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Chapter 21

Chapter 21. Channels of Distribution. Channels of Distribution. The path a product takes from its producer or manufacturer to the final user. . Types of User. Consumer. Industrial User. Purchases product for personal use. Purchases product for use in business operations.

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Chapter 21

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  1. Chapter 21

    Channels of Distribution
  2. Channels of Distribution The path a product takes from its producer or manufacturer to the final user. Types of User Consumer Industrial User Purchases product for personal use. Purchases product for use in business operations
  3. Intermediaries Overview INTERMEDIARIES: (or middlemen) businesses involved in sales transactions that move products from producer to the final user. Reduce number of contacts required to reach the final user of product. Classified under whether the intermediary takes ownership/ title over the goods and services.
  4. Merchant IntermediariesWholesalers MERCHANTS (take ownership/title over goods/services) Wholesalers (or distributors) : a business that buys a large quantity of goods from the producer, stores them and sells them to other businesses (retailers). Rack Jobbers: manages the inventory and merchandising for the retailer by counting stock, stocking when needed, and creating and maintaining store displays. They bill retailers for the goods and services SOLD not display items. Drop Shipper: Wholesaler that own goods sold but don’t handle products physically; deals with bulk quantities that need special handling (ex. Coal, lumber). Drop Shippers have the producer ship product to business (buyer).
  5. Merchant IntermediariesRETAILERS Retailers : a business that sells goods to final consumer for personal use. Brick-and-Mortar: Sell goods and services bought from manufacturers or wholesalers to customer in physical store/shop. > Often offer services such as credit and delivery. Non-Store: > Automatic (Vending Machines) > Direct Mail and Catalog > TV Home Shopping Channels > E-tailing (online retailing)
  6. Agents (Intermediaries) AGENTS (don’t take ownership): Agents bring buyers and sellers together.
  7. Distribution Channels DIRECT INDIRECT
  8. DIRECT [No intermediary] INDIRECT [With intermediary(ies)] Consumer products & services CHANNEL A CHANNEL B CHANNEL C CHANNEL D CHANNEL E
  9. DIRECT [No intermediary] INDIRECT [With intermediary(ies)] INDUSTRIALproducts & services CHANNEL A CHANNEL B CHANNEL C CHANNEL D
  10. Distribution Planning
  11. Multiple Channels Multiple channels are used by producers when its product fits the need of both industrial and consumer markets The producer must identify the best channel for each market Example: - J & J snack foods sell its pretzels, drinks and cookies to supermarkets, movie theaters and other sports arena's.
  12. Control Versus Cost All manufacturers and producers must weigh the control they want over the distribution of their products against costs and profitability Who Does the Selling?
  13. Distribution Intensity How widely a product will be distributed?
  14. Exclusive Distribution Involves protected territories for distribution of a product in a given geographic area Dealers are the only ones within the geographic radius that have the right to sell the product Wholesalers may sponsor voluntary groups in which a retailer agrees to buy and maintain a minimum inventory of the wholesaler’s products Manufacturers who own and run their own retail operations are integrated distributors Characteristics: Prestige, Image, Channel Control, High Profit ,Margin
  15. Selective Distribution Limited number of outlets in a given geographic area are used to sell the product Goal:Select channel members that can maintain the image of the product and are good credit risks, aggressive marketers and good inventory planners Intermediaries are selected for their ability to cater to the final user that the manufacturer wants to attract
  16. Intensive Distribution Involves the use of all suitable outlets to sell a product Objective: To gain complete market coverage and sell to as many customers as possible Example: Motor Oil which is marketed in a variety of mass merchandisers to reach the maximum number of customers
  17. E-Commerce B2B operations provide one stop shopping and substantial savings for industrial buyers. Online catalogues make it easier for corporate buyers to compare prices and get the best deals Provides smaller business with exposure E- Commerce: The means by which products are sold to customers and industrial buyers through the internet E-Marketplace: The online shopping location where products are sold to customers and industrial buyers through the use of the Internet
  18. Legal and Ethical Considerations in Distribution Businesses may use whatever channel arrangement they desire, however, laws affecting channels generally prevent exclusionary tactics that might keep other companies from using a desired channel.
  19. Distribution Planning in Foreign Markets Foreign market environments require that businesses adjust their distribution systems Cultural considerations should be weighed in when planning distribution in foreign markets. Example : In the US general motors distributes automobiles through franchised retail car dealers. And in Taiwan, GM owns its own retail dealerships and sells directly to consumers.
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