BMATWT 352 - Building Materials and Forest Products Marketing
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Channels of Distribution

Today's Objectives

1. Defining Channels of Distribution

2. Why do we need Channels/Middlemen?

3. Channel Design Decisions

4. Factors Influencing Channel Length

5. Wholesaling

1. Defining Channels of Distribution

Defn: A set of interdependent organizations (channel members, intermediaries, middlemen) involved in the process of making a product or service available for use or consumption.

- Get the right product to the right person at the right time and for the right price.

This is also defined as: How the physical product or service is transferred (both physically and by financial ownership) from the producer to the end consumer.

2. Why do we need Channels/Middlemen?

Efficiency - both for the manufacturer and for the consumer

  • Gives manufacturers the ability to produce large quantities of a single item (take advantage of economies of scale)
  • Provide a broad assortment to the consumer

Matches supply and demand

EXAMPLE: Imagine the market for 2x4s where is your nearest manufacturing facility? - Montreal, Quebec, Canada?

How would you like to have to drive to Montreal every time you needed a 2x4?

Maybe we can produce them here locally? - True

But what about Florida? Or Las Vegas, Nevada?

Remember, economies of scale. Usually, production costs can be lowered through bigger higher capacity facilities.

3. Channel Design Decisions

These are based on :

  • what benefits customers want from the channel
  • nature of the product
  • company characteristics
  • characteristics of intermediaries
  • competitors channel

Channel design decisions include:

1) Number of intermediaries/Length of Channel

· Intensive - Stock the product in as many outlets as possible (Coca Cola)

· Selective - More than one but fewer than all of the intermediaries who are willing to carry the company's product (Furniture)

· Exclusive - Give a limited number of dealers an exclusive right to distribute the product (ACE, HWI, and True-Serv give exclusive geographic territories to their member dealers)

4. Factors affecting Channel Length

Go through some examples:

Number of potential customers:

  • Small number = short channel
  • Large number = longer channel

Geographic Concentration

  • Highly concentrated (city) = short channel
  • Widely dispersed (country) = longer channel

Order size per transaction

  • Large $ value = short channel
  • Small $ value = longer channel

Complexity of the product

  • Complex, requiring technical sales & service (CNC molder) = short channel
  • Simple (2x4) = longer channel

Company resources

  • Large = short channel
  • Start-up, inadequate working capital = longer channel

Intermediaries availability and capability

  • If inadequate = short channel
  • If widely available = longer channel

 

TREX Lumber - Short length, 2x4s - Long channel

5. Wholesaling

Definition - All the activities of those establishments which sell to retailers, other wholesalers and/or industrial, institutional and commercial users, but DO NOT sell to ultimate consumers.

Simply

  • Manufacturers produce a large quantity of limited number of products
  • Consumers purchase small quantities of a large number of diverse products
  • Middlemen, like wholesalers, reduce this discrepancy of assortments.

 

Functions of Wholesalers

For Retailers

  • Stock products
  • Break bulk
  • Regroup products
  • Forecast changes in demand
  • Deliver products
  • Credit
  • Provide information
  • Transfer clear title
  • Assist with promotional efforts
  • Train retail sales staff

For Producer/Manufacturers

  • Re-order (replacing sales function)
  • Store inventory
  • Provide capital
  • Reduce risk
  • Provide market information
  • Help in developing and promoting new products, identifying customer needs

 

Describe Differences between Merchant Wholesalers and Agent Wholesalers

Merchants - Take Possession, Usually have fleet of delivery trucks

Agents - Arrange/negotiate the purchase transaction between mfg. And retailer but don't take possession or deliver.

 

Merchant examples - Atlantic Plywood, Rex, Boise Cascade (also mfg)

 

Agent examples - LMC, ENAP, Seaboard (Lumber Traders)

 

    
         

Produced and maintained by David T. Damery
Building Materials and Wood Technology
Department of Natural Resources Conservation
College of Natural Resources and the Environment
University of Massachusetts, Amherst.

    
Many of the materials created for this course are the intellectual property of the instructor. This includes, but is not limited to, the syllabus, lectures and course notes. Except to the extent not protected by copyright law, any use, distribution or sale of such materials requires the permission of the instructor. Please be aware that it is a violation of university policy to reproduce, for distribution or sale, class lectures or class notes, unless the faculty member has explicitly waived copyright. Copyright 2005, David T. Damery