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      We have discussed product, promotion, price as
elements of marketing mix. This text focuses on place
getting goods to the right place at the right time in the right
quantity. We used the word place because it is the fourth P,
but the traditional marketing term for place is distribution.
The distribution mix is all those functions marketers
perform to move goods from producer to consumer.
Figure 1-15 shows the distribution mix in action. Try to
analyse what is shown in this figure.

                                 Two institutions have
                                 emerged to perform
                                 the       distribution
                                 function: wholesalers
and retailers. They are known as marketing middlemen
because they are in the middle of a distribution network that
connects products with consumers.


        Marketing middleman has always been viewed by
  the public with some suspicion. Surveys have shown that
  about half the cost of the things we buy are marketing
  costs that are largely to pay for the work of middleman!
        Let's take as an example a can of tomato soup. How
 could we, as consumers, get it for less? Well, we could
 all drive to Ohio where some of the soup is produced and
 save shipping cost. But would that be practical? Can you
 imagine millions of people getting in their cars and
 driving to Ohio just to get some soup. No, it doesn't make
 sense. It is much cheaper to have some-middlemen bring
 the soup to the major cities. That might involve
 transportation and warehousing by wholesalers. But these
 steps add cost, don't they? Yes, but they add .value as
 well, the value of not having to drive to Ohio.
       The soup is now somewhere, on the outskirts of the
city We could all drive down to the wholesaler's outlet
store and pick up the soup; in fact, some people do just
that. But that is not really the most economical way to
buy soup. If we figure in the cost of gas and time, the
soup should be rather expensive. Instead, we prefer to
have someone move the soup from the warehouse to
another truck, drive it to the comer supermarket, unload it,

unpack it, stamp it with the price, put it on the shelf and
wait for us to come in to buy it. To make it even more
convenient, the supermarket may stay open for 24 hours a
day, 7 days a week. Think of the costst Think also of the
valuel For less than 40 cents, we can get tomato soup
when we want, where we want, and with little effort on
our part.
      If we got rid of the wholesaler, we could save a little
more, but then we would have to drive to Ohio. But a few
cents here and few cents there add up - to the point where
marketing may add up to 50 cents for every 50 cents in
manufacturing costs. Figure 1-16 shows how middlemen
share your food dollar for beef, eggs, and milk Note that
the retail margin varies widely. Also note that the total
marketing cost ranges from 30% to 50%. We do not like
to pay such high costs for marketing, but there is no other
way to get what we want, where we want at a reasonable
      It should be clear that businesses are not only
organizations in which a high proportion of costs are due
to marketing middlemen. It also costs much to have
several churches in one city when people "need" only one.
It is also expensive to have post offices, libraries, health
clinics, and other such non-business middleman
organizations. But again, the convenience and efficiency
of having such facilities usually for out weight the cost.
Their basic points about middlemen are:

                                             • Marketing
                                            can          be
        but                 their                activities
        cannot be eliminated; that is, you can not rid of
        retailers, but then consumers or someone else
        would have to perform the retailer's tasks,
        including transportation, storage,         finding
        suppliers, and establishing communication with
     • Middlemen organizations survive because they
       marketing functions more efficiently than they
       could be performed by others.
     • Middlemen add costs to products, but these
       costs                                            are
       usually more than offset by the values they create.

     Figure 1-16. How middlemen share your food dollar

      This table shows that the farmer gets only 50.8c of the
dollar you spend for milk. Some .21.6c goes to processors,
19.8c to wholesalers, and 7.8c to retailers. The question is, is
the value added by middlemen worth the cost? Marketers say
yes, as the soup story in the text illustrates.


