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1. Major Points of Ch. 1. Let’s Learn about:. 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** - PowerPoint PPT Presentation
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Major Points of Ch. 1
1. Key Terms and Definitions 2. Why Marketing Channels and Intermediaries?**3. Marketing Channels and other Marketing
Concepts4. The Flows in the Marketing Channels** 5. Basic Principles for Marketing Channels**6. Evolution of Marketing Channel Concept
1
Let’s Learn about:
Chapter 2 The Channel Participants
Major Points of Ch. 2
1.Who Are Major Participants in the Marketing Channel*
2. Why does a manufacturer shift distribution tasks to intermediaries? **
3. Wholesalers (or Distributors)4. Retailers 5. Facilitating Agencies
1
Let’s learn about:
Major Participants in the Marketing Channel2Topic 1:
Producers&
Manufacturers
WholesaleIntermediaries
RetailIntermediaries
Intermediaries
Consumers Industries
Final Users
* Commercial Channel * Target Markets
1Topic 2:
Why shift distribution tasks to intermediaries?*
Producers &
Manufacturers
• lack expertise• lack economies of scale
in distribution
Intermediaries
• spread high fixed costs over large quantities of
diverse products• achieve economies of scope and economies of
scale
2Example: Distribution of Crayons
• Huge order processing facility• Huge inventory• Several warehouse locations• Transportation of product to consumers
= distribution cost prohibitive
A Manufacturer’s directdistribution to customers
requires
Value Chain Analysis**
Firm InfrastructureHuman Resource Management
Technology DevelopmentProcurement
InboundLogistics Operations Outbound
Logistics
Marketingand
SalesService
Margin
Support Activities
Primary Activities
* Firm Boundary Issue
2Topic 3:
Major Types of Wholesalers
M erchantw holesa ler
Agents, b rokers,&
com missionm erchants
Independentm iddlem en
M anufacturers'sa les branches
&offices
M anufacturerow ned
All Wholesale Firm s
* Transfer Pricing Issue
2(Merchant) WholesalersBuy
Take title toStore
Handle
Large quantities/varieties of products
Resell to
Retailers
Industrial,commercial, orinstitutional concerns
OtherWholesalers
www.ingrammicro.com
2Agents, Brokers, & Commission Merchants
Involved in buying & selling
while acting on behalf of manufacturers
Commissions on
sales or purchases
Ex) Latest Changes in IT Industry
2
Owned & operated by manufacturers
Distribute manufacturer’s
products at wholesale
Some wholesale allied & supplementary products
purchased from other manufacturers.
Manufacturers’ Sales Branches & Offices
Separated from manufacturing plants
Question: Why would a manufacturer operate its own sales branches?
2
Merchant Wholesalers’ Main Distribution Tasksfor Manufacturers
• Operate at high levels of effectiveness and efficiency • Average cost curves lower than those for their suppliers
Provide market coverage Make sales contacts Hold inventory Process orders Gather market information** Offer customer support
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**
2Agent Wholesalers’ Main Distribution Tasks
Manufacturers’ Agents
Market coverage
Sales contacts
2Agent Wholesalers’ Main Distribution Tasks
Market coverage
Sales contacts Order
processingMarketing
information
Product availability
Customer services
Selling agents
2Agent Wholesalers’ Distribution Tasks
Brokers
Market coverage
Sales contacts Order
processingMarketing
information
Product availability
Customer services
Ex) Food Brokers
Agent Wholesalers’ Main Distribution Tasks
2
CommissionMerchant
Market coverage
Sales contacts Order
processingBreaking bulkCreditHolding
inventory
2Trends in Wholesaler Size & Concentration
Measured by: Types of WholesalersSize of
wholesalerMajority are small businesses
Sales volume Nearly 40% of all firms have annual sales of less than $1 million
# of Employees per firm Almost 50% of firms had fewer than 5 employees
Economic concentration in terms of % of total
sales
50 largest manufacturers’ sales branches & offices garnered nearly 53% of sales for this
type
Retail Structure2Topic 4:
• 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
Alternative Bases for Classifying Retailers
Kind-of-Business Classifications2
Retail Trade
• 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
Retail Structure Trends1
Decreasing number of establishments
Increasing sales
= increase in size of retail establishments measured by average sales volume
per store
1Concentration in Retailing
4% of all retail firms accounted for nearly 80%
of total sales!!
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 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 (1961)
2Distribution 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
RETAILER TYPE
MAIN FOCUS ON MARGIN
OR TURNOVER?
BULK-BREAKING
SPATIAL CONVEN-
IENCE
WAITING & DELIVERY
TIME
VARIETY (BREADTH)
ASSORT-MENT
(DEPTH)
Department store (e.g., May Co.)
Margin Yes Moderate Low wait time Broad Moderate/ Shallow
Specialty store (e.g., The Gap)
Margin Yes Moderate Low wait time Narrow Deep
Mail Order/ Catalog (e.g., Lands' End)
Margin Yes Extremely High Moderate/ High wait time
Narrow Moderate
Convenience store (e.g., 7-Eleven)
Both Yes Very High Low wait time Broad Shallow
Category killer (e.g., Toys "R" Us)
Turnover Yes Low Low wait time Narrow Deep
Mass Merchandiser (e.g., Wal-Mart)
Turnover Yes Low Moderate wait time (may be out of stock)
Broad Shallow
Hypermarket (e.g., Carrefour)
Turnover Yes Low Moderate wait time
Broad Moderate
Warehouse Club (e.g., Sam's Club)
Turnover No Low Moderate/high wait time (may be out of stock)
Broad Shallow
A TAXONOMY OF RETAILER TYPES*
Retailers’ Growing Power in Marketing Channels*
2
Increased size & buying power
Become power retailers &
category killers
Application of advancedTechnologies
Information technology & the Internet; threetailing*
Use of modern marketing strategies
Modern techniques; relationship marketing
THE INCREASING POLARITY OF RETAIL TRADE
Stagnant Rates ofGrowth and Low Profitability
ConventionalOutlets
Mass-Merchandisers:
High Tech
SpecializedRetail Outlets:
High Touch
High Rates ofGrowth and
Attractive Profitability
USE OF THE UPC CODE IN RETAIL PRODUCT REPLENISHMENT: WAL-MART EXAMPLE
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
• The UPC is scanned and registered into Wal-Mart’s database
• Item locator program.• Data transmission.• Retail link.• Forecasting.
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.
Facilitating Agencies in Marketing Channels
Topic 5: 2
• 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/F8F0
7C9BBD28881A85256D9D00127C1C (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
• We Missed Something in the Whole Discussion on Marketing Channel Participants.
• What is it?
1