1. Channels of Distribution

2. Vocabulary
 Brick and Mortar
Retailers
 E-tailing
 Channels of  Agents
Distribution  Direct Distribution
 Intermediaries  Indirect Distribution
 Wholesalers
 Rack Jobbers
 Drop Shippers
 Retailers

3. The Channel of Distribution
• The channel of
distribution is the
path a product
takes from
producer or
manufacturer to
final user. This is a
place decision, one
of the four Ps of the
marketing mix.

4. When does a channel end?
 A channel ends when the product
changes form, then another channel
begins.
 For Example:
Oranges turned into Orange Juice (1st Channel)
Orange Juice Food Broker (Negotiate title of
goods) Retailer Consumer – (2nd
Channel)

5. Channel Members
 All the businesses involved in sales
transactions that move products from
the manufacturer to the final user are
called intermediaries or middlemen.
 Intermediaries provide value to
producers because they often have
expertise in certain areas that
producers do not have.

6. Example of an Intermediary
 If four customers wanted to purchase
a Canon digital camera, and they
could only purchase it from the
producer (Canon), the producer would
have to make four sales transactions.
 By using an intermediary, such as
Computer City, the number of contacts
is reduced to one.

7. Intermediaries
Intermediaries reduce the number of transactions required by manufacturers
to reach their final customers. This reduces the expenses of doing business
such as paperwork and staff needed to process the orders, as well as the
cost of invoicing, shipping, and handling.

8. Wholesalers
 Wholesalers buy large quantities of goods
(taking title) from manufacturers, store the
goods, and then resell them to other
businesses.
 Their customers are called retailers. They
may be called distributors when their
customers are professional or commercial
users, manufacturers, governments,
institutions, or other wholesalers.

9. Two Specialized Wholesalers
 Two specialized wholesalers are:
 Rack Jobbers
 Drop Shippers
 Rack jobbers manage inventory and merchandising for retailers
by counting stock, filling it in when needed, and maintaining store
displays. They provide the display racks and bill the retailer only
for the goods sold.
 Drop shippers deal in bulk items such as coal, lumber, and
chemicals that require special handling. Drop shippers sell the
goods to other businesses and have the producer ship the
merchandise directly to the buyers. The products are owned, but
never handled, by the drop shipper.

10. Retailers
 Retailers sell goods to the final
consumer for personal use.
 Traditional retailers, called brick and
mortar retailers, sell goods to the
customer from their own physical stores.
 Non-store retailing operations include
automatic retailing, direct mail and
catalog retailing, TV home shopping, and
online retailing (e-tailing).

11. Shopping on the Web
Top E-tailing Sectors
MILLIONS OF DOLLARS
$318
Note the millions of
Air Travel
Books $224 dollars attributed to
Hardware $224 online sales by
Software $187 e-tailers in one
Apparel $182 month. Which three
Hotels $164 sectors lead the list?
Toys/games $146 How might this list
Music $143 be changed if the
Health, $143
month was
beauty $126
December?
Electronics

12. Agents
 Unlike wholesalers and retailers,
agents do not own the goods
they sell. Agents act as
intermediaries by bringing
buyers and sellers together.
 Example: Real estate agents,
food brokers, independent
manufacturer’s representatives.

13. Direct and Indirect Channels
 Channels of distribution are classified
as direct or indirect.
 Direct distribution occurs when the
goods or services are sold from the
producer directly to the customer; no
intermediaries are involved.
 Indirect distribution involves one or
more intermediaries.

14. Channels in the Consumer and Industrial
Markets
 Different channels of distribution
are generally used to reach the
customer in the consumer and
industrial markets.
 Both markets make use of direct
and indirect distribution.

15. Distribution Channels for Consumer
Products and Services
Manufacturers / Producers
Agents
Wholesalers
Retailers
Consumers

16. How to transport cats in the Phoenix desert.