CHAPTER 11

Chapter 11

Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Small Business

Distribution and Location

Learning Objectives

LO1 Recognize the different types of direct marketing and their pros and cons

LO2 Learn how to do non-direct distributionLO3 Differentiate the types of international

strategiesLO4 Identify the factors to consider in

selecting your business location

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Learning Objectives

LO5 Recognize the key issues in leasing.LO6 Know what to look for in a potential site

layoutLO7 Understand the pros and cons of

buying, building, or leasing

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Distribution

Distribution– process of getting your product to your

customers “Where are my customers?” “Where should I be?”

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Typical Distribution Channels

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Figure 11.1

Direct Marketing

Word-of-mouth – A means of spreading information about

your business through the comments friends and customers make to other potential customers.

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Direct Marketing

Direct sales– Methods of going directly to your

customer in order to sell your product. – Vending machines, door-to-door

salespeople, leasing space at a craft fair, farmers’ markets, party sales, and most industrial sales

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Direct Marketing

Direct mail – A method of selling in which catalogs,

brochures, letters, videos, and other pieces of marketing materials are mailed directly to customers from which they can mail, call, or e-mail an order.

– Direct faxing and direct e-mailing are more modern forms of direct mail.

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Direct Marketing

Mail order– Sales made from ads in newspapers or

magazines, with purchases made online or by phone as well as by mail.

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Direct Mail and Its Variants

Microinventory– A set of goods or service that consists of

only one or a few items.

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Direct Mail and Its Variants

Just-in-time inventory– Having just enough product on your

shelves to meet the immediate purchases.

– Usually requires frequent shipment from your supplier.

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Question

Which marketing style is a telephone call from a salesperson?

A.telemarketingB.direct marketingC.guerilla marketingD.direct response advertising

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Direct Marketing

Telemarketing– Contact via telephone for the express

purpose of selling a product or service. – can either be inbound (customer calls

company) or outbound (company calls customer).

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Direct Marketing

Direct response advertising– Placing an advertisement in a magazine

or newspaper, on television or radio, or in any other media.

– ad contains an order blank with a phone number and e-mail or regular mail address with the intent of having the customer place an immediate order.

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Cost per 1,000 for Various Forms of Direct Response Advertising

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Direct Marketing

Guerilla marketing– The use of creative and relatively

inexpensive ways to reach your customer.

– Examples include door-knob hangers, flyers under windshield wipers, T-shirts, balloons, and messages written on sidewalks.

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Direct Marketing

Multichannel marketing – The use of several different channels to

reach your customers, for example, a Web site, direct mail, and traditional retailing.

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Distribution Issues for Direct Marketing

Fulfillment center– A company that

will warehouse your products and fill your customers’ orders for you.

Retailer– A middleman

business which sells to consumers or end-users of a product (typically in single or small quantities).

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Nondirect Distribution

Wholesaler– A middleman business which buys

(typically in large quantities) and sells (typically in smaller quantities) to businesses rather than consumers.

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Nondirect Distribution

Agent– A middleman business which represents

a manufacturer’s product or service to other business-to-business middleman firms.

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Nondirect Distribution

e-tailer– An electronic retailer; a store that exists

only on the Internet. Born international

– A new firm that opens a Web site immediately, thus being exposed to customers from around the world.

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Question

Exporting using no middlemen is __________.

A.Indirect exportingB.Freight forwardingC.Express exportingD.Direct exporting

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Exporting

Direct exporting– Exporting using no

intermediaries

Indirect exporting– Exporting using

intermediaries such as agents, export management companies, or export trading companies.

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Exporting

Freight forwarders– Firms specializing in arranging

international shipments— packaging, transportation, and paperwork.

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Government Sources of Export Assistance

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Exporting

Letter of credit– A document

issued by a bank that guarantees a buyer’s payment for a specified period of time upon compliance with specified terms.

Documentary draft– A draft which can

be exercised only when presented with specified shipping documents.

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Importing

Importing– similar to exporting, but buyers and

sellers are reversed Travel abroad - look for products that are

selling well in the country you’re visiting Trade mission and domestic and

international trade shows are also good sources

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Location

First choice for many entrepreneurs is their hometown– Local banker knows you, more likely to

loan money– You understand market’s needs and

wants– Friends and family are usually first

customers

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Service Firms

Three types of locations At the client’s location At a mutually accessible location At your firm’s location

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Service Firms

At the client’s location– Services include such things as house or

office cleaning, pest control, remodeling, lawn and gardening services, carpet cleaning, and similar services which must be performed at the client’s house

– As the firm grows, it may outgrow its home-based headquarters

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Service Firms

Mutually accessible location:– Too much specialized equipment to be

readily transported– A need for at least some client

involvement– Barbershops, dentist offices, video

rental stores restaurants

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Manufacturers

Contract manufacturing – An existing firm with the correct

manufacturing capabilities makes your product for you.

Sheltered workshop– A nonprofit organization or institution

that provides business services by using handicapped or rehabilitated workers

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Site Selection

High customer contact business– Three critical site selection

considerations:• Traffic• Customer ease• Competition

– Presence of traffic generators in the area– Parking is also an issue

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Site Selection

Low customer contact business– Manufacturing business– Commercial space might be appropriate– Support businesses will be in or near the

area– Business incubator: www.nbia.org

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Leasing: Location Issues

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Leasing : Operational Issues

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Typical Manufacturing Layout

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Figure 11.2

Typical Retail Layouts

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Figure 11.3

Build, Buy, or Lease

Building has the advantage of having the perfect layout in the perfect location and the street appeal of a new building, but it is costly and slow

Buying something already in existence shortens the time and may be somewhat cheaper

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Build, Buy, or Lease

Leasing is an option with a considerably lower initial cash outlay– Often the only feasible choice– Lease expenses are deductible business

expenses

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