Distribution
Chapters 21-22
Distribution – How It Works
• Channel of Distribution: the path a product takes
from producer or manufacturer to final user.
• When the product is purchased from a business,
the final user is classified as an industrial user.
• When the product is purchased for personal use,
the final user is classified as a consumer.
– Example: shampoo products could be classified as
both a consumer and industrial product.
Manufacturers of Shampoo sell their product to the
customer through retail operations.
Channel Members
• All businesses involved in a sales transaction that
move products from the manufacturers 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.
• Intermediaries provide the following roles:
– Experts in displaying, merchandising, and providing convenient
shopping locations
– Reduce the number of contacts required to reach the final user of
the product
Channel Members
• Wholesalers – buy large quantities of goods from
manufacturers, store the goods, and then resell
them to other businesses.
– Two specialized wholesalers are called rack jobbers
and drop shippers.
• Rack jobbers: manage inventory and merchandising for
retailers by counting stock, filling it when needed, and
maintaining store displays. Examples: compact discs,
hosiery, health products, and beauty aids.
• Drop shippers: own the goods they sell but do not physically
handle the actual products. Example: coal, lumber,
chemicals that require special handling.
Channel Members
• Retailers – sell goods to the final consumer for
personal use.
– Sell goods to the customer from their own physical
stores.
– Serve as final link between manufacturer and
consumer.
– Provide special services, such as offering credit or
providing delivery to help solidify customer
relationships.
• Types of retailers: brick and mortar, vending service, etailing,.s
Channel Members
• Agents: act as intermediaries by bringing
buyers and sellers together.
– Do not own the goods they sell.
• Real estate agents, brokers, independent
manufacturer’s representative (fishing rods, lures)
• Brokers can be in the line of the food industry as well
Direct and Indirect Channels
• Direct distribution: when the goods or
services are sold from the producer directly to
the customer.
• Indirect distribution: involves one or more
intermediaries.
– Example: independent insurance agent sells
insurance policies from different insurance
companies to consumers or businesses.
Physical Distribution
Chapter 22
Physical Distribution
• All the activities that help to ensure that the
right amount of product is delivered to the
right place at the right time.
• Involves moving products quickly with
minimal handling to reduce costs and
maximize customer satisfaction
• 20-25 percent of the value of a product can be
assigned to distribution expenses.
Types of Transportation
• Transportation: marketing function of moving
products from a seller to a buyer.
• Five major transportation forms that move
products:
1.
2.
3.
4.
5.
Motor carriers
Railroads
Waterways
Pipelines
Air carriers
Trucking
• Most frequently used form of transportation.
• Carry higher-valued products that are expensive to carry in
inventory.
• Advantages
– Convenient
– Can deliver to any geographical location – door to door,
wholesale or retail oriented
– Can make rapid deliveries of large amounts of goods and reduce
the need to carry large inventories between shipments.
• Disadvantages
– Delays due to traffic jams, equipment breakdown and accidents
– Subject to size and weight restrictions enforced by states
Rail Transportation
• Major type in the US
• Accounts for 38 percent of total intercity of freight.
• Important for moving heavy and bulky freight such as
coal, steel, lumber, chemicals, grain, farm equipment
• Advantages
– Can ship at low costs by handling large quantities
– Seldom slowed or stopped by bad weather
• Disadvantages
– Lack of flexibility
– Can pick up and deliver goods only at stations along
designated rail lines
– Can not reach as many places as motor carriers do
Water Transportation
• Oldest methods of transporting merchandise
• Internal shipping from one port to another on connecting river and lakes.
(Agricultural products get shipped from Midwest to other parts of the
world)
• Intracoastal shipping – between ports along the Atlantic or Pacific coasts
• Advantages
– Low cost – ships and barges are the cheapest form of freight transportation
• Disadvantages
– Slowest form of transportation
– Buyers that are located far from port city must have products off-loaded from
ships onto railroad cars or motor carriers to reach destination.
– Water transportation is affected by bad weather. Great Lakes shipping is
usually closed for 2-3 months in the winter.
Pipeline
• Normally owned by the company using them.
Considered private carriers.
• There are more than 200,000 miles of pipelines in the
US
• Most frequently used to transport oil and natural gas
• Carry approximately 20 percent of the ton-miles of
freight transported in the US
• Advantages
– Operational costs are small, but high initial investment
– Risk of pipeline leak is small, but when a leak does occur
the damage to the environment can be extensive.
– Not subjected to delivery delays due to bad weather
Air Transportation
• Less than one percent of the total ton-miles of freight shipped
• High value, low-weight items such as overnight mail are often
shipped by air.
• FAA regulates air transportation – does not regulate charges for air
freight.
• Advantages
– Speed
– Satisfies customers who need something quickly
– Reduces inventory expenses and storage costs for warehousing
products.
• Disadvantages
– Cost
– Mechanical breakdowns and delays in delivery caused by bad weather.
Inventory Storage
• Storage is the marketing function of holding
goods until they are sold.
• Essential for most businesses – needs to store
products until orders are received from
customers.
• Storing goods adds time and place utility to
products.
• Costs involved in storing products include
space, equipment and personnel.
Private Warehouses
• A facility designed to meet the specific needs
of its owner.
• Valuable for companies that move a large
volume of products.
• Costly to build and maintain.
• Stores that use private warehouses are: Sears,
Radio Shack, Kmart.
Public Warehouses
• Offers storage and handling facilities to
individuals or companies.
• Available to any company that will pay for its
use.
• Public warehouses not only rent space but
provide services to businesses.
• Good for businesses that have low storage
needs or seasonal production.
Distribution Centers
• Warehouse designed to speed delivery of
goods and to minimize storage costs.
• Planned around markets instead of
transportation requirements.
• Sherwin-Williams, Benjamin Moore paints,
WalMart
Distribution for International Markets
• Critical in global marketing.
• Exports now support one-sixth of the
manufacturing and agricultural output of the US
• Requires even more planning than for selling
within domestic markets
• Some countries have legal restrictions about how
products may be transported
• Businesses must understand other countries’
physical transportation systems.