Chapter 15 – Distributing Products
15-1
chapter
=
Distributing Products
what’s new in this edition 15.3
brief chapter outline and learning objectives 15.5
lecture outline and lecture notes 15.7
PowerPoint slide notes 15.43
lecture enhancers 15.62
lecture enhancer 15–1: DESPERATE RESTAURANTS FOCUS ON GIMMICKS 15.62
lecture enhancer 15–2: WHATEVER HAPPENED TO DOOR-TO-DOOR DELIVERY? 15.63
lecture enhancer 15-3: WHAT INTERMEDIARIES TO USE WHEN GOING 15.63
INTERNATIONAL
lecture enhancer 15-4: THE MARKETING FIRM STOCKING AMERICA’S GROCERIES 15.64
lecture enhancer 15-5: HOW RETAILERS COMPETE 15.64
lecture enhancer 15-6: MAKING VENDING MACHINES SMARTER 15.66
lecture enhancer 15-7: IMAGES TRUMP WORDS IN SOCIAL MEDIA 15.67
lecture enhancer 15-8: THE HIGH-TECH FUTURE OF FREIGHT 15.67
15
Chapter 15 – Distributing Products
15-2
critical thinking exercises 15.69
critical thinking exercise 15–1: TOP 100 RETAILERS 15.69
critical thinking exercise 15–2: FORMS OF UTILITY 15.71
critical thinking exercise 15–3: DISTRIBUTION CHANNELS 15.72
critical thinking exercise 15–4: RETAIL DISTRIBUTION STRATEGY 15.73
critical thinking exercise 15–5: CAREERS IN DISTRIBUTION 15.74
bonus case 15.75
bonus case 15-1: MULTILEVEL MARKETING: SAFE OR SCAM 15.75
Chapter 15 – Distributing Products
15-3
what’s new in
this edition
additions to the 11th edition:
• Getting to Know Reed Hastings of Netflix
• Name That Company: Walmart
• Seeking Sustainability: Answer May be Blowing in the Wind
• Adapting to Change: Truckin’ On with Social Media
• Reaching Beyond Our Borders: Weak Links Can Break a Chain
• New figure: Types of Social Commerce
• Video Case: FedEx
revisions to the 11th edition:
• Statistical data and examples throughout the chapter were updated to reflect current information.
deletions from the 10th edition:
• Getting to Know Tony Hsieh
• Name That Company: Kia
• Spotlight on Small Business
• Reaching Beyond Our Borders
• Thinking Green
Chapter 15 – Distributing Products
15-4
Chapter 15 – Distributing Products
15-5
brief chapter outline
and learning objectives
CHAPTER 15
DISTRIBUTING PRODUCTS
Getting to Know REED HASTINGS of NETFLIX
learning objective 1
Explain the concept of marketing channels and their value.
I. THE EMERGENCE OF MARKETING INTERMEDIARIES
A. Why Marketing Needs Intermediaries
B. How Intermediaries Create Exchange Efficiency
C. The Value versus the Cost of Intermediaries
learning objective 2
Demonstrate how intermediaries perform the six marketing utilities.
II. THE UTILITIES CREATED BY INTERMEDIARIES
A. Form Utility
B. Time Utility
C. Place Utility
D. Possession Utility
E. Information Utility
F. Service Utility
learning objective 3
Identify the types of wholesale intermediaries in the distribution sys-
tem.
III. WHOLESALE INTERMEDIARIES
A. Merchant Wholesalers
B. Agent and Brokers
learning objective 4
Compare the distribution strategies retailers use.
IV. RETAIL INTERMEDIARIES
A. Retail Distribution Strategy
Chapter 15 – Distributing Products
15-6
learning objective 5
Explain the various kinds of nonstore retailing.
V. NONSTORE RETAILING
A. Electronic Retailing
B. Telemarketing
C. Vending Machines, Kiosks, and Carts
D. Direct Selling
E. Multilevel Marketing
F. Direct Marketing
learning objective 6
Explain the various ways to build cooperation in channel systems.
VI. BUILDING COOPERATION IN CHANNEL SYSTEMS
A. Corporate Distribution Systems
B. Contractual Distribution Systems
C. Administered Distribution Systems
D. Supply Chains
learning objective 7
Describe logistics and outline how intermediaries manage the trans-
portation and storage of goods.
