The paths, or routes, that goods and services
take from the producer to the ultimate consumer or industrial user
• In the right places
• At the right times
Channels of Distribution
Not physical paths
Businesses or people who perform a variety
of functions to enable products to be:
Begin with producer and end with ultimate consumer or industrial user
•
Producer—makes or provides goods and services Examples:Channels of Distribution
Appliance
manufacturers Farmers Health-care
professionals
Channels also end when changes are made to the form of the good.
•
Ultimate consumer—anyone whopersonally uses a good or service to satisfy his/her own wants
Channels of Distribution
•
Industrial user—business that buysmaterials, services, or goods that will
be used to make other goods or used
in the operation of the company
Operate between producer and consumer or user to help in movement of goods/services Retailers
McDonald's
Intermediaries
Channel Participants Channel Participants
Also known as middlemen
Types of middlemen:
• Businesses that buy consumer goods and sell them to ultimate consumers
• Perform functions such as buying, selling, promoting, storing, and pricing goods
• May also provide customer services such as credit, installation, and repair
Examples:
Macy's
Neighborhood
gas station
Wholesalers
Intermediaries
Channel Participants
• Businesses that buy goods from producers or agents and sell them to retailers
• Buy a variety of goods from many producers and sell groups of related products to retailers
• Important functions include packaging, transporting and storing, extending credit to retailers, and
providing promotional and consulting services
Agents
Intermediaries
Channel Participants Channel Participants
• Businesses or individuals that assist in the sale and/or promotion of goods and services
• Do not take title to products—
never actually own them
• Instead, sell and promote a producer’s goods/services
• Usually handle a limited number
of noncompeting products
In some cases, this means selling directly to ultimate consumers/industrial users.Channels of Distribution: A Closer Look
Primary objective of producers in distributing goods/services—have products:
In other cases, this means using intermediaries.•
In the right places•
At the right times•
At the least cost
Regardless of distribution method, functions involved remain the same—buying, selling, pricing, financing, etc. Using intermediaries:
Channels of Distribution: A Closer Look
Selling directly:
• Producer performs all necessary functions and incurs all costs.
• Producer earns any and all income.
• Costs can be passed on to other channel members.
• Producers' profits could decrease since income must be shared.
• Producers' income might be higher if the intermediaries are able to sell more than the producers can sell on their own.
Not practical for retailers to deal directly with producers all the time
Channels of Distribution: A Closer Look Channels of Distribution: A Closer Look
Not realistic for producers and consumers/industrial users to deal with each other directly all the time
Through agents/wholesalers, retailers reduce
number of contracts with producers.
How Intermediaries Help in Channels of Distribution
How Intermediaries Help in Channels of Distribution
Buy big and sell small
• Buy large quantities of goods from producers
• Sell smaller quantities to other intermediaries or consumers
• By placing large orders with producers, are able to reduce the per-unit cost for goods, allowing them to make a profit and/or pass some of the savings
along to consumers
How Intermediaries Help in Channels of Distribution
How Intermediaries Help in Channels of Distribution
Develop an assortment of goods.
• Most producers produce more than
any consumer will purchase at one time.
• Intermediaries collect goods from a
variety of producers and divide them into quantities/assortments consumers want.
• Consumers are then able to obtain
the desired amounts/types of goods.
How Intermediaries Help in Channels of Distribution
How Intermediaries Help in Channels of Distribution
Transport and store goods.
• Enable goods to be on hand when consumer/
industrial users are ready to buy them rather
than only when they are produced.
How Intermediaries Help in Channels of Distribution
How Intermediaries Help in Channels of Distribution
Perform other functions:
• Provide market information to producers
• Promote sale of goods/services
• Extend credit
• Service sales
• Provide management services
Plan inventories and store layouts
Help to train employeesTypes of Distribution
Direct distribution —straight from the producer to the ultimate consumer or industrial user
Indirect distribution— involves intermediaries
Direct distribution
Simplest of all channels
Can take place:
•
Where the good is produced—a pumpkin farm, for example•
In warehouses or outlets owned by producer•
Through producers' catalogs or online sitesChannels of Distribution for Consumer Goods
Producer to consumer
Producer maintains tight quality control.
Producer retains all distribution costs.
Used when it is not possible for producer to reach a large number of consumers on a direct basis
Retailers provide wide distribution of products at lower costs than producers can.
Most retailers who deal directly with producers buy in large quantities due to:
• The size of their businesses
• The great demand for products
Channels of Distribution for Consumer Goods
Producer to retailer to consumer
Most common channel of distribution for consumer goods
Used because:
• Many producers cannot offer small shipments.
• So, they require buyers to place large orders for goods.
• However, most retailers cannot buy the large quantities required.
• Producers use wholesalers to sell to smaller retailers.
Channels of Distribution for Consumer Goods
Producer to wholesaler to retailer to consumer
Wholesalers:
• Buy large quantities from producers
• Divide them into smaller units for sale to retailers
• Provide retailers with a variety of products from which to choose
Channels of Distribution for Consumer Goods
Producer to wholesaler to retailer to consumer
Used by producers who do not want to sell their goods but are prepared to handle other marketing functions
They contract with an agent to sell goods to retailers.
Agent brings buyer and seller together.
Once sales are made, producer processes goods to retailers.
Frequently used by producers to reach large retailers
Channels of Distribution for Consumer Goods
Producer to agent to retailer to consumer
Used to reach small retailers
Producers contract with agents to sell goods to wholesalers.
Wholesalers buy large quantities and sell smaller amounts to many small retailers.
Channels of Distribution for Consumer Goods
Producer to agent to wholesaler to retailer to consumer
Channels of Distribution for Industrial Goods
Direct distribution
Most common channel for industrial goods since producers often provide specialized services
Separate from channels for consumer goods, but similar
Producer to industrial user
Producer to industrial distributor to user
Channels of Distribution for Industrial Goods Channels of Distribution for Industrial Goods
•
Buy large quantities of goods/raw materials from producers•
Sell small quantities to industrial users•
Unlike wholesalers, tend to specialize in selling a limited number of products•
Frequently carry small, standardized parts and operating supplies that industrial users need on a continuous basis•
By having supplies on hand, are able to help industrial users obtain goods faster than from producers Industrial distributors—similar to wholesalers for
consumer goods
Producer to agent to user
Channels of Distribution for Industrial Goods
Producers without sales forces contract with
agents to promote/sell goods to industrial users.
Shipment is direct from producer to industrial user since agent does not take title to goods.
Frequently used for industrial goods with unit
prices high enough to justify selling directly to
industrial users
Producer to agent to industrial distributor to user
Channels of Distribution for Industrial Goods
