Part 1: Marketing Channel Systems

CHAPTER 2
The Channel
Participants

1
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Le ① Major participants in marketing channels
ar ② Why shift distribution tasks to intermediaries?
ni ③ Major types of wholesalers
ng ④ Major Trends in Wholesale Structure
O ⑤ Merchant Wholesalers Specialize in Performance
bj Distribution Tasks

ec ⑥ Retail structure
tiv ⑦ Retail structure trends
es ⑧ Distribution Tasks Performed by Retailers
⑨ Retailers’ Growing Power in Marketing Channels
⑩ Facilitating Agencies in Marketing Channels 2

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Objective
Major Participants in Marketing
1 Channels

Producers Intermediaries Final Users

&
Manufacturers

Wholesale Retail Consumers Industries

Intermediaries Intermediaries

* Commercial Channel * Target Markets

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Objective
Why shift distribution tasks to
2 intermediaries?

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 Example: Distribution of Crayons

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Objective

3 Major Types of Wholesalers

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 Merchant Wholesalers

Tasks Performed:
Buy Take title Hold Inventory
Handle

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 Agents, Brokers, & Commission
Merchants

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 Manufacturers’ Sales Branches & Offices

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Objective

4 Major Trends in Wholesale Structure

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 Trends in Size & Concentration

Measured by: Types of Wholesalers

Size of
Majority are small businesses
wholesaler
Nearly 45% of all firms have annual
Sales volume
sales of less than $1 million
# of Employees per About 50% of firms had fewer than
firm 5 employees
Economic 50 largest manufacturers’ sales
concentration in terms branches & offices garnered nearly
of % of total sales 63% of sales for this type

11

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Objective
Merchant Wholesalers Specialize in
5 Performance Distribution Tasks
1. Provide market coverage
2. Make sales contacts
3. Hold inventory
4. Process orders
5. Gather market information
6. Offer customer support

• Operate at high levels of effectiveness and efficiency

• Average cost curves lower than those for their suppliers
12

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 Merchant Wholesalers’ Distribution
Tasks Serve Customers
1. Assure product availability
2. Provide customer service
3. Extend credit & financial assistance
4. Offer assortment convenience
5. Break bulk
6. Help customers with advice & technical support

13

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 Agent Wholesalers’ Distribution Tasks (1 of 4)

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 Agent Wholesalers’ Distribution Tasks (2 of 4)

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 Agent Wholesalers’ Distribution Tasks (3 of 4)

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 Agent Wholesalers’ Distribution Tasks (4 of 4)

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Objective

6 Retail Structure (1 of 2)

Alternative Bases for Classifying Retailers

• By Ownership of • By Method of Consumer
Establishment Contact
• By Kind of Business
• By Type of Location
(Merchandise Handled) • By Type of Service
• By Size of Establishment
Rendered
• By Legal Form of
• By Degree of Vertical
Organization
Integration
• By Management
• By Type of Relationship with
Organizations or
other Business Organizations
Operational Technique
18

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 Kind-of-Business Classifications

Retail Trade
• Motor vehicle & parts • Gasoline stations
dealers • Clothing & clothing
• Furniture & home accessories stores
furnishings stores
• Sporting goods, hobby,
• Electronics & appliance book, & music stores
stores
• General merchandise stores
• Building material & garden
• Miscellaneous store retailers
equip. & supply dealers
• Non store retailers
• Food & beverage stores
• Health & personal care
stores 19

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Objective

7 Retail Structure (2 of 2)

= increase in size of retail establishments

measured by average sales volume per store

20

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 Concentration in Retailing

In 2002

4% of all retail firms

accounted for nearly 80%
of total sales!!

21

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Objective
Distribution Tasks Performed by
8 Retailers (1 of 2)

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

22

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 Distribution Tasks Performed by
Retailers (2 of 2)
• 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

23

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Objective
Retailers’ Growing Power in Marketing
9 Channels

Increased size & buying Become power retailers

power &
category killers
Application of advanced Information technology &
Technologies the Internet; threetailing
Use of modern marketing Modern techniques;
strategies relationship marketing

24

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Objective
Facilitating Agencies in Marketing
10 Channels
• Transportation agencies
• Storage agencies
• Order processing agencies
• Advertising agencies
• Financial agencies
• Insurance companies
• Marketing research firms

25

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 Discussion Question #1

Wrigley is the world’s leading manufacturer of chewing gum,

producing literally millions of packages of gum every day. It is
a large, financially strong company whose manufacturing
technology for producing gum is state-of-the-art. It sells its
products to millions of gum-chewing consumers all over the
United States and many other countries around the world.
Still, Wrigley has never attempted to sell its chewing gum
directly to consumers, but instead uses a wide variety of
intermediaries at the wholesale and retail levels.
Why do you suppose Wrigley has chosen to use
intermediaries rather than sell direct to consumers? Explain
the underlying economics of the company’s policy.

26

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 Discussion Question #5

Best Buy is by far the largest consumer electronics retailer in the world
with sales of over $45 billion and almost 4,000 stores world wide. Best Buy
enjoys tremendous power in the marketing channels within which it
operates. All manufacturers and other suppliers providing products to Best
Buy have to pay close attention to what this 1,000 pound gorilla of a retailer
wants. But even when suppliers go out of their way to meet the demands of
Best Buy, they are finding that the giant retailer could block them from
getting their products to consumers because Best Buy may favor certain
suppliers with which it can make especially attractive deals. In addition, Best
Buy is increasing its emphasis on offering its own private brand products
such as the thinnest laptop on the market and an all-electrical motorcycle.
Some of Best Buy’s own products may even compete directly with famous
supplier brands, such as Apple and Sony.
Why do you think Best Buy is flexing its muscles in the channel? Do you
think this type of behavior is inevitable on the part of giant dominant
retailers?

27

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 Discussion Question #6

Jacobson Companies, headquartered in Des Moines, Iowa,

describes itself on its Web site as a “can do” third party logistics
company. The company is indicative of the new breed of logistics
services firms that can do it all. If a company, whether a
manufacturer, wholesaler, retailer or other type of firm, needs
logistical help, they can find “one-stop shipping” for logistical
services if they deal with 3PL firms. Along with the availability of an
almost unlimited range of services, is the capability of many 3PLs to
custom tailor the logistical services they provide to fit the particular
needs of their clients.
Why do you think 3PLs have become such an important type of
facilitating agency in market channels? Do you expect this trend to
continue?

28

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