Channel Management Study Documents

CHANNEL MANAGEMENT INTRODUCTION ● If the consumer could go directly to the manufacturer, it would eliminate all costs & reasons for distribution. ● BUT as this is not feasibly possible, there is an obvious need for a system of distribution ● Types of distribution channels: 1. Manufacturer/Producer to Retailer to Consumer - EXAMPLE 2. Manufacturer/Producer to Wholesaler to Retailer to Consumer - EXAMPLE 3. Manufacturer/Producer to Consumer - EXAMPLE ** Take a look around you. Very few things you see were put there by nature. Where did these come from? All different places……….. But, to wind up here – they had to be marketed & distributed. There are job opportunities in marketing & distribution everywhere. Every step a product takes between the manufacturer & the ultimate consumer involves business, marketing, & distribution. CHANNELS OF DISTRIBUTION ● = Path a product follows from manufacturer/producer to consumer or industrial/business user ● Middlemen/intermediary o = A business firm operating between manufacturer & the customer/buyer that aides in the movement of product o Performs Marketing functions better than manufacturer is capable of CHANNELS FOR CONSUMER GOODS ● Consumer goods o = Intended for use by individuals/families o Can be used w/o a great deal of further processing ● 5 common channels for consumer goods: o o 1. Producer to consumer ▪ Shortest channel of dist. For consumer products ▪ Almost all services use this channel of dist 2. Producer to retailer to consumer ▪ o 3. Producer to wholesaler to retailer to consumer ▪ o Retailers involved are usually large firms Smaller producers & retailers use this channel of dist 4. Producer to agent to retailer to consumer ▪ Agent = middleman who actively assists in the sale of the product w/o taking ownership/title to products ▪ Some producers sell their products thru agents who help them reach large retailers ▪ Agents play an important role in the chain/link, as they help bring buyers & sellers together ▪ Agents can work for/represent retailers as well as producers (trying to find suppliers for certain goods) o 5. Producer to agent to wholesaler to consumer ▪ Agents are often used in industries where many producers supply a large number of wholesalers scattered around the country ▪ Represent the group of producers CHANNELS OF DISTRIBUTION FOR SERVICES ● Services = tasks that we pay others to do for us ● Services cannot be separated from the producer/provider ● S’s are provided as they are wanted o Therefore usually no need for storage (though may need to store supplies needed for providing service) o As services themselves are not stored, no need for transportation unless delivered services ● Channel of distribution is DIRECT ● Services are consumed at the same time they are being produced o Therefore no need for middlemen CHANNELS FOR INDUSTRIAL PRODUCTS ● IP = items sold to businesses that use them to produce other goods, to provide services, to resell, or in their daily activities ● 4 common channels of dist for IP’s o o 1. Producer to industrial user ▪ IP’s are often designed for specific use (parts manufacturers near Mercedes plant) ▪ The majority of IP’s are sold directly from manufacturer to the industrial users 2. Producer to agent to industrial user ▪ A producer/manufacturer w/o it’s own sales force may use this channel of dist ▪ Agents have knowledge of the industry – therefore good to use agents to introduce new products or enter a new market vs. using their own sales reps o 3. Producer to industrial distributor to industrial user ▪ ID = wholesalers who buy goods from producers to sell them to industrial users ▪ ID’s usually handle lower priced goods (i.e. accessory equipment or operating supplies) ● ● ▪ A.Eq. = items such as pc’s, small power tools, copiers, printers, cash registers, etc Op.Supl’s = lubricating oil, office supplies, stationery, etc ID’s often keep quantities of products on hand – thus, can supply numerous industrial users rapidly o 4. Producer to agent to industrial distributor to industrial user ▪ Small manufacturers often hire agents as independent sales reps to contact large ID’s ▪ Small manufacturers don’t have the resources to sell their goods directly to these ID’s RETAILING ● = That part of marketing in which g/s are sold directly to the ultimate consumers o U.C. = people who buy goods & services for personal use o Most retailing occurs in stores where customers initiate the transaction ● Retailing can be classified by o 1. Ownership, o 2. Product lines carried o 3. & Methods of reaching customers CLASSIFYING RETAILERS BY TYPES OF RETAIL OWNERSHIP ● Independent Retail Stores o = Small business managed by the owners o Independents are small (small sales volume), but numerous o 1 in 10 retail businesses is operated by a firm that only owns 1 store o IRS’s account for 50% of all retail sales ● Chain o o o o ● Franchise Businesses o Franchise = agreement by which a parent company gives an individual or other small company the right to do business in a standardized manner o Franchisor = parent company; could be a manufacturer, wholesaler, or service company o Franchisee = person or company given the rights by the franchisor o Rights may include authority to sell franchisor’s products, use it’s name, trademark, & operating procedures o A franchise combines the features of an IRS & a CS Stores = When a business operates more than 1 store selling similar products CS’s are the major competitor of the IRS’s Many CS’s started out as IRS’s- - - owners decided to expand usually to nearby communities CS’s can buy in larger quantities, save $, which results in lower prices to customers ▪ Owners invest their own $$ ● ▪ Enjoy the profits pf success ▪ & Accept the responsibility if a failure ▪ At the same time….. they’re connected with a well known company ▪ That can provide assistance in setting up & operating the business Manufacturer Owned Stores o = Manufacturer has their own retail outlets; therefore complete control over the channels of dist for their products o Prefer to sell products only through their own stores o Some use both MOS & other retailers ▪ I.e. – MOS may be used for testing sales of new products or to dispose