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Submitted by:

Kriza S. Matro Flores, CPA

Charissa May V. Gabriola, CPA
Students, Master in Business Administration

Submitted to:
Professor Narciso Immanuel Manny C. Managuelod
Marketing Management

October 25, 2017

MBA 111 | Marketing Management


Channel of Distribution combination of institutions through which a seller markets

products to the user or ultimate consumer.

The Need for Marketing Intermediaries

The intermediary can perform functions more than cheaply and more efficiently than
the producer can.
Transform the assortments of products made by producers into the assortments
wanted by the consumers.
Plays an important role in matching supply and demand.

Classifications/Types of Marketing Intermediaries:

1. Middle-Man an independent business

concern that operates as a link between
producers and ultimate consumers or
organizational buyer.

2. Merchant Middleman a middleman who

buys the goods outright and takes the title
to them.

3. Agent a business unit that negotiates purchases, sales, or both but does not take
title to the goods in which it deals.

4. Retailer a merchant middleman who is engaged primarily in selling to ultimate


5. Broker a middleman who serves as a go-between for the buyer and seller.

6. Manufacturers Agent an agent who generally operates on an extended contractual

basis, often sells within an exclusive territory, handles noncompeting but related
lines of goods, and possesses limited authority with regard to price and terms of
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7. Distributor a wholesale middleman especially in lines where selective or exclusive
distribution is common at the wholesale level in which the manufacturer expects
strong promotional support; often a synonym of wholesaler.

8. Jobber a middleman who buys from manufacturer and sells to retailers; a


9. Facilitating Agent a business firm that assists in the performance of distribution

tasks other than buying, selling and transferring title.

Functions of Marketing Intermediaries

Transactional Function
Buying: Purchasing products for resale or as an agent for supply of a product.
Selling: Contacting potential customers, promoting products, and soliciting orders.
Risk Taking: Assuming business risks in the ownership of inventory that can become
obsolete or deteriorate.

Logistical Function
Assorting: Creating products assortments from several sources to serve customer.
Storing: Assembling and protecting products at a convenient location to offer better
customer service.
Sorting: Purchasing in large quantities and breaking into smaller amounts desired by
Transporting: Physically moving products to customers.

Financing: Extending credit to customer
Grading: Inspecting, testing, or judging products, and assigning them quality grades.
Marketing Information and research: Providing information to customers and suppliers,
including competitive conditions and trends.

Major Forms of Channels of Distribution

1) Direct Channel selling directly to a market.
2) Indirect Channels channels with one or more intermediaries.
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Selecting Channels of Distribution

Specific Considerations
1. Distribution Coverage required because of the characteristics of the product, the
environment needed to sell the product, and the needs and expectations of the
potential buyer, products will vary in the intensity of distribution coverage they
Intensive Distribution
i. Here the manufacturer attempts to gain exposure through as many
wholesalers and retailers as possible.
Selective Distribution
i. Here the manufacturer limits the use of intermediaries to the ones
believed be the best available in geographic area.
Exclusive Distribution
i. Here the manufacturer severely limits distribution; intermediaries are
provided rights within a particular territory.

2. Degree of Control Desired The seller must make a decision concerning the degree
of control desired over the firms products. The degree of control achieved by the
seller is proportionate to the directness of the channel.

3. Total Distribution Cost



MARKETING MANAGEMENT | Distribution Channel

Order Processing
Cost of lost business
Inventory carrying cost, including
i. Storage-space charges
ii. Cost of Capital invested
iii. Taxes
iv. Insurance
v. Obsolescence and deterioration
Materials handling

4. Channel Flexibility a final consideration relates to the ability of the manufacturer to

adapt to changing conditions.

The role of marketing channels in marketing strategy

means of making goods and services available to ultimate users

4 functions of marketing channels

1. to facilitate the exchange process
2. to distributors adjust for discrepancies in the markets assortment of goods and
3. to standardize payment terms, delivery schedules, prices, purchase lots, and other
4. to facilitate searches by both buyers and sellers and bring them together to
complete the exchange process

Vertical Marketing Systems

A planned channel system designed to improve distribution efficiency and cost-
effectiveness by integrating various functions throughout the distribution channel.

