: conventional, vertical, or horizontal. airports, or rail transportation. The number of warehouses often depends on the level of service that customers requ Hi group 28 generally demand fast delivery (today or tomorrow at the latest), then it may be necessary to store products in a num disintermediation (eliminating some layers of the channel of distribution to cut costs and improve the efficiency of the channel) of the channel of distribution). A conventional marketing system is a multilevel distribution channel in which members work locations from which the company can quickly ship the goods to the customer. Group 29/30 independently of one another. Their relationships are limited to simply buying and selling from one another. Each firm seeks to benefit, with little concern for other channel members. Even though channel Firms use private and public warehouses to store goods. Those that use private warehouses have a high initial investm Hi Group 30, based on your presentation IT outsourcing plays a major role in global members work independently, most conventional channels are highly successful. For one thing, all less of their inventory as a result of damage. Public warehouses are an alternative that allows firms to pay for a portio for marketers, disintermediation reduces costs in many ways: fewer employees, no need to buy or lease expensive retail property in high- business expansion. Your team's presentation was insightful. Thank you for including members of the channel work toward the same goals—to build demand, reduce costs, and improve rather than having to own an entire storage facility. Most countries offer public warehouses in all large cities and man traffic locations, and no need to furnish a store with fancy fixtures and decor. real world examples to your presentation, it adds insight to each company and how IT customer satisfaction. And each channel member knows that it’s in everyone’s best interest to treat other support domestic and international trade. A distribution center is a warehouse that stores goods for short periods of outsourcing benefits each company and enhance global partnerships. I do have a channel members fairly. other functions, such as breaking bulk. Most large retailers have their own distribution centers so that their stores do These firms develop better ways to implement knowledge management, which refers to a comprehensive approach that collects, organizes, question about the future of IT outsourcing, how will IT outsourcing gain a strategic A vertical marketing system (VMS) is a channel in which there is formal cooperation among channel inventory in the back room. stores, and retrieves a firm’s information assets. Those assets include databases and company documents as well as the practical knowledge advantage with new technologies like AI and will it reshape the industry? members at two or more different levels: manufacturing, wholesaling, and retailing. Firms develop VMSs as of employees whose past experience may be relevant to solve a new problem. In the world of B2B, this process probably occurs via an intranet, a way to meet customer needs better by reducing costs incurred in channel activities. Often, a VMS can by progress towards value driven partnerships when technologies such as AI can replace customer support personanel. But it can also facilitate sharing of knowledge among channel partners because it is a secure and password-protected platform. This more provide a level of cooperation and efficiency not possible with a conventional channel, maximizing the effectiveness of the channel while also maximizing efficiency and keeping costs low. Members share Materials Handling strategic management of information results in a win-win situation for all the partners. Materials handling is the moving of products into, within, and out of warehouses. When goods come into the wareho information and provide services to other members; they recognize that such coordination makes everyone There is one thing that I am curious however, your presentation covers the benefits physically identified, checked for damage, sorted, and labeled. Next, they are taken to a location for storage. Finally, t But as with most things cyber, the Internet as a distribution channel brings pain with pleasure. One of the more vexing problems with more successful when they want to reach a desired target market. There are three types of vertical and the drawbacks of outsourcing towards businesses, what about society in general? the storage area for packaging and shipment. All in all, the goods may be handled over a dozen separate times. Proce Internet distribution is the potential for online distribution piracy, which is the theft and unauthorized repurposing of intellectual property marketing systems: administered, corporate, and contractual: Do you think outsourcing can have a profound affect on the US job market? number of times a product must be handled decrease the likelihood of damage and reduce the cost of materials hand via the Internet. At the core, such piracy amounts to copyright infringement, which is the use of works protected by copyright law without a. In an administered VMS, channel members remain independent but voluntarily work together the permission of the copyright holder. because of the power of a single channel member. Strong brands are able to manage an administered From Wholesaling Intermediaries product. Logistics decisions take into consideration options for transportation, the mode by which products move among chan Each of these distribution alternatives traces a different path from producer to consumer. In a corporate VMS, a single firm owns manufacturing, wholesaling, and