of styles or products or slightly defective products CLASSIFYING RETAILERS BY PRODUCT LINES CARRIED ● Department Stores o = Sell a variety of merchandise grouped into well defined departments o Large stores that usually offer many services ▪ o ● IE – Richs, Sears, etc Specialty Stores o = Carry limited variety of goods, but large assortment of each item ▪ o o ● Assortment = range of choice fro each type of product offered In most cases SS’s are named for the type of product line carried Sometimes handle unusual imported or domestic goods not found in other stores Supermarkets o = Large retail store that sells a wide variety of food & some non-food items, features self-service 7 low prices o Divided into sections o Account for ¾ of grocery store sales in the USA o Ex.’s = Winn-Dixie, Bruno’s, etc o Prior to 1930’s o o ● IE – credit, delivery, merchandise returns, personal assistance ▪ Food retailing occurred in small neighborhood grocery stores ▪ Clerks stood behind the counter, customer was separated from the goods ▪ Clerks filled orders & delivered groceries to customer’s homes First super markets were independent stores that opened in the 1930’s Few independent supermarkets still remain (mainly small towns); as chain stores now dominate the market Convenience Stores o = Carry limited variety of food items that meet customers needs in between major shopping trips o o o o ● Offer convenience vs. a wide variety of goods Prices often higher & customers are willing to pay this for the convenience of making purchases quickly & easily Usually in easy to reach location s near residential areas or high traffic intersections Ex.’s – combo gas & convenience Tiger Marts, etc. Superstores o = Very large stores that carry foods & numerous other goods & services consumers routinely buy o Goal of superstores = meet customer’s ordinary needs at low prices o Superstores go beyond supermarkets ▪ By stocking complete lines of health & personal care products, greeting cards, some toys, books, records, etc. ▪ ● By providing services – eyeglasses, branch banking, dry cleaning, shoe shine, etc. Discount Houses o = Offer wide variety of products at so called discount or low prices – prices are typically lower, but not always o Sell appliances, furniture, clothing, food items, etc. o Buy in large quantities at reduced prices & pass the savings on to customers o Low operating costs – self-serve shopping, low rent locations, fixtures, decorations, etc. (Again savings passed on to customers) CLASSIFYING RETAILERS BY METHODS OF REACHING CUSTOMERS ● Over the Counter Retailing/Brick & Mortar o = Sell products in a store o Majority of retailing occurs this way ● Mail Order Retailing o = Customers select products they want from catalogs or advertisements my mail or phone o Merchandise is delivered directly to customers o Stores who also use catalogs - customer picks up order at the store (Sears, Johnstone) o Catalogs can provide a wide variety or be highly specialized o Dwindling as more & more catalogs go online w/their won websites ● Direct Retailing o = Sellers contact prospective customers in their homes o 2 types ● ▪ Door to door (rarely seen today – EX Avon) ▪ Party plan (EX – Tupperware, Pampered Chef) Vending Machine Retailing o = Requires no personal contact between seller & buyer o Continues to grow into new markets (i.e.- a/l tickets) o Most familiar type is coin operated, though more are now taking credit cards o ATM’s are vending machines for banks ● E-tailing/E-commerce o = Online retailing, involves retailers selling products to customers over the internet o Some retailers exclusively use the internet (Ex. Amazon) WHOLESALING ● = Selling products to buyers who are purchasing them for reasons other than personal or family use ● In other words: business use, resale, production ● Wholesalers sell to other businesses, not directly to consumers ● 2 Main types of Wholesalers o 1. Merchant o 2. Agent MERCHANT WHOLESALERS ● Take title to the products they distribute; they own them ● 2 types of Merchant Wholesalers o 1. Full Function Wholesalers ▪ AKA – full service or service W’s ▪ = Perform a wide range of marketing activities ▪ Most common type of merchant w ▪ Rack jobbers ● ● ● ● ▪ Many full function W’s specialize in products carried ● o = A type of full function W = Place their own display racks in stores & stock them w/merchandise Keep displays neat, clean & well stocked Consignment = one way RJ’s work o Retailers carry items w/o buying them o Retailers assume no risk if products don’t sell I.e. – food items, hardware, medicines 2. Limited Function Wholesalers ▪ = Provide a narrow range of marketing services for their customers ▪ 4 kinds of limited function W’s ● ● 1. Cash & carry wholesalers o = Sell on a cash basis only o Do not make deliveries 2. Drop shippers/desk jobbers = Take title to the goods they sell, but do not take physical possession o Obtain orders & arrange to have shipments sent directly to buyer o Have offices (desks), but do not have warehouses or delivery equipment o Deal typically in bulky goods – i.e.: lumber, coal, heavy machinery 3. Mail order wholesalers o = Sell through catalogs that are distributed to their customers o Customers are typically small retailers or other businesses in rural areas not served by other types of wholesalers o ● AGENT WHOLESALERS ● = Actively assist in the sale of products w/o taking ownership/title to goods o Perform fewer services than limited function wholesalers ● Most important types of Agent Wholesalers o 1. Brokers ▪ = Negotiates the sale of the product then allows the seller to accept or reject the prospective buyer’s offer o o ▪ Commission = percentage of the dollar amt of the product(s) sold ▪ Hired for a single transaction ▪ Often deal in seasonal products – i.e.: fruits & veggies 2. Selling Agents ▪ = Independent middlemen who perform entire marketing task for firms ▪ Given authority to set prices& decide how products will be promoted 3. Manufacturers Agents ▪ = Independent middlemen who sell similar products for several non-competing manufacturers ▪ Sell products according to the instructions of the companies they represent HOW DO CHANNEL MEMBERS ADD VALUE TO A PRODUCT? Right PLACE, Right TIME