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© McGraw Hill 1
 Because learning changes everything. ®

Chapter 15

Distributing Products

© 2022 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill.
 Chapter Contents
The Emergence of Marketing Intermediaries
The Utilities Created by Intermediaries
Wholesale Intermediaries
Retail Intermediaries
Online Retailing and Other Nonstore Retailing
Building Cooperation in Channel Systems
Logistics: Getting Goods to Consumers Efficiently

© McGraw Hill 3
 Learning Objectives
LO 15-1 Explain the concept of marketing channels and
their value.
LO 15-2 Demonstrate how intermediaries perform the six
marketing utilities.
LO 15-3 Identify the types of wholesale intermediaries in the
distribution system.
LO 15-4 Compare the distribution strategies retailers use.
LO 15-5 Explain the various kinds of nonstore retailing.
LO 15-6 Explain the various ways to build cooperation in
channel systems.
LO 15-7 Describe logistics, and outline how intermediaries
manage the transportation and storage of goods.
© McGraw Hill 4
 Toby Johnson Vice President of
Sales Operations at Frito-Lay
Johnson learned important lessons about
serving others from her parents.
An outstanding student and athlete, she
attended the United States Military Academy at
West Point and became a pilot.
After serving seven years in the military,
Johnson earned an MBA at Harvard University.
She then managed a factory at PepsiCo 's
Frito-Lay subsidiary in Williamsport, PA.
During her tenure at PepsiCo, Johnson worked
at multiple divisions where she attained broad
experience managing teams throughout the
company's value chain.
She created the Valor program, and also works
for the betterment of her fellow veterans as a
speaker and board member with the USO of
New York.

© McGraw Hill Laura Buckman 5

 Name that Company
KEEPING CONTROL OF THE SUPPLY CHAIN is
critical and a challenge to all manufacturers. This
firm's product is assembled with 30,000
components from around the world at its assembly
plant in Georgia.

© McGraw Hill 6
 The Emergence of Marketing
Intermediaries 1

Marketing Intermediaries
• Organizations that assist in moving goods and services
from producers 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.
• Channel of distribution — A whole set of marketing
intermediaries that join together to transport and store
goods in their path from producers to consumers.

© McGraw Hill 7
 Distribution Warehouses
Distribution warehouses,
such as Amazon’s
fulfillment centers, store
goods until they are
needed. What are the
benefits of having food,
household items,
clothing, and other
needed goods close at
hand?

© McGraw Hill Uli Deck/picture alliance/Getty Images 8

 POLLING QUESTION 1

Which marketing intermediary sells to other

organizations?
A. Agent
B. Wholesaler
C. Retailer
D. Broker

© McGraw Hill 9
 The Emergence of Marketing
Intermediaries 2

Types of Marketing Intermediaries

• Agents and brokers — Marketing intermediaries who
bring buyers and sellers together and assist in negotiating
an exchange but do not take title to the goods.
• Wholesaler — A marketing intermediary that sells to other
organizations.
• Retailer — An organization that sells to ultimate
consumers.

© McGraw Hill 10
 Figure 15.1 Selected Channels of
Distribution

Access the text alternative for slide images.

© McGraw Hill 11
 The Emergence of Marketing
Intermediaries 3

Why Marketing Needs Intermediaries

• Intermediaries perform marketing tasks faster and
cheaper than most manufacturers could provide them.
• Intermediaries make the exchange process easier and
more efficient and profitable.

© McGraw Hill 12
 The Emergence of Marketing
Intermediaries 4

How Intermediaries Create Exchange Efficiency

• Intermediaries perform certain marketing tasks—such as
transporting, storing, selling, and relationship
building—faster and more cheaply than most
manufacturers could.
• They add value that exceeds the cost.

© McGraw Hill 13
 Figure 15.2 How Intermediaries
Create Exchange Efficiency

© McGraw Hill 14
 The Emergence of Marketing
Intermediaries 5

The Value versus the Cost of Intermediaries

• The cost of food consumers pay partly goes to paying
intermediaries.
• Three key facts about marketing intermediaries:

1. Marketing intermediaries can be eliminated but their activities

cannot.
2. Intermediaries perform marketing functions faster and cheaper
than other organizations can.
3. Marketing intermediaries add costs to products, but these costs
are generally offset by the values they provide.

© McGraw Hill 15
 Figure 15.3 Distribution’s Effect on
Your Food Dollar

Access the text alternative for slide images.