Types of Vertical Marketing Systems

1. Corporate System
streamlines the process by bringing all of the elements of the distribution channel,
from manufacturing to the stores, under the ownership of a single business
ownership of the distribution channel can happen from any point in the chain

2. Contractual System
pieces of the distribution channel continue to operate as individual entities
the businesses enter into contractual relationships with other elements in the
distribution channel with their respective obligations and benefits spelled out

ahead of time

MARKETING MANAGEMENT | Distribution Channel

allows all of the participants to leverage economies of scale that enable more
competitive pricing
Variations on contractual vertical marketing systems exist, such as retail co-ops
that only deal with a wholesaler. For example, if 15 independently owned
restaurants enter into an agreement with a produce wholesaler, the total costs go
down for everyone thanks to bulk ordering and shipping.

3. Administered System
employ neither formal contractual obligation nor corporate ownership of the
distribution channel
one member of the distribution channel wields enough power, generally though
sheer size, to effectively control the activities of the other members of the
distribution channel

Ten major types of wholesalers

1. Merchant wholesalers.
These wholesalers own (take title to) the products they sell.
often specialize by certain types of products or customers and they service
relatively small geographic areas

2. General merchandise wholesalers

carry a wide variety of nonperishable items such as hardware, electrical
supplies, plumbing supplies, furniture, drugs, cosmetics, and automobile
originally developed to serve the early retailers the general stores

3. Single-line (or general-line) wholesalers

carry a narrower line of merchandise than general merchandise wholesalers

4. Specialty wholesalers
carry a very narrow range of products and offer more information and
service than other service wholesalers

5. Cash-and-carry wholesalers
operate like service wholesalers except that the customer must pay cash

6. Drop-shippers
own (take title to) the products they sell but they do not actually handle,
stock, or deliver them
wholesalers are mainly involved in selling
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7. Truck wholesalers
specialize in delivering products that they stock in their own trucks
by handling perishable products in general demand tobacco, candy, potato
chips, and salad dressings truck wholesalers may provide almost the same
functions as full-service wholesalers

8. Mail-order wholesalers
sell out of catalogs that may be distributed widely to smaller industrial
customers or retailers who might not be called on by other middlemen

9. Producers cooperatives
operate almost as full-service wholesalers with the "profits" going to the
cooperatives customer-members

10. Rack jobbers

specialize in nonfood products sold through grocery stores and supermarkets
and they often display them on their own wire racks

Retail involves the sale of merchandise from a single point of purchase directly to a
customer who intends to use that product. Retailers are the final link in the supply
chain between manufacturers and consumers. Retailing is important because it allows
manufacturers to focus on producing goods without having to be distracted by the
enormous amount of effort that it takes to interact with the end-user customers who
want to purchase those goods.

Two types of Retailers

1. Store
2. Non Store

Types of Retail Stores

1. Department Store - sell a wide range of merchandise that is arranged by category
into different sections of the physical retail space.

2. Grocery Stores and Supermarkets - sell all types of food and beverage products, and
sometimes also home products, clothing, and consumer electronics as well.

3. Warehouse Retailers - large no-frills warehouse-type facilities stocked with a large

variety of products packaged in large quantities and sold at lower-than-retail prices

4. Specialty Retailers - specialize in a specific category of products. Toys R Us,


Victoria's Secret, and Nike are examples of specialty retailers.


MARKETING MANAGEMENT | Distribution Channel

5. Convenience Retailer - usually part of a retail location which sells gasoline primarily,
but also sell a limited range of grocery merchandise and auto care products at a
premium "convenience" price from a brick-and-mortar store

6. Discount Retailer sell a wide variety of products are often private labeled or
generic brands at below-retail prices. Discount retailers like Family Dollar, Dollar
General, and Big Lots will often source closeout and discontinued merchandise at
lower-than-wholesale prices and pass the savings onto their customers.

7. Mobile Retailer - uses a smartphone platform to process retail transactions and then
ships the products that were purchased directly to the customer.

