1. business and industrial
2. advertising and marketing
3. marketing

Chapter 15
Distributing
Products
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Fifteen
LEARNING GOALS
1.
Explain the concept of marketing channels and their value.
2.
Demonstrate how intermediaries perform the six marketing utilities;
Identify the types of wholesale intermediaries in the distribution system.
4.
Compare the distribution strategies retailers use; Explain the various
kinds of non-store retailing.
5.
Explain the various ways to build cooperation in channel systems.
6.
Describe logistics and outline how intermediaries manage the
transportation and storage of goods.
15-2
The Emergence
of Marketing
Intermediaries
LG1
WHAT are MARKETING
INTERMEDIARIES?
• Marketing Intermediaries -- Organizations that
assist in moving goods and services from
businesses to businesses (B2B) and from
businesses to consumers (B2C).
• They are called intermediaries because they’re
in the middle of a series of firms that distribute
goods.
15-3
The Emergence
of Marketing
Intermediaries
LG1
WHAT are MARKETING
INTERMEDIARIES?
• Channel of Distribution -- A group of marketing
intermediaries that joining together to transport and
store goods from producers to consumers.
15-4
The Emergence
of Marketing
Intermediaries
LG1
TYPES of MARKETING
INTERMEDIARIES?
• Agents and Brokers -- Intermediaries who bring
buyers and sellers together and assist in negotiating
an exchange but do not take title to the goods.
• Wholesaler -- An intermediary that sells products
to other organizations such as retailers,
manufacturers, and hospitals.
• Retailer -- An organization that sells products to
ultimate customers.
15-5
The Emergence
of Marketing
Intermediaries
LG1
SELECTED CHANNELS of
DISTRIBUTION
15-6
Why Marketing
Needs
Intermediaries
LG1
WHY MARKETING NEEDS
INTERMEDIARIES
• Intermediaries perform marketing tasks faster
and cheaper than most manufacturers could
provide them.
• Marketing
intermediaries make
markets more efficient
by reducing
transactions and
contacts.
15-7
How
Intermediaries
Create Exchange
Efficiency
LG1
HOW INTERMEDIARIES CREATE
EXCHANGE EFFICIENCY
15-8
The Value vs
the Cost of
Intermediaries
LG1
THREE KEY FACTS ABOUT
MARKETING INTERMEDIARIES
1) Marketing intermediaries can be eliminated but
their activities can’t.
2) Intermediaries perform marketing functions
faster and cheaper than other organizations can.
3) Marketing intermediaries add costs to products
but they’re generally offset by the values they
provide.
15-9
The Utilities
Created by
Intermediaries
LG2
INTERMEDIARIES
CREATE UTILITY
• Utility -- The want-satisfying ability, or value, that
organizations add to goods and services by making
them more useful or accessible to consumers.
• Six types of utilities:
1. Form
2. Time
3. Place
4. Possession
5. Information
6. Service
15-10
The Utilities
Created by
Intermediaries
HOW MARKETERS USE UTILITY
LG2
• Form Utility -- Changes raw materials into useful
products; producers generally provide form utility.
- Starbucks makes coffee the way the customers want it.
- Dell assembles computers according to customer needs.
• Time Utility -- Makes products available when
customers want them.
- Many Walgreens stores are open 24-hours a day.
- Colleges offer day and evening classes.
15-11
The Utilities
Created by
Intermediaries
HOW MARKETERS USE UTILITY
LG2
• Place Utility -- Adds value to products by placing
them where people want them.
- Banks place ATMs at convenient locations.
- 7-11 stores are found in easy-to-reach locations.
• Possession Utility -- Helps transfer ownership
from one party to another, including providing credit.
- Pay for lunch at McDonalds with your Visa card.
- A savings and loan office offers loans to home/car
buyers.
15-12
The Utilities
Created by
Intermediaries
HOW MARKETERS USE UTILITY
LG2
• Information Utility -- Opens two-way flows of
information between marketing participants.
- Websites offer advice to shoppers.
- Local government maps show tourist locations.
• Service Utility -- Provides service during and after
a sale and teaches customers how to best use
products.
- Apple offers classes to help computer buyers.
- College placement offices help students find jobs.
15-13
Wholesale
Intermediaries
WHOLESALE INTERMEDIARIES
LG3
• Wholesalers normally make B2B sales, however,
stores like Staples and Costco also have retail
functions.
- Retail sales are sales of goods and services to
customers for their own use.
