Moving Goods from Producers to Customers

Chapter 15 focuses on the place part of the marketing mix: how goods and services move from producers to business buyers and final consumers. A good product at an attractive price cannot create value for customers if it is not available where and when they want it.

Marketing intermediaries are organizations that assist in moving goods and services from businesses to businesses (B2B) and from businesses to consumers (B2C). They are called intermediaries because they operate between producers and buyers. Although intermediaries add costs, they can also make distribution faster, more efficient, and more convenient.

Channels of Distribution

A channel of distribution is a group of marketing intermediaries that work together to transport and store goods as they move from producers to consumers. Different products may use different channels. A producer may sell directly to consumers, or the channel may include wholesalers, retailers, agents, or brokers.

Intermediaries can reduce the number of contacts and transactions required between many producers and many customers. By specializing in distribution tasks, they can often perform those tasks more efficiently than individual manufacturers could perform them on their own.

Major Types of Marketing Intermediaries

• Agents and brokers bring buyers and sellers together and help negotiate an exchange, but they generally do not take title to the goods.
• Wholesalers sell products primarily to other organizations such as retailers, manufacturers, hospitals, and other business customers.
• Retailers sell products to ultimate consumers for their own use.

Retail sales are sales to final consumers, while wholesale sales are sales to organizations for business use or resale. Some organizations can perform both functions.

How Intermediaries Create Utility

Utility is the want-satisfying ability, or value, that organizations add to goods and services by making them more useful or accessible. The chapter identifies six forms of utility.

Form Utility

Form utility is created by changing raw materials or components into useful products or by adapting products to customer needs. Producers normally create much of the form utility, although channel members can also add value through preparation and customization.

Time Utility

Time utility means making products available when customers want them. Extended store hours, rapid delivery, and keeping seasonal products available at the appropriate time all create time utility.

Place Utility

Place utility means making products available where customers want them. Convenient retail locations, nearby ATMs, distribution centers, and delivery services are examples.

Possession Utility

Possession utility helps transfer ownership from seller to buyer. Credit, financing, convenient payment systems, and efficient checkout processes can make possession easier.

Information Utility

Information utility creates a useful flow of information between sellers and buyers. Websites, salespeople, product reviews, maps, and knowledgeable intermediaries can help customers make better decisions.

Service Utility

Service utility adds value through assistance before, during, and after a sale. Installation, training, customer support, repair, and other services can make a product more useful to the customer.

Wholesale Intermediaries

Merchant wholesalers are independently owned firms that take title to the goods they handle. Full-service wholesalers perform many distribution functions, while limited-function wholesalers perform selected functions.

Limited-Function Wholesalers

• Rack jobbers furnish racks or shelves of merchandise for retailers and often sell the merchandise on consignment.
• Cash-and-carry wholesalers primarily serve smaller retailers with a limited assortment of products.
• Drop shippers take orders from buyers and arrange for the producer to ship merchandise directly to the customer.

Agents generally maintain longer-term relationships with the organizations they represent. Manufacturer's agents may represent several manufacturers in a territory, while sales agents may represent one client over a larger territory. Brokers typically represent clients on a more temporary basis.

Retail Intermediaries

Retailers are the channel members most familiar to consumers. Retail organizations can take many forms, including department stores, discount stores, supermarkets, warehouse clubs, convenience stores, category specialists, outlet stores, and specialty stores.

The best retail structure depends on the product, target market, customer expectations, and the degree of control a producer wants over how the product is presented and sold.

Retail Distribution Strategies

Intensive Distribution

Intensive distribution places a product in as many retail outlets as possible. It is especially useful for convenience products that customers expect to find easily.

Selective Distribution

Selective distribution uses only a preferred group of available retailers in an area. This strategy gives producers more control while still providing customers with multiple buying locations.

Exclusive Distribution

Exclusive distribution uses only one retail outlet in a geographic area. It is often associated with specialty or prestige products where the producer wants substantial control over the selling environment.

The appropriate strategy depends on the product. A soft drink or candy bar is usually suited to intensive distribution, while a premium automobile or piano may fit a much more selective or exclusive approach.

Online and Nonstore Retailing

Online retailing is the sale of goods and services to ultimate customers over the Internet. Effective online stores reduce customer uncertainty by offering clear information, professional design, secure and flexible payment options, customer reviews, recognizable brands, and convenient return policies.

Social commerce uses social media, online interaction, and user contributions to assist in buying and selling. Other forms of nonstore retailing include telemarketing, vending machines, kiosks, carts, temporary pop-up stores, and direct selling.

Direct selling sells goods and services to customers in their homes or workplaces. Direct marketing is any activity that directly links manufacturers or intermediaries with ultimate customers. Multilevel marketing is one form of direct selling in which independent contractors participate in the sales process.

Building Cooperation in Distribution Channels

Distribution channels work best when their members cooperate. The chapter identifies several systems for coordinating channel relationships.

Corporate Distribution Systems

A corporate distribution system exists when one firm owns the organizations at different levels of the channel. Ownership can give the firm substantial control over distribution decisions.

Contractual Distribution Systems

A contractual distribution system coordinates independent organizations through formal agreements. Franchise systems, wholesaler-sponsored chains, and retail cooperatives are examples.

Administered Distribution Systems

An administered distribution system coordinates channel activities through the influence of a powerful channel member rather than common ownership or a formal contract.

Supply Chains and Supply Chain Management

A supply chain includes all the linked activities that organizations perform to move goods and services from sources of raw materials to ultimate consumers. It can involve suppliers, manufacturers, warehouses, transportation providers, wholesalers, retailers, and information systems.

Supply chain management is the process of managing the movement of raw materials, parts, work in progress, finished goods, and related information through all organizations in the supply chain. Effective management coordinates these activities so customers receive the right products while unnecessary cost and delay are reduced.

Logistics

Logistics is the planning, implementing, and controlling of the physical flow of materials, finished goods, and related information from points of origin to points of consumption.

• Inbound logistics brings raw materials, packaging, other goods and services, and information from suppliers to producers.
• Materials handling manages the movement of goods within warehouses and production facilities.
• Outbound logistics manages the flow of finished products and information to business buyers and consumers.
• Reverse logistics brings products back through the channel because of defects, returns, recycling, or other reasons.

Transportation Decisions

Businesses can move freight by rail, truck, pipeline, ship, or air. Each mode offers a different combination of cost, speed, dependability, flexibility, frequency, and geographic reach. The best choice depends on the product and the customer's requirements.

A freight forwarder combines smaller shipments into a larger shipment that can be transported more economically. Intermodal shipping uses more than one mode of transportation for a single long-distance movement of freight. Examples include placing truck trailers on trains, ships, or aircraft.

The Storage Function

Warehousing helps businesses balance the timing of production and customer demand. Storage warehouses hold products for relatively long periods, such as seasonal merchandise. Distribution warehouses are designed to gather and redistribute products efficiently and are often used for goods that move through the system more quickly.

Putting Chapter 15 Together

Distribution is much more than shipping a product. Marketing channels create value by connecting producers and customers, creating utility, coordinating wholesalers and retailers, managing online and nonstore channels, and controlling the physical and informational flow of products. A strong distribution system helps ensure that customers can obtain the products they want, where and when they want them.