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Chapter Fourteen
Wholesaling, Retailing, and Physical Distribution
Learning Objectives
1. Identify the various channels of distribution that are used for consumer and industrial productsproducts.
2. Explain the concept of market coverage.3. Understand how supply-chain management
facilitates partnering among channel members.4. Describe what a vertical marketing system is
and identify the types of vertical marketing
Copyright © Cengage Learning. All rights reserved.
systems.5. Discuss the need for wholesalers and describe
the services they provide to retailers and manufacturers.
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Learning Objectives (cont’d)
6. Identify and describe the major types of wholesalers.
7. Distinguish among the major types of retailers.
8. Identify the categories of shopping centers and the factors that determine how shopping centers are classified.
Copyright © Cengage Learning. All rights reserved.
9. Explain the five most important physical distribution activities.
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Chapter 14 Outline
– Channels of Distribution• Channels for Consumer Products• Channels for Business Products• Market Coverage• Partnering Through Supply-Chain Management• Vertical Marketing Systems
– Marketing Intermediaries: WholesalersJ tifi ti f M k ti I t di i• Justifications for Marketing Intermediaries
• Wholesalers’ Services to Retailers• Wholesalers’ Services to Manufacturers• Types of Wholesalers
Copyright © Cengage Learning. All rights reserved. 14 | 4
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Chapter 14 Outline (cont’d)
– Marketing Intermediaries: Retailers• Classes of In-Store Retailers• Kinds of Nonstore Retailing
– Planned Shopping Centers• Lifestyle Shopping Centers• Neighborhood Shopping Centers• Community Shopping Centers
R i l Sh i C t• Regional Shopping Centers
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Chapter 14 Outline (cont’d)
– Physical Distribution• Inventory Management• Order Processing• Warehousing• Materials Handling• Transportation
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Channels of Distribution
• Channel of distribution (marketing channel)
• Middleman (marketing intermediary)– A marketing organization that links a producer
and user within a marketing channel• Merchant middleman • Functional middleman
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Functional middleman • Retailer• Wholesaler
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Channels for Consumer Products
• Producer to consumer (direct channel)– No intermediaries– Used by all services and by a few consumer
goods– Producers can control quality and price, do not
have to pay for intermediaries, and can be close to their customersE l D ll C t M K
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– Examples: Dell Computer, Mary Kay Cosmetics
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Channels for Consumer Products (cont’d)
• Producer to retailer to consumer– Producers sell directly to retailers when
retailers (Wal-Mart) can buy in large quantities– Most often used for bulky products for which
additional handling would increase selling costs, and for perishable or high-fashion products that must reach consumers quickly
Copyright © Cengage Learning. All rights reserved. 14 | 9
Channels for Consumer Products (cont’d)
• Producer to wholesaler to retailer to consumer– The traditional channel– Used when a producer’s products are carried
by so many retailers that the producer cannot deal with them all
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Channels for Consumer Products (cont’d)
• Producer to agent to wholesaler to retailer to consumer– Agent
– Often used for inexpensive, frequently purchased items, for seasonal products, and by producers that do not have their own sales forces
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forces
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• A manufacturer may use multiple channels– To reach different market segments
Channels for Consumer Products (cont’d)
– To increase sales or capture a larger market share
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Channels for Business Products
• Producer to business user– Usually used for heavy machinery, airplanes,
major equipment– Allows the producer to provide expert and
timely services to customers
Copyright © Cengage Learning. All rights reserved. 14 | 13
Channels for Business Products (cont’d)
• Producer to agent middleman to business user– Usually used for operating supplies, accessory
equipment, small tools, standardized parts
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Market Coverage
• Intensity of market coverage– Intensive distribution
– Selective distribution
– Exclusive distribution
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Partnering Through Supply Chain Management
• Supply chain management– Long-term partnership among channel members g p p g
– Category management
– Technology
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Vertical Marketing Systems
• Vertical channel integration– The combining of two or more stages of a
distribution channel under a single firm’sdistribution channel under a single firm s management
• Vertical marketing system (VMS)– A centrally managed distribution channel
resulting from vertical channel integration– Administered
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– Contractual
– Corporate
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Marketing Intermediaries: Wholesalers
• Justifications for marketing intermediaries– Intermediaries perform essential marketing
services– Manufacturers would be burdened with additional
record keeping and maintaining contact with numerous retailers
– Costs for distribution would not decrease and could possibly increase due to the marketing
Copyright © Cengage Learning. All rights reserved.
