chapter 13 Flashcards
(27 cards)
Distribution channel
is a network of independent organisations that, combined, perform all of the activities necessary to link producers and end customers
Intermediries
they function as exporters, importers, agents, wholesailers and retailers that operate between the producer and consumer in a channel of distribution
Types of distribution channels:
Direct- for example you buy nespresso cups directly from their shop (no intermediaries)
Indirect- for example you buy nespresso cups from the supermarket (yes intermediaries)
Drawback of using intermediaries
producer gives up some control of the distribution process and, with it, some control over customer service and other important functions
(If your have more steps more margin is stuck in these steps)
indirect advantage (for example with nestle)
Indirect advantage- Supermarkets already have distribution centers and espresso can already use what is there and dont invest anymore
Long distribution channel VS Short distribution channel
Long Distribution Channel
A long distribution channel involves multiple intermediaries to reach consumers. It is often used in markets with a wide geographic reach to ensure broad product availability. This channel is suitable for low-cost, high-demand products that require significant after-sales service. Companies choose this approach to leverage the expertise of wholesalers and retailers, allowing them to focus on production instead of distribution logistics.
Short Distribution Channel
A short distribution channel typically involves fewer intermediaries, often selling directly to consumers. This channel is effective in markets with a well-defined or concentrated target audience. It is suitable for high-value or specialized products that benefit from personal selling or customization. Companies prefer this approach to maintain greater control over the sales process and enhance customer relationships through direct engagement.
HYBRID SYSTEM
A hybrid distribution system is a strategy that combines different types of distribution channels to reach customers effectively. This approach allows companies to leverage the strengths of various channels to maximize market coverage, enhance customer service, and increase sales.
Key Features of a Hybrid Distribution System:
Multiple Channels: A hybrid system typically involves both direct and indirect channels. For example, a company may sell its products through its own website (direct) while also using retailers or wholesalers (indirect) to reach a wider audience.
Flexibility: Companies can adjust their distribution strategies based on market conditions, customer preferences, and product types. This flexibility allows businesses to respond quickly to changes in demand or competitive pressures.
Increased Reach: By utilizing different channels, a hybrid system can help a company reach diverse customer segments more effectively. This is particularly important in markets where customers have varying preferences for purchasing methods.
Improved Customer Experience: A hybrid approach can enhance customer satisfaction by providing multiple options for purchasing and accessing products, such as online shopping, in-store purchases, or even direct sales through sales representatives.
Cost Efficiency: By integrating different channels, companies can optimize their distribution costs. For instance, they can use e-commerce to reduce reliance on physical retail space while still benefiting from the brand presence that traditional retailers provide.
Example of a Hybrid Distribution System:
A common example of a hybrid distribution system is a company like Apple. Apple sells its products directly through its own retail stores and online store, while also distributing through authorized retailers and telecommunications providers. This approach allows Apple to reach a broad customer base while maintaining control over its brand and customer experience.
In summary, a hybrid distribution system combines direct and indirect channels to create a flexible, efficient, and customer-centric approach to distribution, allowing companies to maximize their reach and adaptability in the market.
Distribution channels create utility
place utility by offering products in places where customers shop
time utility (making products available when buyers want them)
possession utility (by providing ownership or arrangements that give customers the righ to use the product such as lease or rental agreement)
Distribution channels increase efficiency
reducing the number of sales contacts needed to reach the target market
(Larger retailers and wholesailers buy in larger quantities)
Intermediaries also creating assortment that reduce the number of transactions- offer wide variety of products in one location
Distribution channels create a supply chain
Relationship Building: Facilitates strong connections between manufacturers, wholesalers, retailers, and consumers, fostering trust and loyalty.
Promotion: Distributors and retailers engage in promotional activities to enhance product visibility and drive sales.
Sorting: Organizes and categorizes products to streamline the purchasing process and improve customer satisfaction.
Inventory Control: Manages stock levels to ensure product availability, reduce stockouts, and optimize working capital.
Financing: Provides financial support through credit terms, helping facilitate sales and improve cash flow.
Research and Marketing Information: Gathers market insights and consumer data, aiding manufacturers in making informed decisions about products and marketing strategies.
Distribution intensity
the number of outlets used to distribute a product or service in a particular market
DISTRIBUTION INTENSITY
Intensive (Convenience products- minimum effort)
Selective (shopping products- moderate effort)
Exclusive (specialty products- significant effort)
- Intensive Distribution
Intensive distribution aims to provide maximum product availability by placing products in as many outlets as possible. This strategy is typically used for convenience products, which require minimal effort from consumers to purchase.
Example Products: Snacks, soft drinks, and toiletries.
Key Characteristics: Products are widely available in supermarkets, convenience stores, and gas stations, making it easy for consumers to find and purchase them.