VII. LOGISTICS: GETTING GOODS TO CONSUMERS EFFICIENTLY
A. Trains Are Great for Large Shipments
B. Trucks Are Good for Small Shipments to Remote Locations
C. Water Transportation Is Inexpensive but Slow
D. Pipelines Are Fast and Efficient
E. Air Transportation Is Really Fast but Expensive
F. Intermodal Shipping
G. The Storage Function
H. Tracking Goods
VIII. WHAT ALL THIS MEANS TO YOU
IX. SUMMARY
Chapter 15 – Distributing Products
15-7
Getting to Know REED HASTINGS of NETFLIX
Reed Hastings’ commitment to innovation transformed Netflix from a DVD delivery
service into the king of streaming media.
learning objective 1
Explain the concept of marketing channels and their value.
I. THE EMERGENCE OF MARKETING INTERME-
DIARIES
A. THE IMPORTANCE OF DISTRIBUTION
1. There are hundreds of thousands of marketing in-
termediaries that help move goods through the
distribution network from producers to customers.
2. MARKETING INTERMEDIARIES are organiza-
tions that assist in moving goods and services
from producer to business (B2B) and business to
consumer (B2C).
a. These are organizations in the middle of the
series of organizations that distribute goods
from producers to consumers.
b. A CHANNEL OF DISTRIBUTION is the whole
series of marketing intermediaries, such as
agents, brokers, wholesalers, and retailers,
This U.S. company is known for having low prices all the time. One way it keeps prices low is
by eliminating as many wholesalers as possible and doing the wholesale function itself. Name
that company.
(Students should read the chapter before guessing the company’s name: Walmart.)
Chapter 15 – Distributing Products
15-8
PPT 15-1
Chapter Title
Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Distributing
Products
CHAPTER 15
PPT 15-2
Learning Objectives
LEARNING OBJECTIVES
15-2
1. Explain the concept of marketing channels and their
value.
2. Demonstrate how intermediaries perform the six
marketing utilities.
3. Identify the types of wholesale intermediaries in the
distribution system.
PPT 15-3
Learning Objectives
LEARNING OBJECTIVES
15-3
4. Compare the distribution strategies retailers use.
5. Explain the various kinds of nonstore retailing.
6. Explain the various ways to build cooperation in
channel systems.
7. Describe logistics and outline how intermediaries
manage the transportation and storage of goods.
PPT 15-4
Reed Hastings
REED HASTINGS
Netflix
15-4
• Almost singlehandedly
ended the era of brick and
mortar video rentals.
• In college, Hastings spent
his summers training with
the Marines and joined the
Peace Corps.
• Was inspired to start Netflix
after racking up a $40 late
fee.
PPT 15-5
Name That Company
NAME that COMPANY
15-5
This U.S. company is known for having low prices
all the time. One way it keeps prices low is by
eliminating as many wholesalers as possible and
doing all the wholesale function itself.
Name that company!
(See complete PowerPoint slide notes on page 15.43.)
PPT 15-6
What Are Marketing Intermediar-
ies?
WHAT are MARKETING
INTERMEDIARIES?
15-6
LO 15-1
• Marketing Intermediaries — Organizations that
assist in moving goods and services from businesses
to businesses (B2B) and from businesses to
consumers (B2C).
• They are called intermediaries because they’re in
the middle of a series of firms that distribute
goods.
PPT 15-7
What Are Marketing
Intermediaries?
• Channel of Distribution — A group of marketing
intermediaries that joining together to transport and
store goods from producers to consumers.
WHAT are MARKETING
INTERMEDIARIES?
15-7
LO 15-1
Chapter 15 – Distributing Products
15-9
that join together to transport and store
goods in their path (or channel) from pro-
ducers to consumers
c. AGENTS/BROKERS are marketing inter-
mediaries that bring buyers and sellers to-
gether and assist in negotiating an ex-
change, but do not take title to the goods.
d. A WHOLESALER is a marketing intermedi-
ary that sells to other organizations.
e. A RETAILER is an organization that sells to
ultimate consumers.
3. CHANNELS OF DISTRIBUTION enhance
communication flows and the flow of money and
title to goods.
B. WHY MARKETING NEEDS INTERMEDIARIES
1. Not all manufacturers need marketing interme-
diaries to sell their goods to consumer and busi-
ness markets.
2. Intermediaries perform certain marketing func-
tions FASTER AND CHEAPER than most man-
ufacturers; these functions include transporting,
storing, selling, advertising, and relationship
building.
