Industrial Distribution Dynamics: Strategies and Trends in Wholesale Markets

1. Chapter 14. Managing Business Marketing Channels(PLACE TWO)“YOU FRANCHISE TO GAIN DISTRIBUTION, YOU DO IT YOURSELF FOR GREATER CONTROL” BA 303-B2B MARKETING LINDELL PHILLIP CHEW

2. The Business Marketing ChannelChapter Objectives To define INDUSTRIAL DISTRIBUTION and show its importance To describe the three broad categories of industrial distribution (manufacturer/service provider, merchant, and agents, reps and brokers) and the specific types of firms within each category To examine recent trends in industrial distribution (wholesaling)

3. The Domain of Industrial Distribution (Wholesaling) • Industrial distribution (wholesaling) encompasses the buying and/or handling of goods and services and their subsequent resale to organizational users, retailers, and/or other wholesalers—but not the sale of significant volume to final consumers. • Manufacturers and service providers sometimes act as their own wholesalers; other times, independent firms are employed. • Independents may or may not take title to or possession of products, depending on the type of wholesaling. • Industrial, commercial, and government institutions are wholesalers’ leading customers, followed closely by retailers. Sales from one wholesaler to another also represent a significant proportion of wholesaling activity.

4. The Diversity of Industrial Distribution (Wholesaling) Transactions Industrial Distribution (Wholesaling) includes: • Sales of goods and services to manufacturers, service providers, oil refiners, railroads, public utilities, and government departments. • Sales of office or laboratory equipment, supplies, and services to professionals such as doctors, chiropractors, and dentists. • Sales of materials and services to builders of offices and homes. • Sales to grocery stores, restaurants, hotels, apparel stores, stationery stores, and all other retailers. • Manufacturer/service provider sales to wholesalers, and wholesaler sales to other wholesalers.

5. The Functions of Industrial Distributors (Wholesalers) Facilitate local distribution Process returns Take responsibility for inventory obsolescence Provide a trained sales force Industrial Distributors (Wholesalers) provide some or all of these functions Provide marketing & research support Handle financial records Gather assortments for customers Purchase large quantities Provide warehousing & delivery facilities Offer financing

6. Industrial Distributors (Wholesalers) Selling To vs. Selling Through the Wholesaler Selling To the Wholesaler Manufacturer/ Service Provider Wholesaler Retailer The wholesaler is viewed as a customer who is researched and satisfied. Selling Through the Wholesaler Manufacturer/ Service Provider Wholesaler Retailer The retailer (or final consumer) is the object of the manufacturer’s/ service provider’s interests. The needs of the wholesaler are considered unimportant.

7. The Broad Categories of B2B Industrial Distributors (Wholesalers) There are three broad categories of wholesalers: • Manufacturer/Service Provider Wholesaling • Merchant Wholesaling • Agents and Brokers Wholesalers have obligations to both suppliers and customers.

8. B2B Industrial Distributors (Wholesalers), Owned - Franchised • Direct distribution Manufacturer has full responsibility to perform all channel tasks • May be required as a result of customer needs, control over the selling job, size of customers, and extensive negotiation

9. B2B Industrial Distributors (Wholesalers), Owned - Franchised • Indirect distribution Use of middlemen in the channel Business channels involve relatively few alternatives Manufacturer's representatives and distributors are most prevalent Distributors perform full range of tasks Reps focus on the selling job

10. Degree of Directness • 1. Greater tendency for direct distribution in businessmarkets2. Indirect often required for repetitively purchaseditems bought in large quantities3. More than one channel required to reach all market segments Customer size and different purchasing processes require different channels

11. B2B Industrial Distributors (Wholesalers), Owned - Franchised • E‑channels now used by business marketers Information platform Transactional platform Managing customer relationships Remember CISCO

12. OWNED-Manufacturer/Service Provider Wholesaling The manufacturer/service provider controls wholesaling and performs all functions. Control/ Functions The manufacturer/service provider owns products until they are bought by retailers or other organizational consumers. Ownership The manufacturer/service provider does not receive payment until the retailer or other customer buys products. Cash Flow The manufacturer/service provider deals with a small group of large and geographically concentrated customers; rapid expansion is not a goal. Best Use(s)

13. FRANCHISED-Merchant Wholesaling The wholesaler controls wholesaling and performs many or all functions. Control/ Functions The wholesaler buys products from the manufacturer/service provider and resells them. Ownership The manufacturer/service provider is paid when the wholesaler purchases products. Cash Flow The manufacturer/service provider has a large product line that is sold through many small and geographically dispersed customers; expansion is a goal. Best Use(s)

14. FRANCHISED-Agents and Brokers The manufacturer/service provider and wholesaler each have some control and perform some functions. Control/ Functions The manufacturer/service provider owns the products and pays the wholesaler a fee/ commission. Ownership The manufacturer/service provider does not receive payment until products are sold. Cash Flow The manufacturer/service provider is small, has little marketing expertise, and is relatively unknown to potential customers; expansion is a goal. Best Use(s)

15. FRANCHISED-Full-Service Industrial Distributors (Merchant Wholesalers) • General Merchandise–Carries nearly all items a customer usually needs • Specialty Merchandise–Focuses in a narrow product range, extensive • assortment • Rack Jobber–Furnishes racks and shelves, consignment sales • Franchise–Uses a common business format, extensive management • services 5B. Voluntary Wholesaler & Retailer-Owned Cooperative– Supervalu & AG 5A. Producer-Owned Cooperative – Farmer controlled, profits divided among members

16. FRANCHISED-Limited Service Industrial Distributors (Merchant Wholesalers) • Cash and Carry–No outside sales force, wholesale store for • business needs • Drop Shipper–Ships items without physically handling them • Truck/Wagon–Sales and delivery on same call • Mail Order–Catalogs used as sole promotion tool

17. FRANCHISED-Agents and Brokers • Manufacturers’ (Service Providers’) Agent–Sells selected items for • several firms • Selling Agent–Markets all the items of a firm • Commission (Factor) Merchant–Handles items on a consignment • basis • Food Broker–Brings together buyers and sellers • Stock Broker–Brings together buyers and sellers

18. B2B Chapter 14Summary • The chapter defines industrial distributing (wholesaling) and shows its importance. • It describes the three broad categories of wholesaling (manufacturer/service provider wholesaling, merchant wholesaling, and agents and brokers) and the specific types of firms within each category. • It examines recent trends in industrial distributing (wholesaling) .