      Of the five utilities (utility is value added to raw
materials) mentioned in the literature of economics-
form, time, place, possession, and information - four are
created primarily by marketing middlemen. For example,
supermarkets add form utility to meats, by cutting,
wrapping, pricing, and displaying them, of course,
restaurants and other retailers also create form utility. But
marketing middlemen are noted for the creation of time,
place,, possession, and information utility.
     •     Middlemen such as retailers, add time utility to
         products by making them available when they are

     • Middlemen add place utility to products by
       having                                them
       where people want them.
     • Middlemen add possession utility by doing
       whatever                                       is
       necessary to transfer ownership from one party to
       including providing credit.
     • Middlemen add information utility by opening two-
       way                                             flows
       * of information between marketing participants.

Text   4:  MIDDLEMEN                AND       EXCHANGE
         The benefits of marketing middlemen can be
illustrated rather easily. Suppose that five manufacturers
of various food products tried to sell directly to five
retailers. The number of exchange relationships that would
have to be established is five times five, or 25. But picture
what happens when a wholesaler enters the system. The five
manufacturers would contact one wholesaler to establish
five exchange relationships. The wholesaler would have to
establish contact with the five retailers. That would mean
another five exchange relationships. Note that the number
of exchanges is reduced from 25 to only 10 by the addition
of a wholesaler.
       Not only are middlemen an efficient way to
conduct exchanges, but they are often more effective as
well. This means that middlemen are often better .at
performing their functions than a manufacturer or
consumer would be.
Text 5:   RETAIL       MIDDLEMEN
      Next time you go to the supermarket to buy
groceries', top for .a minute and look at the tremendous
variety of products in the store. Think of how many
marketing exchanges were involved to bring you ,the
12,000 or so items that you see. Some products
(spices, for example) may have been imported from
halfway around the world. Other products have been
processed and frozen so that you can eat them out of
season (for example, strawberries).

A supermarket is a retailer. A retailer is a
marketing middleman who sells to consumers. In the
United States there are approximately 2.3 million retail
stores, selling everything from soup to automobiles. Retail
organizations employ more than 11 million people. They
are one of the major employers of marketing graduates
There are many careers available in retailing in all kinds
of firms.

      There are so many new retail establishments
 opening today that it is difficult to keep up.
 Nevertheless, some of the more important categories
 include the following.
      Department Stores. A department store has 25 or
more employees, sells home furnishings, appliances,
family apparel, and household linens in different
departments of the store. Most large suburban malls have
one or two department stores as anchors. An anchor store
is one that is large enough to attract business to a
shopping centre or mall.
      Discount Stores. Discount stores are self-service
outlets that
sell general merchandise below department store price.
The leading discount chains (in sales volume) are K-
mart, Wal-mart, Target, Gemco, and T.G.&Y.
      Speciality Stores. A speciality store sells a single
category of merchandise such as shoes, cameras, flowers,
or books. Some better-known names include Toys 'Я'
US, Hickory Farms, and Radio Shack.
      Supermarkets. A supermarket is a large, self-
service store that offers a wide variety of food items
(meat, produce, canned goods etc.) and some non-food
items. The largest chains include Safeway, Kroger,
Lucky Stores, Winn-Dixie,
and A&P. A small version of a supermarket is called a
grocery store.
      Hypermarkets. A hypermarket is a giant food and
general merchandise store. Such stores are popular in
France and are becoming more widespread in the United
States. The Fred Meyer stores in the Northwest are an
example. Convenience Stores. A convenience store is a
small food store with a limited selection that emphasizes
convenient locations and hours. Some popular chains are
7-Eleven, While Hen, and Open Pantry.
       Catalogue Stores. A catalogue store sends
 catalogues to consumers and displays merchandise in
 show-rooms where customers can shop and merchandise
 from an attached warehouse. Examples are Best
 Products, Zale, Service Merchandise, Giant Stores, and
       General Stores. A general store is an early style of
 retail store offering a wide variety of merchandise. Many
 smaller towns have a general store to serve their needs.
       Chain Stores. Chain stores are two or more retailers
 with the
 same name offering the same product line. Shoe stores,
speciality stores, department stores and other categories of
the stores canalso be called chain stores if there are two or
more stores. Some popular chain stores are Florsheim
Shoes, Western Auto, and Sears.
      Out-of-Store Shopping. For every dollar consumers
 spend in stores like those listed above, they spend 37.5$
 at home ordering goods and services by mail and services
 by phone. The store figures do not include supermarkets,
 service stations, restaurants, and car dealerships. Still, the
 out-of-store shopping trend is growing. Some of the
 categories include the following.
      Telemarketing. Telemarketing is the sale of
goods      and services by telephone. Some 80,000
companies use telemarketing today to supplement or
replace in-store selling. Many send a catalogue to
consumers and let them order by calling an "800" toll-free
number. Some $ 100 billion worth of business was done
in 1984 by using telemarketing.
      Vending Machines. A vending machine
dispenses convenience goods when consumers deposit
sufficient money in the machine. The benefit of vending
machines is their convenient location in airports, office
buildings, schools, service stations, and other areas where
people want convenience items.
      Door-to-Door Sales. Door-to-door sales involves
selling to consumers in their homes. Major users of this
category include encyclopedia publishers. (Britannica),
cosmetics producers (Avon), and vacuum cleaner
manufacturers (Electrolux). The newest trend is to sell
lingerie, art work, plants, and other goods at house
"parties" sponsored by sellers. No doubt you have heard
of Tupperware parties.
   Mail Order Retailers. A mail order retailer sends
catalogues to consumers who then order goods by mail.
Two popular mail order catalogues are those for L. L.
Bean and Sharper Image. Some of this business is now
being shifted to telemarketing.
Even though we have covered most of the major
categories of retailers, there are more that could be
mentioned. Think of all the gasoline stations,
restaurants, video stores, bakeries, butcher shops, rental
stores, dry cleaning establishments, and more that you see
in your travels. Certainly, retailing offers a variety of
careers in many different settings. There are malls that
feature only outlet stores and others that sell only home-
made crafts. Retailing can be an exciting career.

