Transcript Part 1
Major Points of Ch. 1 1 Let’s Learn about: 1. Key Terms and Definitions 2. Why Marketing Channels and Intermediaries?** 3. Marketing Channels and other Marketing Concepts 4. The Flows in the Marketing Channels** 5. Basic Principles for Marketing Channels** 6. Evolution of Marketing Channel Concept Chapter 2 The Channel Participants Major Points of Ch. 2 Let’s learn about: 1. Who Are Major Participants in the Marketing Channel* 2. Why does a manufacturer shift distribution tasks to intermediaries? ** 3. Wholesalers (or Distributors) 4. Retailers 5. Facilitating Agencies 1 Topic 1: Major Participants in the Marketing Channel Producers & Manufacturers Intermediaries Wholesale Retail Intermediaries Intermediaries * Commercial Channel 2 Final Users Consumers Industries * Target Markets Topic 2: 1 Why shift distribution tasks to intermediaries?* Producers & Manufacturers • lack expertise • lack economies of scale in distribution Intermediaries • spread high fixed costs over large quantities of diverse products • achieve economies of scope and economies of scale 2 Example: Distribution of Crayons A Manufacturer’s direct distribution to customers requires • Huge order processing facility • Huge inventory • Several warehouse locations • Transportation of product to consumers = distribution cost prohibitive Value Chain Analysis** Support Activities Firm Infrastructure Human Resource Management Technology Development Procurement Inbound Logistics Operations Outbound Logistics Primary Activities * Firm Boundary Issue Marketing and Sales Service Topic 3: 2 Major Types of Wholesalers All Wholesale Firms Independent middlemen Merchant wholesaler Agents, brokers, & commission merchants * Transfer Pricing Issue Manufacturer owned Manufacturers' sales branches & offices (Merchant) Wholesalers Buy Take title to Store Handle www.ingrammicro.com Large quantities/varieties of products Resell to Retailers Industrial, commercial, or institutional concerns Other Wholesalers 2 Agents, Brokers, & Commission Merchants Involved in buying & selling while acting on behalf of manufacturers Commissions on sales or purchases Ex) Latest Changes in IT Industry 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. Question: Why would a manufacturer operate its own sales branches? 2 2 Merchant Wholesalers’ Main Distribution Tasks for Manufacturers 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’ Main Distribution Tasks To Serve Customers* Assure product availability Provide customer service Extend credit & financial assistance Offer assortment convenience Break bulk Help customers with advice & technical support** 2 Agent Wholesalers’ Main Distribution Tasks Manufacturers’ Agents Market coverage Sales contacts 2 Agent Wholesalers’ Main Distribution Tasks Selling agents Market coverage Sales contacts Order processing Marketing information Product availability Customer services 2 Agent Wholesalers’ Distribution Tasks Brokers Ex) Food Brokers Market coverage Sales contacts Order processing Marketing information Product availability Customer services 2 Agent Wholesalers’ Main Distribution Tasks Commission Merchant Market coverage Sales contacts Order processing Breaking bulk Credit Holding inventory 2 Trends in Wholesaler Size & Concentration Measured by: Types of Wholesalers Size of wholesaler Majority are small businesses Sales volume Nearly 40% 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 53% of sales for this type 2 Topic 4: 2 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 Kind-of-Business Classifications Retail Trade • Motor vehicle & parts dealers • Furniture & home furnishings stores • Electronics & appliance stores • Building material & garden equip. & supply dealers • Food & beverage stores • Health & personal care stores • Gasoline stations • Clothing & clothing accessories stores • Sporting goods, hobby, book, & music stores • General merchandise stores • Miscellaneous store retailers • Nonstore retailers 1 Retail Structure Trends Decreasing number of establishments Increasing sales = increase in size of retail establishments measured by average sales volume per store Concentration in Retailing 4% of all retail firms accounted for nearly 80% of total sales!! 1 2 Distribution Tasks Performed by Retailers The role of the retailer 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 (1961) 2 Distribution Tasks Performed by Retailers • Interpret and relay consumer demand* • Remove risk by ordering in advance of the season • Divide large quantities into consumersized lots • Offer manpower & physical facilities close to consumers’ residences • Provide personal assistance to help sell products* • Offer storage A TAXONOMY OF RETAILER TYPES* RETAILER TYPE MAIN FOCUS ON MARGIN OR TURNOVER? Margin BULKBREAKING SPATIAL CONVENIENCE WAITING & DELIVERY TIME VARIETY (BREADTH) ASSORTMENT (DEPTH) Yes Moderate Low wait time Broad Moderate/ Shallow Specialty store (e.g., The Gap) Margin Yes Moderate Low wait time Narrow Deep Mail Order/ Catalog (e.g., Lands' End) Margin Yes Extremely High Moderate/ High wait time Narrow Moderate Convenience store (e.g., 7Eleven) Both Yes Very High Low wait time Broad Shallow Category killer (e.g., Toys "R" Us) Turnover Yes Low Low wait time Narrow Deep Mass Merchandiser (e.g., Wal-Mart) Turnover Yes Low Moderate wait time (may be out of stock) Broad Shallow Hypermarket (e.g., Carrefour) Turnover Yes Low Moderate wait time Broad Moderate Warehouse Club (e.g., Sam's Club) Turnover No Low Moderate/high wait time (may be out of stock) Broad Shallow Department store (e.g., May Co.) 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 THE INCREASING POLARITY OF RETAIL TRADE Stagnant Rates of Growth and Low Profitability Specialized Retail Outlets: High Touch Conventional Outlets High Rates of Growth and Attractive Profitability MassMerchandisers: High Tech USE OF THE UPC CODE IN RETAIL PRODUCT REPLENISHMENT: WAL-MART EXAMPLE • • • • • The UPC is scanned and registered into Wal-Mart’s database Item locator program. Data transmission. Retail link. Forecasting. UPC Code for Carnation Nonfat Dry Milk, 25.6 oz. size UPC Code for Duncan Hines Moist Deluxe Lemon Supreme Flavor Cake Mix, 18.25 oz. size UPC Code for Marketing Channels, 5th edition Source: Text is adapted from Linda F. Magyar, “A Turn of the SKU,” New York Times Magazine, April 6, 1997, section 6, p. 55. UPCs are scanned from real products. Topic 5: 2 Facilitating Agencies in Marketing Channels • • • • • • • Transportation agencies Storage agencies Order processing agencies Advertising agencies Financial agencies Insurance companies Marketing research firms SOME SOURCES OF INFORMATION ABOUT THE WHOLESALING/RETAILING • General industry information: – http://www.naw.org (National Association of Wholesaler-Distributors) – http://www.pwc.com/Extweb/industry.nsf/docid/F8F0 7C9BBD28881A85256D9D00127C1C (a site run by PWC) • Industry consultants: Pembroke Consulting, Inc. Merrifield Consulting Group, Inc. Indian River Consulting Group Frank Lynn & Associates Michael E. Workman & Associates 1 • We Missed Something in the Whole Discussion on Marketing Channel Participants. • What is it?