2. Chapter Fifteen
LEARNING GOALS
1. Explain the concept of marketing channels and
their value.
2. Demonstrate how intermediaries perform the six
marketing utilities.
3. Identify the types of wholesale intermediaries in the
distribution system.
15-2
3. Chapter Fifteen
LEARNING GOALS
4. Compare the distribution strategies retailers use.
5. Explain the various kinds of nonstore retailing.
6. Explain the various ways to build cooperation in
channel systems.
7. Describe logistics and outline how intermediaries
manage the transportation and storage of goods.
15-3
4. Profile
TONY HSIEH
http://www.Zappos.com
• Hsieh sold his first company to Microsoft for $265
million, before becoming Zappos’ CEO.
• Changed Zappos’ corporate work environment so
reps wow customers.
• Zappos has total
control over its
inventory, and the
service department
knows exactly what
is in stock.
15-4
5. Chapter Fifteen
NAME that COMPANY
Although this automobile manufacturer builds its
cars in South Korea, the 30,000 components
come from all over the world. For example, the
airbags come from a Swedish company that
makes them in Utah. It’s supply chain is truly
interfirm and international.
Name that company!
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6. The Emergence
of Marketing
Intermediaries WHAT are MARKETING
LG1 INTERMEDIARIES?
• Marketing Intermediaries -- Organizations
that assist in moving goods and services from
businesses to businesses (B2B) and from
businesses to consumers (B2C).
• They are called intermediaries because they’re
in the middle of a series of firms that distribute
goods.
15-6
7. The Emergence
of Marketing
Intermediaries WHAT are MARKETING
LG1 INTERMEDIARIES?
• Channel of Distribution -- A group of
marketing intermediaries that joining together to
transport and store goods from producers to
consumers.
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8. DISTRIBUTION
and SUSTAINABILITY
(Thinking Green)
• Companies can’t be
successfully green without
the help of the supply chain.
• Companies are pushing
partners to come up with a
distribution plan that would
minimize pollution and
Photo Courtesy of: Jeff Kubina
optimize profits.
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9. The Emergence
of Marketing
Intermediaries TYPES of MARKETING
LG1 INTERMEDIARIES?
• Agents and Brokers -- Intermediaries who
bring buyers and sellers together and assist in
negotiating an exchange but do not take title to the
goods.
• Wholesaler -- An intermediary that sells products
to other organizations such as retailers,
manufacturers, and hospitals.
• Retailer -- An organization that sells products to
ultimate customers.
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11. Why Marketing
Needs
Intermediaries WHY MARKETING NEEDS
LG1 INTERMEDIARIES
• Intermediaries perform marketing tasks faster
and cheaper than most manufacturers could
provide them.
• Marketing
intermediaries make
markets more efficient
by reducing
transactions and
contacts.
15-11
12. How
Intermediaries
HOW INTERMEDIARIES CREATE
Create Exchange
Efficiency
LG1 EXCHANGE EFFICIENCY
15-12
13. The Value vs
the Cost of
Intermediaries
THREE KEY FACTS ABOUT
LG1 MARKETING INTERMEDIARIES
1) Marketing intermediaries can be eliminated but
their activities can’t.
2) Intermediaries perform marketing functions
faster and cheaper than other organizations can.
3) Marketing intermediaries add costs to products
but they’re generally offset by the values they
provide.
15-13
14. The Value vs
the Cost of
Intermediaries
DISTRIBUTION’S EFFECT on
LG1 YOUR FOOD DOLLAR
15-14
15. The Utilities
Created by
Intermediaries
INTERMEDIARIES
LG2 CREATE UTILITY
• Utility -- The want-satisfying ability, or value, that
organizations add to goods and services by making
them more useful or accessible to consumers.
• Six types of utilities:
1. Form
2. Time
3. Place
4. Possession
5. Information
6. Service
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16. The Utilities
Created by
HOW MARKETERS USE UTILITY
Intermediaries
LG2
• Form Utility -- Changes raw materials into useful
products; producers generally provide form utility.
