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Introduction to Business

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Introduction to Business ­MGT 211
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Lesson 29
THE DISTRIBUTION MIX
In selecting a distribution mix, a firm may use any or all of eight distribution channels. The first
four are aimed at getting products to consumers, the fifth is for consumers or business
customers, and the last three are aimed at getting products to business customers. Channel 1
involves direct sales to consumers, Channel 2 includes a retailer. Channel 3 involves both a
retailer and a wholesaler, and Channel 4 includes an agent or broker who enters the system
before the wholesaler and retailer. Channel 5 includes only an agent between the producer
and the customer. Channel 6, which is used extensively for e-commerce, involves a direct sale
to an industrial user. Channel 7, which is used infrequently, entails selling to business users
through wholesalers. Channel 8 includes retail superstores that get products from producers or
wholesalers (or both) for reselling to business customers. Distribution strategies include
intensive, exclusive, and selective distribution, which differ in the number of products and
channel members involved and in the amount of service performed in the channel.
Wholesalers act as distribution intermediaries. They may extend credit as well as store,
repackage, and deliver products to other members of the channel. Full-service and limited-
function merchant wholesalers differ in the number and types of distribution functions they
offer. Unlike wholesalers, agents and brokers never take legal possession of products. Rather
they function as sales and merchandising arms of manufacturers who do not have their own
sales forces. They may also provide such services as advertising and display merchandising.
In e-commerce, e-agents assist Internet users in finding products and best prices.
Retailers fall into two classifications: product line and bargain. Product line retailers include
department stores, supermarkets, hypermarkets, and specialty stores. Bargain retailers
include discount houses, off-price stores, catalog showrooms, factory outlets, warehouse
clubs, and convenience stores. These retailers differ in terms of size, goods and services
offered, and pricing. Some retailing also takes place without stores. Non-store retailing may
use direct mail catalogs, vending machines, video marketing, telemarketing, electronic
retailing, and direct selling. Internet retail shopping includes electronic storefronts where
customers can examine a store's products, receive information about sellers and their
products, place orders, and make payments electronically. Customers can also visit
cybermalls­collections of virtual storefronts representing a variety of product lines on the
Internet.
Physical distribution includes all the activities needed to move products from manufacturers to
consumers, including customer service, warehousing, and transportation of products.
Warehouses may be public or private and may function either as long-term storage
warehouses or as distribution centers. In addition to storage, insurance, and wage-related
costs, the cost of warehousing goods also includes inventory control (maintaining adequate
but not excessive supplies) and material handling (transporting, arranging, and retrieving
supplies).
Trucks, railroads, planes, water carriers (boats and barges), and pipelines are the major
transportation modes used in the distribution process. They differ in cost, availability,
reliability, speed, and number of points served. Air is the fastest but most expensive mode;
water carriers are the slowest but least expensive. Since transport companies were deregulated
in 1980, they have become more cost-efficient and competitive by developing such innovations
as inter modal transportation and containerization.
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The Distribution Mix
Getting products from producer to consumer is the next element of the marketing mix, known
as distribution, or place. An organized network of firms used to move goods and services
from producers to customers is called a distribution channel, or marketing channel. A
company's decisions about which channels to use, the distribution mix, plays a major role in
the firm's success.
Intermediaries and Distribution Channels
For most of your purchases, you rely on market intermediaries, also known as middlemen,
who channel goods and services from producer to end-users.
Wholesaler-intermediary those who sells products to other businesses for resale to final
consumers.
Retailer-intermediary those who sells products directly to consumers.
A firm's choice between using an independent intermediary and employing its own distribution
network and sales force depends on three factors: (1) the company's target markets (2) the
nature of its products (3) the costs of maintaining distribution and sales networks
The number and type of market intermediaries involved in the channel of distribution depend
on the kind of product and the marketing practices of a particular industry. There are
important differences among the channels of distribution for consumer products and
business products.
i.
Distribution of Consumer Products
Channels for consumer goods are usually the most complex, although
they can be categorized. Typical channels include:
1. Channel 1: Direct Distribution of Consumer Products, ex.
Avon, Fuller Brush, Tupperware
2. Channel 2: Retail Distribution of Consumer Products, ex.
Levi's, Goodyear, PeaPod.com
3. Channel 3: Wholesale Distribution of Consumer Products,
ex. combination convenience store/gas station
4. Channel 4: Distribution through Sales Agents or Brokers,
ex. food brokers, travel agents, realtors
ii.
