The Distribution Mix

1
The Distribution Mix

• Combination of distribution channels by which a
  firm gets its products to end users

Intermediary (Middlemen) Individual or firm that
helps to distribute a product Wholesaler Intermedi
ary who sells products to other businesses for
resale to final consumers Retailer Intermediary
who sells products directly to consumers
2
The Distribution Mix

• Three factors help firms decide which
  distribution mix to use
• The companys target markets
• The nature of its products
• The costs of maintaining distribution and sales
  networks

3
Distribution of Consumer Products  

• Distribution Channel
• Network of interdependent companies through which
  a product passes from producer to end user
• Direct Channel
• Distribution channel in which a product travels
  from producer to consumer without intermediaries

4
Eight Primary Distribution Channels 

• Channel 1 Direct Distribution of Consumer
  Products
• Channel 2 Retail Distribution of Consumer
  Products
• Channel 3 Wholesale Distribution of Consumer
  Products
• Channel 4 Distribution through Sales Agents or
  Brokers
• Channel 5 Distribution by Agents to Consumers
  and Businesses
• Channel 6 Direct Distribution of Business
  Products
• Channel 7 Wholesale Distribution of Industrial
  Products
• Channel 8 Wholesale Distribution to Business
  Retailers

5
Channels of Distribution
Producer
Agent/Broker
Wholesaler
Retailer
Users
Consumer
Channel 1
Consumer
Channel 2
Consumer Channels
Consumer
Channel 3
Consumer
Channel 4
Consumer/ Business Channel
Consumer/Business
Channel 5
Business
Channel 6
Business
Business Channels
Channel 7
Business
Channel 8
14 - 5
6
Pros Cons of Nondirect Distribution

• Why do nondirect distribution channel mean higher
  prices for consumers?
• How can intermediaries save consumers both time
  and money?

7
Typical Series of Markups
Manufacturers Cost 25.00
Manufacturers Markup 3.75 (15)
Wholesalers Markup 5.75 (20)
Retailers Markup 25.88 (75)
14 - 7
8
The Value-Adding Intermediary
Tomato Producer
Chili Powder Producer
Beef Producer
Beans Producer
Consumer
Consumer
Consumer
Consumer
9
The Value-Adding Intermediary
Tomato Producer
Chili Powder Producer
Beef Producer
Beans Producer
SUPERMARKET
Consumer
Consumer
Consumer
Consumer
10
Distribution Strategies

• Intensive Distribution  
• Strategy by which a product is distributed
  through as many channels as possible
• Exclusive Distribution  
• Strategy by which a manufacturer grants exclusive
  rights to distribute or sell a product to a
  limited number of wholesalers or retailers in a
  given geographic area
• Selective Distribution  
• Strategy by which a company uses only wholesalers
  and retailers who give special attention to
  specific products

11
Channel Conflict Channel Leadership

• Channel Conflict  
• Conflict arising when the members of a
  distribution channel disagree over the roles they
  should play or the rewards they should receive
• Channel Leadership (Channel Captain)  
• Channel member who is most powerful in
  determining the roles and rewards of other
  members
• Vertical Marketing System (VMS)  
• Unified distribution channel composed of separate
  businesses centrally controlled by a single member

12
E-Intermediary

• Internet distribution channel member who assists
  in moving products through to customers or who
  collects information about various sellers to be
  presented in convenient format for Internet
  customers

Syndicated Selling E-Commerce practice whereby a
Web site offers other Websites commissions for
referring customers Shopping Agent
(E-Agent) E-Intermediary (middleman) in the
Internet distribution channel who assists users
in finding products and prices but who does not
take possession of products Business-to-Business
Brokers Enable businesses to buy and sell from
one another and confirm transactions
electronically
13
Retailing

• Types of Retail Outlets
• Product Line Retailers
• Bargain Retailers
• Nonstore Electronic Retailing

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Product Line Retailers

• Retailers that feature broad product lines
  include
• Department Store Large product line retailer
  characterized by organization into specialized
  departments
• Supermarket Large product line retailer offering
  a variety of food and food-related items in
  specialized departments
• Hypermarket Very large product line retailer
  carrying a wide variety of unrelated products
• Specialty Store Small retail store carrying one
  product line or category of related products

15
Bargain Retailers

• Retailer carrying a wide range of products at
  bargain prices
• Discount House Bargain retailer that generates
  large sales volume by offering goods at
  substantial price reductions
• Off-Price Store Bargain retailer that buys
  excess inventories from high-quality
  manufacturers and sells them at discounted prices
• Catalog Showroom Bargain retailer in which
  customers place orders for catalog items to be
  picked up at on-premises warehouses

16
Bargain Retailers

• Retailer carrying a wide range of products at
  bargain prices

• Factory Outlet Bargain retailer owned by the
  manufacturer whose products it sells
• Warehouse Club (or Wholesale Club) Bargain
  retailer offering large discounts on brand-name
  merchandise to customers who have paid annual
  membership fees
• Convenience Store Retail store offering easy
  accessibility, extended hours, and fast service

17
Nonstore Electronic Retailing

• Major Types of Nonstore Retailing
• Direct-Response Retailing Nonstore retailing by
  direct interaction with customers to inform them
  of products and to receive sales orders
• Mail Order (or Catalog Marketing) Form of
  nonstore retailing in which customers place
  orders for catalog merchandise received through
  the mail
• Telemarketing Nonstore retailing in which the
  telephone is used to sell directly to consumers
• Direct Selling Form of nonstore retailing
  typified by door-to-door sales

18
The Boom in Electronic Retailing  

• Video Marketing  
• Nonstore retailing to consumers via standard and
  cable television
• Electronic Shopping  
• Nonstore retailing in which information about the
  sellers products and services is connected to
  consumers computers, allowing consumers to
  receive the information and purchase the products
  in the home
• Electronic Storefront  
• Commercial Web site in which customers gather
  information about products, buying opportunities,
  placing orders, and paying for purchases
• Cybermall  
• Collection of virtual storefronts (business Web
  sites) representing a variety of products and
  product lines on the Internet

19
Multilevel Marketing

• Distribution channel consisting of self-employed
  distributors who receive commissions for selling
  products to customers and for recruiting new
  distributors

20
A Century of Change in Retailing

• Wheel of Retailing  
• Concept of retail evolution holding that
  low-service, low-price stores add services and
  raise prices until they lose price-sensitive
  customers and are replaced by new firms that
  enter the market to fill the need for low-price
  stores

21
Physical Distribution

• Activities needed to move a product efficiently
  from manufacturer to consumer

Warehousing Physical distribution operation
concerned with the storage of goods
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Warehousing Costs  

• Inventory Control  
• Warehouse operation that tracks inventory on hand
  and ensures that an adequate supply is in stock
  at all times
• Material Handling  
• Warehouse operation involving the transportation,
  arrangement, and orderly retrieval of goods in
  inventory

23
Ranking Modes of Transportation
14 - 23
24
Customer Service Operations

• Order Processing  
• In customer service operations, the filling of
  orders as they are received
• Order Cycle Time  
• In customer service operations, total time
  elapsed between placement and receipt of orders

25
Order Fulfillment andE-Customer Satisfaction  

• New e-commerce companies often focus on Internet
  sales, only to discover that after-sale
  distribution delays cause customer
  dissatisfaction and discourage repeat sales.
• Any delay in physical distribution, then, is a
  breakdown in fulfillment and an obstacle to
  growth.
• Order fulfillment begins when the sale is made
  It involves getting the product, in good
  condition and on time, to the customer for each
  sales transaction.