      One long-running trend that makes categorizing
retailers difficult is the trend toward scrambled
merchandising. Scrambled merchandising is the adding
of product lines (to a retail store) that are not normally
carried (such as auto supplies in a supermarket) A
moment's reflection will remind you of how often you
have seen this occur. You can buy lawn furniture and
fertilizer in a drug store, drug sundries in a supermarket,
and TV sets virtually any where. Discount stores are
selling food, and food stores are selling merchandise
normally found in discount stores. No wonder it is called
scrambled merchandising.

       A major decision marketers must make is selecting
retailers to sell their products Different products call
for different retail distribution strategies. There are three
categories of retail distribution: intensive distribution,
selective distribution, and exclusive distribution.
       Intensive distribution puts products into as many
outlets as possible, including vending machines.
Products that need intensive distribution include candy,
  gum, and popular magazines (convenience goods).
       Selective distribution is the use of only a preferred
group of the available retailers in an area. Such selection
helps assure the producers of quality sales and service.
Manufacturers of appliances, TV sets, furniture, and
clothing (shopping goods) usually use selective
       Exclusive distribution is the use of only one retail
n a given geographic area. Because the retailer has
exclusive rights to sell the product, he or she is more
likely to carry more inventory, give better service, and pay
more attention to this brand than others. Automobile
manufacturers usually use exclusive distribution, as do
producers of special goods. Regardless of the strategy
used, manufacturers often ship their goods through
wholesalers. The reason is that wholesalers are more
efficient at performing the distribution functions.