The Pros and Cons of Non-direct Distribution
Non-direct distribution becomes higher priced for end users because
each distribution link charges a markup or commission.
1. Intermediaries can save consumers both time and money by
providing added value.
iii.
Channel 5: Distribution by Agents to Consumers and Businesses,
ex. some travel agencies. Channel 5 differs from the other channels in
two ways: (1) it includes an agent as the sole intermediary (2) it
distributes to both consumers and business customers
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Distribution of Business Products
Industrial Distribution-network of channel members involved in the flow of manufactured
goods to industrial customers.
i.
Channel 6: Direct Distribution of Business Products, ex. Dell
Computers
ii.
Channel 7: Wholesale Distribution of Industrial Products, ex.
distribution of office equipment and accessories
iii.
Channel 8: Wholesale Distribution to Business Retailers, ex.
Staples, Office Depot, Office Max
Distribution Strategies --- A distribution strategy is a company's overall plan for moving
products to buyers and it plays a major role in the company's success. One part of that
strategy, choosing the appropriate market coverage, depends primarily on the type of product,
as convenience goods require different strategies from organizational supplies.
i.
Intensive distribution, where the market is saturated with a product,
almost certainly needs a long distribution chain. Normally used for low-
cost consumer goods with widespread appeal such as candy and
magazines.
ii.
Exclusive distribution severely limits the number of outlets for the item
in a particular geographic area and is most often used for expensive
specialty or technical products, such as Jaguar automobiles and Rolex
watches.
iii.
Selective distribution uses a limited number of outlets and might work
better for shipping goods that a buyer is likely to want to compare for
features and prices. Examples are fashions and appliances.
Channel conflict --- can occur when one channel member places its own success above the
success of the entire channel, or when the members of a distribution channel disagree over the
roles they should play or the rewards they should receive.
Channel Leadership --- can occur when a channel member who is most powerful in
determining the roles and rewards of other members. That member is called the Channel
Captain. Power may come from the desirability of a producer's product, or from the large sales
volume generated by a wholesaler or retailer.
Wholesaling --- Wholesalers sell primarily to retailers, other wholesalers, and industrial or
institutional users. Wholesalers provide a variety of services to customers who are buying
products for resale or business use. The types of wholesale intermediaries are:
Merchant wholesalers -- independent wholesaler who takes legal possession of goods
produced by a variety of manufacturers and then resells them to other businesses. Merchant
wholesalers also provide storage and deliver; the merchant wholesaling industry employs 6
million people in the United States.
i.
Full-Service Merchant Wholesaler--merchant wholesaler who provides
credit, marketing, and merchandising services in addition to traditional
buying and selling services. Approximately 80 percent of all merchant
wholesalers are full-service merchant wholesalers.
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ii.
Limited-Service Merchant Wholesaler--merchant wholesaler who
provides a limited range of services, sometimes only storage.
iii.
Drop Shipper--limited-function merchant wholesaler who receives
customer orders, negotiates with producers, takes title to goods, and
arranges for shipment to customers.
iv.
Rack jobbers--limited-function merchant wholesaler who sets up
displays in retail outlets, stock inventory, and mark prices on
merchandise displayed in a certain area of a store.
Agents and Broker -- independent intermediary who usually represents many manufacturers
and sells to wholesalers or retailers. Provides a wide range of services including shelf and
display merchandising and advertising layout. Agents and brokers never actually own the
merchandise they sell.
The Advent of the E-Intermediary -- Internet distribution channel member who assists in
moving products through to customers or who collects information about various sellers to be
presented in convenient format for Internet customers.
i.
Syndicated Selling--e-commerce practice whereby a Web site offers
other Web sites commissions for referring customers.
ii.
Shopping Agent (E-Agent) --e-intermediary (middleman) in the
Internet distribution channel that assists users in finding products and
prices but who does not take possession of products.
iii.
Business-to-Business Broker--e-commerce intermediary serving the
business customer.
Retailing --- Retailers sell to individuals who buy products for ultimate consumption and are a
visible element in the distribution chain. Retailers represent the end of the distribution
channel, making the sale of goods or services to final consumers. Today's retail stores
include department stores, discount stores, warehouse clubs, hypermarkets, factory outlets,
category killers, supermarkets, convenience stores, and catalog stores. Retailers save
consumers time and money.