retailing operations. Thus, making transportation decisions entails a compromise between minimizing cost and providing the service customers the firm has complete control over all channel operations. Retail giant Macy’s, for example, owns a shows, modes of transportation, including railroads, water transportation, trucks, airways, pipelines, and the Internet As a coffee roaster the distribution channels I would use would be Producer-> nationwide network of distribution centers and retail stores. ways: Wholesaler-> Retailer-> Customer. The reasons for which I selected this distribution In a contractual VMS, cooperation is enforced by contracts (legal agreements) that spell out each ○ Dependability: The ability of the carrier to deliver goods safely and on time channels is based on the versatility in packaging sizes that cater both small and large member’s rights and responsibilities and how they will cooperate. This arrangement means that the ○ Cost: The total transportation costs to move a product from one location to another, including any charge scale buyers. The producer portions the coffee beans into bags and distributes them to channel members can have more impact as a group than they could alone. In a wholesaler-sponsored and in-transit storage wholesalers and retail outlets. Wholesalers benefit from the large bulk bags because it VMS, wholesalers get retailers to work together under their leadership in a voluntary chain. Retail ○ Speed of delivery: The total time to move a product from one location to another, including loading and u meets the demand of businesses and the coffee lovers who require large amounts. members of the chain use a common name, cooperate in advertising and other promotions, and even ○ Accessibility: The number of different locations the carrier serves Retailers stock smaller bags suitable for individual customers or smaller households. develop their own private-label products. Examples of wholesaler-sponsored chains are Independent ○ Capability: The ability of the carrier to handle a variety of different products, such as large or small, fragile This approach of product distribution makes it accessible to buy in grocery and Grocers’ Alliance (IGA) food stores and Ace Hardware stores. ○ Traceability: The ability of the carrier to locate goods in shipment wholesale stores that fit both consumers and business's needs. The availability of the bags of coffee beans will ensure that the product is being stocked and consumed retailers themselves organize a cooperative marketing channel system. A retailer cooperative is a group of frequently because it is a daily essential for many. It is also a convenience product that retailers that establishes a wholesaling operation to help them compete more effectively with the large must remain accessible in any store for the consumers. This connects to a intensive chains. Each retailer owns shares in the wholesaler operation and is obligated to purchase a certain distribution of the product because it is direct toward a mass market that requires percentage of its inventory from the cooperative operation. Associated Grocers and True Value hardware constant supply and demand. Lastly, consumers may find it easier to purchase based on stores are examples of retailer cooperatives. their needs whether in small or large bulks or even consider the price. Franchise organizations (contractual vertical marketing system that includes a franchiser ( a manufacturer or a service provider) who allows an entrepreneur (the franchisee) to use the franchise name and marketing As well as its availability. conveni plan for a fee) are a third type of contractual VMS. Franchise organizations include a franchiser (a manufacturer or a service provider) who allows an entrepreneur (the franchisee) to use the franchise name because since both small and large bulk bags of coffee beans are being sold the sizing of and marketing plan for a fee. In these organizations, contractual arrangements explicitly define and strictly the packaging will go well with what each store has to offer to the customer. The enforce channel cooperation. In most franchise agreements, the franchiser provides a variety of services for producer would portion the bags of coffee beans and would distribute them to the the franchisee, such as helping to train employees, giving access to lower prices for needed materials, and wholesaler and the retail stores. selecting a good location. In return, the franchiser receives a percentage of revenue from the franchisee. Usually, the franchisees are obligated to follow the franchiser’s business format very closely to maintain the As a coffee roaster the distribution channels I would use would be Producer-> franchise. Wholesaler-> Retailer-? Customer. The reasons for which I selected this distribution Wholesaling intermediaries are firms that handle the flow of products from the manufacturer to the retailer or business user. There are channels is because since both small and large bulk bags of coffee beans are being sold many different types of consumer and B2B wholesaling intermediaries. Some of these are independent, but manufacturers and retailers can From the manufacturer’s perspective, franchising a business is a way to develop widespread product the sizing of the packaging will go well with what each store has to offer to the own them too. distribution with minimal financial risk while at the same time maintaining control over product quality. customer. The producer would portion the bags of coffee beans and would distribute From the entrepreneur’s perspective, franchises are a helpful way to get a start in business. them to the wholesaler and the retail stores. The