CHAPTER 10

Distribution Decision:
Marketing channels and Supply Chain
Management (SCM)

Learning Objectives

Explain Key Channel Members Functions

Explain Key Channel Members Functions
Discuss
SupplySupply
Chain Management
Discuss
Chain Management
Explain Major Logistics Functions
Explain
Major Logistics Functions
Discuss Retailing and Wholesaling
Functions Provided by Wholesalers

Discuss Retailing and Wholesaling

Functions Provided by Wholesalers

INTRODUCTION CHAPTER 10
1. Marketing channel
2. 2 types of intermediaries
Retailers
Wholesalers
3. Key functions performed by channel members
4. Types of channel
Direct channel
Indirect channel
5. Supply Chain Management (SCM)

Benefits
Marketing logistics (distribution)
Major Logistics Functions

INTRODUCTION CHAPTER 10
1. Retailing
Types of Retailers
2. Wholesaling
Functions provided by wholesalers
Types of Wholesalers
3. Primary Differences

(A) Marketing Channel

Marketing Channel
Marketing (distribution) channel:

System of marketing institutions that

enhances the physical flow of goods and
services, along with ownership title, from
producer to consumer or business user.

The Role of Marketing Channels in

Marketing Strategy
Channels provide the means by which the firm moves the

goods and services it produces to ultimate users.

1. Facilitate the exchange process by cutting the number of
contacts necessary
2. Adjust for discrepancies in the markets assortment of
goods and services via sorting
3. Standardize exchange transactions
4. Facilitate searches by both buyers and sellers
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Marketing Intermediaries
(Channel Members)
Most channel options involve at least one marketing

intermediary, an organization that operates between

producers and consumers or business users.
Service firms market primarily through short channels because
they sell intangible products and need to maintain personal
relationships within their channels.
Marketing Intermediaries

A retailer owned and operated by

someone other than the manufacturer
of the products it sells.
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A wholesaler who takes title to the

goods handles and then distributes these
goods to retailers, other distributors, or
sometimes end consumers.
.

How a Distributor Reduces the Number of Channel

Transactions
LG

Sony

Sharp

Toshiba

LG

Sony

Sharp

Toshiba

Harvey
Norman
9

How Intermediaries (Channel

Members) Add Value
The role of marketing intermediaries is to transform

the assortments of products made by producers into the

assortments wanted by consumers.
Members of the marketing channel perform many key
functions.
Some help to complete transactions:
Information, Promotion, Contact, Matching and Negotiation.

Others help to fulfill the completed transactions:

Physical Distribution, Financing and Risk Taking
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Key Functions performed by intermediaries

(channel members)
TO COMPLETE TRANSACTIONS

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(1) Information

Gathering and distributing marketing research

and intelligence information about actors and
forces in the marketing environment needed
for planning and aiding exchange.

(2) Promotion

Developing
and
spreading
communications about an offer.

(3) Contact

Finding and communicating with prospective

buyers.

(4) Matching

Shaping and fitting the offer to the buyers

needs,
including
activities
such
as
manufacturing, grading, assembling, and
packaging.

(5) Negotiation

persuasive

Reaching an agreement on price and other

terms of the offer so that ownership or

Key Functions performed by intermediaries

(channel members)
TO FULFILL COMPLETE DTRANSACTIONS

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(6) Physical
Distribution

Transporting and storing goods.

(7) Financing

Acquiring and using funds to cover the costs

of the channel work.

(8) Risk Taking

Assuming the risks of carrying out the channel

work.

If the manufacturer performs these functions, its costs go up and its

prices must be higher.
When some functions are shifted to the intermediaries, the
manufacturers costs and prices maybe lower.

Number of Channel Levels

(Channel Structures)
Direct Marketing Channel:

A marketing channel that has no intermediary levels.

Direct

Indirect Marketing Channel:

A channel containing one or more intermediary levels.