2. Selective Distribution
Selective distribution involves using a limited number of outlets to sell products. This strategy is suited for shopping products, which require moderate effort from consumers when making a purchase decision.
Example Products: Electronics, clothing, and furniture.
Key Characteristics: These products are available in specific stores or chains that are carefully chosen to enhance brand image and customer service while still providing some accessibility.
3. Exclusive Distribution
Exclusive distribution grants limited access to a product, ensuring that it is only available through a select number of retailers or distributors. This strategy is appropriate for specialty products, which require significant effort from consumers.
Example Products: Luxury items, high-end watches, and designer handbags.
Key Characteristics: These products are sold through exclusive retailers or boutiques, often with a focus on high-quality customer service and brand prestige.
Summary
In summary, intensive distribution is for convenience products that require minimal effort, selective distribution is for shopping products that involve moderate effort, and exclusive distribution is for specialty products that demand significant consumer effort. Each strategy aligns with different product types to optimize market reach and consumer accessibility.
- Intensive Distribution
Definition: The product is made available in as many outlets as possible to maximize exposure and sales.
Why Choose It:
High Market Coverage: This approach is ideal for products that customers buy frequently and want convenient access to, like snacks, drinks, or toiletries.
Maximize Sales Volume: By being in many stores, the product reaches a broad audience, increasing the likelihood of high sales.
Example: Coca-Cola uses intensive distribution to ensure you can find its products everywhere from grocery stores to vending machines. - Selective Distribution
Definition: The brand selects specific retailers to carry the product, creating a balance between availability and brand control.
Why Choose It:
Targeted Market Reach: Selective distribution allows brands to choose stores that align with their target market, focusing on quality rather than sheer volume.
Brand Image Control: By limiting availability, the brand can work closely with chosen retailers to create the right brand experience and maintain a certain level of exclusivity.
Example: Sony may use selective distribution for its electronics, ensuring products are sold in reputable electronics stores and department stores rather than every small shop. - Exclusive Distribution
Definition: The brand grants a single or very limited number of retailers the right to sell its product within a particular area.
Why Choose It:
High-End Brand Positioning: Exclusive distribution is common for luxury or high-end brands that want to create a sense of exclusivity and rarity.
Control Over Customer Experience: By working with only a few select retailers, the brand can ensure a premium buying experience, with trained staff and a controlled environment.
Example: Rolex uses exclusive distribution, selling its watches only through a few authorized jewelers and stores to maintain its luxury status. - Intensive Distribution
Why a Car Brand Might Choose It:
Broad Market Reach: While rare for cars (because dealerships are costly to maintain), some lower-cost, high-demand brands may use a relatively intensive approach to reach more customers. They would aim to place dealerships in many locations, even small towns, to be easily accessible.
Example: Toyota or Ford sometimes follow this approach by ensuring they have dealerships in most towns and cities, making their cars accessible to a broad customer base.
Best For: High-volume, affordable car brands that cater to a wide range of consumers and prioritize convenience and availability. - Selective Distribution
Why a Car Brand Might Choose It:
Targeted Customer Base: For mid-range to premium cars, brands often use selective distribution to carefully choose dealership locations that match their customer demographics. This helps maintain a strong brand image and attract buyers who value quality and service over convenience alone.
Example: Honda or Volkswagen might choose selective distribution, with dealerships primarily in areas that fit their customer profiles, like urban centers and larger towns with a solid middle-class customer base.
Best For: Brands positioned as quality, reliable, and slightly premium without being luxury. This approach allows for controlled brand image and good service standards without oversaturating the market. - Exclusive Distribution
Why a Car Brand Might Choose It:
Luxury Positioning and Exclusivity: High-end luxury brands use exclusive distribution to create an elite buying experience. By limiting the number of dealerships, these brands can ensure that each dealership meets very high standards, provides an exclusive buying environment, and attracts a specific, high-income clientele.
Example: Lamborghini or Rolls-Royce uses exclusive distribution, often with just a few dealerships in major cities worldwide. These limited locations provide a luxury experience and reinforce the brand’s high-status image.
Best For: Luxury brands focused on exclusivity, high-quality customer service, and a strong sense of prestige.
Summary Table for Car Brands
WHOLESALER
Buying products in large quantities from manufacturer and then selling them to the retailer
Main types of wholesalers:
Self- service (e.g. Makro) like cash and carry- customers like small shops go to the warehouse and pick up what they need.
