Chapter 2

The Channel Participants

Objective 1:
2
Major Participants in the Marketing Channel

Producers Intermediaries Final Users

&
Manufacturers

Wholesale Retail Consumers Industries

Intermediaries Intermediaries

* Commercial Channel * Target Markets

Objective 2:
1

Why shift distribution tasks to intermediaries? Q

Producers
& Intermediaries
Manufacturers

• spread high fixed costs

• lack expertise over large quantities of
• lack economies of scale diverse products
‫وفورات الحجم‬ • achieve economies of
scope and economies of
scale'‫وفورا'تا''لحجم‬
 What is 'Economies Of Scale'

• Economies of scale is the cost advantage

that arises with increased output of a
product. Economies of scale arise because
of the inverse relationship between the
quantity produced and per-unit fixed costs;
i.e. the greater the quantity of a good
produced, the lower the per-unit fixed cost
 because these costs are shared over a larger
number of goods. 
 Economies of Scope
• What does 'Economies of Scope' mean
• Economies of scope is an economic theory
stating that the average total cost of production
decreases as a result of increasing the number
of different goods produced.
• For example, McDonalds can produce both hamburgers
and French fries at a lower average cost than what it would
cost two separate firms to produce the same goods. This is
because McDonalds hamburgers and French fries share the
use of food storage, preparation facilities, and so forth
during production.
•
 2
Example: Distribution of Crayons

Manufacturer direct
to customers

• Huge order processing

facility
• Huge inventory
• Several warehouse
locations = cost prohibitive‫ي''قلل‬
• Transportation of
product to consumers
Objective 3:
2
Major Types of Wholesalers Q

All Wholesale Firms

Channel Structure Q Manufacturer

middlemen owned

Merchant Agents, brokers, Manufacturers'

wholesaler & sales branches
commission &
merchants offices
 2
Merchant Wholesalers
Buy
to
Store

Large quantities of products

Resell to

Industrial,
commercial,
other
Retailers or
Wholesalers
institutional
concerns
Agents, Brokers, & Commission Merchants 2

Agents, brokers,
Involved in buying & selling and commission
while acting on behalf of merchants are
‫ ب'''ا''لنيابه' عن‬clients independent
middlemen who do
not take title to the
goods in which
they deal, but who
are actively
Commissions
engaged in the
on
buying and selling
sales or purchases
functions on behalf
of others
 2
Manufacturers’ Sales Branches & Offices

Separated from manufacturing plants

Distribute
Owned & operated by
manufacturer’s
manufacturers
products at
wholesale

Some wholesale allied

‫& متحا''لف‬
supplementary‫ مكمل‬products
purchased from other
manufacturers.
Objective 4: 2
Major Trends in Wholesale Structure

1987—1997
69.7% Manufacturer’s sales branches
& offices

57.8% Merchant wholesalers

50.0% Agents, brokers, & commission

merchants
 2
Trends in Size & Concentration

Measured by: Types of Wholesalers

Size of Majority are small businesses
wholesaler
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 50 largest manufacturers’ sales branches &

in terms of % of total offices garnered '‫ ي''جمع‬nearly 53% of sales for
sales this type
Objective 5:
2
Merchant Wholesalers Specialize in
Performance Distribution Tasks serve
manufacturers/producers are: Q

 Provide market coverage

 Make sales contacts
 Hold inventory
 Process orders‫لطلب‬--‫تا‬-‫جراءا‬-‫ا‬
 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’ Distribution 2

Tasks Serve Customers /retailers

 Assure product availability

 Provide customer service
 Extend credit & financial
assistance
 Break bulk Offer assortment -‫شكيله‬--‫ت‬
‫صنيف‬--‫نسيقت‬--‫ت‬ convenience
 Break bulk‫لكميات‬--‫ ا‬-‫قسم‬--‫ي‬
 Help customers with advice &
technical support
In shipping, break bulk cargo or general cargo are goods that must be loaded
individually, and not inintermodal containers nor in bulk as with oil or grain
 2
Agent Wholesalers’ Distribution Tasks

Manufacturers’
Agents

Market
coverage‫غطية‬--‫ت‬
Sales contacts
 2
Agent Wholesalers’ Distribution Tasks

Selling agents

Market coverage
Sales contacts
Order processing
Marketing
information
Product availability
Customer services
 2
Agent Wholesalers’ Distribution Tasks

Brokers

Market coverage
Sales contacts
Order processing
Marketing
information
Product availability
Customer services
 2
Agent Wholesalers’ Distribution Tasks

Commission
Merchant

Market coverage
Sales contacts
Order processing
Breaking bulk
Credit
Holding inventory
Objective 6: 2
Retail Structure

Alternative Bases for Classifying Retailers

• By Ownership of • By Method of Consumer

Establishment ‫ا''لملكية‬ Contact
• By Kind of Business '‫ن''وع ا''لبضاعه‬ • By Type of Location(local or int).
(Merchandise Handled) • By Type of Service
• By Size of Establishment Rendered'‫ا''لمق'دمه‬
• By Degree of Vertical • By Legal Form of
Integration Organization
• By Type of Relationship with • By Management
other Business Organizations Organizations or Operational
Technique‫حسبا''الدارة او ا'سا''ليبا''لتشغيل‬
 2
Kind-of-Business Classifications Q

Retail Trade
• Motor vehicle & parts dealers
• Furniture & home furnishings
stores
• Electronics & appliance stores
• Building material & garden
equip. & supply dealers
‫ا''لموزع‬
• 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
Objective 8:
2
Distribution Tasks Performed by Retailers

The role of the retailer in the distribution channel,

regardless of his size or type, is to interpret'‫ ي''ترجم‬the
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 '‫ ت'''شكيله‬at the time customers are ready to
buy.

— Charles Y. Lazarus
 2
Distribution Tasks Performed by Retailers Q

• Offer manpower & physical facilities close to consumers’

residences
• Provide personal assistance to help sell products
• Interpret‫ ي''شرح‬and relay consumer demand
• Divide large quantities into consumer-sized lots
• Offer storage
• Remove risk by ordering in advance of the season
Objective 9: 2
Retailers’ Growing Power in Marketing
Channels

Increased size & buying Become power retailers

power &
category killers
Application of advanced Information technology & the
Technologies Internet; three tailing

Use of modern marketing Modern techniques;

strategies relationship marketing
Objective 10: 2
Facilitating Agencies in Marketing Channels

• Transportation agencies
• Storage agencies
• Order processing agencies
• Advertising agencies
• Financial agencies
• Insurance companies
• Marketing research firms
 Assignment 2
• Why shift distribution tasks to
intermediaries?
• Who are the Major Participants in the
Marketing Channel ?
• Mention the Merchant Wholesalers’
Distribution Tasks that Serve
Customers /retailers ?