- Starbucks makes coffee the way the customers want it.
- Dell assembles computers according to customer needs.
• Time Utility -- Makes products available when
customers want them.
- Many Walgreens stores are open 24-hours a day.
- Colleges offer day and evening classes.
15-16
17. The Utilities
Created by
HOW MARKETERS USE UTILITY
Intermediaries
LG2
• Place Utility -- Adds value to products by placing
them where people want them.
- Banks place ATMs at convenient locations.
- 7-11 stores are found in easy-to-reach locations.
• Possession Utility -- Helps transfer ownership
from one party to another, including providing credit.
- Pay for lunch at McDonalds with your Visa card.
- A savings and loan office offers loans to home/car
buyers.
15-17
18. The Utilities
Created by
HOW MARKETERS USE UTILITY
Intermediaries
LG2
• Information Utility -- Opens two-way flows of
information between marketing participants.
- Websites offer advice to shoppers.
- Local government maps show tourist locations.
• Service Utility -- Provides service during and
after a sale and teaches customers how to best use
products.
- Apple offers classes to help computer buyers.
- College placement offices help students find jobs.
15-18
19. Progress
Assessment PROGRESS ASSESSMENT
• What’s a channel of distribution and what
intermediaries participate in it?
• Why do we need intermediaries? Illustrate how
intermediaries create exchange efficiency.
• How would you defend intermediaries to
someone who said getting rid of them would save
consumers millions of dollars?
• Give examples of the utilities intermediaries
create and how they provide them.
15-19
20. Wholesale
WHOLESALE INTERMEDIARIES
Intermediaries
LG3
• Wholesalers normally make B2B sales, however,
stores like Staples and Costco also have retail
functions.
- Retail sales are sales of goods and services to
customers for their own use.
- Wholesale sales are sales of goods and services to other
businesses for use in the business or resale.
• Consumers are more familiar with retailers
than wholesalers.
15-20
21. Wholesale
Intermediaries TYPES of WHOLESALE
LG3 INTERMEDIARIES
• Merchant Wholesalers -- Independently owned
firms that take title to the goods they handle. There
are two types:
1. Full-service wholesalers perform all distribution
functions.
2. Limited-function wholesalers perform only selected
distribution functions.
15-21
22. Wholesale
Intermediaries TYPES of LIMITED-FUNCTION
LG3 WHOLESALERS
• Rack Jobbers -- Furnish racks or shelves of
merchandise such as music and magazines for
retailers for display and sell them on consignment.
• Cash-and-Carry Wholesalers -- Serve mostly
smaller retailers with a limited assortment of
products.
• Drop Shippers -- Take orders from retailers and
other wholesalers and have the merchandise shipped
from producer to buyer.
15-22
23. Agents and
Brokers ROLES of AGENTS
LG3 and BROKERS
• Agents generally maintain long-term relationships
with the clients they represent.
- Manufacturer’s agents represent
several manufacturers in a specific
territory.
- Sales agents represent a single
client in a larger territory.
• Brokers usually represent
clients on a temporary basis.
15-23
24. Retail
Intermediaries RETAILING in the U.S.
LG4
• There are approximately 2.3 million retailers in
the U.S., not including websites.
• Retailers in the U.S.
employ over 11 million
people and operate
under many different
structures.
15-24
25. POP! GOES the RETAIL STORE
(Spotlight on Small Business)
• Pop-up stores are temporary outlets that remain
open for a short amount of time and offer items
not found in traditional stores.
• Toys ‘R’ Us opened more than 600 pop-up stores
during the 2010 holiday season.
• Procter & Gamble’s pop-up in New York was
solely for promotion; free Cover Girl makeovers
samples of Febreze candles were offered.
15-25
26. Retail
Intermediaries FASTEST GROWING RETAIL
LG4 CATEGORIES
• Video games
• Sports and fitness
• Home, garden, and
furniture
• Event tickets
• Consumer electronics
15-26
27. Retail
Intermediaries HOW to PREVENT
LG4 COUPON FRAUD
- Make sure your coupons
are unique.
