Pride/Hughes/Kapoor Business, 10th Edition

Audio Review Transcript
Chapter 14 Wholesaling, Retailing, and Physical Distribution

1. Identify the various channels of distribution that are used for consumer and industrial products

Consumers are able to go to a store and buy what they want thanks to a hidden world of intermediaries that works to move products from the manufacturer to the consumer in the most efficient way possible. Let’s examine the various channels of distribution available to producers. A channel of distribution, or marketing channel, is a sequence of marketing organizations that directs a product from the producer to the ultimate user. Every marketing channel begins with the producer and ends with either the consumer or the business user. A middleman, or marketing intermediary, is a marketing organization that links a producer and user within a marketing channel. Middlemen are generally concerned with the transfer of ownership. One special type, the merchant middleman, actually takes title to products by buying them. A functional middleman, on the other hand, helps in the transfer of ownership of products but does not take title to the products.
Depending on the type of products and the ultimate user, products may use one of six types of channels, of which four are directed toward the consumer and two to businesses. (1) Producer to consumer. This is often called the direct channel because it includes no intermediaries. Practically all services are distributed this way, as well as a few consumer goods. (2) Producer to retailer to consumer. A retailer is a middleman that buys from producers or other middlemen and sells to consumers. This fairly short channel is used for bulky, perishable, or high-fashion products. (3) Producer to wholesaler to retailer to consumer. This is known as the traditional channel because many consumer convenience goods pass through wholesalers to retailers. The wholesaler is a middleman that sells products to other firms. (4) Producer to agent to wholesaler to retailer to consumer. Agents are functional middlemen that do not take title to products and are compensated by commissions paid by producers. This channel is used for inexpensive, frequently purchased items, seasonal items, and by producers that do not have their own sales force. Manufacturers often use different channels, sometimes multiple channels, to reach different market segments. The last two channels are business channels, which tend to be shorter than consumer channels. (5) Producer to business user. In this direct channel, the manufacturer’s sales force sells directly to businesses. And (6) producer to agent middleman to business user. This channel is used to distribute operating supplies, accessory equipment, and standardized parts. The agent is an independent intermediary that generally represents the seller. (LO 1 ends)

2. Explain the concept of marketing coverage

After looking at the firm’s production capabilities, marketing resources, the target market, and buying patterns, the firm must determine its intensity of market coverage. Intensity can be measured in three degrees. Intensive distribution is the use of all available outlets for a product. The manufacturer saturates the market by selling to any intermediary willing to stock and sell the product. Many convenience goods are intensively distributed, which means consumers can find them in multiple outlets. Selective distribution is the use of only a portion of the available outlets for a product in each geographic area. Furniture, major appliances, and clothing are distributed this way. Exclusive distribution is the use of only a single retail outlet for a product in a geographic area. This level is limited to very prestigious and specialty goods, such as fine jewelry, pianos, and china. (LO 2 ends)

3. Understand how supply-chain management facilitates partnering among channel members

With all the possibilities for channel choices and intermediaries, supply chain management is critical. Supply-chain management is a long-term partnership among channel members working together to create a distribution system that reduces inefficiencies, costs, and redundancies while creating a competitive advantage and satisfying customers. Traditionally, buyers and sellers have been adversarial when negotiating purchases. But when buyers, sellers, marketing intermediaries, and facilitating agencies work together, customers’ needs regarding delivery, scheduling, packaging, and other requirements are better met. Technology, such as bar coding and electronic data exchange (EDI), makes supply-chain management easier to implement. (LO 3 ends)

4. Describe what a vertical marketing system is and identify the types of vertical marketing systems

            When two or more stages of a distribution channel are combined under the management of a single firm, it is called vertical channel integration. A vertical marketing system, or VMS, is a centrally managed distribution channel resulting from vertical channel integration. Merging eliminates the need for certain intermediaries and provides better control. The three types of VMSs are an administered VMS, where one channel member dominates the others; a contractual VMS, where cooperative arrangements and the rights and obligations of channel members are defined by contract; and a corporate VMS, in which the producer owns the distribution vehicle.  (LO 4 ends)

