Marketing Essentials
Distribution
Chapter 21 n Channels of Distribution
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SECTION 21.1
Distribution
What You'll Learn
 The concept of a channel of distribution
 Who channel members are
 Non-store retailing methods
 How channels of distribution differ for
consumer and business-to-business products
Chapter 21 n Channels of Distribution
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SECTION 21.1
Distribution
Why It's Important
As you know, the marketing mix includes
decisions about product, price, place, and
promotion. In this chapter you will explore the
place decision—that is, how the product will be
distributed and sold in the marketplace. Making
the correct place decision has an impact on the
entire operation of a business.
Chapter 21 n Channels of Distribution
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SECTION 21.1
Distribution
Key Terms
 channel of distribution
 intermediaries
 brick and mortar
retailers
 wholesalers
 e-tailing
 rack jobbers
 agents
 drop shippers
 direct distribution
 retailers
 indirect distribution
Chapter 21 n Channels of Distribution
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SECTION 21.1
Distribution
Distribution—How It Works
The channel of distribution is the path a product takes
from producer or manufacturer to final user. This is a
place decision, one of the four Ps of the marketing mix.
Chapter 21 n Channels of Distribution
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SECTION 21.1
Distribution
Channel Members
All the businesses involved in
sales transactions that move
products from the manufacturer
to the final user are called
intermediaries or middlemen.
Intermediaries provide value to
producers because they often
have expertise in certain areas
that producers do not have.
Chapter 21 n Channels of Distribution
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SECTION 21.1
Distribution
Intermediaries
Intermediaries reduce the number of transactions required by manufacturers
to reach their final customers. What expenses of doing business are lowered
by this reduction in transactions?
Chapter 21 n Channels of Distribution
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SECTION 21.1
Marketing
Channel
Distribution
Economies of Scale
Providing Specialization
and Division of Labor
Overcoming
Discrepancies
Providing Contact
Efficiency
Supply Chain
Chapter 21 n Channels of Distribution
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SECTION 21.1
Distribution
Direct Channel
Direct
Channel
A distribution channel in
which producers sell
directly to consumers.
Chapter 21 n Channels of Distribution
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SECTION 21.1
Direct
Channel
Producer
Distribution
Retailer
Channel
Producer
Wholesaler
Channel
Producer
Agent/Broker
Channel
Producer
Agents or
Brokers
Consumers
Wholesalers
Wholesalers
Retailers
Retailers
Retailers
Consumers
Consumers
Consumers
Chapter 21 n Channels of Distribution
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SECTION 21.1
Distribution
Factors Suggesting Type of
Wholesaling Intermediary to Use
Product characteristics
Buyer considerations
Market characteristics
Chapter 21 n Channels of Distribution
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SECTION 21.1
Wholesalers
Slide 1 of 3
Distribution
Wholesalers buy large quantities of
goods (taking title) from
manufacturers, store the goods, and
then resell them to other
businesses. Their customers are
called retailers. They may be called
distributors when their customers
are professional or commercial
users, manufacturers, governments,
institutions, or other wholesalers.
Chapter 21 n Channels of Distribution
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SECTION 21.1
Distribution
Wholesalers
Two specialized wholesalers are:
 rack jobbers
 drop shippers
Rack jobbers manage inventory and
merchandising for retailers by counting
stock, filling it in when needed, and
maintaining store displays. They provide
the display racks and
bill the retailer only for the goods sold.
Slide 2 of 3
Chapter 21 n Channels of Distribution
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SECTION 21.1
Distribution
Wholesalers
Drop shippers deal in bulk items
such as coal, lumber, and
chemicals that require special
handling. Drop shippers sell the
goods to other businesses and
have the producer ship the
merchandise directly to the buyers.
The products are owned, but never
handled, by the drop shipper.
Slide 3 of 3
Chapter 21 n Channels of Distribution
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SECTION 21.1
Retailers
Distribution
Retailers sell goods to the final
consumer for personal use.
Traditional retailers, called brick and
mortar retailers, sell goods to the
customer from their own physical
stores.
Non-store retailing operations include
automatic retailing, direct mail and
catalog retailing, TV home shopping,
and online retailing (e-tailing).
Chapter 21 n Channels of Distribution
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SECTION 21.1
Distribution
Shopping on the Web
Top e-tailing sectors
MILLIONS OF DOLLARS
$318
Air Travel
Books
$224
Hardware
$224
$187
Software
$182
Apparel
$164
Hotels
Toys/games
$146
Music
$143
Health, beauty
Electronics
$143
Note the millions of
dollars attributed to
online sales by
e-tailers in one month.
