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					          CHAPTER 22
Chain of production and channels
          of distribution
                         R. Delaney

The Chain of Production
 The chain of production is the various          From this…..
  production or processing stages that a good
  or service goes through before it is sold to
  the consumer.
 Example:
 Farmer grows wheat
 Farmer sells the wheat to the miller who
  makes flour
 Miller sells flour to the baker who makes       To this….
 Baker sells the cakes to wholesalers and / or
 Retailers sell the cakes to the consumers
                         R. Delaney

The Three Sectors of the Economy
 The primary sector is made up of the extractive
  industries who take (extract) materials from the land or
  the sea, e.g., Farming, fishing, mining, and oil and gas.
 The secondary sector is the manufacturing and
  construction sector of the economy. The firms in this
  sector use the goods produced by the primary sector
  and change them into finished products, e.g. the
  clothing, food processing and building industries.
 The tertiary or service sector provides services to all
  other sectors of the economy, e.g. mechanics and
                         R. Delaney

The Channels of Distribution
 Channels of distribution are the methods used to
  transfer finished goods from manufacturers to
  consumers. Common examples are:
1 Manufacturer    wholesaler          retailer   consumer

2 Manufacturer                        retailer   consumer

3 Manufacturer                                   consumer
                     R. Delaney

 A wholesaler is a company or person that buys
  large quantities of goods from many
  manufacturers and sells them in smaller
  quantities to retailers.
                              R. Delaney

Wholesaler aids manufacturer
Role played by wholesaler            Benefit to manufacturer

Buys very large quantities           Manufacturers have a small
                                     number of customers, which
                                     reduces their overhead costs
Stores the goods                     Manufacturers are saved the
                                     warehousing costs

Promotes the goods to retailers      Reduces the manufacturer’s
and consumers                        advertising costs
Pays promptly for goods              Gives the manufacturer working
                                     capital for current expenditure
Provides the manufacturer with       Prevents the manufacturers from
information from retailers           making goods that may be going
regarding consumer trends            out of fashion
                                  R. Delaney

Wholesaler aids retailer
Role played by wholesaler                Benefit to retailer

Provides a wide range of goods           Retailers need deal with only a
                                         small number of wholesalers
                                         rather than many manufacturers
Sells goods in small quantities          Retailers do not have to store
                                         large quantities of goods

Delivers goods                           Reduces retailer’s transport costs
                                         and saves retailer’s time
Provides credit facilities               Retailers may be able to sell all
                                         their stock before payment is due
Provides information about new           Prevents retailers over-stocking
products coming onto the market          goods that may be going out of
                          R. Delaney

Cash and Carry Wholesalers
    Cash and carry wholesalers act as
     supermarkets to retailers. Consumers are
     not permitted to shop in them.
    They differ from the traditional
     wholesaler because:
1.   They do not give credit.
2.   They do not deliver goods.
3.   They operate on a self-service basis.
4.   They provide ample parking space for
5.   Their prices tend to be lower than
     traditional wholesalers.
                         R. Delaney

Functions of a retailer
    A retailer is somebody (or an outlet) who sells
     finished goods to consumers.

                  Functions of a retailer:
1.   Provides a wide rang of d goods to consumers in one
2.   Sells goods to consumers in small quantities
3.   Offers advice to consumers on products they may
4.   Informs manufacturers of changing consumer trends
5.   Creates a demand for goods by advertising
6.   Arranges finance for consumers for expensive goods
7.   May accept “trade-ins” to make it easier for consumers
     to buy new goods
                           R. Delaney
Recent trends in retailing in Ireland
1.   The arrival of international discount
     stores in the grocery and related
     products industry, e.g. Aldi and Lidl.
2.   Major growth in the number of
     shopping centres and retail outlets.
3.   Increasing use of e-commerce
4.   Growth of farmers’ markets
5.   Many retailers of expensive              “A retail outlet”
     consumer durable products are now
     providing or arranging low interest
     rate loans.
6.   Growth in the promotion and
     acceptance of ‘own brand’ labelled

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