Full- service (central bookstore) those wholesalers offer a lot of help and support including delivery and payment options
Service merchandiser (magazines in supermarket- providing the product and also take care of setting up and organizing it on store shelves- they visit stores regularly to restok and arrange items like magazines or snacks
MANUFACTURER-OWNED WHOLESALERS
A manufacturer-owned wholesaler is a wholesaling operation owned by the manufacturer itself. Instead of using independent wholesalers, the manufacturer sets up its own distribution centers or sales branches to control how products reach retailers or customers. This approach gives the manufacturer more control over pricing, distribution, and customer service.
Example
Apple operates its own wholesale branches (like Apple Stores and authorized Apple distribution centers). These branches distribute Apple products directly to retail stores or end customers, rather than relying on third-party wholesalers. This lets Apple maintain a high level of quality control and consistency in how its products are sold and marketed.
MERCHANT WHOLESALER
Limited-service wholesalers focus on basic selling functions, drop shippers facilitate sales without handling inventory, truck wholesalers deliver products directly to retailers, and cash-and-carry wholesalers require customers to pay upfront and transport goods themselves.
Merchant wholesalers play a crucial role in the supply chain by purchasing goods in bulk from manufacturers and selling them to retailers or other businesses. Within the category of merchant wholesalers, there are several subtypes, including limited-service merchant wholesalers, drop shippers, truck wholesalers, and cash-and-carry wholesalers. Here’s an overview of each type:
- Limited-Service Merchant Wholesalers
Definition: Limited-service merchant wholesalers provide fewer services than full-service wholesalers. They primarily focus on selling products and managing the distribution process but may not offer additional support like inventory management or marketing assistance.
Characteristics:
Typically operate on a smaller scale compared to full-service wholesalers.
Often specialize in specific product lines or industries.
Provide basic services, such as order processing and transportation.
Example: A limited-service wholesaler might focus on distributing a specific type of consumer electronics without providing extensive marketing support to retailers. - Drop Shippers
Definition: Drop shippers are a unique type of wholesaler that does not take physical possession of the goods they sell. Instead, they facilitate the sale of products from manufacturers directly to consumers or retailers.
Characteristics:
They take orders from customers and pass them on to the manufacturer or supplier for fulfillment.
Drop shippers typically handle the sales process and customer service but do not manage inventory or shipping.
They operate primarily in industries where large or bulky products are sold, such as furniture or appliances.
Example: An online retailer that sells furniture may use a drop shipper to list products on their site. When a customer orders a piece of furniture, the drop shipper arranges for the manufacturer to ship the item directly to the customer. - Truck Wholesalers
Definition: Truck wholesalers, also known as truck jobbers, operate by using trucks to deliver goods directly to retailers. They often carry their own inventory on board and sell products on the spot.
Characteristics:
They have a mobile sales force that visits retailers, selling products directly from the truck.
Truck wholesalers typically deal in perishable goods or low-cost items that require frequent replenishment, such as snacks, beverages, or dairy products.
They can quickly respond to customer demand and maintain good relationships with local retailers.
Example: A truck wholesaler might sell ice cream or soft drinks, driving to convenience stores and restaurants to deliver products and take orders. - Cash-and-Carry Wholesalers
Definition: Cash-and-carry wholesalers require customers to pay for goods upfront and take them away themselves. They operate on a self-service basis, often resembling warehouse stores.
Characteristics:
Customers, usually small retailers or foodservice operators, visit the wholesale location, select their products, and pay cash before transporting the goods themselves.
These wholesalers typically offer a wide variety of goods at lower prices due to the reduced costs of services provided.
They are often used by small businesses looking to purchase items in bulk without the need for credit or delivery services.
Example: A cash-and-carry wholesaler might be a wholesale club like Costco or Sam’s Club, where business owners can buy products in bulk for their operations.
Summary
In summary, merchant wholesalers can be categorized into different types based on the services they provide and how they operate. Limited-service wholesalers focus on basic selling functions, drop shippers facilitate sales without handling inventory, truck wholesalers deliver products directly to retailers, and cash-and-carry wholesalers require customers to pay upfront and transport goods themselves. Each type plays a unique role in the distribution process, catering to different market needs and customer preferences.
Agents
Definition: Agents are people who sell products for manufacturers or suppliers. They do not own the products; instead, they work to make sales on behalf of their clients.
Types of Agents:
Selling Agents: These agents represent a manufacturer or supplier exclusively. They sell all or most of that company’s products in a specific territory and earn a commission on sales.
Example: A selling agent for a clothing brand would promote and sell their clothes to retail stores.
Brokers
Definition: Brokers are intermediaries who help buyers and sellers make deals. They connect people who want to buy products with those who want to sell them, but they do not take ownership of the products.
Types of Brokers:
Auction Companies: These brokers facilitate auctions, where items are sold to the highest bidder. They handle the auction process and earn a fee for their services.
Online Auction Companies: These are platforms (like eBay) that allow people to sell goods through online auctions. They connect buyers and sellers in a digital marketplace and take a commission from sales.