- Have clear expiration
dates and rules.
- Train staff on how to spot
fraudulent coupons. Photo Courtesy of: Walmart Stores
Source: Entrepreneur, December 2010.
15-27
28. Retail
Intermediaries HOW to PREVENT
LG4 RETURN POLICY FRAUD
- Always require receipts
for returns.
- Shred receipts so they
cannot be used to return
stolen goods.
- Check for tampering.
- Have customers fill out a
return form and check
Photo Courtesy of: Bill Ballentyne
details.
Source: Entrepreneur, December 2010.
15-28
29. Retail
Intermediaries TYPES of RETAIL STORES
LG4
Types Examples
Department Store Sears, JC Penney, Nordstom
Discount Store Wal-Mart, Target
Supermarket Safeway, Kroger, Albertson’s
Warehouse Club Costco, Sam’s Club
Convenience Store 7-Eleven
Category Killer Toys-R-Us, Bass Pro Shops, Office
Depot
Outlet Store Nordstrom Rack, TJ Maxx, Nike
Outlet
Specialty Store Jewelry store, shoe stores, bicycle
shops
15-29
30. Retail
Distribution
Strategy
RETAIL DISTRIBUTION
LG4 STRATEGIES
• Intensive Distribution -- Puts products into as
many retail outlets as possible.
• Selective Distribution -- Uses only a preferred
group of the available retailers in an area.
• Exclusive Distribution -- The use of only one
retail outlet in a given geographic area.
15-30
31. Retail
Distribution
Strategy PICK a STRATEGY…
LG4 What’s the Correct Retail Strategy for These Products?
• Ralph Lauren Polo Shirts
• Diet Pepsi
• Rolls Royce Automobiles
• Calloway Golf Clubs
• Snickers Candy Bars
• Steinway Pianos
15-31
32. Progress
Assessment PROGRESS ASSESSMENT
• Describe the activities of rack jobbers and drop
shippers?
• What kinds of products would call for each of the
different distribution strategies: intensive,
selective, and exclusive?
15-32
33. Non-Store
Retailing FORMS of NON-STORE
LG5 RETAILING
• Electronic Retailing -- Selling goods and
services to ultimate consumers over the Internet.
• Telemarketing -- The sale of goods and services
via the telephone.
• Vending machines dispense
convenience goods when
consumers deposit sufficient
money.
15-33
34. Non-Store
Retailing
WHAT ONLINE STORES NEED
LG5 Important Features on E-Commerce Web Sites
• Convenient return
policies
• Established brands
• User reviews
• Professional site design
• Alternative payment
options
Source: GSI Commerce; Harris Interactive.
15-34
35. Non-Store
Retailing FORMS of NON-STORE
LG5 RETAILING
• Direct Selling -- Selling goods and services to
customers in their homes or workplaces.
• Multilevel marketing uses salespeople who work
as independent contractors.
• Direct Marketing -- Any activity that directly links
manufacturers or intermediaries with ultimate
customers.
15-35
36. Building
Cooperation in
Channel Systems The FOUR SYSTEMS of
LG6 CHANNEL RELATIONSHIPS
1. Corporate Distribution Systems
2. Contractual Distribution Systems
3. Administered Distribution Systems
4. Supply Chains
15-36
37. Corporate
Distribution
Systems
CORPORATE DISTRIBUTION
LG6 SYSTEMS
• Corporate Distribution Systems -- Exist
when one firm owns all the organizations in a channel
of distribution.
• Examples:
- Goodyear
- Sherwin Williams
Photo Courtesy of: Doug Wilson
15-37
38. Contractual
Distribution
Systems
CONTRACTUAL DISTRIBUTION
LG6 SYSTEMS
• Contractual Distribution Systems -- Exist
when members are bound to cooperate through
contractual agreements.