© McGraw Hill Source: USDA Economic Research Service, ers.usda.gov, accessed March 2020. 16
 The Utilities Created by
Intermediaries 1

Utility
• The want-satisfying ability, or value, that organizations add to
goods and services when the products are made more useful
or accessible to consumers than they were before.

Six types of utilities:

1. Form.
2. Time.
3. Place.
4. Possession.
5. Information.
6. Service.
© McGraw Hill 17
 The Utilities Created by
Intermediaries 2

Form Utility
• Producers provide form utility by changing raw materials
into useful products.
• Example: Starbucks makes coffee the way the customers
want it.

Time Utility
• Adding value to products by making them available when
they’re needed.
• Example: Some grocery stores are open 24 hours.

© McGraw Hill 18
 Time Utility
Think of how many
stores provide time
utility by making goods
and services available
to you 24 hours a day,
seven days a week.
Have you ever craved
a late-night snack
or needed to renew a
prescription after
normal hours? Can
you see how time
utility offers added
value?
© McGraw Hill Andriy Blokhin/Shutterstock 19
 Docs on Demand
Technology is changing the way
Americans seek health care.
• Telehealth programs allow us to
videoconference with a doctor or
nurse.
• Renee Dua and Nick Desai created
the Heal app that doctors use to
provide in-home care.
• For a flat $90 fee, a doctor will visit
to provide nearly any service
regularly performed by a primary
care physician.
• Doctors are available seven days a
week.

© McGraw Hill Nora Carol Photography/Getty Images 20

 The Utilities Created by
Intermediaries 3

Place Utility
• Adding value to products by having them where people
want them.
• Example: 7-Eleven stores are found in convenient
locations.

Possession Utility
• Doing whatever is necessary to transfer ownership from
one party to another, including providing credit, delivery,
installation, guarantees, and follow-up service.
• Example: A real estate broker and a savings and loan
office provide possession utility.

© McGraw Hill 21
 The Utilities Created by
Intermediaries 4

Information Utility
• Adding value to products by opening two-way flows of
information between marketing participants.
• Example: Newspapers, salespeople, libraries, and
websites all act as intermediaries.

Service Utility
• Adding value by providing fast, friendly service during and
after the sale and by teaching customers how to best use
products over time.
• Example: The Apple Genius Bar helps during and after a
purchase.
© McGraw Hill 22
 Service Utility
Service after the sale is
one of the contributing
factors to Apple’s success.
Customers can call to
make an appointment
with an Apple Genius who
will help them learn how
to use their computers,
iPhones, or iPads. How
does this service add
value to Apple’s
products?

© McGraw Hill 23
 TESTPREP 1

• What is 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?
• Can you give examples of the utilities
intermediaries create and how they provide them?

© McGraw Hill 24
 Wholesale Intermediaries 1

Wholesalers
Normally make B2B sales, but some also have retail
functions.
• Retail sales are sales of goods and services to consumers for their
own use.
• Wholesale sales are sales of goods and services to other businesses
for use in the business or resale.
• Example of both: Staples and Costco.

Consumers are more familiar with retailers than wholesalers.

© McGraw Hill 25
 Wholesale Intermediaries 2

Merchant Wholesalers
• Independently owned firms that take title to the goods they
handle.
• Two types:
1. Full-service wholesalers perform all distribution functions.
2. Limited-function wholesalers perform only selected distribution
functions.

© McGraw Hill 26
 Wholesale Intermediaries 3

Merchant Wholesalers continued

Types of limited-function wholesalers:
• Rack jobbers — Furnish racks or shelves full of merchandise to
retailers, display products, and sell on consignment.
• Cash-and-carry wholesalers — Serve mostly smaller retailers with a
limited assortment of products.
• Drop shippers — Solicit orders from retailers and other wholesalers
and have the merchandise shipped directly from a producer to a buyer.

© McGraw Hill 27
 Wholesale Intermediaries 4

Agents 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.

© McGraw Hill 28
 Agents and Brokers
Agents and brokers are a
familiar type of
intermediary. Typically
they don’t take
possession of the goods
they sell. A real estate
broker, for instance,
facilitates the transaction
between seller and buyer
but never holds title to the
house. What functions
does a realtor provide
in a home sale?

© McGraw Hill Noel Hendrickson/Getty Images 29

 Retail Intermediaries 1

Retailing in the United States

• There are over 3.7 million retail stores in the U.S.
• Retailers in the U.S. employ more than 42 million people
and operate under many different structures.