Which three sectors
lead the list? How
might this list be
changed if the month
was December?
$126
Source: Dow Jones
Chapter 21 n Channels of Distribution
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SECTION 21.1
Distribution
Agents
Unlike wholesalers and retailers,
agents do not own the goods they
sell. Agents act as intermediaries
by bringing buyers and
sellers together.
 Example Real estate agents,
food brokers, independent
manufacturer’s representatives.
Chapter 21 n Channels of Distribution
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SECTION 21.1
Distribution
Channel Intermediaries
Retailers
Take Title to Goods
Merchant
Wholesalers
Take Title to Goods
Agents
and
Brokers
Do NOT Take Title to Goods
Chapter 21 n Channels of Distribution
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SECTION 21.1
Distribution
Direct and Indirect Channels
Channels of distribution are
classified as direct or indirect.
Direct distribution occurs when
the goods or services are sold
from the producer directly to the
customer; no intermediaries are
involved.
Indirect distribution involves one
or more intermediaries.
Chapter 21 n Channels of Distribution
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SECTION 21.1
Distribution
Channels in the Consumer and
Industrial Markets
Different channels of
distribution are generally
used to reach the
customer in the consumer
and industrial markets.
Both markets make use of
direct and indirect
distribution.
Chapter 21 n Channels of Distribution
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SECTION 21.1
Distribution
Supply Chain
The connect chain of
all the business
entities, both internal
and external to the
company, that
perform or support
the logistics function
is known as the
supply chain.
Chapter 21 n Channels of Distribution
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21.1 Mini-Case Study
Jones Soda is positioned as the anti-Coke. In the early
years, few mainstream retailers sold Jones soda. Fans
had to get their Jones fix in surf shops, tattoo parlors, and
bookstores, adding to the brand’s mystique. Jones Soda
use its __________ to create a competitive advantage.
Distribution
Channel
Chapter 21 n Channels of Distribution
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21.1 ASSESSMENT
Reviewing Key Terms and Concepts
1. What is a channel of distribution?
2. Name two major types of merchant
intermediaries.
3. What type of intermediary is a rack jobber? A
drop shipper?
4. Distinguish between brick and mortar and online
retailers.
5. Which type of distribution channel—direct or
indirect—is used more frequently for consumer
products? For industrial products?
Chapter 21 n Channels of Distribution
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21.1 ASSESSMENT
Thinking Critically
Do you think e-tailing will eventually
replace brick and mortar retailers?
Explain.
Chapter 21 n Channels of Distribution
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21.1 Graphic Organizer
Channels of Distribution
Manufacturers / Producers
Agents
Wholesalers
Retailers
Consumers
Chapter 21 n Channels of Distribution
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Marketing Essentials
Distribution Planning
Chapter 21 n Channels of Distribution
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SECTION 21.2
Distribution Planning
What You'll Learn
 The key considerations in distribution planning
 When to use multiple channels of distribution
 How to compare the costs and control involved in
having a direct sales force vs. using independent
sales agents
 The three levels of distribution intensity
 The effect of the Internet on distribution planning
 The challenges involved in distribution planning for
international markets
Chapter 21 n Channels of Distribution
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SECTION 21.2
Distribution Planning
Why It's Important
Distribution decisions affect the entire
company so it is important for you to know
how they are made. It is also helpful to
know how they are carried out in different
markets, including international and
e-marketplaces.
Chapter 21 n Channels of Distribution
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SECTION 21.2
Distribution Planning
Key Terms
 exclusive distribution
 integrated distribution
 selective distribution
 intensive distribution
 e-marketplace
Chapter 21 n Channels of Distribution
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SECTION 21.2
Distribution Planning
Distribution Planning
Distribution planning involves decisions
about a product's physical movement and
transfer of ownership from producer to
consumer. Distribution decisions affect a
firm's marketing program. Some of the major
considerations are:
 the use of multiple channels
 control vs. costs
 intensity of distribution desired
 involvement in e-commerce
Chapter 21 n Channels of Distribution
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SECTION 21.2
Distribution Planning
Multiple Channels
Multiple channels are used when a
product fits both industrial and customer
needs.
 Example: Cookies sold to
supermarkets and airlines.
Retailers also use multiple channels.
 Example: A stationary store sells to
the public and sells office supplies
to businesses.