could possibly increase due to the marketing inefficiencies of producers
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Wholesalers’ Services to Retailers
• Buy in large quantities and then sell in smaller quantities
• Deliver goods• Stock in one place a variety of goods• Promote products to retailers• Provide market information for both producers
and retailers
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• Provide financial aid in the form of inventory management, loans, delayed billing
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Wholesalers’ Services to Manufacturers
• Provide instant sales forces to manufacturers• Reduce manufacturers’ inventory costs by
purchasing finished goods in sizable quantities
• Assume the credit risks associated with selling to retailers
• Furnish market information gleaned from the
Copyright © Cengage Learning. All rights reserved.
gmarket and customers to the manufacturers
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Types of Wholesalers
• Merchant wholesalers– Operate in one or more warehouses where they
receive take title to and store goodsreceive, take title to, and store goods– These wholesalers are sometimes called distributors or
jobbers– Full-service wholesalers
• General merchandise wholesaler• Limited-line wholesaler• Specialty-line wholesaler
Copyright © Cengage Learning. All rights reserved.
Specialty line wholesaler– Limited-service wholesalers
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Types of Wholesalers (cont’d)
• Commission merchants, agents, and brokers– Functional middlemen that do not take title to
products– Perform some marketing activities– Paid a commission (percentage of sales price)– Commission merchant
Copyright © Cengage Learning. All rights reserved.
– Agent
– Broker
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Types of Wholesalers (cont’d)
• Manufacturer’s sales branch– Merchant wholesaler owned by a
manufacturermanufacturer– Carries inventory, extends credit, delivers
goods, helps in promoting products– Customers are retailers, other wholesalers,
and industrial purchasers• Manufacturer’s sales office
Copyright © Cengage Learning. All rights reserved.
– Sales agent owned by a manufacturer– Sells goods manufactured by its own firm and
also others that complement its own product line
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Marketing Intermediaries: Retailers
• Retailers: The final link between producers and consumersp
• Approx. 2.6 million retail firms in the U.S.• 90% have sales of less than $1 million
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Classes of In-Store Retailers• Independent retailer
• Chain retailer
• Department store
Copyright © Cengage Learning. All rights reserved.
• Discount store
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Classes of In-Store Retailers (cont’d)
• Catalog showroom
• Warehouse showroom
• Convenience store
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Convenience store
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Classes of In-Store Retailers (cont’d)
• Supermarket
• Superstore
Copyright © Cengage Learning. All rights reserved.
• Warehouse club
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Classes of In-Store Retailers (cont’d)
• Traditional specialty store
• Off-price retailer
• Category killer
Copyright © Cengage Learning. All rights reserved.
• Category killer
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Kinds of Nonstore Retailing
• A type of retailing whereby consumers purchase products without visiting a storeproducts without visiting a store
• Direct selling
• Direct marketing
Copyright © Cengage Learning. All rights reserved.
• Direct marketing
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Kinds of Nonstore Retailing (cont’d)
• Catalog marketing
• Direct-response marketing
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• Telemarketing
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Kinds of Nonstore Retailing (cont’d)
• Television home shopping
• Online retailing
• Automatic vending
Copyright © Cengage Learning. All rights reserved.
Automatic vending
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Planned Shopping Centers
• A self-contained retail facility constructed by independent owners and consisting of various stores– Lifestyle shopping center
– Neighborhood shopping center
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– Community shopping center
– Regional shopping center
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Physical Distribution
• All those activities concerned with the efficient movement of products from the producer to the ultimate userultimate user
• Inventory management– The process of managing inventories in such a way as
to minimize inventory costs, including both holding costs and potential stock-out costs
• Holding costs • Stock-out
Copyright © Cengage Learning. All rights reserved.
Stock out
• Order processing– Activities involved in receiving and filling customers’
purchase orders
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Physical Distribution
• Warehousing– The set of activities involved in receiving and storing
goods and preparing them for reshipmentgoods and preparing them for reshipment• Receiving goods• Identifying goods• Sorting goods• Dispatching goods to storage• Holding goods• Recalling, picking, and assembling goods
Copyright © Cengage Learning. All rights reserved.
