Distribution
Chapter 21 & 22
Distribution – How it Works
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The PLACE aspect of the 4 P’s
Channel of distribution – path a product takes from producer
to final user
 Business use – Industrial user
 Personal use – Consumer
Ex: Shampoo
 Hair salon – industrial user
 Retail sells to you – consumer
Goods shipped are often called freight or cargo
Small packages are referred to as parcels
Channel Members
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Intermediaries – MIDDLEMAN - businesses involved in sales
transactions that move products from manufacturer to final user
 Add
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value to the product
 Merchant – takes title to the goods (wholesalers and
retailers)
 Agent – receive a commission to bring buyers and sellers
together
Indirect Channel
 Involves one or more intermediaries
Direct Channel
 Goods sold directly from producer to customer
 Ex: selling from a farmer’s roadside stand; telemarketing
Intermediaries
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Wholesalers - Buy goods from manufacturers and sell to
retailers
 Rack jobbers – manage inventory and merchandising for
retailers; Ex: cards, cosmetics, CDs in retail stores
 Drop shippers – own the goods they sell but don’t physically
handle the product
Retailers - Sell goods to the final consumer for personal use
 Brick-and-mortar – sell from their own physical store
 Vending machines, direct mail/catalog, e-tailing
Agents - Do not own the goods they sell
 Bring buyers and sellers together; Paid on commission
 Brokers - Ex: Real estate agents
Distribution Intensity
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Exclusive – sole dealer in an area, prestige, high profit
margin, high control for manufacturer
 Integrated Distribution – manuf. and sell own products
 Gap, Bath and Body Works
Selective – limited # of outlets
Intensive – complete market coverage, goal is to sell to as
many customers as possible
E-Commerce – use of Internet (e-marketplace)
 B2B
 In 2004, Internet travel bookings = $54M (23% of industry)
Nature and Scope of Physical Distribution
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Physical Distribution
 All activities that help ensure that the right amount of
product is being delivered to the right place at the right
time
Also known as LOGISTICS
 Order processing
 Transporting
 Storing
 Stock Handling
 Inventory Control
Types of Transportation
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Trucking
 Common Carriers provide services to any business in
its operating for a fee
 Contract Carriers provide equipment and drivers for
specific routes; business does not have to invest in
equipment
 Private Carriers transport goods for an individual
business
 Exempt Carriers are free from regulation and normally
carry agricultural products
Intercity vs. Interstate
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Intercity – shipping goods between two locations in one city
 Ex. Shipping from Ga. Power in Atlanta to Coca-Cola in
Atlanta
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Interstate – shipping goods between two states
 Shipping from Atlanta to New York
Trucking
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Advantages
 Convenient
 Reduce packaging costs because goods require
less packaging
 Fast
Disadvantages
 Susceptible to delays
 Subject to size and weight restrictions depending
upon state
Rail Transportation
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Trains transport nearly 38% of total intercity ton-miles of
freight
 Ton-mile is the movement of one ton of freight per mile
Trains move heavy and bulky freight such as coal, steel, and
lumber
Rail Transportation
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Pricing and Delivery Services
 Piggyback – carrying loaded trucks over land
 Fishyback – shipping loaded trucks over water on ships
and barrages
 Carload - minimum number of pounds of freight needed to
fill a boxcar
 A package (pool) arrangement allows several carriers who
are sending items to combine them
 Diversion-in-transit service allows the redirection of cars
Rail Transportation
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Advantages
 Relatively low costs due to large quantities
 Seldom slowed or stopped by bad weather
Disadvantages
 Lack of flexibility
 Only pick up and drop off at specific locations
 Only reach certain places
Water Transportation
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Oldest method of transporting merchandise
US Maritime Commission regulates U.S. water
transportation
Advantage
 Low cost – cheapest form of freight
transportation
Disadvantages
 Slowest form
 Buyers located away from ports must use other
forms of transportation as well
 Affected by bad weather
Pipelines
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Owned by companies who use them
More than 200,000 miles in U.S.
Transport oil from fields to refineries
Carry 20% of the ton-miles of freight transported in
the U.S.
Advantages
 Minimal damage
 Not subject to weather delays
Disadvantages
 High initial investment
 Moves slow
Air
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Less than 1% of the total ton-miles of freight shipped
High value products; low weight products (mail,
medicine)
Regulated by FAA
Advantages
 Speed – reduces inventory expenses and storage
costs
Disadvantages
 Most costly form of distribution(2 x truck rates)
 Mechanical breakdowns and delays due to
weather
What happens to the goods when they
arrive?
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Receiving Process – When a truck arrives at the retailer, a
receiving clerk must check the items against the order.
Items are then stored
Inventory – goods that are stored for future sales