CHAPTER 15 Distributing Products McGraw-Hill/Irwin Copyright © 2015 by the McGraw-Hill Companies, Inc All rights reserved LEARNING OBJECTIVES Explain the concept of marketing channels and their value Demonstrate how intermediaries perform the six marketing utilities Identify the types of wholesale intermediaries in the distribution system 15-2 LEARNING OBJECTIVES Compare the distribution strategies retailers use Explain the various kinds of nonstore retailing Explain the various ways to build cooperation in channel systems Describe logistics and outline how intermediaries manage the transportation and storage of goods 15-3 REED HASTINGS Netflix • Almost singlehandedly ended the era of brick and mortar video rentals • In college, Hastings spent his summers training with the Marines and joined the Peace Corps • Was inspired to start Netflix after racking up a $40 late fee 15-4 NAME that COMPANY This U.S. company is known for having low prices all the time. One way it keeps prices low is by eliminating as many wholesalers as possible and doing all the wholesale function itself Name that company! 15-5 WHAT are MARKETING INTERMEDIARIES? LO 151 • Marketing Intermediaries Organizations that assist in moving goods and services from businesses 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 15-6 WHAT are MARKETING INTERMEDIARIES? LO 151 • Channel of Distribution A group of marketing intermediaries that joining together to transport and store goods from producers to consumers 15-7 ANSWER MAY BE BLOWING in the WIND • IKEA was looking to cut down on shipping costs and to focus on renewable energy • It has plans to construct a wind farm in Illinois with 49 wind turbines to generate electricity for 34,000 homes • Started using paper pallets that weigh 90% less than the wood and can be recycled • IKEA officials are not satisfied with the new pallets already and are looking for a new option. 15-8 TYPES of MARKETING INTERMEDIARIES? LO 151 • Agents and Brokers Intermediaries who bring buyers and sellers together and assist in negotiating an exchange but do not take title to the goods • Wholesaler An intermediary that sells products to other organizations such as retailers, manufacturers, and hospitals • Retailer An organization that sells products to ultimate customers 15-9 SELECTED CHANNELS of DISTRIBUTION LO 151 15-10 CORPORATE DISTRIBUTION SYSTEMS LO 156 • Corporate Distribution Systems Exist when one firm owns all the organizations in a channel of distribution • Examples: - Goodyear - Sherwin Williams Photo Credit: Doug Wilson 15-38 CONTRACTUAL DISTRIBUTION SYSTEMS LO 156 • Contractual Distribution Systems Exist when members are bound to cooperate through contractual agreements • Forms of Contractual Systems: - Franchise Systems: McDonald’s, BaskinRobbins - WholesaleSponsored Chains: IGA, Ace Hardware - Retail Cooperatives: Associated Grocers, True Value 15-39 ADIMINISTERED DISTRIBUTION SYSTEMS LO 156 • Administered Distribution Systems Exist when producers manage all the marketing functions at the retail level • Examples: - Kraft - Ralph Lauren Photo Credit: Stephen Boisvert 15-40 SUPPLY CHAINS LO 156 • Supply Chain All the linked activities various organizations must perform to move goods and services from the source 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 in the supply chain 15-41 The SUPPLY CHAIN LO 156 15-42 WEAK LINKS CAN BREAK a CHAIN • When nothing goes wrong, supply chains can be a smashing success. • But, natural disasters can wreak havoc and cause billions of dollars in damage • Managing the integrity of products throughout the whole chain is difficult too • These weak links could cause a chain to break. 15-43 USING LOGISTICS LO 157 • Logistics The planning, implementing and controlling of the physical flow of material, final goods and related information from points of origin to points of consumption • Firms outsource to others specializing in trade compliance to determine what is needed to market products to global customers 15-44 LOGISTICS APPLICATIONS LO 157 • Inbound Logistics Brings raw materials, packaging, other goods and services and information from suppliers to producers • Materials Handling Movement of goods within a warehouse, from warehouse to the factory floor and from the factory floor to workstations 15-45 LOGISTICS APPLICATIONS LO 157 • Outbound Logistics Manages the flow of finished products and information to business buyers and consumers • Reverse Logistics Brings goods back to the manufacturer because of defects or for recycling 15-46 COMPARING TRANSPORTATION MODES LO 157 Mode Cost Speed Dependability Flexibility Frequency Reach Rail Med Slow Medium High Low High Trucks High Fast High Medium High Highest Pipeline Low Medium Highest Lowest Highest Lowest Ships Lowest Slowest Lowest Highest Lowest Low Air Highest Fastest Low Low Medium Medium 15-47 LOGISTICS SPECIALISTS LO 157 • Freight Forwarder Puts many small shipments together to create a single large shipment that can be transported costeffectively by truck or train • Intermodal Shipping Uses multiple modes of transportation to complete a single longdistance movement of freight 15-48 TYPES of INTERMODAL SHIPPING LO 157 • Piggybacking: Truck trailers placed on trains • Fishybacking: Truck trailers placed on ships • Birdybacking: Truck trailers placed on planes 15-49 GET YOUR PRODUCT THERE LO 157 Most Popular Modes of Freight Transport Source: U.S. Freight Transportation Forecast 15-50 STORAGE WAREHOUSES LO 157 • Storage warehouses hold products for a relatively long period of time. • Distribution warehouses are used to gather and redistribute products such as: - Beer and soft drinks - Package deliveries 15-51 TEST PREP • 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? 15-52 ... Marketing Intermediaries Organizations that assist in moving goods and services from businesses to businesses (B2B) and from businesses to consumers (B2C) • They are called intermediaries because they’re in ... Retail sales are sales of goods and services to customers for their own use - Wholesale sales are sales of goods and services to other businesses for use in the business or resale • Consumers are more familiar with retailers than wholesalers. ... and cheaper than most manufacturers could provide them • Marketing intermediaries make markets more efficient by reducing transactions and contacts 15-11 HOW INTERMEDIARIES CREATE EXCHANGE EFFICIENCY LO 151