Part V: Marketing
Distributing Products
13
Introduction to Business 3e
Jeff M a d ura
Copyright © 2004 South-Western. All rights reserved.
Distributing Products
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13–2
Learning Goals
•
Explain advantages and disadvantages of
direct distribution channel.
•
Identify factors that could determine
optimal channel of distribution.
•
Differentiate between types of market
coverage.
•
Explain how to accelerate the distribution
process.
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13–3
Learning Goals (cont’d)
•
Explain how retailers serve customers.
•
Explain how wholesalers can serve.
manufacturers and retailers.
•
Explain the strategy and benefits of
vertical channel integration.
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13–4
Distributing Products
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13–5
Channels of Distribution
•
Determine how the firm’s products will be
accessible to customers
– Convenience of place
•
Direct channel
– Allows full control over price
– Provides first-hand customer feedback
– Requires more employees
– Incurs more expenses to promote product
– May require selling on credit
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13–6
Channels of Distribution
•
One-Level Channel
– One marketing intermediary is between the
producer and the customer


•
Merchants
Agents
Two-Level Channel
– Two marketing intermediaries are between
the producer and the customer

Small businesses may use agents to generate sales
to retailers
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13–7
One-Level Distribution Channel
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Exhibit 13.1
13–8
Two-Level Distribution Channel
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Exhibit 13.2
13–9
Comparison of Common
Distribution Systems
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Exhibit 13.3
13–10
Optimal Distribution Channel
•
Depends on product’s characteristics
– Ease of transporting


If product is easy to transport, use of intermediary
is more likely
If product is difficult to transport, use of direct
channel is more likely
– Degree of standardization

Standardized products more likely to use
intermediary
– Ability to fulfill Internet orders

Internet ordering allows use of direct channel
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13–11
Degree of Market Coverage
•
Degree of product distribution among
outlets
– Provide easy customer access to products
– Ensure that outlet is capable
– Intensive distribution across most or all
possible outlets
– Selective distribution through selected
outlets
– Exclusive distribution through only one or a
few outlets
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13–12
Alternative Degrees of Market Coverage
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Exhibit 13.4
13–13
Selecting Transportation Mode
•
Cost of transporting products can exceed
production costs
– Important to select most efficient mode of
transportation that is appropriate
– Firm should estimate timing, cost, and
availability before selecting a mode of
transportation
 Truck,
rail, air, water, pipeline
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13–14
Additional Transportation Decisions
•
Determine efficient way to load products
•
Create best route to distribute product to
outlets
•
Determine appropriate number of transporters
•
Decide if all of the company’s products should
be delivered at the same time, or separately
•
Estimate costs of all possible transportation
modes and select most efficient
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13–15
Accelerate Distribution Process
•
Important to get products into the hands
of customers as quickly as possible
– Slow delivery may cause customers to buy
from a competitor
– Reduction in distribution time can enhance
firm’s value
 Allows
firm to get paid sooner and be able
to reinvest those funds
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13–16
A Restructured Distribution Process
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Exhibit 13.5
13–17
Relationship between Production
and Distribution
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Exhibit 13.6
13–18
Methods of Acceleration
•
Streamline distribution channels
– Eliminate warehouses
– Deliver direct to customers
•
Integrate production and distribution
processes
– Maintain adequate inventory to avoid
shortages
– Use E-marketing to process orders and keep
track of inventory
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13–19
Retailers
•
Valuable intermediaries that distribute
products directly to customers
– Number of outlets



Independent retail store versus chain store
Chain stores get lower prices by buying in bulk
Chain stores gain national reputation
– Quality of service

Full-service store versus self-service store
– Variety of products offered

Specialty retailer versus variety retail store
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13–20
Non-Store Retailers
•
Mail-order retailers
– Receive orders over the phone or through the mail
– Works well for products that are light, somewhat
standardized, and do not need to be serviced
•
Websites
– Firm does not have to send out catalogs
– Cuts costs and allows changes to be made easily
and often
•
Vending machines
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13–21
Wholesalers
Intermediaries who purchase products
from manufacturers and sell them to
retailers
• Serve manufacturers
•
– Warehousing
– Providing sales expertise
– Delivery to retailers
– Assumption of credit risk
– Information
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13–22
Wholesalers
•
Serve retailers
– Warehousing

Allows retailer to order in smaller quantities
– Promotion

Increase sales by retailers
– Displays

Attract customer attention
– Credit
– Information

Inform retailers about competitors’ policies
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13–23
Steps Involved in
the Production
and Distribution
of Products
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Exhibit 13.7
13–24
Vertical Channel Integration
•
Two or more levels of distribution are
managed by a single firm
– Manufacturer decides to open its own retail
stores
– Retailer decides to produce its own products,
rather than buying products from a
manufacturer
– Must consider costs and benefits before
deciding to vertically integrate
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13–25
Trade-off from Using Vertical Integration.
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Exhibit 13.8
13–26
Chapter Summary
•
Advantages and disadvantages of using a
direct channel of distribution
•
Optimal channel depends on product
characteristics.
•
Firms must choose appropriate type of
market coverage.
•
Accelerating the distribution channel can
add value to the firm.
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13–27
Chapter Summary (cont’d)
•
Retailers serve as intermediaries and are
distinguished by characteristics.
•
Wholesalers provide valuable services to
manufacturers and retailers.
•
Vertical channel integration occurs when
a single firm manages more than one
level of distribution.
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13–28