wholsaler benefits from the large bags In a horizontal marketing system, two or more firms at the same channel level agree to work together to of bulk because there is a large demand for large bulk items that can be used for large Independent Intermediaries get their product to the customer. Sometimes, unrelated businesses forge these agreements. quantities who sell coffee or consume the product quickly. While the retailer will sell Independent intermediaries channel intermediaries that are not controlled by any manufacturer but instead do business with many smaller bulk bags for those who need individual products like a household product or different manufacturers and many different customers for a recipe. This can help facilitate the distribution of a product as it can be sold in Decision 2: Intensive, Exclusive, or Selective Distribution? grocery stores or wholesale stores. The expansion of having the product available Merchant wholesalers are independent intermediaries that buy goods from manufacturers and sell to retailers and other B2B customers. How many wholesalers and retailers should carry the product within a given market? This may seem like an makes it wasier for the consumer to use the product and decide which form to buy the Because merchant wholesalers take title (to accept legal ownership of a product and assume the accompanying rights to responsibilities of easy decision: Distribute the product through as many intermediaries as possible. But guess again. If the product whether in a small or large bulk. The bag of coffee bean will continue to be ownership) to the goods (i.e., they legally own them), they assume certain risks and can suffer losses if products are damaged, become product goes to too many outlets, there may be inefficiency and duplication of efforts. stocked and sold and consumed frequently because it is a product that people use outdated or obsolete, are stolen, or just don’t sell. On the other hand, because they own the products before selling them onwards, they are everyday because it is a convenience product. Therfore, it is important it needs to be free to develop their own marketing strategies, including setting the prices they charge their customers. But if there are not enough wholesalers or retailers to carry a product, the manufacturer will fail to available to the customer. maximize total sales of its products (and its profits). If customers have to drive hundreds of miles to find a Imagine you are a coffee roaster that sells both small and bulk bags of Full-service merchant wholesalers provide a wide range of services for their customers, including delivery, credit, product-use assistance, Honda dealer, they may instead opt for a Toyota just because of convenience. Thus, a distribution objective coffee beans. Define the distribution channels that you would use to get repairs, advertising, and other promotional support—even market research. Full-service merchant wholesalers often have their own sales may be to either increase or decrease the level of distribution in the market. the product to consumers and reasons for choosing each channel. force to call on businesses and organizational customers. Some general merchandise wholesalers carry a large variety of different items, Consider what costs might impact the channels you choose to use, and whereas specialty wholesalers carry an extensive assortment of a single product line he three basic choices are intensive, exclusive, and selective distribution. Table 11.2 summarizes five consider how only selling small bags or bulk bags of coffee beans might decision factors—company, customers, channels, constraints, and competition—and how they help change your choice of distribution channels. limited-service merchant wholesalers provide fewer services for their customers. Like full-service wholesalers, limited-service wholesalers marketers determine the best fit between distribution system and marketing goals. Read on, and you will take title to merchandise but are less likely to provide services such as delivery, credit, or marketing assistance to retailers. find that these categories connect with the concept of convenience products, specialty products, and From Cash-and-carry wholesalers provide low-cost merchandise for retailers and industrial customers that are too small for other wholesalers’ sales representatives to call on. Customers pay cash for products and provide their own delivery. Some popular cash-and-carry product Each mode of transportation has strengths and weaknesses that make it a good choice for different transportation ne categories include groceries, office supplies, and building materials. summarizes the pros and cons of each mode: Truck jobbers carry their products to small business customer locations for their inspection and selection. Truck jobbers often supply ○ Railroads: Railroads are best to carry heavy or bulky items, such as coal and other mining products, over l perishable items, such as fruit and vegetables, to small grocery stores. are about average in their cost and provide moderate speed of delivery. Although rail transportation prov Drop shippers are limited-function wholesalers that take title to the merchandise but never actually take possession of it. Drop shippers take cost service to many locations, trains cannot carry goods to every community. orders from and bill retailers and industrial buyers, but the merchandise is shipped directly from the manufacturer. Because they take title to ○ Water: Ships and barges carry large, bulky goods and are very important in international trade. Water tra the merchandise, they assume the same risks as other merchant wholesalers. Drop shippers are