1 Major Points of Ch. 1 Let’sLearnabout: 1. Key Terms and Definitions 2. Why Marketing Channels and Intermediaries?** 3. Marketing Channels and other Marketing Concepts 4. The Flows in the Marketing Channels** 5. Basic Principles for Marketing Channels** 6. Evolution of Marketing Channel Concept
Chapter 2 The Channel Participants
1 Major Points of Ch. 2 Let’slearn about: 1. Major Participants in the Marketing Channel* 2. Why does a manufacturer shift distribution tasks to intermediaries? ** 3. Wholesalers 4. Retailers 5. Facilitating Agencies
Topic 1: 2 Major Participants in the Marketing Channel * Commercial Channel * Target Markets
Why shift distribution tasks to intermediaries? Topic 2: 1 Producers & Manufacturers Intermediaries • lack expertise • lack economies of scale in distribution • spread high fixed costs over large quantities of diverse products • achieve economies of scope and economies of scale
2 Example:Distribution of Crayons Manufacturer direct distribution to customers requires • Huge order processing facility • Huge inventory • Several warehouse locations • Transportation of product to consumers = cost prohibitive
Firm Infrastructure Human Resource Management Technology Development Procurement Value Chain Analysis** Support Activities Margin Outbound Logistics Marketing and Sales Operations Inbound Logistics Service Primary Activities
Topic 3: 2 Major Types of Wholesalers
Merchant Wholesalers 2 Buy Take title to Store Handle www.ingrammicro.com Large quantities/varieties of products Resell to Industrial, commercial, or institutional concerns Other Wholesalers Retailers
Agents, Brokers, & Commission Merchants 2 Involved in buying & selling while acting on behalf of clients Commissions on sales or purchases Ex) Latest Changes in IT Industry
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. Question: Why would a manufacturer operate its own sales branches?
Merchant Wholesalers’ Main Distribution Tasksfor Manufacturers 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
Merchant Wholesalers’ Main Distribution Tasks To Serve Customers* 2 Assure product availability Provide customer service Extend credit & financial assistance Offer assortment convenience Break bulk Help customers with advice & technical support**
Agent Wholesalers’ Main Distribution Tasks 2 Manufacturers’ Agents Market coverage Sales contacts
Agent Wholesalers’ Main Distribution Tasks 2 Selling agents Market coverage Sales contacts Order processing Marketing information Product availability Customer services
Agent Wholesalers’ Distribution Tasks 2 Brokers Market coverage Sales contacts Order processing Marketing information Product availability Customer services Ex) Food Brokers
Agent Wholesalers’ Main Distribution Tasks 2 Commission Merchant Market coverage Sales contacts Order processing Breaking bulk Credit Holding inventory
2 Trends in Wholesaler Size & Concentration
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 Topic 4: 2 Retail Structure Alternative Bases for Classifying Retailers
Motor vehicle & parts dealers Furniture & home furnishings stores Electronics & appliance stores Building material & garden equip. & supply dealers Food & beverage stores Health & personal care stores Gasoline stations Clothing & clothing accessories stores Sporting goods, hobby, book, & music stores General merchandise stores Miscellaneous store retailers Nonstore retailers 2 Kind-of-Business Classifications Retail Trade
Distribution Tasks Performed by Retailers 2 The role of the retailer is to interpret the demands of his customers and to find and stock the goodsthese 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 (1961)
2 Distribution Tasks Performed by Retailers • Interpret and relay consumer demand* • Remove risk by ordering in advance of the season • Divide large quantities into consumer-sized lots • Offer manpower & physical facilities close to consumers’ residences • Provide personal assistance to help sell products* • Offer storage
Retail Structure Trends 1 Decreasing number of establishments Increasing sales = increase in size of retail establishments measured by average sales volume per store
Concentration in Retailing 1 4% of all retail firms accounted for nearly 80% of total sales!!
2 Retailers’ Growing Power in Marketing Channels
THE INCREASING POLARITY OF RETAIL TRADE Stagnant Rates of Growth and Low Profitability Specialized Retail Outlets: High Touch Mass- Merchandisers: High Tech Conventional Outlets High Rates of Growth and Attractive Profitability
USE OF THE UPC CODE IN RETAIL PRODUCT REPLENISHMENT: WAL-MART EXAMPLE • The UPC is scanned and registered into Wal-Mart’s database • Item locator program. • Data transmission. • Retail link. • Forecasting. UPC Code for Carnation Nonfat Dry Milk, 25.6 oz. size UPC Code for Duncan Hines Moist Deluxe Lemon Supreme Flavor Cake Mix, 18.25 oz. size UPC Code for Marketing Channels, 5th edition Source: Text is adapted from Linda F. Magyar, “A Turn of the SKU,” New York Times Magazine, April 6, 1997, section 6, p. 55. UPCs are scanned from real products.
Topic 5: 2 Facilitating Agencies in Marketing Channels • Transportation agencies • Storage agencies • Order processing agencies • Advertising agencies • Financial agencies • Insurance companies • Marketing research firms
SOME SOURCES OF INFORMATION ABOUT THE WHOLESALING/RETAILING • General industry information: • http://www.naw.org (National Association of Wholesaler-Distributors) • http://www.pwc.com/Extweb/industry.nsf/docid/F8F07C9BBD28881A85256D9D00127C1C (a site run by PWC) • Industry consultants: • Pembroke Consulting, Inc. • Merrifield Consulting Group, Inc. • Indian River Consulting Group • Frank Lynn & Associates • Michael E. Workman & Associates
1 • We Missed Something in the Whole Discussion on Marketing Channel Participants. • What is it?