Types of Retailer Outlets
i.
Product Line Retailer-retailer featuring broad product lines.
1. Department Store--large product line retailer characterized by
organization into specialized departments.
2. Supermarket--large product line retailer offering a variety of
food and food-related items in specialized departments. Ex.,
Safeway, Kroger, etc.
3. Hypermarket--very large product line retailer carrying a wide
variety of unrelated products.
4. Specialty Stores--carry only a particular type of good, but an
extensive selection of brands, styles, sizes, models, and prices
within each line stocked such as children's clothing, books, or
sporting goods.
5. Category killers are superstores such as Toys R Us or Office
Depot that dominate a market by stocking every conceivable
variety of a particular line of merchandise.
6. Scrambled merchandising--retail practice of carrying any
product that is expected to sell well regardless of a store's
original product offering
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ii.
Bargain Retailer--retailer carrying a wide range of products at bargain
prices.
1. Discount House--bargain retailer that generates large sales
volume by offering goods at substantial price reductions. K-Mart,
Wal-mart
2. Off-Price Store--bargain retailer that buys excess inventories
from high-quality manufacturers and sells them at discounted
prices. Marshall's is one of the most successful.
3. Catalog Showroom--bargain retailer in which customers place
orders for catalog items to be picked up at on-premises
warehouses.
4. Factory Outlet--bargain retailer owned by the manufacturer
whose products it sells.
5. Warehouse Club (or Wholesale Club) --bargain retailer offering
large discounts on brand-name merchandise to customers who
have paid annual membership fees. Ex., Price Club, which
merged with rival Costco.
6. Convenience Store--retail store offering easy accessibility,
extended hours, and fast service. Ex. 7-Eleven and Circle K.
Non-store and Electronic Retailing
i.
Major Types of Non-store Retailing
1. Direct Response Retailing--non-store retailing by direct
interaction with customers to inform them of products and to
receive sales orders, including mail-order (catalog) marketing,
telemarketing, direct selling (Avon), and electronic marketing
(including video shopping), and mail marketing.
ii.
The Boom in Electronic Retailing
Electronic retailing is non-store retailing in which information about the
seller's products and services is connected to consumers' computers,
allowing consumers to receive the information and purchase the
products in the home.  The Internet is a borderless shopping
environment with great potential for some products. Some companies,
known as pure-plays, only do business through the Internet.
1. Internet-Based Stores--Use of the Internet to interact with
customers is booming. Internet usage by small businesses in the
United States doubled in 1998, nearly doubled again in 1999,
and added another 2.1 million Websites during 2000. Similar
growth has been seen in the B2B market.
2. Electronic-Catalog--a way of using the Internet to display
products and services for both retail shoppers and business
customers.  This format reaches an enormous number of
potential customers at relatively low cost. Some catalogs have
connected with FedEx's Business Link for ordering and shipping.
3. Electronic Storefronts and Cybermalls
a. Electronic Storefront--a Web site in which consumers
collect  information  about  products  and  buying
opportunities.
b. Cybermall--A cybermall is a Web-based retail complex
that houses dozens of electronic storefronts or Internet-
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based stores that sell everything from computer software
to gourmet chocolates. These Internet storefronts offer
the advantage of "walk-in" traffic and provide Web pages
and servers to their tenants for a sizable fee.
iii.
From Door-to-door to E-Sales
c. Multilevel Marketing--channel in which self-employed
distributors are paid commissions for recruiting new
customers and new company representatives. Ex.
Amway.
d. Interactive and Video Marketing Interactive Marketing--
multimedia Web sites using voice, graphics, animation,
film clips, and access to live human advice.  Ex.
