Chapter 2
The Channel Participants
Major Participants in the Marketing Channel
2
Objective 1:
Producers
&
Manufacturers
Wholesale
Intermediaries
Retail
Intermediaries
Intermediaries
Consumers Industries
Final Users
* Commercial Channel * Target Markets
1
Objective 2:
Why shift distribution tasks to intermediaries?
Producers
&
Manufacturers
Lack expertise
Lack economies of scale
Intermediaries
Achieve economies of
scope and economies of
scale
2
Example: Distribution of Coca Cola
Huge order processing
facility
Huge inventory to meet
demand
Numerous warehouse
locations around the world
Transportation of
product to consumers
= Cost prohibitive
Manufacturer direct
to customers
Hypothetical
Average Cost Curves for the Production and
Distribution of Coca-Cola
ATC
Boxes of Coca-Cola beverages
produced
0
0
C1
C2
Q1
Q1
Boxes of Coca-Cola beverages
distributed
$ per box of
Coca-Cola
beverages
distributed
$ per box of
Coca-Cola
beverages
distributed
ATC
Production of Coca-Cola
Distribution of Coca-Cola
2
Objective 3:
Major Types of Wholesalers
Merchant
wholesaler
Agents, brokers,
&
commission
merchants
Independent
middlemen
Manufacturers'
sales branches
&
offices
Manufacturer
owned
All Wholesale Firms
2
Merchant Wholesalers
Buy
Take title to
Store
Handle
Large quantities of products
Resell to
Retailers
Industrial,
Commercial,
or
Institutional
organizations
Other
Wholesalers
2
Agents, Brokers, & Commission Merchants
Involved in buying & selling
while acting on behalf of clients
Commissions
on
sales or purchases
2
Owned & operated by
manufacturers
Distribute
manufacturers products
at wholesale
Some wholesale similar &
supplementary products
purchased from other
manufacturers
Manufacturers Sales Branches & Offices
Separated from manufacturing plants
Major Trends in Wholesale Structure
2
Objective 4:
51.7% Manufacturers sales branches
& offices
49.7% Wholesale trade
218.8% Merchant wholesalers
56.5% Agents, brokers, & commission
merchants
19922002
19922007
2
Trends in Size & Concentration
Measured by: Types of Wholesalers
Size of
wholesaler
Majority are small businesses
Sales volume In 2007, 40% of all firms have annual sales of
less than $1 million
# of Employees per firm In 2007, Over 50% of firms had fewer than 5
employees
Economic concentration
in terms of % of total
sales
In 2002, 50 largest manufacturers sales
branches & offices garnered nearly 63% of
sales for this type
2
Merchant Wholesalers Specialize in
Performance of Distribution Tasks
Objective 5:
Operate at high levels of effectiveness and efficiency
Average cost curves lower than those for their
suppliers
Provide market coverage
Make sales contacts
Hold inventory
Process orders
Gather market information
Offer customer support
Merchant Wholesalers Distribution
Tasks Serve Customers
2
Assure product availability
Provide customer service
Extend credit & financial
assistance
Offer assortment convenience
Break bulk
Help customers with advice &
technical support
2
Agent Wholesalers Distribution Tasks
Manufacturers
Agents
Market coverage
Sales contacts
2
Agent Wholesalers Distribution Tasks
Market coverage
Sales contacts
Order processing
Marketing information
Product availability
Customer services
Selling agents
2
Agent Wholesalers Distribution Tasks
Brokers
Market coverage
Sales contacts
Order processing
Marketing Information
Product availability
Customer services
Agent Wholesalers Distribution Tasks
2
Commission
Merchant
Market coverage
Sales contacts
Order processing
Breaking bulk
Credit
Holding inventory
Retail Structure
2
Objective 6:
By Ownership of
Establishment
By Kind of Business
(Merchandise Handled)
By Size of Establishment
By Degree of Vertical
Integration
By Type of Relationship with
other Business Organizations
By Method of Consumer
Contact
By Type of Location
By Type of Service Rendered
By Legal Form of
Organization
By Management
Organizations or Operational
Technique
Alternative Bases for Classifying Retailers
Kind-of-Business Classifications
2
Retail Trade
Motor vehicle & parts dealers
Furniture & home furnishings
stores
Electronics & appliance
stores
Building material & garden
equip. & supply dealers
Food & beverage stores
Health & personal care
stores
Gasoline stations
Clothing & clothing
accessories stores
Sporting goods, hobby, book,
& music stores
General merchandise stores
Miscellaneous store retailers
Nonstore retailers
Retail Structure Trends
Objective 7:
1
Decreasing number of establishments
Increasing sales
= increase in size of retail establishments
measured by average sales volume
per store
1
Concentration in Retailing
In 2007
5% of all retail firms
accounted for nearly 80%
of total sales!
Distribution Tasks Performed by Retailers
2
The role of the retailer in the distribution
channel, regardless of his size or type, is
to interpret the demands of his
customers and to find and stock the
goods these customers want, when they
want them, and in the way they want
them. This adds up to having the right
assortments at the time customers are
ready to buy.
Charles Y. Lazarus
Objective 8:
2
Distribution Tasks Performed by Retailers
Offer manpower & physical facilities close to
consumers residences
Provide personal assistance to help sell products
Interpret and relay consumer demand
Divide large quantities into consumer-sized lots
Offer storage
Remove risk by ordering in advance of the season
Retailers Growing Power in Marketing
Channels
2
Objective 9:
Increased size & buying
power
Become power retailers
&
Category killers
Application of advanced
Technologies
Information technology &
The Internet (e-commerce,
m-commerce, and f-
commerce)
Use of modern marketing
strategies
Modern marketing
techniques; Relationship
marketing
Facilitating Agencies in Marketing Channels
Objective 10:
2
Transportation agencies
Storage agencies
Order processing agencies
Advertising agencies
Financial agencies
Insurance companies
Marketing research firms
