DistributionDistribution

Chapter 13Chapter 13

What is distribution?What is distribution?

• Determining the best methods and procedures so that prospective customers can locate, obtain, and use a business’s products and services

Free EnterpriseFree Enterprise

• Is based on the matching of production and consumption decisions.

• Is based on matching supply and demand between consumer and producer.

Utilities affected by DistributionUtilities affected by Distribution

• Economic utility – amount of satisfaction a consumer receives from using a product or service

– Time utility: makes sure that the product is available when needed

– Place utility: makes sure that the product is available at the right place to be sold to customer

Channel of distributionChannel of distribution

• All the organizations and individuals who participate in the movement of goods from producer to consumer

Distribution adjusts the following Distribution adjusts the following differencesdifferences

• Differences in quantity

• Differences in assortment (products from many different manufacturers

• Differences in location (customers typically do not live next to the producer)

• Differences in timing of production and consumption by consumer

How does distribution save time How does distribution save time and $$$$and $$$$

• Consumers do not have to spend time locating products

• Cost to have products shipped to you

• Through marketing distribution there are experts getting the best prices to keep costs down

Types of distribution channelsTypes of distribution channels• Direct – the producer sells the product

directly to the customerExample: Farmer to customer

Used when:1. Small number of consumers2. Consumers in a small geographic area3. Product is complex – meet specific

needs

Indirect distributionIndirect distribution

• There are other businesses (intermediaries) between the producer and the customer

Example: Levis Manufacturing to Warehouse to Retailer to Customer

WholesalersWholesalers• Are companies who assist with distribution

activities between businesses.–Used to help producers with marketing

tasks to keep costs down–Main activities are:

• Buying• Selling• Transporting• Storing

Rack Jobbers and Drop Rack Jobbers and Drop ShippersShippers

• Rack jobbers manage inventory and merchandising for retailers by counting stock, filling it when needed, and maintaining store displays– Example: Pepsi, Frito Lay

• Drop shippers own the goods they sell but do not physically handle them– Example: Coal, lumber, chemicals

RetailersRetailers

• Sell typically to the consumer directly for profit

• Buy their goods from manufacturer or wholesaler

• Display their products so customers can evaluate them

• Do promotions for their products/services

Types of retailersTypes of retailers

• Brick and Mortar retailers – sell goods to the customers from their own physical stores

• Examples:

Types of retailersTypes of retailers• Automatic retailers – Vending machines

• Direct mail and catalog retailers

Retailers (Cont.)Retailers (Cont.)• TV home shopping –

• Online Retailing –Value of sales (million

dollars) E-commerce as percent of total sales

Percent distribution

Total E-commerce Total E-commerce234,667 112,791 48.1 100.0 100.0

6,824 5,214 76.4 2.9 4.626,047 19,507 74.9 11.1 17.322,088 11,026 49.9 9.4 9.85,608 3,092 55.1 2.4 2.7

71,329 5,994 8.4 30.4 5.317,684 14,211 80.4 7.5 12.63,667 2,244 61.2 1.6 2.0

13,158 9,894 75.2 5.6 8.86,396 5,351 83.7 2.7 4.77,953 5,736 72.1 3.4 5.17,030 4,820 68.6 3.0 4.35,926 3,604 60.8 2.5 3.2

29,167 14,096 48.3 12.4 12.511,790 8,002 67.9 5.0 7.1

How is retailing changing?How is retailing changing?

• More retail stores offering on-line shopping

• Many retail stores have catalogs to order from

• Speed and convenience in retail stores is important

• Customer service is very important

AgentsAgents

• Do not own the goods they sell

• Act as intermediaries by bringing buyer and seller together

–Real Estate Agents

–Food Brokers

Factors that affect distribution Factors that affect distribution decisions.decisions.

• Multiple channels – Selling to both industrial and consumer users– Selling cookies at Kroger (consumer) and to

airlines (industrial) for customers on plane– Control vs. cost – Determining the control

they want to keep over the distribution process and the costs and profitablity

Exclusive DistributionExclusive Distribution

• Protected territories for distribution of products in a given geographic location

Automobile dealers

Franchises (McDonalds)

Selective DistributionSelective Distribution

• A limited number of outlets in a geographic area are used to sell the product– Maintain the image of the product

• Ralph Lauren – Top department stores (Macy’s)• Liz Claiborne – Top department stores

Intensive DistributionIntensive Distribution

• The use of all suitable outlets to sell a product - Wal-Mart, Kroger, drugstores, etc.– Hanes socks– Household products– Types of foods

Distribution factors (continued)Distribution factors (continued)

• E-Commerce – using the Internet to sell products to customers and industrial buyers

• Foreign Markets – Look at cultural distributions in other countries to sell how are different– GM sells automobiles through franchised

retail outlets in US– In Taiwan, they own their own retail outlets.

Physical DistributionPhysical Distribution• Includes transporting, storing and stock

handling of products.– Trucking is the most frequently used

transportation• Advantages: Convenient, can deliver to door,

reduces packaging cost, rapid delivery of goods• Disadvantages: Traffic jams, equipment

breakdowns, traffic accidents, size and weight restrictions

Rail transportationRail transportation

Move heavy and bulky freight such as coal, steel, and lumber

Fishyback – shipping loaded truck trailers on a ship

Piggyback – shipping loaded truck trailers on railroad flatcars

RailroadsRailroads

• Advantages – relatively low cost, can ship large quantities, seldom stopped by bad weather

• Disadvantages – Lack of flexibility, cannot reach as many places

Water transportationWater transportation

• Oldest method of travel– Advantages: Lowest cost– Disadvantages: slowest, hard to get to port

location

PipelinesPipelines

• Used to transport oil and natural gas (200,000 miles of pipeline in U.S.)

• Advantages: operation costs are small, products move slowly and continuously, not affected by weather

• Disadvantages: High initial expense to build

Air TransportationAir Transportation

• The fastest mode of transportationAdvantages: Speed of delivery, reduces

inventory and storage costs

Disadvantages: Very expensive, mechanical breakdowns, delays caused by bad weather

Transportation service Transportation service companiescompanies

• U.S. Postal Service – run by government, small packages by parcel post or fourth-class mail

Express CarriersExpress Carriers

• Deliver small, lightweight packages up to 150 pounds, offer overnight and regular delivery. Faster the delivery time = more expensive– UPS– FED Ex

Inventory StorageInventory Storage

• Private warehouses – designed to meet the specific needs of the customer (TTAI having a warehouse to store their parts)

• Public Warehouse – offer storage and handling to individuals and companies (boat storage, residential, commercial)

Example: A to Z Self Storage

Distribution centerDistribution center

• Speeds delivery of goods and minimizes storage costs.

• Example: Wal-Mart Distribution Center in London