© McGraw Hill 30
 Fastest Growing Retail
Categories
• Plant-based foods.
• Home improvement.
• Sports and fitness.
• Home, garden, and furniture.
• Event tickets.
• Consumer electronics.
• Pet care.

© McGraw Hill Source: Forbes., forbes.com, accessed March 2020. 31

 Figure 15.4 Types of Retail Stores 1

Type Description Example

Department Sells a wide variety of products (clothes, Macy’s, JCPenney,
store furniture, housewares) in separate Nordstrom
departments
Discount store Sells many different products at prices Walmart, Target
generally below those of department
stores
Supermarket Sells mostly food with other nonfood Safeway, Kroger,
products such as detergent and paper Albertsons
products
Warehouse Sells food and general merchandise in Costco, Sam’s
club facilities that are usually larger than Club
supermarkets and offers discount prices;
membership may be required

© McGraw Hill 32
 Figure 15.4 Types of Retail Stores 2

Type Description Example

Convenience Sells food and other often-needed items 7-Eleven
store at convenient locations; may stay open all
night
Category killer Sells a huge variety of one type of Bass Pro Shops,
product to dominate that category of Office Depot/
goods Office Max
Outlet store Sells general merchandise directly from Nordstrom Rack,
the manufacturer at a discount; items Liz Claiborne,
may be discontinued or have flaws Nike, TJ Maxx
(“seconds”)
Specialty store Sells a wide selection of goods in one Jewelry stores,
category shoe stores,
bicycle shops

© McGraw Hill 33
 Retail Intermediaries 2

Retail Distribution Strategy

• Intensive distribution — Puts products into as many
retail outlets as possible.
• Selective distribution — Sends products only to a
preferred group of retailers in an area.
• Exclusive distribution — Sends products to only one
retail outlet in a given geographic area.

© McGraw Hill 34
 POLLING QUESTION 2

You are in charge of distributing a new, high-end

fragrance. In your opinion, which distribution
strategy would be best?
A. Intensive distribution.
B. Selective distribution.
C. Exclusive distribution.

© McGraw Hill 35
 Pick a Strategy… 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 …?

© McGraw Hill 36
 TESTPREP 2

• 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?

© McGraw Hill 37
 Online Retailing and Other Nonstore
Retailing 1

Online Retailing
• Selling goods and services to ultimate customers over the
Internet.
• Social commerce — A form of electronic commerce that
involves using social media, online media that supports
social interaction, and user contributions to assist in the
online buying and selling of products and services.
• Online stores sometimes suffer lack of inventory and poor
customer service.
• Most companies need both a real store and an online
presence.

© McGraw Hill 38
 Figure 15.5 Types of Social
Commerce
1. Peer-to-peer sales platforms.
2. Social network shops and shopping apps.
3. Group buying and daily deals.
4. Peer recommendations.
5. User-curated shopping.
6. Crowdfunding/crowdsourcing.
7. Social shopping.

Sources: “The 7 Types of Social Commerce,” Conversity, conversity.com, accessed March 2020; Megan DeGruttola, “8
Social Commerce Strategies to Win Consumers' Hearts and Wallets in 2020,” Social Media Today, February 2, 2020.

© McGraw Hill 39
 Online Retailing and Other Nonstore
Retailing 2

Telemarketing
• The sale of goods and services by telephone.
• Companies use it to supplement or replace in-store selling
and complement online selling.

© McGraw Hill 40
 Online Retailing and Other Nonstore
Retailing 3

Vending Machine, Kiosks, Carts, and Pop-Ups

• Vending machines dispense convenience goods when
consumers deposit sufficient money.
• Carts and kiosks have lower overhead than stores, so
they can offer lower prices on items.
• Pop-ups are temporary outlets that remain open for a
short amount of time in small spaces.

© McGraw Hill 41
 Vending Machines
Traveling by airplane in a post-
coronavirus world is
considerably different as
passengers must make sure to
stock up on personal protective
equipment like face masks and
hand sanitizer. Thankfully,
vending machines like this one
provide travelers with a quick
and clean way to obtain
essential items before a flight.
Can you think of any other
useful products that could be
sold from a vending machine?

© McGraw Hill Ethan Miller/Getty Images 42

 Online Retailing and Other Nonstore
Retailing 4

Direct Selling
• Selling to consumers in their homes or where they work.

Multilevel Marketing
• Uses salespeople who work as independent contractors.

Direct Marketing
• Activities that directly link manufacturers or intermediaries
with the ultimate consumer.

