Chapter 2
The Channel Participants
Objective 1:
Major Participants in the Marketing Channel
Producers
&
Manufacturers
Intermediaries
Wholesale
Retail
Intermediaries Intermediaries
* Commercial Channel
2
Final Users
Consumers
Industries
* Target Markets
Objective 2:
2
Why shift distribution tasks to intermediaries?
Producers
&
Manufacturers
• lack expertise
• lack economies of scale
(or investment to gain
economies is too large)
Intermediaries
• spread high fixed costs
over large quantities of
diverse products
• achieve economies of
scope and economies of
scale
Objective 3:
2
Major Types of Wholesalers
All Wholesale Firms
Independent
middlemen
Merchant
wholesaler
Agents, brokers,
&
commission
merchants
Manufacturer
owned
Manufacturers'
sales branches
&
offices
2
Merchant Wholesalers
Buy,
Take title to,
Store, &
Handle
Large quantities of products
Resell to
Retailers
Industrial,
commercial,
or
Institutional
concerns
other
Wholesalers
Agents, Brokers, & Commission Merchants
Involved in buying & selling
while acting on behalf of
clients
Commissions
on
sales or purchases
2
Manufacturers’ Sales Branches & Offices
Separated from manufacturing plants
Owned & operated by
manufacturers
Distribute
manufacturer’s
products at
wholesale
Some wholesale allied &
supplementary products
purchased from other
manufacturers.
2
Objective 4:
2
Major Trends in Wholesale Structure
1992-2002
42.0%
Wholesale trade overall
26.5%
Manufacturer’s sales branches
& offices
51.7%
Merchant wholesalers
36.7%
Agents, brokers, & commission
merchants
Trends in Size & Concentration
Measured by:
Types of Wholesalers
Size of
wholesaler
Majority are small businesses
Sales volume
Nearly 45% of all firms have annual sales of
less than $1 million
# of Employees per firm
Almost 50% of firms had fewer than 5
employees
Economic concentration
in terms of % of total
sales
50 largest manufacturers’ sales branches &
offices garnered nearly 63% of sales for this
type
2
Objective 5:
2
Merchant Wholesalers’ Distribution Tasks
Serve Manufacturers/Producers






Provide market coverage
Make sales contacts
Hold inventory
Process orders
Gather market information
Offer customer support
• Operate at high levels of effectiveness and efficiency
• Average cost curves lower than those for their suppliers
Merchant Wholesalers’ Distribution Tasks
Serve Customers (e.g., retailers)






Assure product availability
Provide customer service
Extend credit & financial
assistance (e.g., cut ICCs)
Offer assortment convenience
Break bulk
Help customers with advice &
technical support
2
Agent Wholesalers’ Distribution Tasks
Manufacturers’
Agents
or “Reps”
Market coverage
Sales contacts
2
Agent Wholesalers’ Distribution Tasks
Selling
Agents
Market coverage
Sales contacts
Order processing
Marketing information
Product availability
Customer services
2
Agent Wholesalers’ Distribution Tasks
Brokers
** “Demand - Collection”
channels are a new form
of “true” brokers – Priceline.com
Marketing information
-----------------------------Market coverage
Sales contacts
Order processing
Product availability
Customer services
2
Agent Wholesalers’ Distribution Tasks
Commission
Merchant
Market coverage
Sales contacts
Order processing
Breaking bulk
Credit
Holding inventory
** Typical mainly in agriculture**
2
Objective 6:
Retail Structure
Alternative Bases for Classifying Retailers
• By Ownership of
Establishment
• By Kind of Business
(Merchandise Handled)
• By Size of Establishment
• By Degree of Vertical
Integration
• By Type of Relationship
with other Business
Organizations
• By Method of Consumer
Contact
• By Type of Location
• By Type of Service
Rendered
• By Legal Form of
Organization
• By Management
Organizations or
Operational Technique
2
Definition of Retailing and Retailers*
*Note this is different from your text, but
will be the definition used throughout
the remainder of the course.
• Retailing – consists of the final activities and steps
needed to place merchandise made elsewhere in the
hands of the consumer or to provide services to the
consumer.
(Dunne, Lusch, and Carver 2009)
• Retailer – any firm that sells merchandise or
services to the final consumer.
(Dunne, Lusch, and Carver 2009)
• Requires more than 50% of one’s business to come from retailing
• E.g. Costco and Sam’s are wholesalers, not a retailers
2
Objective 7:
Retail Structure Trends
Decreasing number of establishments
Increasing sales
= increase in size of retail establishments
measured by average sales volume
per store
2
Concentration in Retailing
In 2002
4% of all retail firms
accounted for nearly 80%
of total sales!!
2
Objective 8:
2
Distribution Tasks Performed by Retailers
The role of the retailer in the distribution
channel, regardless of his size or type, is to
interpret the demands of his customers and to
find and stock the goods these customers want,
when they want them, and in the way they want
them. This adds up to having the right
assortments at the time customers are ready to
buy.
— Charles Y. Lazarus
2
Distribution Tasks Performed by Retailers
• Offer manpower & physical facilities close to consumers’
residences
• Provide personal assistance to help sell products
• Interpret and relay consumer demand
• Divide large quantities into consumer-sized lots
• Offer storage
• Remove risk by ordering in advance of the season
Objective 9:
2
Retailers’ Growing Power in Marketing Channels
Increased size & buying
power
Become power retailers
&
category killers
Application of advanced
Technologies
Information technology &
the Internet; threetailing
Use of modern marketing
strategies
Modern techniques;
relationship marketing
Objective 10:
Facilitating Agencies in Marketing Channels
•
•
•
•
•
•
•
Transportation agencies
Storage agencies
Order processing agencies
Advertising agencies
Financial agencies
Insurance companies
Marketing research firms
2