• Forms of Contractual Systems:
- Franchise Systems: McDonald’s, Baskin-Robbins
- Wholesale-Sponsored Chains: IGA, Ace Hardware
- Retail Cooperatives: Associated Grocers, True Value
15-38
39. Administered
Distribution
Systems
ADIMINISTERED DISTRIBUTION
LG6 SYSTEMS
• Administered Distribution Systems -- Exist
when producers manage all the marketing functions
at the retail level.
• Examples:
- Kraft
- Ralph Lauren
Photo Courtesy of: Stephen Boisvert
15-39
40. Supply Chains
SUPPLY CHAINS
LG6
• Supply Chain -- All the linked activities various
organizations must perform to move goods and
services from the source of raw materials to ultimate
consumers.
• Supply Chain Management -- The process of
managing the movement of raw materials, parts, work
in progress, finished goods, and related information
through all the organizations in the supply chain.
15-40
42. The GLOBAL SUPPLY CHAIN
for SERVICES
(Reaching Beyond Our Borders)
• Much movie animation takes place in the
Philippines while companies in China provide
research and development services.
• The competition among foreign suppliers is
intense, including the need to find workers with
strong language skills.
• One country that could be a leader in supplying
supply-chain services is the U.S.
15-42
43. Logistics:
Getting Goods
to Consumers
Efficiently
USING LOGISTICS
LG7
• Logistics -- The planning, implementing and
controlling of the physical flow of material, final goods
and related information from points of origin to points
of consumption.
• Firms outsource to
others specializing in
trade compliance to
determine what is
needed to market
products to global
customers.
15-43
44. Logistics:
Getting Goods
to Consumers
Efficiently
LOGISTICS APPLICATIONS
LG7
• Inbound Logistics -- Brings raw materials,
packaging, other goods and services and information
from suppliers to producers.
• Materials Handling
-- Movement of goods
within a warehouse,
from warehouse to the
factory floor and from
the factory floor to
workstations.
15-44
45. Logistics:
Getting Goods
to Consumers
Efficiently
LOGISTICS APPLICATIONS
LG7
• Outbound Logistics -- Manages the flow of
finished products and information to business buyers
and consumers.
• Reverse Logistics -- Brings goods back to the
manufacturer because of defects or for recycling.
15-45
46. Logistics:
Getting Goods
to Consumers COMPARING
Efficiently
LG7
TRANSPORTATION MODES
Dependabilit Flexibilit Frequenc
Mode Cost Speed Reach
y y y
Rail Med. Slow Medium High Low High
Trucks High Fast High Medium High Highest
Pipeline Low Medium Highest Lowest Highest Lowest
Ships Lowest Slowest Lowest Highest Lowest Low
Air Highest Fastest Low Low Medium Medium
15-46
47. Logistics:
Getting Goods
to Consumers
Efficiently
LOGISTICS SPECIALISTS
LG7
• Freight Forwarder -- Puts many small
shipments together to create a single large shipment
that can be transported cost-effectively by truck or
train.
• Intermodal Shipping
-- Uses multiple modes of
transportation to complete
a single long-distance
movement of freight.
15-47
48. Logistics:
Getting Goods
to Consumers
Efficiently
TYPES of
LG7 INTERMODAL SHIPPING
• Piggybacking: Truck
trailers placed on
trains
• Fishybacking: Truck
trailers placed on
ships
• Birdybacking: Truck
trailers placed on
planes
15-48
50. The Storage
Function STORAGE WAREHOUSES
LG7
• Storage warehouses hold products for a relatively
long period of time.
• Distribution warehouses are
used to gather and
redistribute products such as:
- Beer and soft drinks
- Package deliveries
15-50
51. Progress
Assessment PROGRESS ASSESSMENT
• What four systems have evolved to tie together
members of the channel of distribution?
• How does logistics differ from distribution?
• What are inbound logistics, outbound logistics,
and reverse logistics?
15-51
Notes de l'éditeur
If a customer wants a pair of shoes Zappos doesn ’t have, an employee may even direct them to a competitor that does!
