CHAPTER TWO

The Channel Participants

Major Participants in the Marketing Channel

2 Objective 1:

Producers&

Manufacturers

WholesaleIntermediaries

RetailIntermediaries

Intermediaries

Consumers Industries

Final Users

* Commercial Channel * Target Markets

1 Objective 2:

Why shift distribution tasks to intermediaries?

Producers &

Manufacturers

• lack expertise • lack economies of scale

Intermediaries

• spread high fixed costs over large quantities of

diverse products • achieve economies of

scope and economies of scale

2

Example: Distribution of Crayons

• Huge order processing facility • Huge inventory • Several warehouse locations • Transportation of product to consumers

= cost prohibitive

Manufacturer direct to customers

2 Objective 3:

Major Types of Wholesalers

Merchantwholesaler

Agents, brokers,&

commissionmerchants

Independentmiddlemen

Manufacturers'sales branches

&offices

Manufacturerowned

All Wholesale Firms

2 Merchant Wholesalers

Buy Take title to

Store Handle

Large quantities of products

Resell to

Retailers

Industrial, commercial, or institutional concerns

other Wholesalers

2

Agents, Brokers, & Commission Merchants

Involved in buying & selling

while acting on behalf of clients

Commissions on

sales or purchases

2

Owned & operated by manufacturers

Distribute manufacturer’s

products at wholesale

Some wholesale allied & supplementary products

purchased from other manufacturers.

Manufacturers’ Sales Branches & Offices

Separated from manufacturing plants

Major Trends in Wholesale Structure 2

Objective 4:

69.7% Manufacturer’s sales branches & offices 60.8% Wholesale trade 57.8% Merchant wholesalers 50.0% Agents, brokers, & commission merchants

1987—1997

2 Trends in Size & Concentration

Measured by: Types of Wholesalers

Size of wholesaler

Majority are small businesses

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 in terms of % of total

sales

50 largest manufacturers’ sales branches & offices garnered nearly 53% of sales for this

type

2

Merchant Wholesalers Specialize in Performance Distribution Tasks

Objective 5:

• Operate at high levels of effectiveness and efficiency • Average cost curves lower than those for their suppliers

Provide market coverage Make sales contacts Hold inventory Process orders Gather market information Offer customer support

Merchant Wholesalers’ Distribution Tasks Serve Customers

2

Assure product availability Provide customer service Extend credit & financial assistance Offer assortment convenience Break bulk Help customers with advice & technical support

2 Agent Wholesalers’ Distribution Tasks

Manufacturers’ Agents

Market coverage Sales contacts

2 Agent Wholesalers’ Distribution Tasks

Market coverage Sales contacts Order processing Marketing

information Product availability Customer services

Selling agents

2 Agent Wholesalers’ Distribution Tasks

Brokers

Market coverage Sales contacts Order processing Marketing

information Product availability Customer services

Agent Wholesalers’ Distribution Tasks 2

Commission Merchant

Market coverage Sales contacts Order processing Breaking bulk Credit Holding inventory

Retail Structure 2

Objective 6:

• By Ownership of Establishment

• By Kind of Business (Merchandise Handled)

• By Size of Establishment • By Degree of Vertical

Integration • By Type of Relationship with

other Business Organizations

• By Method of Consumer Contact

• By Type of Location • By Type of Service Rendered • By Legal Form of

Organization • By Management

Organizations or Operational Technique

Alternative Bases for Classifying Retailers

Kind-of-Business Classifications 2

Retail Trade

• Motor vehicle & parts dealers • Furniture & home furnishings

stores • Electronics & appliance

stores • Building material & garden

equip. & supply dealers • 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

Retail Structure Trends Objective 7: 1

Decreasing number of establishments

Increasing sales

= increase in size of retail establishments measured by average sales volume

per store

1

Concentration in Retailing

In 1997

4% of all retail firms accounted for nearly 80%

of total sales!!

Distribution Tasks Performed by Retailers 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

Objective 8:

2 Distribution Tasks Performed by Retailers

• 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

Retailers’ Growing Power in Marketing Channels

2 Objective 9:

Increased size & buying power

Become power retailers &

category killers

Application of advanced Technologies

Information technology & the Internet; threetailing

Use of modern marketing strategies

Modern techniques; relationship marketing

Facilitating Agencies in Marketing Channels

Objective 10: 2

• Transportation agencies • Storage agencies • Order processing agencies • Advertising agencies • Financial agencies • Insurance companies • Marketing research firms