Transcript Chapter 2
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