important to both the producers and the low in cost but can be slow. customers of bulky products, such as coal, oil, or lumber. ○ Trucks: Trucks or motor carriers are the most important transportation mode for consumer goods, especi Mail-order wholesalers sell products to small retailers and other industrial customers, often located in remote areas, through catalogs rather Motor carrier transport allows flexibility because trucks can travel to locations missed by boats, trains, an than a sales force. They usually carry products in inventory and require payment in cash or by credit card before shipment. Mail-order carry a wide variety of products, including perishable items. Although costs are fairly high for longer-dista wholesalers supply products such as cosmetics, hardware, and sporting goods. economical for shorter deliveries. Because trucks provide door-to-door service, product handling is minim Rack jobbers supply retailers with specialty items, such as health and beauty products and magazines. Rack jobbers get their name because chance of product damage. they own and maintain the product display racks in grocery stores, drugstores, and variety stores. These wholesalers visit retail customers on ○ Air: Air transportation is the fastest and also the most expensive transportation mode. It is ideal to move a regular basis to maintain levels of stock and refill their racks with merchandise. important mail, fresh-cut flowers. Passenger airlines, air-freight carriers, and express delivery firms, such transportation. Ships remain the major mover of international cargo, but air transportation networks are important as international markets continue to develop. And of course, then there are drones—definitely Merchandise agents and brokers are a second major type of independent intermediary. Agents and brokers provide services in exchange for air transportation that’s mostly a novelty today but holds great promise for the future. Mostly, firms have commissions. They may or may not take possession of the product, but they never take title; that is, they do not accept legal ownership of deliver to the “last mile” of a shipment’s journey. The precision needed to get the product to its final few the product. Agents normally represent buyers or sellers on an ongoing basis, whereas clients employ brokers for a short period of time: expensive, and among the firms ramping up for more drone usage are Amazon, Domino’s, Walmart, UPS, Manufacturers’ agents, or manufacturers’ reps, are independent salespeople who carry several lines of noncompeting products. They have Intensive distribution (selling a product through all suitable wholesalers or retailers that are willing to stock parent).21 contractual arrangements with manufacturers that outline territories, selling prices, and other specific aspects of the relationship but provide and sell the product) aims to maximize market coverage by selling a product through all wholesalers or Pipeline: Pipelines carry petroleum products, such as oil and natural gas and a few other chemicals. Pipelines flo little if any supervision. Manufacturers normally compensate agents with commissions based on a percentage of what they sell. retailers that will stock and sell the product. Marketers use intensive distribution for convenience products, gas fields to refineries. They are very low in cost, require little energy, and are not subject to disruption by weat Manufacturers’ agents often develop strong customer relationships and provide an important sales function for small and new companies. such as chewing gum, soft drinks, milk, and bread that consumers quickly consume and must replace The Internet: As we discussed previously in this chapter, marketers of services such as banking, news, and enter Selling agents, including export/import agents, market a whole product line or one manufacturer’s total output. They often work like an frequently. Intensive distribution is necessary for these products because availability is more important of distribution opportunities the Internet provides. independent marketing department because they perform the same functions as full-service merchant wholesalers but do not take title to than any other consideration in customers’ purchase decisions. products. Unlike manufacturers’ agents, selling agents have unlimited territories and control the pricing, promotion, and distribution of their In contrast to intensive distribution, exclusive distribution (selling a product only through a single outlet in product. We find selling agents in industries such as furniture, clothing, and textiles. a particular region) means to limit distribution to a single outlet in a particular region. Marketers often sell Inventory Control Commission merchants are sales agents who receive goods, primarily agricultural products, such as grain or livestock, on consignment—that pianos, cars, executive training programs, TV programs, and many other specialty products with high price component of logistics is inventory control, which means developing and implementing a process to ensure that the is, they take possession of products without taking title. Although sellers may state a minimum price they are willing to take for their tags through exclusive distribution arrangements. They typically use these strategies with products that are quantities of goods available to meet customers’ demands—no more and no less. This explains why firms work so har products, commission merchants are free to sell the product for the highest price they can get. Commission merchants receive a commission high priced and have considerable service requirements and when a limited number of buyers exist in any in