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Chapter 2

Chapter 2. The Channel Participants. Objective 1:. 2. Major Participants in the Marketing Channel. * Commercial Channel. * Target Markets. Why shift distribution tasks to intermediaries?. Objective 2:. 2. Producers & Manufacturers. Intermediaries. • lack expertise

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Chapter 2

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  1. Chapter 2 The Channel Participants

  2. Objective 1: 2 Major Participants in the Marketing Channel * Commercial Channel * Target Markets

  3. Why shift distribution tasks to intermediaries? Objective 2: 2 Producers & Manufacturers Intermediaries • lack expertise • lack economies of scale (or investment to gain economies is too large) • spread high fixed costs over large quantities of diverse products • achieve economies of scope and economies of scale

  4. Objective 3: 2 Major Types of Wholesalers

  5. Merchant Wholesalers 2 Buy, Take title to, Store, & Handle Large quantities of products Resell to Industrial, commercial, or Institutional concerns other Wholesalers Retailers

  6. Agents, Brokers, & Commission Merchants 2 Involved in buying & selling while acting on behalf of clients Commissions on sales or purchases

  7. 2 Manufacturers’ Sales Branches & Offices Separated from manufacturing plants Distribute manufacturer’s products at wholesale Owned & operated by manufacturers Some wholesale allied & supplementary products purchased from other manufacturers.

  8. Major Trends in Wholesale Structure Objective 4: 2 1992-2002 42.0% Wholesale trade overall 26.5% Manufacturer’s sales branches & offices 51.7% Merchant wholesalers 36.7% Agents, brokers, & commission merchants

  9. 2 Trends in Size & Concentration

  10. Merchant Wholesalers’ Distribution TasksServe Manufacturers/Producers Objective 5: 2  Provide market coverage  Make sales contacts  Hold inventory  Process orders  Gather market information  Offer customer support • Operate at high levels of effectiveness and efficiency • Average cost curves lower than those for their suppliers

  11. Merchant Wholesalers’ Distribution Tasks Serve Customers (e.g., retailers) 2  Assure product availability  Provide customer service  Extend credit & financial assistance (e.g., cut ICCs)  Offer assortment convenience  Break bulk  Help customers with advice & technical support

  12. Agent Wholesalers’ Distribution Tasks 2 Manufacturers’ Agents or “Reps” Market coverage Sales contacts

  13. Agent Wholesalers’ Distribution Tasks 2 Selling Agents Market coverage Sales contacts Order processing Marketing information Product availability Customer services

  14. Agent Wholesalers’ Distribution Tasks 2 Brokers Marketing information ------------------------------ Market coverage Sales contacts Order processing Product availability Customer services ** “Demand - Collection” channels are a new form of “true” brokers – Priceline.com

  15. Agent Wholesalers’ Distribution Tasks 2 Commission Merchant Market coverage Sales contacts Order processing Breaking bulk Credit Holding inventory ** Typical mainly in agriculture**

  16. By Ownership of Establishment By Kind of Business (Merchandise Handled) By Size of Establishment By Degree of Vertical Integration By Type of Relationship with other Business Organizations By Method of Consumer Contact By Type of Location By Type of Service Rendered By Legal Form of Organization By Management Organizations or Operational Technique Objective 6: 2 Retail Structure Alternative Bases for Classifying Retailers

  17. 2 Definition of Retailing and Retailers* *Note this is different from your text, but will be the definition used throughout the remainder of the course. • Retailing – consists of the final activities and steps needed to place merchandise made elsewhere in the hands of the consumer or to provide services to the consumer. (Dunne, Lusch, and Carver 2009) • Retailer – any firm that sells merchandise or services to the final consumer. (Dunne, Lusch, and Carver 2009) • Requires more than 50% of one’s business to come from retailing • E.g. Costco and Sam’s are wholesalers, not a retailers

  18. Retail Structure Trends Objective 7: 2 Decreasing number of establishments Increasing sales = increase in size of retail establishments measured by average sales volume per store

  19. Concentration in Retailing 2 In 2002 4% of all retail firms accounted for nearly 80% of total sales!!

  20. Distribution Tasks Performed by Retailers Objective 8: 2 The role of the retailer in the distribution channel, regardless of his size or type, is to interpret the demands of his customers and to find and stock the goods these customers want, when they want them, and in the way they want them. This adds up to having the right assortments at the time customers are ready to buy. — Charles Y. Lazarus

  21. 2 Distribution Tasks Performed by Retailers • Offer manpower & physical facilities close to consumers’ residences • Provide personal assistance to help sell products • Interpret and relay consumer demand • Divide large quantities into consumer-sized lots • Offer storage • Remove risk by ordering in advance of the season

  22. Objective 9: 2 Retailers’ Growing Power in Marketing Channels

  23. Objective 10: 2 Facilitating Agencies in Marketing Channels • Transportation agencies • Storage agencies • Order processing agencies • Advertising agencies • Financial agencies • Insurance companies • Marketing research firms

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