5. Discuss the need for wholesalers and describe the services they provide to retailers and manufacturers

Wholesalers are intermediaries that purchase from producers or other intermediaries and sell to industrial users, retailers, or other wholesalers. If producers would like to eliminate so many intermediaries, is there really a need for wholesalers? In a word, absolutely. Wholesalers perform many services that would still need to be done, even if they themselves were eliminated. And prices would not necessarily fall. In fact, they could rise. Wholesalers provide services to both retailers and manufacturers.
Wholesalers help retailers by buying in large quantities and then selling and delivering to retailers in smaller quantities. They stock in one place the variety of goods that retailers would otherwise have to buy from many producers. They help promote the products they sell to retailers. They are a constant source of market information. And they provide indirect financial aid by allowing retailers to maintain smaller inventories.
To manufacturers, wholesalers provide an instant sales force, they reduce inventory costs, they assume credit risks, and they provide market information. (LO 5 ends)

6. Identify and describe the major types of wholesalers

Some wholesalers provide all of these services, some offer fewer. It all depends on the type of wholesaler, and there are several types. They generally fall into three categories: (1) merchant wholesalers; (2) commission merchants, agents, and brokers; and (3) manufacturers’ sales branches and sales offices. A merchant wholesaler purchases goods in large quantities and then sells them to other wholesalers or retailers and to institutional, farm, government, professional, or industrial users. They are sometimes called distributors or jobbers. A full-service merchant wholesaler performs the entire range of wholesaler functions. Within this group are general merchandise wholesalers, who deal in a wide variety of products; limited-line wholesalers, who stock only a few product lines but carry numerous product items in each line; and specialty-line wholesalers, who carry a select group of products within a single line. In contrast to a full-service wholesaler, a limited-service wholesaler assumes responsibility for only a few wholesale services.
The second group of wholesalers are functional middlemen who do not take title to products. A commission merchant carries merchandise and negotiates sales for manufacturers. An agent expedites exchanges, represents a buyer or seller, and often is hired permanently on a commission basis. When agents represent producers, they are called sales agents or manufacturer’s agents. A broker specializes in a particular commodity, represents either a buyer or a seller, and is likely to be hired on a temporary basis.
The third type of wholesaler consists of a manufacturer’s sales branch, which is essentially a merchant wholesaler that is owned by the manufacturer, and a manufacturer’s sales office, which is essentially a sales agent owned by a manufacturer. Branches carry inventory, extend credit, deliver goods, and help in promotion. (LO 6 ends)

7. Distinguish among the major types of retailers

Retailers are the final link between producers and consumers, selling both goods and services. An independent retailer is a firm that operates only one retail outlet, as opposed to a chain retailer, which operates more than one. As with wholesalers, there are several major types of retailers. There are approximately 10 ways to classify retailers, generally based on store size and the kind and number of products carried.
A department store is a retail store that employs 25 or more people, and sells at least home furnishings, appliances, family apparel, and household linens and dry goods, each in a different part of the store. Discount stores are self-service, general merchandise outlets that sell goods at lower-than-usual prices. A catalog showroom displays well-known brands and sells them at discount prices through catalogs within the store. A warehouse showroom is in a large, low-cost building with large on-premises inventories and minimal service.
A convenience store is a small food store that sells a limited variety of products but remains open well beyond normal business hours. Supermarkets are large, self-service stores that sell primarily food and household products. A superstore is a large retail store that carries not only food and non-food products ordinarily found in supermarkets, but also additional product lines. A warehouse club is a large-scale, members-only establishment that combines features of cash-and-carry wholesaling with discount retailing.
Traditional specialty stores carry a narrow product mix with deep product lines. They are sometimes called limited-line retailers; if they carry depth in one particular product category, they may be called single-line retailers. An off-price retailer buys manufacturers’ seconds, overruns, returns, and off-season merchandise for resale to consumers at deep discounts. Finally, category killers are very large specialty stores that concentrate on a single product line and compete on the basis of low prices and product availability.
There are a few non-store retailers as well. A nonstore retailer is a type of retailing whereby consumers purchase products without visiting a store. Nonstore retailers use direct selling, direct marketing, and vending machines. Direct selling is the marketing of products to consumers through face-to-face sales presentations at home or in the workplace. Direct marketing is the use of computers, telephones, and non-personal media to show products to customers, who can then purchase them by mail, telephone, or online. Types of direct marketing include catalog marketing, direct-response marketing, telemarketing, television home shopping, and online marketing. With catalog marketing, an organization provides a catalog from which customers make selections and place orders by mail or phone. Direct-response marketing occurs when a retailer advertises a product and makes it available through mail, telephone, or online orders. Telemarketing is using the telephone to perform marketing-related activities. Television home shopping presents products to TV viewers, who can then order them by calling a toll-free number and paying by credit card. Online marketing makes products available to buyers through computer connections.
The last type of non-store retailing is by automatic vending, the use of machines to dispense products. (LO 7 ends)