           Text 11: WHOLESALE MIDDLEMEN
      A wholesaler is a marketing middleman who
sells to organizations and individuals, but not final
consumers. For years no clear distinction was made in
marketing between wholesaling and retailing. An early
attempt to differentiate these two marketing middlemen
occurred in1932, when the government made a census of
wholesale distributors. Today there is still much
confusions as-to the difference between wholesalers and
retailers. For example, many retail outlets have signs that
say "whole distributors" or something similar. What
difference does it make whether an organization is called a
wholesaler or a retailer? One difference is that many states
impose a sale tax on retail sales. To collect such a tax, the
state must know Which sales are retail sales and which
are not. Retailers are sometimes subject to other rules and
regulations that do not apply to wholesalers. On the other
hand, the minimum wage laws have tended to exempt
small, local retail stores, but not wholesalers. For practical
marketing purposes, it is helpful to distinguish
wholesaling from retailing and to clearly define the
performed so that more effective systems of distribution
can be designed. Some producers will not sell directly to
retailers but will deal only with wholesalers/Some
producers will give wholesalers a bigger discount than
retailers. What confuses the issue that some organizations
sell much of their merchandise to other middlemen (a
wholesale sale) but also sell to ultimate consumers (a retail
sale).The issue is really simple: A retailer sells product to
consumers for their own use; a wholesaler does not.
Wholesalers sell product to businesses and institutions(e.g.
hospitals) for use in the business or to wholesalers,
retailers, and individuals for resale.
 It bears repeating that wholesalers do not sell to consumers
for their own use.


      Because wholesalers perform functions for
manufacturers that retailers do not, manufacturers may
give wholesalers a different discount on products than
they would retailers. Similarly, retailers get a discount
that is not available to consumers. This is called a
functional discount. An example may help clarify how
this works.
      Imagine a manufacturer of bicycles that makes a
bike that lists (retail price to you, the consumer) for $100.
The retailer may get a functional discount of 30%. The
cost to the retailer would then be $70 ($100 - $30 = $70).
The wholesaler that serviced the retailer, stored the bikes,
and provided other assistance to the manufacturer might
get an individual 10% off the price to the retailer ($ 70 x
10%=$7). The wholesaler would pay $63 for the bike
($70 - $7). Another wholesale middleman may help the
manufacturer find regional wholesalers. That wholesaler
get a
nt of
off the
wholesaler's price ($63 x 5% = $3.15). That wholesaler
would pay $59.85 for the bike ($63 - $3.15). The price of
the bike to the first wholesaler would be $59.85 and the
price to you, the consumer, would be $100.
     Note that about 40% of the cost of the bike would go
to storage, credit, delivery, market information, and sales
assistance. Figure 1-19 illustrates the case.

     Let's look at different wholesalers to see what they do
for manufacturers to earn their discount. We begin with
merchant wholesalers because they d


      Merchant wholesalers are independently owned
firms that take titles to goods that they handle. About 80%
of wholesalers fall in this category. General merchandise
or full-line wholesalers carry a broad assortment of
merchandise. They are found in industries such as drug,
hardware, and clothing. They perform all eight distribution
functions: transportation, storage, risk bearing, credit,
market information, grading, buying and selling.
     Limited-line wholesalers do the same functions with a
narrower range of products such as health foods or
automobile parts. Rack jobbers furnish racks or shelves
full of merchandise to retailers display products, and sell
on consignment. This means that they keep title to the
goods until they are sold, and they share their profits with
the retailer. Merchandise such as toys, hosiery, and health
and beauty aids are sold by rack jobbers. These
wholesalers are known as full-service wholesalers
because they do many functions (see figure 1-20). If a
rack jobbers does not supply credit to customers, he or she
is classified as a limited-function wholesaler.

   1. Provide a sale force to sell the goods to retailers
   and other buyers.
   2. Communicate manufactures advertising deals and
   3. Maintain inventory thus reducing the level of the
   inventory suppliers have to carry.
   4. Arrange or undertake transportation.
   5. Provide capita! by paying cash or quick payments
   torn goods
   6. Provide suppliant with market information they
   cannot afford or are unable to obtain themselves.
    7 Undertake credit risk by granting credit to
customers and
      absorbing any bad debts, thus relieving the
   supplier of this burden
   8. Assume the risk of the product by faking the title.

