The Retail Environment

Distribution

Channels of Distribution

The path a product takes from producer or manufacturer to the final user
Remember

the FORM UTILITY? PLACE

UTILITY?

Channels of Distribution
Think about the pair of jeans/shorts you are wearing right now. Starting with you purchasing the jeans and working backwards list the steps of how the jeans to your hands

Might look something like this:

That process
Is called the Channels of Distribution Each step along the way is called a intermediary (sometimes called middlemen)

Orange

grower, manufacturer, salesperson, grocery store, and YOU, the consumer

The more middlemen, the more expensive the product

Everyone

has to be paid along the way

Trader Joes

We buy direct from suppliers whenever possible, we bargain hard to get the best price, and then pass the savings on to you.

Channels of Distribution
Classified as either Direct or Indirect Direct Distribution occurs when the goods or services are sold from the producer directly to the final user, no intermediaries involved Indirect Distribution involves one or more intermediaries Most services have a direct channel of distribution.

People Involved
Manufacturers: those that make/grow the product Wholesalers: Buy from the manufacturer and sell to the retailers. The middlemen Retailer: Buy from Wholesales and sell to the end consumer

Group Activity
1.

Count off by 1, 2 & 3s

1s represent wholesalers 2s represent manufacturers 3s represent retailers

2.

Develop a list of conflicts from your point of view that might arise between your group and the other two groups.

Example: Retailers might say that wholesalers are too slow to deliver products.

Channels of Distribution

Direct Channels of Distribution

Producer to consumer: no retailer involved Farm stands, farmers markets, flower stands on side of road The internet is making this option much easier for people

Indirect Channels of Distribution:

Distribution channel with a retailer Retailers actually buy the merchandise from the producer and then resell it to consumers When retailers buy direct they can get the latest products at the best prices, quantity discounts, and some advertising materials and/or dollars to aide in marketing the product Producers get their product out to a large number of people Consumers get access to a number of products More expensive the consumer buying direct

Channels of Distribution

Interview with NIKE

Through

what channels does Nike currently sell its shoes? Primarily through a combination of retail accounts, NIKE-owned retail stores, independent distributors and licensees, in the United States and over 160 countries worldwide. The biggest retail account is FootLocker, Inc., which accounts for 10% of Nikes sales worldwide. Nike also has its own Internet store, www.niketown.com.

Channels of Distribution

Distribution channel with wholesaler

Retailer buys merchandise from a wholesaler Wholesaler buys directly from the producer This is done if a retailer does not have the space, or the desire, to store large quantities of merchandise Many large retailers have their own wholesale environments

Winco distribution center in Woodburn Fred Meyer distribution center in Troutdale

When retailers purchase from wholesaler they are able to buy smaller quantities, get merchandise faster, and pay on credit. Common with imported products which pass through an agent before moving into the hands of a retailer. Agents never own products, they are just salespeople.

Distribution channel with an agent

Nontraditional and Multiple channels of Distribution

Businesses do not always follow the traditional channels of distribution

Example:

Leggs Products, a division of Hanes, revolutionized the panty hose industry by putting Leggs in grocery stores, where women were most often. 3M did the same thing by putting its office supplies in grocery outlets.

Multiple channels are used when a product fits the needs of multiple consumers.
Greenfield

Healthy Foods produces Fat free cookies. Right now they sell primarily to supermarkets. They are looking to expand into schools and hospitals.

Multiple Channels
Levis Jeans

Fred Meyer Macys

Costco

One Channel
Kirkland brand

Costco

Distribution Intensity
Distribution Intensity has to do with how widely a product will be distributed. Intensive Distribution: the object is complete market coverage-get your product out everywhere Flowers to plant in the yard are sold at: Home Depot, Rite Aid, Safeway, Winco, Nurseries, all over

Distribution Intensity

Selective distribution: a limited number of outlets in a given area are used to sell the product
When

distributing this way, a company (the distributor) can focus on the retail outlets that sell the most and/or are the most willing to sell the product Retailers face less competition if they carry a product that is selectively distributed. Often times this is how products begin

Tims Cascade Chips

Distribution Intensity
Exclusive Distribution: involves protected territories for distribution in a given geographic location Dealers/retailers are assured that they are the ONLY one selling the product in a designated area In this situation, the retailer is usually tied through a contract. ThermaFocus 5 in 1