Chapter 21 n Channels of Distribution
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SECTION 21.2
Distribution Planning
Control vs. Cost
All manufacturers and producers must
weigh the control they want to keep over
the distribution of their products against
costs and profitability. Decisions can
involve:
 using an in-house sales force or
independent sales agents
 accommodating the dominant
member in a particular channel of
distribution
Chapter 21 n Channels of Distribution
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SECTION 21.2
Distribution Planning
Who Does the Selling?
A manufacturer can decide to use its own
sales force or hire agents to do the selling,
depending on how much control it wants
over sales.
 Direct Sales Force Costly;
manufacturer maintains complete
control.
 Agent Less costly; manufacturer
loses some control over how sales are
made.
Chapter 21 n Channels of Distribution
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SECTION 21.2
Distribution Planning
Who Dictates the Terms?
Retail giants like Wal-Mart and
Home Depot force manufacturers to
adhere to strict criteria regarding
shipping, pricing, packaging, and
merchandising. Some
manufacturers adhere to these
wishes because of the large volume
of business generated by the retail
giants; some prefer to distribute
products through smaller retailers.
Chapter 21 n Channels of Distribution
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SECTION 21.2
Distribution Planning
Distribution Intensity
Distribution intensity has to do
with how widely a product will be
distributed. There are three
levels of distribution intensity:
 exclusive
 selective
 intensive
Chapter 21 n Channels of Distribution
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SECTION 21.2
Distribution Planning
Exclusive Distribution
Exclusive distribution involves protected
territories for distribution of a product in a
geographic area.
 Example: Retailers associated with
National Auto Parts Association (NAPA)
buy stock from NAPA and participate in its
promotions.
A variation is integrated distribution, in
which a manufacturer acts as wholesaler
and retailer for its own products.
Chapter 21 n Channels of Distribution
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SECTION 21.2
Distribution Planning
Selective Distribution
Selective distribution means that a
limited number of outlets in a given
geographic area are used to sell the
product.
 Example: Ralph Lauren selects only
top department and specialty stores to
sell its products.
Chapter 21 n Channels of Distribution
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SECTION 21.2
Distribution Planning
Intensive Distribution
Intensive distribution involves use of all
suitable outlets for a product. The objective
is complete market coverage, and the
ultimate goal is to sell to as many customers
as possible.
 Example: Motor oil is sold in
supermarkets, farm stores, parts retailers,
hardware stores, warehouse clubs, even mini
marts.
Chapter 21 n Channels of Distribution
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SECTION 21.2
Distribution Planning
E-Commerce
E-commerce is the
means by which products
are sold to customers
and industrial buyers
through use of the
Internet. In 2000 almost
half of America's top
retailers sold online.
Slide 1 of 2
Chapter 21 n Channels of Distribution
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SECTION 21.2
Distribution Planning
E-Commerce
Businesses use the Web to sell to
consumers and to facilitate
industrial sales.
 Example: Panasonic uses its
public Web site for information
only, but it has a B2B Web site
where retailers can check orders,
pricing, and promotions.
Slide 2 of 2
Chapter 21 n Channels of Distribution
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SECTION 21.2
Distribution Planning
U.S. Retail E-Commerce Sales
Chapter 21 n Channels of Distribution
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SECTION 21.2
Distribution Planning
Projected 2003 Online Travel market
Online travel is a growing Internet industry. Which area
of the industry has the largest share of the travel market?
Chapter 21 n Channels of Distribution
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SECTION 21.2
Distribution Planning
Distribution Planning for Foreign Markets
Distribution planning takes on a new
dimension when businesses get
involved in international trade.
Different environments in foreign
markets require that businesses
adjust their distribution systems. This
also gives businesses the
opportunity to experiment with
different distribution strategies.
Chapter 21 n Channels of Distribution
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SECTION 21.2
Distribution Planning
Going to Marketplace
Sales of goods and services via electronic
marketplaces are projected to skyrocket
E-marketplaces for
B2B operations
provide one-stop
shopping and
savings for industrial
buyers. Why would
a business opt to
be part of an
e-marketplace
rather than have
its own Web site?
Chapter 21 n Channels of Distribution
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21.2 ASSESSMENT
Reviewing Key Terms and Concepts
1. What key factors are considered when developing
an effective distribution plan?
2. When are multiple distribution channels used?
3. Give two reasons for using a direct sales force
instead of independent sales agents.
4. What are the levels of distribution intensity?
Chapter 21 n Channels of Distribution
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21.2 ASSESSMENT
Thinking Critically
What problems might be created by a
clothing manufacturer that establishes its
own Web site to sell to the final
consumer, while it also sells the same
items to retailers for resale to
consumers?
Chapter 21 n Channels of Distribution
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