Indirect
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Channels for Consumer Products

Direct
Channel

Retailer
Channel

Wholesaler
Channel

Agent/Broker
Channel

Producer

Producer

Producer

Producer
Agents or
Brokers

Consumers
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Wholesalers

Wholesalers

Retailers

Retailers

Retailers

Consumers

Consumers

Consumers

Channels for
Business-to-Business Products
Direct
Channel

Direct
Channel

Industrial
Distributor

Agent/Broker
Channel

Agent/Broker
Industrial
Channel

Producer

Producer

Producer

Producer

Producer

Agents or
Brokers

Agents or
Brokers
Industrial
Distributor

Industrial
Distributor

Industrial
User
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Govt.
Buyer

Industrial
User

Industrial
User

Industrial
User

Channel Strategy Decisions

Selection of a Marketing Channel

Factors which impact the selection of a marketing channel

include:
Market factors
Product factors
Organizational factors
Competitive factors

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(B) Supply Chain Management

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Supply Chain Management

Managing upstream and downstream valueadded flows of materials, final goods, and related
information among suppliers, the company,
resellers and final consumers.
These include:

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Sourcing and procurement of raw materials

Stock management
Transportation
Warehousing
Customer service
Information system
External partners such as vendors, carriers,
and third-party companies.

Supply Chain Management

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Benefits of Supply Chain Management

Reduced Cost

Improved Services

Enhanced Revenues

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Stock management, transportation,

warehousing and packaging

Time-based delivery and

make to order

Higher product availability

and more customized
products

Marketing Logistics
(Physical Distribution)
Marketing Logistics (Physical Distribution):
Planning, implementing, and controlling and the physical flow of

materials, final goods, and related information from points of origin to

points of consumption to meet customer requirements at a profit.
Marketing logistics addresses:

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1. Outbound distribution

moving products from the factory to resellers and

ultimately to customers

2. Inbound distribution

moving products and materials from suppliers to the

factory

3. Reverse distribution

moving broken, unwanted, or excess products returned

by customers or resellers

Major Logistics Functions

The goal of marketing logistics should be to provide a

targeted level of customer service at the least cost.

Company design a logistics system that will minimize the
cost of attaining maximum profits.
The major logistics functions include:
1. Warehousing
2. Inventory Management
3. Transportation
4. Logistics Information Management
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Major Logistics Functions

Logistics

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Types

Descriptions

1. Warehousing

Storage
warehouses or
distribution
centers.

A company must decide on how many and what

types of warehouses it needs and where they will be
located.

2. Inventory
Management

Just-in-time and
RFID

Companies must balance customer demand with

costs of carrying excess inventory.

3. Transportation

Trucks, Railroads,
Water carriers,
Pipelines, & air
carriers

The choice of transportation carriers affects the

pricing of the products, delivery performance and
conditions of the goods when they arrive that will
affect customer satisfaction.

Third-Party
Logistics

Emphasizes teamwork, both inside the

company and among all the marketing channel
organizations, to maximize the performance of
the entire distribution system.

4. Logistics
Information
Management

Examples of Major Logistics Functions

1. Transportation

2. Inventory
Management

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4. Logistics Information
Management

3. Warehousing

CHAPTER 11
Distribution Decision:
Retailing & Wholesaling

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What is Retailing
Retailing

Includes all the activities involved in selling

products or services directly to final consumers
for their personal, non business use.
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Types of Retailers
Retailers: Businesses whose sales come primarily from

retailing.
Retailers can be classified based on:

(1) Amount of Service

(2) Product Line
(3) Relative Prices

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(4) Organizational
Approach

FIGURE 17-4 Stores vary in terms of the breadth

and depth of their merchandise lines

17-28

Types of Retailers
(Product Line)

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Types

Descriptions

1. Specialty
Stores

Carry narrow product lines with deep assortments

within those lines.
E.g.: Books stores (MPH), Florist, Footwear shops
(Vincci), Jewelry Stores (Poh Kong)

2. Department
Stores

Carry a wide variety of product linestypically

clothing, home furnishings, and household goods.
Each line is operated as a separate department
managed by specialist buyers or merchandisers.
E.g.: Jusco, Isetan, Metrojaya, Parkson & etc

3. Supermarkets

Large, low-cost, low-margin, high-volume, selfservice store that carries a wide variety of food,
laundry, and household products.
E.g.: Giant, 99 Speedmart, Billion, Tesco

Types of Retailers
(Product Line)

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Types

Descriptions

4. Convenience
Stores

Small stores located near residential areas that

are open long hours 7 days a week and carry
a limited line of high-turnover convenience
goods.
E.g.: 7-Eleven, Jusco MaxValu, K-Mart & etc.