order to know where their products are and where they are needed in case a low-inventory situation appears imm on the sales price of the product. single geographic area. Exclusive distribution enables wholesalers and retailers to better recoup the costs One of the most used measures of inventory control is inventory turnover, or inventory turns, which is the number o Merchandise brokers, including export/import brokers, are intermediaries that facilitate transactions in markets such as real estate, food, and associated with long selling processes for each customer and, in some cases, extensive after-sale service. completely cycles through during a defined time frame (usually in one year). Marketers can measure inventory turnov used equipment, in which there are lots of small buyers and sellers. Brokers identify likely buyers and sellers and bring the two together in the inventory at cost or at retail, or this metric can even be expressed in units. return for a fee they receive when the transaction is completed. For luxury products, employing an exclusive distribution strategy can support the associations the marketer wants consumers to have with the product (such as exclusivity, quality, or mystique) and ensure that the Manufacturer-Owned Intermediaries product is offered by retailers who are well-suited and matched to the to the task. Formulas Sometimes manufacturers set up their own channel intermediaries. In this way, they can operate separate business units that perform all the Inventory turnover *annual cost of sales / (average inventory/ level for the period) functions of independent intermediaries while still maintaining complete control over the channel: The company does not sell its watches online and does not expect its retailers to do so either. ○ Sales branches are manufacturer-owned facilities that, like independent wholesalers, carry inventory and provide sales and Alternative : inventory turnover * rolling 12 month cost of sales/ current inventory service to customers in a specific geographic area. We find sales branches in industries such as petroleum products, industrial gray market. ( distribution channel in which a products sale to a customer may be technically legal but is at machinery and equipment, and motor vehicles. a minimum considered inappropriate by the manufacturer of the related product, Gray markets often Benchmarks for inventory turnover vary greatly by industry and product line. High-volume/low-margin settings, like s ○ Sales offices are manufacturer-owned facilities that, like agents, do not carry inventory but provide selling functions for the emerge around high-end luxury goods sold through exclusive distribution. Related to the concept of 12 or more inventory turns per year overall, but some staple goods, like milk and bread, that are bought on every trip manufacturer in a specific geographic area. Because they allow members of the sales force to locate close to customers, they product diversion introduced previously in the chapter, the gray market represents those channels of higher turnover rates. All else equal, a firm can increase its profitability substantially by targeting increases in invento reduce selling costs and provide better customer service. distribution that are not formally defined and authorized by the manufacturer for sale of the product. through Product A 15 times a year instead of 12 naturally improves the bottom line (so long as Product A is profitable ○ Manufacturers’ showrooms are manufacturer-owned or -leased facilities in which products are permanently displayed for reductions or promotional expense increases are needed to increase the turns, management will have to carefully ca customers to visit. Merchandise marts are often multiple buildings in which one or more industries hold trade shows and many Exchanges that occur in the gray market are not technically illegal (unlike the concept of an illegal “black increased volume really adds to profits (this is where marketers can get into trouble with the old saying, “We’re losin manufacturers have permanent showrooms. Retailers can visit either during a show or all year long to see the manufacturer’s market”); hence, the use of the intermediate color gray makes sense. But the original manufacturer of the it up in volume!”). merchandise and make B2B purchases. product does not view gray markets as appropriate or beneficial. Of course, not every situation neatly fits a category in Table 11.2. (You didn’t really think it would be that Some companies are even phasing in a sophisticated technology (similar to the EZ Pass system many drivers use to sp Types of Distribution Channels simple, did you?) For example, consider professional sports. Customers might not shop for games in the known as radio frequency identification (RFID). Product tags with tiny chips containing information about the items c The marketing manager must select a channel structure that creates a competitive advantage for the firm and its products based on the size same way they shop for pianos. They might go to a game on impulse, and they don’t require much destination) RFID lets firms tag clothes, pharmaceuticals, or virtually any kind of product with tiny chips that contain i and needs of the target market. individualized service. Nevertheless, professional sports use exclusive distribution. A team’s cost of serving item’s content, origin, and destination. This technology has the potential to revolutionize inventory control and help m customers is high because of those million-dollar player salaries and multi-million-dollar stadiums. their products are on the shelves when people want to buy them. Great for manufacturers and retailers, right? But