Core Concepts of Marketing by John Burnett - HTML preview

CHAPTER 10

CHANNEL CONCEPTS: DISTRIBUTING THE PRODUCT

TABLE 10.1

Tvpes of M odern Wholesalers

Definition

Subcategories

Full-service merch andise

Take title to the merchandise and assume

• General

wholesaler

the risk involved in an independent

• Limited -line

operation; buy and resell products; offer a

complete range of se rvices.

Limited-service merchant

Take title to th e merchandise and assume

• Cash and

wholesalers

the risk involved in an independent

• Rack jobbers

operation; buy and resell products; offer a

• Drop

limited range of services.

• Ma il

Agents and brokers

Do not take title to the merchandise; b ring

Agents

buyers and sellers together and negotiate

• Buyi ng agents

the terms of the tran saction: agents

• Sellin g agents

merchants represent either the buyer or

• Comm iss ion merchants

seller, usually on a permanent basis;

brokers bring parties together on a

Manufacturers' age"lts

temporary basis,

Brokers

• Real estate

•

• Other products

Manufacturer's sales

Owned directly by the manufacturers;

performs wholesaling functions

manufacturer,

Facilitator

Perform some specialized functions such

• Warehouses

as finance or warehousing; to fa cilitate the

• Finance co r:lpanies

wholesale transactions; may be

• Transporta tio n companies

independent or owned by producer or

. Trade marts

buyer.

Management

Physical Distribution

Output

Activities

Activities

Material handling

Procurement

Land

Facilities

Equipment

)

Packaging

Traffic & transportation

{ nm,

Warehousing/sto rage

Coordination

Place utility

Inventory control

Possession utility

)For Vendors

Personne l

Order processing

Technology

Control

)

Customers

Finance

Parts & service support

Retum goods handling

Plant & warehouse site selection

Raw materials

In-process

Finished

Replacements

FIGURE 10.5

The physical distribution management process

ORGANIZING THE CHANNEL

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MARKETING CAPSULE 1

1. Producers/manufacturers make or assemble the final prod-

g. Planned shopping centers

uct provided to the consumer.

h. Nonstore retailing

2. Retailing involves all activities required to market consumer

3. Wholesaling includes all activities required to market goods

goods and service to ultimate consumers

are moti-

and services to businesses, institutions, or industrial users

vated to buy in order to satisfy individual or family needs

who are motivated to buy for resale or to produce and

in contrast to business, institutional, or industrial use. The

ket other products/services. The variou s types of whole-

various types of retailers include:

salers include:

a. Department stores

a. Full-service merchandise wholesalers

b. Chain stores

b. Limited-service merchant wholesalers

c. Supermarkets

c. Agents and brokers

d. Discount houses

d. Manufacturers' sales representatives

e. Warehouse retailing

e. Facilitators

f. Franchises

As you can see in Figure 10.5, successful management of the flow of goods from a

of supply (raw materials) to the final customer involves effective planning, imple-

mentation, and control of many distribution activities. These involve raw material, in-process

inventories (partially completed products not ready for resale), and finished products.

tive physical distribution management results initially in the addition of time, place, and

possession utility of products; and ultimately, the efficient movement of products to

tomer and the enhancement of the finn's marketing efforts.

Physical distribution represents both a cost component and a marketing tool for the

purpose of stimulating customer demand. The major costs of physical distribution include

transportation, warehousing, carrying inventory, receiving and shipping, packaging, admin-

istration, and order processing. The total cost of physical distribution activities represents

13.6% for reseller companies. Poorly managed physical distribution results in excessively

costs, but substantial savings can occur via proper management.

Physical distribution also represents a valuable marketing tool to stimulate consumer

demand. Physical distribution improvements that lower prices or provide better service are

attractive to potential customers. Similarly, if finished products are not supplied at the right time or in the right places, firms run the risk of losing customers.

ORGANIZING THE CHANN EL

Either through a planned process or through a natural evolution, channels of distribution

reflect an observable organization structure. Three types are most common: conventional

channels, vertical marketing systems, and horizontal channel systems.

Conventional Channels

The conventional channel of distribution could be described as a group of independent businesses, each motivated by profit, and having little concern about any other member of the

distribution sequence. There are no all-inclusive goals, and in many instances, the assign-

ment of tasks and the evaluation process are totally

Consequently, channel frame-

works might be working against one another, tasks may go undone, and ineffective channel

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