Company: Kia
See Learning Goal 1: Explain the concept of marketing channels and their value. Ask students: How many of you think marketing intermediaries are an unnecessary cost? ” ( Often a majority of students will respond emphatically with a “ yes. ”) Use this as a basis to begin this chapter and an opportunity to explain the benefits these intermediaries play.
See Learning Goal 1: Explain the concept of marketing channels and their value.
See Learning Goal 1: Explain the concept of marketing channels and their value
See Learning Goal 1: Explain the concept of marketing channels and their value. There are different types of marketing intermediaries each with a different role.
See Learning Goal 1: Explain the concept of marketing channels and their value. Different types of products will get to market via different channels of distribution. Often small producers will bypass wholesalers and retailers taking their products directly to the marketplace.
See Learning Goal 1: Explain the concept of marketing channels and their value.
See Learning Goal 1: Explain the concept of marketing channels and their value. 1.This slide answers the question, “Why does marketing need intermediaries?” 2. Intermediaries do add cost, as many assume, but they also create an efficient exchange of product. Many students are surprised how intermediaries create value for the consumer.
See Learning Goal 1: Explain the concept of marketing channels and their value.
See Learning Goal 1: Explain the concept of marketing channels and their value.
See Learning Goal 2: Demonstrate how intermediaries perform the six marketing utilities.
See Learning Goal 2: Demonstrate how intermediaries perform the six marketing utilities.
See Learning Goal 2: Demonstrate how intermediaries perform the six marketing utilities.
See Learning Goal 2: Demonstrate how intermediaries perform the six marketing utilities.
A channel of distribution consists of agents, brokers, wholesalers, and retailers that join together to transport and store goods in their path or channel. Marketing intermediaries perform tasks such as transporting, storing, selling, advertising and relationship building. They are able to perform these tasks faster and more cheaply than most manufacturers creating a cost savings. The reason that marketing intermediaries have not been eliminated is they add value that greatly exceeds their cost. There are six types of utility provided by intermediaries: Form utility occurs when raw materials are changed into useful products. For example, retail butchers cut pork chops from a larger piece of meat. Time utility is added to products by making them available to consumers when they want them. Convenience stores like 7-Eleven and Quick Trip provide time utility since they are open 24 hours a day. Place utility occurs when products are placed where people want them. Again 7-Eleven and Quick Trip provide place utility, since they are in easy to reach locations. Possession utility is added by doing whatever is necessary to transfer ownership from one party to another. Activities associated with possession utility include delivery, installation, guarantees, and follow-up service. Information utility is created by opening two-way flows of information between marketing participants. Newspapers, websites, and salespeople all provide information utility. Service utility is added by providing fast, friendly service before and after the sale. This is a critical area for most retailers, since without service utility they would lose business to the Internet or to catalogs.
See Learning Goal 3: Identify the types of wholesale intermediaries in the distribution system.
See Learning Goal 3: Identify the types of wholesale intermediaries in the distribution system. About 80% of wholesalers are merchant wholesalers.
See Learning Goal 3: Identify the types of wholesale intermediaries in the distribution system.
See Learning Goal 3: Identify the types of wholesale intermediaries in the distribution system. Agents and brokers do not take title or possession of the product but simply represent the interest of their clients.
See Learning Goal 4: Compare the distribution strategies retailers use.
See Learning Goal 4: Compare the distribution strategies retailers use. The aim of these types of pop-ups is to create lasting relationships with customers, rather than just distribute the products.
See Learning Goal 4: Compare the distribution strategies retailers use. Fastest Growing Retail Categories This slide presents the fastest growing retail categories. Have students brainstorm reasons why they believe these categories are growing at a fast rate. Ask students: What value do consumers see in these particular categories?
See Learning Goal 4: Compare the distribution strategies retailers use. How to Prevent Coupon Fraud Retail fraud cost the industry approximately $10 billion a year. In our current economic state, coupon fraud is becoming more and more prevalent. This slide shows how businesses can protect themselves. Ask students: Is it illegal to counterfeit coupons? Is it ethical?
