See exhibit 11-1

Channel of distribution: Any series of firms or individuals who participate in flow of goods from producer to final user

PLACE DECISIONS ARE GUIDED BY �IDEAL� PLACE OBJECTIVES

Must make sure goods/services are available in the right quantities and locations -- when consumers want them

Product classes help with place objectives as well as product life cycle

CHANNEL SYSTEM MAY BE DIRECT OR INDIRECT

Some firms prefer to distribute direct to final consumer:

• They are in control whole job
• Are in direct contact with the customer
• Middlemen may not be available

When indirect channels are best -- middlemen can often help producers serve customer needs at a lower cost.

DISCREPANCIES AND SEPARATION REQUIRE CHANNEL SPECIALISTS

Specialists can provide crucial information about customer needs and provide insight

Middlemen assist with discrepancies of quantity and assortment

Channel specialists assist with 4 regrouping activities:

1. Accumulating: Collect from many small producers

2. Bulk breaking: Break down into smaller quantities

3. Sorting: Grades/quality

4. Assorting: Putting together products

CHANNELS MUST BE MANAGED

Need to have shared product market commitment

Traditional channel: Little commitment conflict is common (vertical and horizontal)

Need channel captain: To arrange for functions to be performed in most effective way.

Can have producer or retailer dominate channels -- see exhibit 11-2

VERTICAL MARKETING SYSTEMS FOCUS ON FINAL CUSTOMER

Whole channel focuses on same target market (3 types)

1. Corporate: company owns all. e.g. Sherwin Williams

2. Administered: informal cooperation. e.g. grocery

3. Contractual: by contract

BEST CHANNEL SYSTEM SHOULD ACHIEVE IDEAL MARKET EXPOSURE

Three forms of ideal exposure:

1) Intense: Selling to all wholesalers/retailer

2) Selective: Selling to only certain wholesalers/retailers

3) Exclusive: Selling to only one middleman in particular

See exhibit 11-4

THE NATURE OF RETAILING

Retailing: Covers all activities involved in the sale of products to final consumers.

Consumers spend $1.8 trillion/yr.

PLANNING A RETAILERS STRATEGY

Reasons for consumers buying:

• Variety
• Convenience
• Quality
• Salespersons help
• Integrity
• Special Services
• Value
• Emotional Reasons
• �Social Class Stores�

Product Classes

• Convenience: Stax
• Shopping: Dillards
• Specialty: Limited

All retailers should carefully define target markets!!!!!

CONVENTIONAL RETAILERS TRY TO AVOID PRICE COMPETITION

• Limited line: can satisfy some target markets better/small/are being squeezed
• Specialty shops: computer stores/knowledgeable salespeople
• Department stores: wide variety/40% markup

EVOLUTION OF MASS MERCHANDISING RETAILERS

Mass merchandising concept: low price -- high volume -- larger markets

• Supermarkets: Avg sales -- $11 million/1% margin
• Catalog showrooms: few services
• Discount houses: hard goods/low margins
• Mass merchandisers: many depts./soft goods/low margins e.g. Walmart
• Superstores: routinely purchased items/food
• Warehouse clubs: Sams/8-10% markup
• Singleline mass merchandiser: fast turnover/high sales volume. e.g. Toys-R-Us

SOME RETAILERS FOCUS ON ADDED CONVENIENCE

• Convenience stores: 4% profit margin/gas stations, etc.
• Automatic vending: high cost/41% plus profit margin
• Telephone and direct mail retailing: 4% retail sales/7% profit margin
• Door/Door selling: less than 1% of retail sales

RETAILING TYPES ARE EXPLAINED BY CONSUMER NEEDS FILLED

Three dimension view of retailing: See exhibit 13-2!!!!!

RETAILER SIZE AND PROFIT

See exhibit 13-4

WHAT IS A WHOLEALER?

Wholesaling is concerned with the activities of those persons or establishments that sell to retailers and other merchants, and or to industrial, institutional and commercial users.

See exhibit 13-7 for types of wholesalers

Note: To survive, wholesalers must develop a good marketing strategy. Profit margins are thin, and those who survive will need to be efficient!!