Recalling, picking, and assembling goods• Dispatching shipments
– Types of warehouses• Private warehouses• Public warehouses
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Physical Distribution (cont’d)
• Materials handling
• Transportation– The shipment of products to customers– Carrier
• Common carriers • Contract
Copyright © Cengage Learning. All rights reserved.
• Private carriers– Freight forwarders– Railroads
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© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.1 Distribution Channels
Dis
tribu
tion
Ch
an
ne
ls
Producer
Producer
ProducerW
holesaler
Retailer
Retailer
Consum
er
Consum
er
Consum
er
ProducerAgent
Wholesaler
BU
SIN
ESS
PRO
DU
CTS
CO
NS
UM
ER PR
OD
UC
TS
Retailer
Consum
er
Producer
ProducerAgentm
iddleman
Business
customer
Business
customer
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© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.2 Efficiency Provided by an Intermediary
Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 15th ed. (Mason, Ohio: South-Western/Cengage Learning, 2010). Adapted with permission.
Effi c
ien
cy P
rovid
ed
by a
n In
term
ed
iary
Middlem
an orinterm
ediary
Producer
Producer
Producer
Producer
Producer
Producer
Producer
Producer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
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© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Pride/Hughes/Kapoor, BUSINESS, 10th editionTable 14.2 Relative Ratings of Transportation Modes by Selection
Criteria
Rela
tive R
atin
gs o
f Tra
ns
po
rtatio
n
Mo
des b
y S
ele
ctio
n C
riteria
Sele
ctio
n C
riteria
Mode
Cost
Speed
Dependability
Load F
lexib
ilityA
ccessib
ilityFre
quency
Railroads
Moderate
AverageAverage
High
High
Low
T rucksH
ighFast
High
AverageVery high
High
AirplanesVery high
Very fastH
ighLow
AverageAverage
Waterw
aysVery low
Very slowAverage
Very highLim
itedVery low
PipelinesLow
Slow
High
Very lowVery lim
itedVery high
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© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.3 Changes in Ton-Miles for Various Transportation Modes
Source: U.S. Bureau of Transportation Statistics, National Transportation Statistics 2005, www.bts.gov (accessed January 30, 2006).
Ch
an
ges in
To
n-M
iles fo
r Va
riou
s
Tra
nsp
orta
tion
Mo
de
s
2,487
4,357
932
1,604
555
1,264
515
407
606
588
868
Tota
l ton m
iles
(in billions)
1980
Railro
ads
Coal
Grain
Lumber
Automobiles
IronS
teel
Tru
cks
Clothing
Paper goodsC
omputers
Books
Fresh fruitLivestock
Airp
lanes
Flowers
Food (highly perishable)Technical instrum
entsEm
ergency parts and equipm
entO
vernight mail
Wate
rways
(Rivers/canals
and Great Lakes)
Chem
icalsG
rainLarge equipm
entM
otor vehicles
Pip
elin
es
Oil
Processed coalN
atural gas
2005
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© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.A Chapter Outline
Chapter 14 Outline
Wholesaling, Retailing, and Physical Distribution
Channels of Distribution
– Channels for Consumer Products
– Channels for Business Products
– Market Coverage
– Partnering Through Supply-Chain Management
– Vertical Marketing Systems
Marketing Intermediaries: Wholesalers
– Justifi cations for Marketing Intermediaries
– Wholesalers’ Services to Retailers
– Wholesalers’ Services to Manufacturers
– Types of Wholesalers
Marketing Intermediaries: Retailers
– Classes of In-Store Retailers
– Kinds of Nonstore Retailing
Planned Shopping Centers
– Lifestyle Shopping Centers
– Neighborhood Shopping Centers
– Community Shopping Centers
– Regional Shopping Centers
Physical Distribution
– Inventory Management
– Order Processing
– Warehousing
– Materials Handling
– Transportation
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Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.B Class Exercise
Class Exercise
Which channel(s) of distribution would
you use for the following products?
Product Channel(s)
of
Distribution
Why?