LivePerson.com Video Marketing-non-store retailing to
consumers via standard and cable television. Ex. QVC
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Table of Contents:
  1. INTRODUCTION:CONCEPT OF BUSINESS, KINDS OF INDSTRY, TYPES OF TRADE
  2. ORGANIZATIONAL BOUNDARIES AND ENVIRONMENTS:THE ECONOMIC ENVIRONMENT
  3. BUSINESS ORGANIZATION:Sole Proprietorship, Joint Stock Company, Combination
  4. SOLE PROPRIETORSHIP AND ITS CHARACTERISTICS:ADVANTAGES OF SOLE PROPRIETORSHIP
  5. PARTNERSHIP AND ITS CHARACTERISTICS:ADVANTAGES AND DISADVANTAGES OF PARTNERSHIP
  6. PARTNERSHIP (Continued):KINDS OF PARTNERS, PARTNERSHIP AT WILL
  7. PARTNERSHIP (Continued):PARTNESHIP AGREEMENT, CONCLUSION, DUTIES OF PARTNERS
  8. ORGANIZATIONAL BOUNDARIES AND ENVIRONMENTS:ETHICS IN THE WORKPLACE, SOCIAL RESPONSIBILITY
  9. JOINT STOCK COMPANY:PRIVATE COMPANY, PROMOTION STAGE, INCORPORATION STAGE
  10. LEGAL DOCUMENTS ISSUED BY A COMPANY:MEMORANDUM OF ASSOCIATION, CONTENTS OF ARTICLES
  11. WINDING UP OF COMPANY:VOLUNTARY WIDNIGN UP, KINDS OF SHARE CAPITAL
  12. COOPERATIVE SOCIETY:ADVANTAGES OF COOPERATIVE SOCIETY
  13. WHO ARE MANAGERS?:THE MANAGEMENT PROCESS, BASIC MANAGEMENT SKILLS
  14. HUMAN RESOURCE MANAGEMENT:Human Resource Planning
  15. STAFFING:STAFFING THE ORGANIZATION
  16. STAFF TRAINING & DEVELOPMENT:Typical Topics of Employee Training, Training Methods
  17. BUSINESS MANAGERíS RESPONSIBILITY PROFILE:Accountability, Specific responsibilities
  18. COMPENSATION AND BENEFITS:THE LEGAL CONTEXT OF HR MANAGEMENT, DEALING WITH ORGANIZED LABOR
  19. COMPENSATION AND BENEFITS (Continued):MOTIVATION IN THE WORKPLACE
  20. STRATEGIES FOR ENHANCING JOB SATISFACTION AND MORALE
  21. MANAGERIAL STYLES AND LEADERSHIP:Changing Patterns of Leadership
  22. MARKETING:What Is Marketing?, Marketing: Providing Value and Satisfaction
  23. THE MARKETING ENVIRONMENT:THE MARKETING MIX, Product differentiation
  24. MARKET RESEARCH:Market information, Market Segmentation, Market Trends
  25. MARKET RESEARCH PROCESS:Select the research design, Collecting and analyzing data
  26. MARKETING RESEARCH:Data Warehousing and Data Mining
  27. LEARNING EXPERIENCES OF STUDENTS EARNING LOWER LEVEL CREDIT:Discussion Topics, Market Segmentation
  28. UNDERSTANDING CONSUMER BEHAVIOR:The Consumer Buying Process
  29. THE DISTRIBUTION MIX:Intermediaries and Distribution Channels, Distribution of Business Products
  30. PHYSICAL DISTRIBUTION:Transportation Operations, Distribution as a Marketing Strategy
  31. PROMOTION:Information and Exchange Values, Promotional Strategies
  32. ADVERTISING PROMOTION:Advertising Strategies, Advertising Media
  33. PERSONAL SELLING:Personal Selling Situations, The Personal Selling Process
  34. SALES PROMOTIONS:Publicity and Public Relations, Promotional Practices in Small Business
  35. THE PRODUCTIVITY:Responding to the Productivity Challenge, Domestic Productivity
  36. THE PLANNING PROCESS:Strengths, Weaknesses, Threats
  37. TOTAL QUALITY MANAGEMENT:Planning for Quality, Controlling for Quality
  38. TOTAL QUALITY MANAGEMENT (continued):Tools for Total Quality Management
  39. TOTAL QUALITY MANAGEMENT (continued):Process Re-engineering, Emphasizing Quality of Work Life
  40. BUSINESS IN DIGITAL AGE:Types of Information Systems, Telecommunications and Networks
  41. NON-VERBAL COMMUNICATION MODES:Body Movement, Facial Expressions
  42. BUSINESS ORGANIZATIONS:Organization as a System
  43. ACCOUNTING:Accounting Information System, Financial versus Managerial Accounting
  44. TOOLS OF THE ACCOUNTING TRADE:Double-Entry Accounting, Assets
  45. FINANCIAL MANAGEMENT:The Role of the Financial Manager, Short-Term (Operating) Expenditures