© McGraw Hill 43
 Building Cooperation in Channel
Systems 1

Corporate Distribution Systems

• A distribution system in which all of the organizations in a
channel of distribution are owned by one firm.
• Example: Sherwin-Williams.

© McGraw Hill 44
 Building Cooperation in Channel
Systems 2

Contractual Distribution Systems

A distribution system in which 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.

© McGraw Hill 45
 Contractual Distribution Systems
Franchisors like Edible
Arrangements use a
contractual distribution
system that requires
franchisees to follow the
franchisors’ rules and
procedures. How does
such a system ensure
consistent quality and
level of service?

© McGraw Hill benedek/Getty Images 46

 Building Cooperation in Channel
Systems 3

Administered Distribution Systems

• A distribution system in which producers manage all of the
marketing functions at the retail level.
• Examples: Kraft, Scotts.

© McGraw Hill 47
 Building Cooperation in Channel
Systems 4

Supply Chains
• The sequence of linked activities that must be performed
by various organizations to move goods from the sources
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 involved in the supply chain; managing the
return of such goods, if necessary; and recycling materials
when appropriate.
• Today, supply chains can be very complex and expensive.

© McGraw Hill 48
 Figure 15.6 The Supply Chain

Access the text alternative for slide images.

© McGraw Hill 49
 Logistics: Getting Goods to
Consumers Efficiently 1

Logistics
• The marketing activity that involves planning,
implementing, and controlling 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.
• Seven Rs: getting the right product to the right place, to
the right customer, at the right time, in the right quantity, in
the right condition, and at the right price.

© McGraw Hill 50
 Logistics: Getting Goods to
Consumers Efficiently 2

Inbound Logistics
• Involves bringing raw materials, packaging, other goods
and services, and information from suppliers to producers.
• Materials handling — The movement of goods within a
warehouse, from warehouses to the factory floor, and from
the factory floor to various workstations.
• Logistics is as much about the movement of information
as it is about the movement of goods.

© McGraw Hill 51
 Walmart's Vision of the
Future of Retail
Walmart rolled out its future vision
of retail, the Intelligent Retail Lab (I R
L).
• The store is smaller and is equipped
with cameras to watch every move we
make and monitor the inventory of each
item.
• This monitoring aids in pricing,
reordering, and lessening waste.
• Customers are expected to give up
quite a bit of their privacy. Would you be
okay letting Walmart monitor your
shopping style if it made the experience
better for you ?

© McGraw Hill Mark Lennihan/AP Images 52

 Logistics: Getting Goods to
Consumers Efficiently 3

Outbound Logistics
• Involves managing the flow of finished products and
information to business buyers and consumers.
• Reverse logistics — Involves bringing goods back to the
manufacturer because of defects or for recycling materials.
• Third-party logistics is the use of outside firms to help
move goods from here to there.

© McGraw Hill 53
 Figure 15.7 Comparing Transportation
Modes

Mode Cost Speed On-Time Flexibility Frequency Reach

Dependability Handling of
Products Shipments
Railroads Medium Slow Medium High Low High
Trucks High Fast High Medium High Highest
Pipelines Low Medium Highest Lowest Highest Lowest
Ships (water) Lowest Slowest Lowest Highest Lowest Low
Airplanes Highest Fastest Low Low Medium Medium

© McGraw Hill 54
 Logistics: Getting Goods to
Consumers Efficiently 4

Modes of Shipping
Trains are great for large shipments.
• The largest percentage of goods in the United States (by volume) is
shipped by rail.
• Freight forwarder — An organization that puts many small shipments
together to create a single large shipment that can be transported cost-
effectively to the final destination.
• Less-than-carload (L C L) shipments.

Trucks are good for small shipments to remote locations.

• Trucking companies are used for widespread delivery.

© McGraw Hill 55
 Shipping by Rail
Railroads carry over a
third of all goods
shipped within the
United States and are
expected to remain a
dominant transportation
mode. What are some
of the advantages of
shipping by rail, both
for large and small
producers?

© McGraw Hill Digital Vision/Getty Images 56

 Logistics: Getting Goods to
Consumers Efficiently 5

Modes of Shipping continued

Water transportation is inexpensive but slow.
• Water transport is local as well as international.

Pipelines are fast and efficient.

• Pipelines primarily transport water, petroleum, and petroleum products.

© McGraw Hill 57
 The Logistics Process
In order to transport heavy
raw materials like timber from
one country to another, trains
and trucking companies bring
logs to docks where huge
cranes lift them onto a ship.
Once the cargo has arrived at
its destination, the ship must
be unloaded and the logs
transported to a processing
plant. Why is managing the
logistics process a key to
survival in some
industries?