3. Agents and brokers facilitate the exchange pro-
cess.
C. HOW INTERMEDIARIES CREATE EXCHANGE
EFFICIENCY
1. Intermediaries CREATE EXCHANGE EFFI-
CIENCY by decreasing the number of contacts
needed to establish marketing exchanges.
Chapter 15 – Distributing Products
15-10
SEEKING
sustainability
PPT 15-8
Answer May Be
Blowing in the Wind
ANSWER MAY BE BLOWING
in the WIND
15-8
• IKEA was looking to cut down on shipping costs
and to focus on renewable energy.
• It has plans to construct a wind farm in Illinois with
49 wind turbines to generate electricity for 34,000
homes.
• Started using paper pallets that weigh 90% less
than the wood and can be recycled.
• IKEA officials are not satisfied with the new pallets
already and are looking for a new option.
PPT 15-9
Types of Marketing Intermediaries?
TYPES of MARKETING
INTERMEDIARIES?
15-9
LO 15-1
• Agents and Brokers — Intermediaries who bring
buyers and sellers together and assist in negotiating
an exchange but do not take title to the goods.
• Wholesaler — An intermediary that sells products to
other organizations such as retailers, manufacturers,
and hospitals.
• Retailer — An organization that sells products to
ultimate customers.
critical thinking
exercise 15-1
TOP 100 RETAILERS
This exercise asks students to use the Internet to research
the top 100 U.S. retailers. (See the complete exercise on
page 15.69 of this manual.)
PPT 15-10
Selected Channels of Distribution
TEXT FIGURE 15.1
Selected Channels of Distribution for
Consumer and Industrial Goods and
Services
SELECTED CHANNELS of
DISTRIBUTION
15-10
LO 15-1
PPT 15-11
Why Marketing Needs
Intermediaries
• Intermediaries perform marketing tasks faster
and cheaper than most manufacturers could
provide them.
WHY MARKETING NEEDS
INTERMEDIARIES
15-11
LO 15-1
• Marketing
intermediaries make
markets more
efficient by reducing
transactions and
contacts.
Chapter 15 – Distributing Products
15-11
2. Intermediaries ADD VALUE that greatly ex-
ceeds their cost.
D. THE VALUE VERSUS THE COST OF INTERME-
DIARIES
1. Some people think that if we could GET RID OF
INTERMEDIARIES, we could greatly reduce the
cost of the things we buy.
2. The text uses the example of a breakfast cereal
to illustrate how marketing intermediaries facili-
tate the movement of goods.
3. Values discussed include:
a. The value of not driving to Michigan to buy a
box of cereal
b. The value of saving time
c. The effort saved by not having to drive to a
wholesaler on the outskirts of town
4. The text emphasizes THREE BASIC FACTS
ABOUT INTERMEDIARIES:
a. Intermediaries can be eliminated, but their
ACTIVITIES cannot.
b. Intermediary organizations have survived
because they perform marketing functions
FASTER AND CHEAPER than others do.
c. Although intermediaries add costs to prod-
ucts, these costs are usually offset by values
they create.
Chapter 15 – Distributing Products
15-12
PPT 15–12
How Intermediaries Create Ex-
change Efficiency
TEXT FIGURE 15.2
How Intermediaries Create
Exchange Efficiency
HOW INTERMEDIARIES CREATE
EXCHANGE EFFICIENCY
15-12
LO 15-1
PPT 15-13
Three Key Facts about Marketing
Intermediaries
THREE KEY FACTS ABOUT
MARKETING INTERMEDIARIES
15-13
LO 15-1
1) Marketing intermediaries can be eliminated but
their activities cannot.
2) Intermediaries perform marketing functions
faster and cheaper than other organizations can.
3) Marketing intermediaries add costs to products
but they are generally offset by the values they
provide.
PPT 15-14
Distribution’s Effect on Your Food
Dollar
TEXT FIGURE 15.3
Distribution’s Effect on Your
Food Dollar
DISTRIBUTION’S EFFECT on
YOUR FOOD DOLLAR
15-14
LO 15-1
critical thinking
exercise 15-2
FORMS OF UTILITY
This exercise presents a series of businesses and asks the stu-
dents to describe how they create each type of utility. (See the
complete exercise on page 15.71 of this manual.)