so When they develop distribution (place) strategies, marketers first consider different channel levels. This refers to the number of distinct The alert reader (and/or sports fan) may note that there are some exceptions to the exclusive distribution creating a backlash against RFID, which they refer to as “spy chips.” Through blogs, boycotts, and other anti-company categories of intermediaries that make up a channel of distribution. of sports teams. New York has two football teams and two baseball teams, Chicago fields two baseball proclaim that RFID is a personification of the privacy violations George Orwell predicted in his classic book 1984. teams, and so on. We call market coverage that is less than intensive distribution but more than exclusive distribution selective distribution (distribution using fewer outlets than intensive distribution but more Firms store goods (i.e., they create an inventory) for many reasons. For manufacturers, sometimes the pace of produc Week 8 Page 1  ng the movement of pany’s viewpoint, he firm (work in process —reverse logistics tage and put more effort o describe everything n the right place, and at entory control. This he lowest possible cost. gers thought of logistics as consider the needs of the most logistics decisions, st to deliver what the ets delivery requirements. metimes air transport is icted in Figure 11.5. For s look closely at each of and the time a product d then on to the s not, they put the order any locates it in the software solution that sportation. Data need to other related data nables marketers to nd what type of ss to major highways, uire. If customers mber of different ment, but they also lose on of warehouse space ny smaller cities to f time and that provides o not need to keep a lot of ouse, they must be they are recovered from edures that limit the dling. nnel members. Again, want. As Table 11.3 t, differ in the following es for loading, unloading, unloading e, or bulky eeds. Table 11.3 long distances. Railroads vides dependable, low- ansportation is relatively ially for shorter hauls. nd planes. Trucks also ance shipping, trucks are mal, and this reduces the high-value items such as as FedEx, provide air e becoming more y a Next Gen approach to e their sites on drones to w blocks can be very , and Alphabet (Google’s ow primarily from oil or ther. rtainment take advantage firm always has sufficient rd to track merchandise minent. of times a firm’s inventory ver by using the value of supermarkets, may have p may have significantly ory turnover—selling e). However, if price lculate whether the ng money, but we’ll make peed through tollbooths) content origin and information about the marketers ensure that ome consumer groups are y initiatives, these groups ction may not match Week 8 Page 2  customers to visit. Merchandise marts are often multiple buildings in which one or more industries hold trade shows and many manufacturers have permanent showrooms. Retailers can visit either during a show or all year long to see the manufacturer’s market”); hence, the use of the intermediate color gray makes sense. But the original manufacturer of the it up in volume!”). merchandise and make B2B purchases. product does not view gray markets as appropriate or beneficial. Of course, not every situation neatly fits a category in Table 11.2. (You didn’t really think it would be that Some companies are even phasing in a sophisticated technology (similar to the EZ Pass system many drivers use to sp Types of Distribution Channels simple, did you?) For example, consider professional sports. Customers might not shop for games in the known as radio frequency identification (RFID). Product tags with tiny chips containing information about the items c The marketing manager must select a channel structure that creates a competitive advantage for the firm and its products based on the size same way they shop for pianos. They might go to a game on impulse, and they don’t require much destination) RFID lets firms tag clothes, pharmaceuticals, or virtually any kind of product with tiny chips that contain i and needs of the target market. individualized service. Nevertheless, professional sports use exclusive distribution. A team’s cost of serving item’s content, origin, and destination. This technology has the potential to revolutionize inventory control and help m customers is high because of those million-dollar player salaries and multi-million-dollar stadiums. their products are on the shelves when people want to buy them. Great for manufacturers and retailers, right? But so When they develop distribution (place) strategies, marketers first consider different channel levels. This refers to the number of distinct The alert reader (and/or sports fan) may note that there are some exceptions to the exclusive distribution creating a backlash against RFID, which they refer to as “spy chips.” Through blogs, boycotts, and other anti-company categories of intermediaries that make up a channel of distribution. of sports teams. New York has two football teams and two baseball teams, Chicago fields two baseball proclaim that RFID is a personification of the privacy violations George Orwell predicted in his classic book 1984. teams, and so on. We call market coverage that is less than intensive distribution but more than exclusive distribution selective distribution (distribution using fewer outlets than intensive distribution but more Firms store goods (i.e., they create an inventory) for many reasons. For manufacturers, sometimes the pace of produc than exclusive distribution) (yes, this type falls between the two). This model fits when demand is so large seasonal demand, and as a