© McGraw Hill m_albert/Shutterstock 58

 Logistics: Getting Goods to
Consumers Efficiently 6

Modes of Shipping continued

Air transportation is fast but expensive.
• Only a small proportion of shipping goes by air.
• The air freight industry is starting to focus on global distribution.

Intermodal shipping:
• Using multiple modes of transportation to complete a single long-
distance movement of freight.

© McGraw Hill 59
 Types of Intermodal Shipping
• Piggybacking: Truck trailers placed on trains.
• Fishybacking: Truck trailers placed on ships.
• Birdybacking: Truck trailers placed on planes.

© McGraw Hill 60
 Get Your Product There Most
Popular Modes of Freight Transport

METHOD PERCENT OF DISTRIBUTORS

Trucks 71 percent

Trains 13 percent

Pipelines 10 percent

Ships 6 percent

Air Under 1 percent

© McGraw Hill Source: U.S. Freight Transportation Forecast, trucking.org, accessed March 2020. 61
 Logistics: Getting Goods to
Consumers Efficiently 7

The Storage Function

• Companies must have goods available in various parts of
the country ready to be shipped locally when ordered.

Tracking Goods
• Storage warehouses hold products for a relatively long
period of time.
• Distribution warehouses are used to gather and
redistribute products such as package deliveries.
• Radio frequency identification (R F ID) tags keep track of
goods.

© McGraw Hill 62
 RFID Tags
This retail robot named
Tally manages inventory
by scanning RF ID tags
on nearby racks of
clothes and keeping
track of items that a
store has in stock. Can
you think of any other
uses for RFID tags?

© McGraw Hill Carlos Avila Gonzalez/The San Francisco Chronicle/Getty Images 63

 TESTPREP 3

• 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?

© McGraw Hill 64
 Because learning changes everything. ®

www.mheducation.com

© 2022 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill.
 Accessibility Content: Text Alternatives for Images

© McGraw Hill 66
 Figure 15.1 Selected Channels of
Distribution – Text Alternative
Return to parent-slide containing images.

There are six channels of distribution for consumer goods.

Channel 1: The manufacturer sells directly to consumers. This channel is used by craftspeople and small farmers.

Channel 2: The manufacturer sells to a retailer who then sells to consumers. This channel is used for cars, furniture,
and clothing.

Channel 3: The manufacturer sells to a wholesaler, who then sells to a retailer, who then sells to consumers. This
channel is the most common channel for consumer goods such as groceries, drugs, and cosmetics.

Channel 4: A farmer sells to a broker who then sells to a wholesaler, who then sells to a retailer, who then sells to
consumers. This is a common channel for food items such as produce.

Channel 5: A service organization sells to a broker who then sells to consumers. This is a common channel for
consumer services such as real estate, stocks and bonds, insurance, and nonprofit theater groups.

Channel 6: A nonprofit organization sells to a store who then sells to consumers. This is a common channel for
nonprofit organizations that want to raise funds. Included are museums, government services, and zoos.

There are two channels of distribution for industrial goods.

Channel 1: The manufacturer sells directly to industrial users. This is the common channel for industrial products
such as glass, tires, and paint for automobiles.

Channel 2: The manufacturer sells to a wholesaler who then sells to industrial users. This is the way that lower-cost
items such as supplies are distributed. The wholesaler is called an industrial distributor.

Return to parent-slide containing

images.
© McGraw Hill 67
 Figure 15.3 Distribution’s Effect on Your
Food Dollar – Text Alternative
Return to parent-slide containing images.

From lowest to highest cost:

Packaging: 2.5 cents
Finance and insurance: 3.1 cents
Transportation: 3.2 cents
Other: 3.2 cents
Energy: 5.1 cents
Wholesale trade: 9.1 cents
Farm production: 10.4 cents
Retail trade: 12.9 cents
Food processing: 15.3 cents
Food services: 32.7 cents
Return to parent-slide containing
images.
© McGraw Hill 68
 Figure 15.6 The Supply Chain – Text
Alternative
Return to parent-slide containing images.

The supply chain sequence is as follows:

1. Suppliers’ plants
2. Manufacturers
3. Wholesalers
4. Retailers
5. Consumers

The channel of distribution begins with manufacturers and

goes to consumers.

Return to parent-slide containing

images.
© McGraw Hill 69