     The wholesalers may perform the services listed
   below for its customers:

   1 Buy goods the end market will and make them
     to customers;
    2. Maintain inventory thus reducing customer's
    3. Transport goods to customers quickly,
    4.      Provide market information and business
   consulting services.
    5. Provide financing through granting credit, critical
   to small retailers especially.
   6. Order goods in the types and quantities customers
 Figure 1-20. Functions performed by a full-function

      Limited-function wholesalers perform only selected
functions, but do them especially well. Cash-and-carry
wholesalers serve mostly smaller retailers with a limited
assortment of products. Retailers go to them, pay cash, and
carry trifle goods home; thus the term cash-and-carry
wholesalers. Cash-and-carry wholesalers have begun
selling to the general public in what are called warehouse
outlets One has to qualify as a non-consumer by showing
that one is a member of a government agency, small
business or other non-consumer group. It is surprisingly easy,
however, to qualify and buy merchandise at "wholesale" for
      Drop shippers solicit orders from retailers and
other wholesalers and have the merchandise shipped
directly from a producer to a buyer. They own the
merchandise, but do not handle, stock, or deliver it. That is
done by a producer. Drop shippers tend to handle bulky
products such as coal, lumber, and the chemicals. They
provide no credit. They handle items like Truck jobber are
small wholesalers who deliver goods by truck to retailers.
They are like a cash-and-carry wholesalers on wheels.

           Text 14: MANUFACTURER-OWNED
      Manufacturers may prefer to do some wholesaling
functions themselves, especially for perishable or highly
competitive products that require exceptional promotional
effort. There are two kinds:
           • A sales branch stocks the goods they sell and
           process orders from their own inventory. They are
           popular in industries such as chemicals and
    • A sales office is a facility where sales are made, but no
       inventory is carried. Distribution is from warehouse
       located        elsewhere. Regardless of who does the
    wholesaling function, the greatest costs are involved in
                     transportation and storage
            Text 15: PHYSICAL DISTRIBUTION
          Physical distribution is the movement of
     goods from producer to consumer and involves
     functions such as transportation and storage.
     Wholesaler, remember, cannot sell to the general public
     .Physical distribution is still the most costly marketing
     function. One cannot overemphasize the importance of
     physical distribution, even in an era when the
     service sector is dominant. Physical distribution
     begins with raw materials (at the mine) that have to
     be shipped to manufacturers who change them into
 useful products. Physical distribution also includes
 those functions      involved   in purchasing goods,
 receiving them, moving them through the plant,
 inventorying them, storing them and shipping finished
 goods all the way to the final users (including all the
 warehousing, reshipping, and physical movements of
 all kinds involved).

      A smart physical distribution manager can do
wonders for a firm's profitability. This person is
responsible for coordinating and integrating all
movement of materials including transportation,
internal movement (materials handling), and
warehousing. Few organizations actually have such a
position, but many have accepted the concept, and the
process of implementing a "total systems approach" is
slowly being carried out. Only very recently have firms
begun to recognize the need for physical distribution
throughout the channel system, rather than just within
the firm itself. A primary concern of distribution
managers is the selection of a transportation mode that
will minimize costs and assure a certain level of
service. Physical distribution management is sometimes
called logistics management.

      The largest percentage of goods are shipped by rail.
Railroad shipment is best for bulky items such as coal,
wheat, and heavy equipment.
      The second largest surface transportation mode is
motor vehicles(trucks, vans, and so forth). Trucks are
more flexible than railroads in that they can deliver almost
any commodity door-to-door. Water transportation moves
a greater volume of goods than you might expect.
International shipments and water
transportation takes on a new dimension as a key
transportation mode.
       Another transportation mode that is not visible to
 the average consumer is movement by pipeline. There
 have been experiments with sending other solids in
 pipelines, (pipelines are used primarily for the
 transportation of petroleum products) and this could be a
 major mode of distribution in the future.
       Today only a small fraction of shipping is done by
 air. Airlines carry everything from small packages to
 luxury cars and elephants and could expand to be a very
 competitive mode for other goods.