Chapter 15 – Distributing Products
15-13
learning objective 2
Demonstrate how intermediaries perform the six marketing utilities.
II. THE UTILITIES CREATED BY INTERMEDIAR-
IES
A. UTILITY, in economics, is the want-satisfying ability,
or value, that organizations add to goods or ser-
vices; the products are made more useful or acces-
sible to consumers than they were before.
B. FORM UTILITY is taking raw materials and chang-
ing their form so that they become useful products.
1. This type of utility has traditionally been per-
formed by producers.
2. By customizing products, retailers sometimes
perform form utility also.
C. TIME UTILITY is adding value to products by mak-
ing them available when they are needed.
D. PLACE UTILITY is adding value to products by hav-
ing them where people want them.
E. POSSESSION UTILITY
1. Intermediaries add POSSESSION UTILITY—
doing whatever is necessary to transfer owner-
ship from one party to another, including provid-
ing credit, delivery, installation, guarantees, and
follow-up service.
2. Possession utility also allows customers to use
goods through RENTING.
F. INFORMATION UTILITY is adding value to products
by opening two-way flows of information between
marketing participants.
Chapter 15 – Distributing Products
15-14
PPT 15-15
Intermediaries Create Utility
INTERMEDIARIES
CREATE UTILITY
15-15
LO 15-2
• Utility — The want-satisfying ability, or value, that
organizations add to goods and services by making
them more useful or accessible to consumers.
• Six types of utilities:
1. Form
2. Time
3. Place
4. Possession
5. Information
6. Service
lecture enhancer 15-1
DESPERATE RESTAURANTS FO-
CUS ON GIMMICKS
How do you create utility? Change up your products. (See the
complete lecture enhancer on page 15.62 of this manual.)
lecture enhancer 15-2
WHATEVER HAPPENED TO DOOR-
TO-DOOR DELIVERY?
Many new developments have been made the door-to-door
salesperson obsolete. (See the complete lecture enhancer on
page 15.63of this manual.)
PPT 15-16
How Marketers Use Utility
HOW MARKETERS USE UTILITY
15-16
LO 15-2
• Form Utility — Changes raw materials into useful
products; producers generally provide form utility.
– Starbucks makes coffee the way the customers want it.
– Dell assembles computers according to customer needs.
• Time Utility — Makes products available when
customers want them.
– Many Walgreens stores are open 24-hours a day.
– Colleges offer day and evening classes.
PPT 15-17
How Marketers Use Utility
HOW MARKETERS USE UTILITY
15-17
LO 15-2
• Place Utility — Adds value to products by placing
them where people want them.
– Banks place ATMs at convenient locations.
– 7-11 stores are found in easy-to-reach locations.
• Possession Utility — Helps transfer ownership from
one party to another, including providing credit.
– Pay for lunch at McDonalds with your Visa card.
– A savings and loan office offers loans to home/car buyers.
PPT 15-18
How Marketers Use Utility
HOW MARKETERS USE UTILITY
15-18
LO 15-2
• Information Utility — Opens two-way flows of
information between marketing participants.
– Websites offer advice to shoppers.
– Local government maps show tourist locations.
• Service Utility — Provides service during and after a
sale and teaches customers how to best use
products.
– Apple offers classes to help computer buyers.
– College placement offices help students find jobs.
Chapter 15 – Distributing Products
15-15
G. SERVICE UTILITY
1. Intermediaries create SERVICE UTILITY; add-
ing value by providing fast, friendly service dur-
ing and after the sale and teaching customers
how to best use products over time.
2. For retailers, service utility is becoming THE
MOST IMPORTANT UTILITY.
learning objective 3
Identify the types of wholesale intermediaries in the distribution system.
III. WHOLESALE INTERMEDIARIES
A. DIFFERENCES BETWEEN WHOLESALERS AND
RETAILERS
1. Some producers will sell only to wholesalers.
2. Others sell some of their merchandise to other
intermediaries, but also sell to ultimate consum-
ers.
3. A RETAIL SALE is the sale of goods and ser-
vices to consumers for their own use.
4. A WHOLESALE SALE is a sale to businesses
and institutions for use in the business or to
wholesalers or retailers for reuse.
B. MERCHANT WHOLESALERS are independently
owned firms that take title to (own) the goods that
they handle.
1. FULL-SERVICE WHOLESALERS perform all of
the distribution functions.
2. LIMITED-FUNCTION WHOLESALERS perform