5. Superstores
(Category
Killer Stores)

Giant specialty stores that carry a very deep

assortment of a particular line and is staffed
by knowledgeable employees.
E.g.: Toys R Us, MPH bookstores, Borders, Ikea
furniture stores & etc.

6. Superstores
(Hypermarkets)

Much larger than regular supermarkets and

offer a large assortment of routinely purchased
food products, nonfood items, and services.
E.g.: Tesco, Mydin Stores, Carrefour, & etc.

Examples
(Product Line)
Specialty Stores

Department Stores

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Examples
(Product Line)
Supermarkets

Convenience
Stores
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Examples
(Product Line)
Category Killer Stores

Hypermarkets
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Example (specialty stores and

superstore category killer)
Specialty store

34

Category killer

Example (supermarket and

superstores hypermarket)
Supermarket

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Hypermarket

What is Wholesaling?

Wholesaling

Includes all activities involved in selling goods

and services to those buying for resale or
business use.
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Wholesalers
Wholesalers buy mostly from producers and sell mostly to

retailers, industrial consumers, and other wholesalers.

Wholesalers add value by performing one or more of the
following channel functions:
Functions provided by
Wholesalers

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Selling & Promoting

Buying &
Assortment Building

Bulk-Breaking

Warehousing

Transportation

Financing

Risk Bearing

Market
Information

Management
Services & Advice

Functions

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Descriptions

1. Selling &
Promoting

Their sales forces help manufacturers reach

many small customers at a low cost

2. Buying &
Assortments
Building

Wholesalers can select items and build

assortments needed by their customers, thereby
saving the consumers much

3. Bulk Breaking

Wholesalers save their customers money by

buying in carload lots and breaking bulk
(breaking large lots into small quantities).

4. Warehousing

Wholesalers hold inventories, thereby reducing

the inventory costs and risks of suppliers and
customers.

5. Transportation

Wholesalers can provide quicker delivery to

buyers because they are closer than the
producers.

Functions

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Descriptions

6. Financing

Wholesalers finance their customers by giving

credit, and they finance their suppliers by
ordering early and paying bills on time.

7. Risk Bearing

Wholesalers absorb risk by taking title and

bearing the cost of theft, damage, spoilage, and
obsolescence.

8. Market
Information

Wholesalers give information to suppliers and

customers about competitors, new products, and
price developments.

9. Management
Services &
Advices

Wholesalers often help retailers train their

salesclerks, improve store layouts and displays,
and set up accounting and inventory control
systems.

Types of Wholesalers
1. Merchant Wholesalers:
The largest single group of
wholesalers, accounting for
roughly 50 percent of all
wholesaling.

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2. Brokers & Agents:

They do not take title to
the goods & perform a few
functions.
A broker brings buyers
and sellers together and
assists in negotiation.
Agents represent buyers
or sellers on a more
permanent basis

The variety of terms used for marketing intermediaries

that vary in specificity and use in consumer and
business markets

15-41

Primary Differences
RETAILING:
Includes all the activities involved in selling products or

services directly to final consumers for their personal,

non business use.
WHOLESALING:
Includes all activities involved in selling goods and services

to those buying for resale or business use.

PRIMARY DIFFERENCES:
Retailers sell to final consumers while wholesalers do not.

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Exercises (True/False)

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1.

Retailing can be defined as all activities directly related to the sale of goods
and services to the ultimate consumer for personal, non business use.

2.

The retailing industry is dominated by a large number of small- and mediumsized companies.

3.

Ahmad is the store manager of a local retailing establishment that sells a wide
variety of shopping and specialty goods, including apparel, cosmetics, house
wares, and electronics. Ahmad probably manages a department store.

4.

Ali operates a retail store that has a wide assortment of electronics with little
depth in any one product line. Ali operates a specialty store.

The End

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