Chapter 13: Distributing Products
The Learning Goals of this chapter are to:
Explain the advantages and disadvantages of a direct channel of
distribution, and identify factors that could determine the optimal channel
of distribution. 2.
Differentiate between types of market coverage.
3. Describe the various forms of transportation used to distribute products. 4.
Explain how the distribution process can be accelerated. 5.
Explain how retailers serve customers.
Explain how wholesalers can serve manufacturers and retailers. 7.
Explain the strategy and potential benefits of vertical channel integration. B. Chapter 13 examines the elements of a firm’s distribution strategy, including such considerations as the selection of the appropriate distribution channel, the determination of the degree of market coverage, and the selection of the best modes of transportation.
I. Channels of Distribution
A distribution channel is the path a good follows from the producer to the consumer. B.
When a producer deals directly with customers, without using intermediaries, the producer is using a direct channel of distribution. 1.
Advantages of a direct channel include:
The producer receives the full difference between the manufacturer’s cost and the price charged to the customer. b.
The producer has full control over the price to be charged to the customer. c.
The producer avoids the markups charged by intermediaries, which increase the price of the product but do not add to the manufacturer’s revenue. d.
The producer obtains firsthand feedback from customers.
Disadvantages of a direct channel include:
The producer must perform all of the distribution functions itself, so it must hire more employees and use additional resources, which increase its costs. b.
The need to perform all of the distribution functions can cause the manufacturer to lose its focus on production. c.
A manufacturer that deals directly with final customers may have to sell on credit, which can be costly and exposes the firm to the risk of bad debts. C. Conversely, producers may use marketing intermediaries or firms that participate in moving products from manufacturer to customers, a “middleman.” By so doing, the producer virtually reverses the advantages and disadvantages of direct channel distribution to where what was an advantage in direct channel is a disadvantage when using a marketing intermediary and what was a disadvantage when using direct channel is an advantage when using an intermediary. D.
In a one-level channel, one marketing intermediary is between the producer and the customer. A one-level channel is illustrated in Exhibit 13.1. 1.
Intermediaries who become owners of the products and resell them are known as merchants. Retail stores such as Wal-Mart and Sears are examples of merchant intermediaries. 2.
Other intermediaries, known as agents, bring together buyers and sellers without assuming ownership of the goods they help distribute. E.
A two-level channel has two marketing intermediaries between the producer and the customer. A firm might first sell its product to a wholesaler, who then sells to various retailers. Small firms often use a two-level channel. This type of distribution channel is illustrated in Exhibit 13.2. F.
Exhibit 13.3 compares the three common distribution channels discussed in the text. G.
The optimal type of distribution channel depends on the following product characteristics: 1.
Ease of Transporting the Product: Products that can be easily transported are more likely to involve intermediaries in the distribution channel. If a good cannot be transported, the producer is more likely to deal directly with the consumer. 2.
Degree of Standardization: Producers of standardized products are more likely to use intermediaries in their distribution channels. When products are built to the specification of individual consumers, the producer must deal...
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