See Learning Goal 4: Compare the distribution strategies retailers use. How To Prevent Return Policy Fraud Retail fraud cost the industry approximately $10 billion a year. In our current economic state, more and more customers are returning products after personal use. This slide shows how businesses can protect themselves. Ask students: Should retailers have more strict return policies? What would you do if you owned a shop and customers were returning used goods?
See Learning Goal 4: Compare the distribution strategies retailers use.
See Learning Goal 4: Compare the distribution strategies retailers use. The retail strategy employed often depends on the product one is selling.
See Learning Goal 4: Compare the distribution strategies retailers use. Ralph Lauren Polo Shirts - selective strategy Diet Pepsi - intensive strategy Rolls Royce Automobiles - exclusive strategy Calloway Golf Clubs - selective strategy Snickers Candy Bars - intensive strategy Steinway Pianos - exclusive strategy
Rack jobbers furnish racks full of merchandise like toys, health and beauty aids to retailers. They display the items and sell them on consignment, keeping title to the goods until they are sold. Drop shippers solicit orders and have the merchandise shipped directly from producer to the buyer. They own the merchandise but do not handle it, stock it or deliver it. Intensive distribution includes convenience items such as gum, magazines, candy and cigarettes. Selective distribution includes items such as appliances, furniture, and clothing. Exclusive distribution includes specialty products such as fly-fishing gear or equipment for snow skiing.
See Learning Goal 5: Explain the various kinds of non-store retailing. In many countries vending machines, kiosks and carts are more popular than in the United States. The Japanese Vending Machine Manufacturers Association estimates there is one vending machine for every 23 people, selling everything from soft drinks to umbrellas. You can even purchase gold from vending machines in Abu Dhabi!
See Learning Goal 5: Explain the various kinds of non-store retailing. What Online Sites Need Online retailing is relatively new and is evolving to be more customer friendly. This slide gives students an idea of the important features on e-commerce web sites. The lack of these features often causes people to shy away from making purchases online. Ask the students: Do you have hesitations about shopping online? Why or why not?
See Learning Goal 5: Explain the various kinds of non-store retailing.
See Learning Goal 6: Explain the various ways to build cooperation in channel systems.
See Learning Goal 6: Explain the various ways to build cooperation in channel systems.
See Learning Goal 6: Explain the various ways to build cooperation in channel systems.
See Learning Goal 6: Explain the various ways to build cooperation in channel systems.
See Learning Goal 6: Explain the various ways to build cooperation in channel systems.
See Learning Goal 6: Explain the various ways to build cooperation in channel systems. Supply chain management is a key to effective distribution in the 21st century. This slide illustrates to students how supply chains are structured and implemented in the market.
See Learning Goal 6: Explain the various ways to build cooperation in channel systems.
See Learning Goal 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
See Learning Goal 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
See Learning Goal 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
See Learning Goal 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
See Learning Goal 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods.
See Learning Goal 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods. A truck driver from North Carolina, Malcolm McLean invented container shipping in 1956.
See Learning Goal 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods. Get Your Product There Not only must a manufacturer produce a product, they then must figure out the best way to ship the product. This slide gives students insight into the most popular methods of freight transportation. To make sure students understand this slide, discuss with the class the advantages and disadvantages of each method of transportation.
See Learning Goal 7: Describe logistics and outline how intermediaries manage the transportation and storage of goods. Seasonal items, like snow shovels and lawnmowers, are often held in storage warehouses.
The four systems that have emerged to tie firms together are: corporate systems, contractual systems, administered systems, and supply chains. Logistics differs from distribution in many ways. Logistics is the planning, implementing, and controlling of the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit. Distribution is much less complex than logistics and simply involves moving the product from the manufacturer to the end consumer. Inbound logistics is the process of bringing raw materials, packaging, other goods and services, and information from suppliers to producers. Outbound logistics manages the flow of finished products and information to business buyers and them to consumers. Reverse logistics brings goods back to the manufacturer because of defects or for recycling.