      Text 17: CHANNEL SYSTEMS
      All the firms involved in moving goods from
 producer to consumer are known collectively as a
 channel of distribution. Marketing managers tend to
 concentrate on product decisions, price decisions, and
  promotion decisions, while channels of distribution tend
  to grow in an uncontrolled, uncoordinated manner.
        At one time, channel relationships were rather
  informal in that manufacturers, wholesalers, retailers, and
  other channel members were -tied together only loosely
  by short-term agreements. Two systems emerged to tie
  firms together: corporate systems and contractual systems.
  A corporate distribution system is one in which all the
  organizations in the channel are owned by one firm. If
  the manufacturer owns the retail firm, clearly it can
  influence much greater control over its operations.
        If a manufacturer cannot buy retail stores, it can try
  to get the retailers to sign a contract to co-operate. A
  contractual distribution system is one in which members
  are bound to co-operate through contractual agreements.
  There are three) forms of contractual systems: First,
  there are franchise systems such as Mc Donald's,
  Kentucky Fried Chicken, Baskin-Robbins, and
  AAMCO. The franchisee agrees to all of the rules,
  regulations and procedures established by the franchiser.
  This results in the consistent quality and level of service
  you find in most franchised organizations.
       Second, there are the wholesaler-sponsored chains
such as A food stores. Each store signs an agreement to
use the same name, participate in chain promotion and co-
operate as a unified system of stores, even though each store
is independently owned and managed.
      A third system is a retail co-operative. This agreement is
much like a wholesaler-sponsored chain except it is initiated
by the retailers. The same co-operation is agreed to, however,
and the stores remain independent. What does the producer
do if it cannot buy retailers or get them to sign an
agreement to co-operate? The best thing to do is to manage
all the marketing functions yourself, including display,
inventory, control, pricing, and promotion. The
management by producers of all the marketing functions at
the retail level is called an administered distribution
system. Retailers co-operate with producers in such
systems because they get so much help for free. All the
retailer has to do is ring up the sale and make money.

        Text 18: THE CHANNEL CAPTAIN
       The greatest problem in traditional independent
systems are human problems. People just do not want to
give up some of their freedom to benefit the system. Thus
retailers do not like to do what wholesalers want,
distributors, and dealers. The channel becomes a source of
conflict, antagonism, and inefficiency.
       But in the wings there stands a champion of co-
 operation and coordination - the so-called channel captains.
 The captain may be the manufacturer, the wholesaler, or the
     A channel captain, therefore, is one organization
in the channel that gets the other members to work
together in a cooperative effort. The captain may have
more managerial know-how. Regardless of the source
of power, this organization maintains control.
       There is some evidence that much of our grocery
items in the future will be done from home. There will
be a handy catalogue of everyday grocery items in the
kitchen. When we want something we will just pick up
the phone, call the local food distribution centre, order
what we want, and have it delivered in an hour or two.
The principle is, move goods, not people.

4.       COMPREHENSION                   QUESTIONS.
Завдання   4.
          Підготуйте письмові            відповіді      на

1. What is the distribution?
2. What utilities do middlemen add?
3. Are there different categories of retailers?
4. What are the out-of-store categories?
5. What is a scrambled merchandising?
6. What are the there retail distribution strategies?
7. What is a functional discount?
8. What are the different types of wholesalers?
9. What is a physical distribution?
10. What is the major transportation?

5.    DISCUSSION QUESTIONS.                   Завдання
5.           Підготуйте коротку            інформацію,
використовуючи запитання як план:

1. Wouldn’t it be cheaper to get rid of middlemen?
2. When you are visiting retailers, ask who their
suppliers are.
 Call up a few wholesale organizations and visit their
facilities. Do they look like nice places to work? What
are the opportunities, salaries, and chances for
advancement? What kinds of jobs are available?


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