- Wholesale sales are sales of goods and services to other
businesses for use in the business or resale.
• Consumers are more familiar with retailers
than wholesalers.
15-14
Wholesale
Intermediaries
LG3
TYPES of WHOLESALE
INTERMEDIARIES
• Merchant Wholesalers -- Independently owned
firms that take title to the goods they handle. There
are two types:
1. Full-service wholesalers perform all distribution
functions.
2. Limited-function wholesalers perform only selected
distribution functions.
15-15
Wholesale
Intermediaries
LG3
TYPES of LIMITED-FUNCTION
WHOLESALERS
• Rack Jobbers -- Furnish racks or shelves of
merchandise such as music and magazines for
retailers for display and sell them on consignment.
• Cash-and-Carry Wholesalers -- Serve mostly
smaller retailers with a limited assortment of
products.
• Drop Shippers -- Take orders from retailers and
other wholesalers and have the merchandise shipped
from producer to buyer.
15-16
Agents and
Brokers
LG3
ROLES of AGENTS
and BROKERS
• Agents generally maintain long-term relationships
with the clients they represent.
- Manufacturer’s agents represent
several manufacturers in a specific
territory.
- Sales agents represent a single
client in a larger territory.
• Brokers usually represent
clients on a temporary basis.
15-17
Retail
Intermediaries
RETAILING in the U.S.
LG4
• There are approximately 2.3 million retailers in the
U.S., not including websites.
• Retailers in the U.S. employ
over 11 million people and
operate under many
different structures.
• Fastest growing retailer
categories:
• Video games; Sports and fitness;
Home, garden, and furniture;
Event tickets; Consumer
electronics
15-18
Retail
Intermediaries
LG4
HOW to PREVENT
FRAUD
COUPON: Make sure your
coupons are unique; have
clear expiration dates and
rules; Train staff on how to
spot fraudulent coupons.
RETURN POLICY: Always
require receipts for returns;
Shred receipts so they cannot
be used to return stolen
goods; Check for tampering;
Have customers fill out a
return form and check details.
Source: Entrepreneur, December 2010.
15-19
Retail
Intermediaries
TYPES of RETAIL STORES
LG4
Types
Examples
Department Store
Sears, JC Penney, Nordstom
Discount Store
Wal-Mart, Target
Supermarket
Safeway, Kroger, Albertson’s
Warehouse Club
Costco, Sam’s Club
Convenience Store
7-Eleven
Category Killer
Toys-R-Us, Bass Pro Shops, Office
Depot
Outlet Store
Nordstrom Rack, TJ Maxx, Nike
Outlet
Specialty Store
Jewelry store, shoe stores, bicycle
shops
15-20
Retail
Distribution
Strategy
LG4
RETAIL DISTRIBUTION
STRATEGIES
• Intensive Distribution -- Puts products into as
many retail outlets as possible.
• Selective Distribution -- Uses only a preferred
group of the available retailers in an area.
• Exclusive Distribution -- The use of only one
retail outlet in a given geographic area.
15-21
Non-Store
Retailing
LG5
FORMS of NON-STORE
RETAILING
• Electronic Retailing -- Selling goods and services
to ultimate consumers over the Internet.
• Telemarketing -- The sale of goods and services
via the telephone.
• Vending machines dispense
convenience goods when
consumers deposit sufficient
money.
15-22
Non-Store
Retailing
LG5
WHAT ONLINE STORES NEED
Important Features on E-Commerce Web Sites
• Convenient return
policies
• Established brands
• User reviews
• Professional site design
• Alternative payment
options
Source: GSI Commerce; Harris Interactive.
15-23
Non-Store
Retailing
LG5
FORMS of NON-STORE
RETAILING
• Direct Selling -- Selling goods and services to
customers in their homes or workplaces.
• Multilevel marketing uses salespeople who work
as independent contractors.
• Direct Marketing -- Any activity that directly links
manufacturers or intermediaries with ultimate
customers.
15-24
Building
Cooperation in
Channel Systems
LG6
The FOUR SYSTEMS of
CHANNEL RELATIONSHIPS
1. Corporate Distribution Systems
2. Contractual Distribution Systems
3. Administered Distribution Systems
4. Supply Chains
15-25
Corporate
Distribution
Systems
LG6
CORPORATE DISTRIBUTION
SYSTEMS
• Corporate Distribution Systems -- Exist when
one firm owns all the organizations in a channel of
distribution.