8. Internet E-tailer sell from an Internet shopping website and ship the purchases
directly to customers at their homes or workplaces and without all the expenses of a
traditional brick-and-mortar retailer, usually sell merchandise for a lower-than-retail

Physical distribution
set of activities concerned with efficient movement of finished goods from the end
of the production operation to the consumer
takes place within numerous wholesaling and retailing distribution channels, and
includes such important decision areas as customer service, inventory control,
materials handling, protective packaging, order procession, transportation,
warehouse site selection, and warehousing
part of a larger process called "distribution," which includes wholesale and retail
marketing, as well the physical movement of products

Elements of Physical Distribution

1. CUSTOMER SERVICE - a precisely-defined standard of customer satisfaction which

a small business owner intends to provide for its customer

2. TRANSPORTATION transportation costs are largely based on the rates charged by


Types of transportation mode

a. TRUCKINGFLEXIBLE AND GROWING The shipping method most favored
by small business (and many large enterprises as well) is trucking.
Carrying primarily manufactured products (as opposed to bulk materials),
trucks offer fast, frequent, and economic delivery to more destinations in
the country than any other mode. Trucks are particularly useful for short-

distance shipments, and they offer relatively fast, consistent service for

both large and small shipments.

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b. AIR FREIGHTFAST BUT EXPENSIVE because of the relatively high cost of
air transport, small businesses typically use air only for the movement of
valuable or highly-perishable products. However, goods that qualify for
this treatment do represent a significant share of the small business

c. WATER CARRIERSSLOW BUT INEXPENSIVE - there are two basic types

of water carriers: inland or barge lines, and oceangoing deep-water ships.
Barge lines are efficient transporters of bulky, low-unit-value
commodities such as grain, gravel, lumber, sand, and steel. Barge lines
typically do not serve small businesses. Oceangoing ships, on the other
hand, operate in the Great Lakes, transporting goods among port cities,
and in international commerce.

d. RAILROADSLONG DISTANCE SHIPPING - continue to present an

efficient mode for the movement of bulky commodities over long
distances. These commodities include coal, chemicals, grain, non-metallic
minerals, and lumber and wood products.


efficiently transport natural gas and oil products from mining sites to
refineries and other destinations. In addition, so-called slurry pipelines
transport products such as coal, which is ground to a powder, mixed with
water, and moved as a suspension through the pipes.

f. INTERMODAL SERVICES - Small business owners often take advantage of

multi-mode deals offered by shipping companies. Under these
arrangements, business owners can utilize a given transportation mode in
the section of the trip in which it is most cost efficient, and use other
modes for other segments of the transport. Overall costs are often
significantly lower under this arrangement than with single-mode

g. WAREHOUSING - Small business owners who require warehousing

facilities must decide whether to maintain their own strategically located
depot(s), or resort to holding their goods in public warehouses. And those
entrepreneurs who go with non-public warehousing must further decide
between storage or distribution facilities. A storage warehouse holds
products for moderate to long-term periods in an attempt to balance

supply and demand for producers and purchasers. They are most often

used by small businesses whose products' supply and demand are

MARKETING MANAGEMENT | Distribution Channel

seasonal. On the other hand, a distribution warehouse assembles and
redistributes products quickly, keeping them on the move as much as
possible. Many distribution warehouses physically store goods for fewer
than 24 hours before shipping them on to customers.

h. INVENTORY CONTROL - Inventory control can be a major component of a

small business physical distribution system. Costs include funds invested
in inventory, depreciation, and possible obsolescence of the goods.
Experts agree that small business inventory costs have dropped
dramatically due to deregulation of the transportation industry.

i. ORDER PROCESSING - The small business owner is concerned with order

processinganother physical distribution functionbecause it directly
affects the ability to meet the customer service standards defined by the
owner. If the order processing system is efficient, the owner can avoid
the costs of premium transportation or high inventory levels. Order
processing varies by industry, but often consists of four major activities:
a credit check; recording of the sale, such as crediting a sales
representative's commission account; making the appropriate accounting
entries; and locating the item, shipping, and adjusting inventory records.


all of the activities associated with moving products within a production
facility, warehouse, and transportation terminals. One important
innovation is known as unitizingcombining as many packages as
possible into one load, preferably on a pallet. Unitizing is accomplished
with steel bands or shrink wrapping to hold the unit in place. Advantages
of this material handling methodology include reduced labor, rapid
movement, and minimized damage and pilferage.

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