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Credit Sprint's Guide to Marketing Unit 9: Distribution, Retailing and Logistics

CLEP® weight 10%

Place gets the product to the right location at the right time. This unit covers channel structure and intermediaries, how intensively to distribute, channel power and conflict, vertical systems, retailing and wholesaling, and physical distribution and logistics.

Channels of distributionProducerWholesalerRetailerConsumerdirect channel (no intermediaries) Each intermediary adds a cost and a serviceIntensive · selective · exclusive: how many outlets

What you need to know

  • A channel of distribution is the set of organizations that move a product from producer to consumer. Intermediaries cut the number of transactions, bridge gaps and perform functions such as transporting, storing, financing and risk taking.
  • Consumer channels: producer → consumer (direct), → retailer → consumer, → wholesaler → retailer → consumer, and → agent → wholesaler → retailer → consumer. Business channels are usually shorter.
  • Wholesalers: merchant wholesalers take title to goods. Agents and brokers do not take title and earn commissions. Manufacturers' sales branches are owned by the producer.
  • Distribution intensity: intensive (as many outlets as possible, for convenience goods), selective (some outlets, for shopping goods) and exclusive (one outlet in an area, for specialty goods and prestige).
  • Vertical marketing systems (VMS) coordinate the channel: corporate (one owner), contractual (franchises, voluntary chains, cooperatives) and administered (one leader has power without ownership).
  • Channel conflict can be vertical (between levels, such as manufacturer and retailer) or horizontal (between members at the same level). Channel captain, or leader, has the most power.
  • Multichannel (and omnichannel) marketing uses several channels, such as stores and a website, to reach customers. Disintermediation cuts out intermediaries, often online.
  • Retailer types: department stores, specialty stores, supermarkets, convenience stores, discount and warehouse clubs, category killers (big stores with deep selection in one category) and off-price retailers.
  • Wheel of retailing: stores enter with low prices and low costs, then trade up and become vulnerable to the next low-price entrant. Scrambled merchandising adds unrelated lines to boost sales.
  • Nonstore retailing: direct selling, vending machines, direct marketing and online retail. Retail strategy covers location, atmospherics, merchandise mix and service level.
  • Physical distribution and logistics include order processing, warehousing, inventory control (just-in-time reduces stock), materials handling and transportation. Supply chain management coordinates the whole flow.
  • Transportation modes: rail (cheap for bulk, slow), truck (flexible, door-to-door), air (fast, expensive), water (cheap, slowest) and pipeline (liquids and gases). Intermodal shipping combines modes in containers.

Formulas and rules

Number of contacts with intermediaries: producers × customers vs producers + customers + intermediary
Inventory turnover = cost of goods sold ÷ average inventory

Exam traps

Watch forAgents and brokers do NOT take title to the goods; merchant wholesalers do.
Watch forExclusive distribution means one outlet per area, not just 'high price.'
Watch forA franchise is a contractual VMS; a company owning its stores is a corporate VMS.
Watch forPush strategy is promotion aimed at the channel; it appears in distribution decisions but belongs to the promotion mix.

Key terms

  • Channel of distribution: The organizations that move a product from producer to user.
  • Intermediary: A firm that stands between producer and user, such as a wholesaler or retailer.
  • Merchant wholesaler: A wholesaler that takes title to the goods it sells.
  • Agent/broker: An intermediary that does not take title and earns a commission.
  • Intensive distribution: Selling through as many outlets as possible.
  • Selective distribution: Selling through a limited number of outlets.
  • Exclusive distribution: One outlet in a territory.
  • Vertical marketing system: A channel coordinated by a leader to improve efficiency.
  • Franchise: A contract that lets others sell a firm's name and system.
  • Channel conflict: Disagreement among channel members.
  • Channel captain: The member with the most power in a channel.
  • Disintermediation: Cutting out intermediaries.
  • Omnichannel: Giving a seamless experience across stores, web and mobile.
  • Category killer: A large specialty store with deep selection and low prices.
  • Wheel of retailing: Stores enter as low-price operators, trade up, then are replaced by new low-price entrants.
  • Scrambled merchandising: Adding unrelated product lines to a store.
  • Logistics: Moving and storing goods from source to customer.
  • Supply chain: The network of firms that create and deliver a product.
  • Just-in-time (JIT): Inventory arrives only as it is needed.
  • Intermodal transportation: Shipping by two or more modes, usually in containers.
  • Warehousing: Holding goods until they are sold or shipped.

Practice questions

Five of the 49 Unit 9 questions in Credit Sprint. Every choice is explained in the app.

1. A marketing channel is
  1. a set of organizations that help move a product from producer to consumer
  2. a television network that carries ads
  3. a producer's factory
  4. the price a firm charges
Show answer

a set of organizations that help move a product from producer to consumer. Channel members add time, place and possession utility.

2. A merchant wholesaler
  1. produces goods
  2. is paid only a commission
  3. takes title to the goods it sells
  4. never owns inventory
Show answer

takes title to the goods it sells. It owns the inventory.

3. The wheel of retailing suggests that new retailers
  1. never change their strategies
  2. start as luxury stores only
  3. always stay small
  4. enter as low-cost, low-price operators and then trade up
Show answer

enter as low-cost, low-price operators and then trade up. Over time they add services and raise prices.

4. Selective distribution uses
  1. several but not all possible outlets
  2. no outlets
  3. every possible outlet
  4. only one outlet
Show answer

several but not all possible outlets. Typical for shopping goods.

5. A vertical marketing system (VMS) is
  1. a pricing method
  2. a type of advertising
  3. a channel in which members act as a unified system
  4. a group of competing retailers
Show answer

a channel in which members act as a unified system. It reduces conflict and improves efficiency.