Chapter2ChannelParticipantsThreeBasicDivisions•ProducersandManufacturers•Intermediaries•FinalUsersCommercialChannel•Finalusersarenotincluded•FinalusersareviewedastargetmarketsFigure2.1ATC(AverageCostCurve)•Theoptimumpointisdifferent(productionvs.distribution)ATC(AverageCostCurve)•Example:B&S(BinneyandSmith)-crayonsproducer–Itssalesaccountfor80%ofthecrayonmarket–Itiseasilytoachieveeconomiesofscaleinproduction–AssumeB&Ssellsitscrayonsdirectlytoendusers•Handlesmallorders•Maintainhugeinventories•Warehousing•Transporting–Theoptimumvolumeinproductionisnottheoptimumvolumeindistribution–Thedistributioncostisevenhigherthantheproductioncostattheoptimumproductionlevel2Example:DistributionofCrayons•Hugeorderprocessingfacility•Hugeinventory•Severalwarehouselocations•Transportationofproducttoconsumers=costprohibitiveManufacturerdirecttocustomersFigure2.2Whyshiftingthedistributiontaskstootherchannelparticipants?•Intermediariesdistributetheproductsofmanyothermanufacturersandthereforeabletospreadthehighfixedcostsofperformingthedistributiontasksoverlargequantitiesofdiverseproducts,thereforeachievingeconomiesofscaleindistribution.Intermediaries•Participateinthesetwoflows:•Negotiationflow•Ownershipflow•Operateinthesetwolevels:•Wholesale•Retail2Objective3:MajorTypesofWholesalersMerchantwholesalerAgents,brokers,&commissionmerchantsIndependentmiddlemenManufacturers'salesbranches&officesManufacturerownedAllWholesaleFirms2MerchantWholesalersBuyTaketitletoStoreHandleLargequantitiesofproductsReselltoRetailersIndustrial,commercial,orinstitutionalconcernsotherWholesalers2Agents,Brokers,&CommissionMerchantsInvolvedinbuying&sellingwhileactingonbehalfofclientsCommissionsonsalesorpurchases2Owned&operatedbymanufacturersDistributemanufacturer’sproductsatwholesaleSomewholesaleallied&supplementaryproductspurchasedfromothermanufacturers.Manufacturers’SalesBranches&OfficesSeparatedfrommanufacturingplantsTypesofWholesalers•Merchantwholesalers–Buying,takingtitleto,sorting,andphysicallyhandlingproductsinlargequantitiesandresellingtheproductsinsmallquantities•Agents,brokersandcommissionmerchants–Nottakingtitletotheproducts,involvinginnegotiationfunctionsofbuyingandsellingonbehalfoftheirclients•Manufacturers’salesbranchesandoffices–Somehavewarehousingfacilities,butsomearemerelysalesoffices;someofthemarealsosellsupplementaryproductspurchasedfromothermanufacturersMajorTrendsinWholesaleStructure2Objective4:69.7%Manufacturer’ssalesbranches&offices60.8%Wholesaletrade57.8%Merchantwholesalers50.0%Agents,brokers,&commissionmerchants1987—19972MerchantWholesalersSpecializeinPerformanceDistributionTasksObjective5:•Operateathighlevelsofeffectivenessandefficiency•AveragecostcurveslowerthanthosefortheirsuppliersProvidemarketcoverageMakesalescontactsHoldinventoryProcessordersGathermarketinformationOffercustomersupportMerchantWholesalers’DistributionTasksServeCustomers2AssureproductavailabilityProvidecustomerserviceExtendcredit&financialassistanceOfferassortmentconvenienceBreakbulkHelpcustomerswithadvice&technicalsupportSalesContact•Wholesalersaremoreefficientinusingtheiroutsidesalesforcesandinsidesalesforcestohelpproducerstoreachtheircustomers.–Outside:•Identifypotentialcustomers•Determinetheirneeds•Recommendtheproductsandservices–Inside:•Handleaccounts•Regularpromotion•Gathermarketinformation•ProblemsolvingassistanceforcustomersCustomerSupport•Wholesalerscanprovidevalue-addedservices:•Exchangeorreturn•Setuporadjustment•Repairortechnicalassistance2Manufacturers’Agents(manufacturer’srepresentatives)MarketcoverageSalescontactsAgentWholesalers’DistributionTasks2AgentWholesalers’DistributionTasksMarketcoverageSalescontactsOrderprocessingMarketinginformationProductavailabilityCustomerservicesSellingagents2AgentWholesalers’DistributionTasksBrokersMarketcoverageSalescontactsOrderprocessingMarketinginformationProductavailabilityCustomerservicesAgentWholesalers’DistributionTasks2CommissionMerchantMarketcoverageSalescontactsOrderprocessingBreakingbulkCreditHoldinginventory1ConcentrationinRetailingIn19974%ofallretailfirmsaccountedfornearly80%oftotalsales!!DistributionTasksPerformedbyRetailers2Theroleoftheretailerinthedistributionchannel,regardlessofhissizeortype,istointerpretthedemandsofhiscustomersandtofindandstockthegoodsthesecustomerswant,whentheywantthem,andinthewaytheywantthem.Thisaddsuptohavingtherightassortmentsatthetimecustomersarereadytobuy.—CharlesY.LazarusObjective8:Retailers’GrowingPower•Increaseinsizeandbuyingpower•Applicationofadvancedtechnology•UseofmodernmarketingconceptsandtechniquesIncreaseinSizeandBuyingPower•MostofthemanufacturerswhosupplyWal-MartaremuchsmallerthanWal-Mart–BecauseofWal-Mart’shugesizeandbuyingpower,itcanexertconsiderableinfluenceonitssupplierslargerpower•Toy”R”Uswith10billioninsalesusuallycanasktheleadingtoyproducerstoshiptheirproductstoitsstoresinadvanceofsmallerretailersPowerRetailerorCategoryKillerIncreaseinSizeandBuyingPower•Retailconcentration:onlyfewretailersinacategory•Thehighertheretailconcentration,thehigherthepoweroft