8. Identify the categories of shopping centers and the factors that determine how shopping centers are classifiedSo where do you go if you want to shop at one or more stores? Many people go to shopping centers. A planned shopping center is a self-contained retail facility, constructed by independent owners and consisting of various stores. Shopping centers offer a complementary mix of stores in order to generate consumer traffic, and they generally come in four types. A lifestyle shopping center is an open-air environment shopping center with upscale chain specialty stores. They place an emphasis on architecture and creating a pleasant shopping environment, primarily in affluent neighborhoods. Neighborhood shopping centers consist of several small convenience and specialty stores. They serve customers who live 2 to 3 miles away. A community shopping center includes one or two department stores and some specialty stores, along with convenience stores. These shopping centers are carefully coordinated and often generate traffic with special events. Management’s objective is to maintain a center that offers wide product mixes and deep product lines. Finally, the regional shopping center contains large department stores, numerous specialty stores, restaurants, movie theaters, and sometimes even hotels. They advertise, hold special events, and provide transportation to certain groups of customers. (LO 8 ends)

9. Explain the five most important physical distribution activities

In order to get the goods to where the customers are, they have to be moved. All the activities concerned with the efficient movement of products from the producer to the ultimate user is called physical distribution. The five most important of these activities are (1) inventory management, (2) order processing, (3) warehousing, (4) materials handling, and (5) transportation. Inventory management, you may recall, is the process of managing inventories in such a way as to minimize inventory costs, including both holding costs and potential stock-out costs. Holding costs are the costs of storing products until they are purchased or shipped. Stock-out costs are the costs of sales lost when items are not in inventory, available for sale.
Order processing activities involve receiving and filling customers’ purchase orders. Fast, efficient order processing can provide a real competitive edge.
Warehousing is the set of activities involved in receiving and storing goods and preparing them for shipment. Warehousing includes receiving, identifying, sorting, dispatching, holding, recalling, picking, and assembling goods. A firm may own its own private warehouse, or use a public warehouse.
Materials handling is the actual physical handling of goods, in warehouses as well as during transportation. Proper handling techniques can increase the usable capacity of a warehouse and reduce breakage and spoilage.
Transportation is the shipment of products to customers. The greater the distance between the seller and the buyer, the more important the choice of carrier. A carrier is a firm that offers transportation services. The services of a common carrier are available to all shippers. A contract carrier is available for hire to one or more shippers, though the number at any one time is limited by law. A private carrier is owned and operated by the shipper. Shippers may also hire freight forwarders to pick up shipments, ensure that the goods are loaded, and assume responsibility for safe delivery. Parcel post, offered by the US Post Office, is widely used by mail-order houses. Depending on the nature and needs of various products, the five common modes of transportation are railroads, trucks, planes, waterways, and pipelines. Choices are made using certain criteria, namely cost, speed, dependability, load flexibility, accessibility, and frequency. (LO 9 ends)