Summary
In short, agents and brokers help sell products without owning them. Selling agents work closely with specific manufacturers, while brokers facilitate deals between buyers and sellers. Auction companies and online auction companies are types of brokers that organize auctions to sell items.
MARKETING LOGISTICS
Getting the right number of products at the right place at the right time at the lowers costs
Logistics also includes processing, warehousing , material handling, inventory control and transportation
For a business also e.g. packaging, customer service, and store location planning
logistics management consits of two basic activities:
- materials management (analysis, planning, implementation and evaluation of acivities to cost-effectively expedite the flow of raw materials and related information from suppliers to the factor for a streamlined production process
-physical distribution management once the goods have been manufactured physical distribution management fouces on planning and coordinating the warehousing, inventory control and transportation of the finished product
KEY ACTIVITIES IN LOGISTICS
- Order Processing
Definition: The series of steps involved in receiving, processing, and fulfilling customer orders.
Importance: Efficient order processing ensures timely and accurate delivery of products, which enhances customer satisfaction and loyalty. It typically includes order entry, order confirmation, picking, packing, and shipping. - Inventory Management
Definition: The supervision of ordering, storing, and using a company’s inventory.
Importance: Effective inventory management helps maintain the right balance of stock to meet customer demand without overstocking, which can tie up capital and increase storage costs. - Warehousing
Definition: The storage of goods in a facility until they are needed for distribution or sale.
Importance: Warehousing provides flexibility in managing inventory levels, ensures products are available when needed, and allows for bulk storage, which can reduce costs associated with transportation. - Materials Handling
Definition: The movement of goods within a warehouse or distribution center.
Importance: Efficient materials handling reduces the time and effort needed to move products, minimizing labor costs and reducing the risk of damage to goods during handling. - Inventory Control
Definition: The process of tracking inventory levels, orders, sales, and deliveries.
Importance: Strong inventory control systems help prevent stockouts and overstock situations, allowing for better cash flow management and ensuring that inventory is available to meet customer demand. - Just-in-Time (JIT) Inventory System
Definition: An inventory management strategy that aims to increase efficiency by receiving goods only as they are needed in the production process.
Importance: JIT reduces inventory holding costs, minimizes waste, and enhances cash flow. It requires precise forecasting and strong supplier relationships to ensure timely delivery of materials. - Transportation
Definition: The movement of goods from one location to another.
Importance: Transportation is a crucial component of logistics that impacts delivery speed and costs. Choosing the right mode of transportation (truck, rail, air, etc.) can affect overall supply chain efficiency and customer satisfaction.
STRATEGIC ISSUES IN PHYSICAL DISTRIBUTION
Here’s a concise overview of strategic issues in physical distribution using the keywords suboptimization and total cost approach:
Strategic Issues in Physical Distribution
Suboptimization: This occurs when decisions in one area of the supply chain, such as transportation or inventory management, lead to inefficiencies in others. For example, focusing solely on reducing transportation costs might result in higher inventory levels and storage costs. It’s essential to ensure that all parts of the distribution process are aligned to optimize overall efficiency rather than individual components.
Total Cost Approach: This strategy involves considering the complete costs associated with physical distribution rather than just individual elements like transportation or warehousing. By adopting a total cost approach, companies can identify trade-offs between different logistics activities. For instance, investing in faster transportation may increase costs but could lead to improved customer satisfaction and potentially higher sales, thus justifying the expense.
In addition to suboptimization and the total cost approach, here are other strategic issues in physical distribution:
Transportation: Choosing the best method (trucks, ships, planes) to balance speed and cost.
Warehousing: Deciding on the location, size, and number of warehouses to store products and ensure fast delivery.
Inventory Management: Keeping the right amount of stock to meet demand without overstocking, which ties up cash and increases storage costs.
Order Processing: Streamlining the handling of orders to minimize errors and delays, improving customer satisfaction.
Distribution Costs: Managing costs across all distribution activities to keep products affordable and competitive.
RETAILER
a person or business that sells goods to the public in relatively small quantities for use or consumption rather than for resale.
Key functions:
- provide information through advertising and personal selling
-purchase products, assemble an assortment and offer them for sale
-keep inventory set prices and provide sales promotion
sell provide service and offer credit to consumers
TYPES OF RETAIL STORES
Specialty stores
Conveninece stores
Supermarkets
Hypermarkets (Very large retail spaces that combine a supermarket and a department store, offering groceries and a wide range of non-food items)
Department stores (Large retail stores that offer a wide variety of goods organized into departments, such as clothing, home goods, and cosmetics)
Discount stores
Shopping centres (A collection of retail stores, restaurants, and other services housed in one location, often with common areas for customers)
Factory outlet centres