1. A new
reduced-fat
candy bar
2. Fine china that
costs $550 for
a set
3. A video iPod
4. A line of jeans
that sells
between $30
and $50
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Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.C Debate Issue
Debate Issue
If a wholesaler is eliminated from a
distribution channel, will consumer prices
decrease?
YES
• The fewer marketing
intermediaries in a
distribution channel,
the lower the price.
• Today, wholesalers
are not needed because
the marketing functions
they perform can be
performed by others.
• Like all business
fi rms, wholesalers are
in business to make a
profi t and this profi t
causes higher prices.
NO
• Those who believe that
the elimination of
wholesalers would
lower prices do not
understand the
functions performed by
them.
• While it is true that the
marketing functions
must be performed,
wholesalers can provide
services more effi ciently
and cheaper than others
in the distribution cycle.
• Wholesalers are
entitled to profi ts if they
provide services more
effi ciently than others in
the distribution channel.
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Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.D Chapter Quiz
Chapter Quiz
1. Highly perishable products such as fruits and vegetables are
typically channeled from producer to
a. retailer to consumer.
b. wholesaler to consumer.
c. wholesaler to retailer to consumer.
d. consumer.
e. functional middleman to consumer.
2. VMS is an acronym that stands for
a. vertical monitoring system.
b. vital manufacturing system.
c. variable management system.
d. vertical marketing system.
e. variable manufacturing service.
3. A mail-order wholesaler is an example of a ____________
wholesaler.
a. limited-service
b. full-service
c. general merchandise
d. limited-line
e. specialty-line
4. A fi rm that operates only one retail outlet is called a(n)
_________retailer.
a. chain
b. specialty
c. independent
d. merchant
e. single
5. High employee turnover is a major problem that reduces the
effectiveness of
a. direct-response marketing.
b. telemarketing.
c. direct selling.
d. online retailing.
e. catalog marketing.
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Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.E Types of Merchant Wholesalers
Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 15th ed. (Mason, Ohio: South-Western/Cengage Learning, 2010). Reprinted with permission.
Typ
es o
f Merc
han
t Wh
ole
sale
rs
Merch
ant w
holesalers
Take title, assume risk, and buy and resell
products to other wholesalers, to retailers,
or to other business customers
Lim
ited-service w
holesalers
C
ash-and-carry
Truck
Drop shipper
M
ail-order
Full-service w
holesalers
G
eneral-merchandise
Lim
ited-line
Specialty-line
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Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.F Types of Agents and Brokers
Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 15th ed. (Mason, Ohio: South-Western/Cengage Learning, 2010). Reprinted with permission.
Typ
es o
f Ag
en
ts a
nd
Bro
ke
rs
Agen
ts and
bro
kers
Do not take title to products and are com
pensatedw
ith comm
issions for negotiating exchangesbetw
een sellers and buyers
Agen
tsR
epresent either buyer or seller,usually on a perm
anent basis
M
anufacturers' agents
Selling agents
C
omm
ission merchants
Bro
kers
Bring buyers and sellers together
on a temporary basis
Food brokers
R
eal-estate brokers
Other brokers,
e.g., securities, insurance
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Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.G Types of In-Store and Nonstore Retailers
Retailers
NONSTORE
• Direct selling
• Direct marketing
• Automatic
vending
IN-STORE
• Department
stores
• Discount stores
• Catalog and warehouse showrooms
• Convenience
stores
• Supermarkets
• Superstores
• Warehouse
clubs
• Traditional
specialty stores
• Off-price
retailers
• Category killers
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Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.H Retail Sales Categorized by Merchant Type
Retail Sales Categorized by
Merchandise Type
Source: U.S. Bureau of the Census, Monthly Retail Trade: Sales and Inventories, January 2006: www.census.gov.
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Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.I Definition of Channel of Distribution
CHANNEL OF
DISTRIBUTION OR
MARKETING CHANNEL
A sequence of marketing
organizations that directs a
product from the producer
to the ultimate user
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Pride/Hughes/Kapoor, BUSINESS, 10th editionFigure 14.J If a Retailer’s Return Policy Is Inconvenient, Will You
Continue to Shop There?
If a retailer’s return policy was
inconvenient, would you shop
there?
Source: Data from Newgistic survey of 1,061 adults 18 and older, as published in USA Today, May 4, 2006.
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