• Examples:
- Goodyear
- Sherwin Williams
Photo Courtesy of: Doug Wilson
15-26
Contractual
Distribution
Systems
LG6
CONTRACTUAL DISTRIBUTION
SYSTEMS
• Contractual Distribution Systems -- Exist when
members are bound to cooperate through contractual
agreements.
• Forms of Contractual Systems:
- Franchise Systems: McDonald’s, Baskin-Robbins
- Wholesale-Sponsored Chains: IGA, Ace Hardware
- Retail Cooperatives: Associated Grocers, True Value
15-27
Administered
Distribution
Systems
LG6
ADIMINISTERED DISTRIBUTION
SYSTEMS
• Administered Distribution Systems -- Exist
when producers manage all the marketing functions
at the retail level.
• Examples:
- Kraft
- Ralph Lauren
Photo Courtesy of: Stephen Boisvert
15-28
Supply Chains
SUPPLY CHAINS
LG6
• Supply Chain -- All the linked activities various
organizations must perform to move goods and
services from the source of raw materials to ultimate
consumers.
• Supply Chain Management -- The process of
managing the movement of raw materials, parts,
work in progress, finished goods, and related
information through all the organizations in the supply
chain.
15-29
Supply Chains
The SUPPLY CHAIN
LG6
15-30
The GLOBAL SUPPLY CHAIN
for SERVICES
(Reaching Beyond Our Borders)
• Much movie animation takes place in the
Philippines while companies in China provide
research and development services.
• The competition among foreign suppliers is
intense, including the need to find workers with
strong language skills.
• One country that could be a leader in supplying
supply-chain services is the U.S.
15-31
Logistics:
Getting Goods
to Consumers
Efficiently
USING LOGISTICS
LG7
• Logistics -- The planning, implementing and
controlling of the physical flow of material, final goods
and related information from points of origin to points
of consumption.
• Firms outsource to
others specializing in
trade compliance to
determine what is
needed to market
products to global
customers.
15-32
Logistics:
Getting Goods
to Consumers
Efficiently
LOGISTICS APPLICATIONS
LG7
• Inbound Logistics -- Brings raw materials,
packaging, other goods and services and information
from suppliers to producers.
• Materials Handling -Movement of goods
within a warehouse,
from warehouse to the
factory floor and from
the factory floor to
workstations.
15-33
Logistics:
Getting Goods
to Consumers
Efficiently
LOGISTICS APPLICATIONS
LG7
• Outbound Logistics -- Manages the flow of
finished products and information to business buyers
and consumers.
• Reverse Logistics -- Brings goods back to the
manufacturer because of defects or for recycling.
15-34
Logistics:
Getting Goods
to Consumers
Efficiently
LG7
COMPARING
TRANSPORTATION MODES
Mode
Cost
Speed
Dependability
Flexibilit
y
Frequency
Reach
Rail
Med.
Slow
Medium
High
Low
High
Trucks
High
Fast
High
Medium
High
Highest
Pipeline
Low
Medium
Highest
Lowest
Highest
Lowest
Ships
Lowest
Slowest
Lowest
Highest
Lowest
Low
Air
Highest
Fastest
Low
Low
Medium
Medium
15-35
Logistics:
Getting Goods
to Consumers
Efficiently
LOGISTICS SPECIALISTS
LG7
• Freight Forwarder -- Puts many small shipments
together to create a single large shipment that can be
transported cost-effectively by truck or train.
• Intermodal Shipping -Uses multiple modes of
transportation to complete
a single long-distance
movement of freight.
15-36
Logistics:
Getting Goods
to Consumers
Efficiently
LG7
TYPES of
INTERMODAL SHIPPING
• Piggybacking: Truck
trailers placed on
trains
• Fishybacking: Truck
trailers placed on
ships
• Birdybacking: Truck
trailers placed on
planes
15-37
Logistics:
Getting Goods
to Consumers
Efficiently
GET YOUR PRODUCT THERE
LG7
Most Popular Modes of Freight Transport
Method
% of Distributors
Trucks
69%
Trains
15%
Pipelines
10%
Ships
6%
Air
Under 1%
Source: U.S. Freight Transportation Forecast.
15-38
The Storage
Function
STORAGE WAREHOUSES
LG7
• Storage warehouses hold products for a relatively
long period of time.
• Distribution warehouses are
used to gather and
redistribute products such as:
- Beer and soft drinks
- Package deliveries
15-39