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Marketing Basics - Kotler Philip

Chapter 12. Methods of distribution of goods: distribution channels and distribution


After reading this chapter, you should be able to:

1. List the levels and functions of the distribution channel.

2. Name the main channel options that the company can use.

3. To talk about how the company develops the goals of product distribution.

4. Compare among themselves the five main types of cargo transportation.

Flower industry in search of pink profits

At the end of the last century, many wealthy families built greenhouses on their plots to enjoy the view and aroma of freshly cut flowers at home. Bouquets of flowers adorned the official reception in the huge hall, and afternoon tea in the living room.

Large-scale commercial floriculture began in the early years of our century, when the public got into the habit of buying fresh flowers for various occasions. To serve this ever-expanding market, commercial flower growers began to grow flowers in greenhouses built right on the outskirts of big cities. Soon, wholesalers appeared on the scene, who took up the delivery of grown flowers from greenhouses to flower shops in the cities. Perishable goods allowed to conduct business only locally and without a large scale. Flowers had to be cut, delivered to the city and sold to retailers very quickly, so that they would be fresh to the consumer.

However, the advent of air transport has caused major changes in the flower industry. The ability to quickly transport flowers over long distances allowed entrepreneurs to grow them in large quantities in warm climates such as California and Florida and sell them to wholesalers for distribution in any part of the country.

The emergence of jet aircraft was even more important for the flower industry. Thanks to her, foreign flower growers also got the opportunity to participate in the competition in the American market. For example, most of the carnations sold in flower shops in the United States and flowers that have not yet blossomed in buds are grown in Colombia. Delivery of a consignment of flowers by air from Colombia to the East Coast costs almost how much the delivery of the same consignment from California will cost. Colombian growers have to pay a fee for the right to sell their flowers in the United States, but labor costs them much less than their American counterparts. Another advantage of Colombian entrepreneurs is the climate of their country, which is warmer than the climate of California or Florida, where gardeners often spend a lot of money on heating greenhouses. Among other countries competing in the American flower market, Holland and Israel. As a result of foreign competition, some of the American flower growers were forced out of the market, while others had to switch to growing those types of flowers that, according to their information, are not imported from abroad.

Florists are not the only representatives of the flower industry who face serious problems in their activities. Retailers and wholesalers are worried that Americans are not buying enough flowers. In 1982, the average American consumer spent about $ 20 on flowers. Wholesalers blame retailers for poor sales. But many stores store flowers in refrigerators behind the counter, which, according to wholesalers, does not allow to consider the goods. Street vendors, on the other hand, offer goods by person. Flowers are right in front of the eyes of passers-by, and wholesalers would like retail stores to introduce the same form of sale.

Wholesalers argue that the growth of the flower industry is unlikely until retailers begin to promote flowers as a daily commodity. Today, Americans usually buy flowers only for official events such as weddings and funerals. One retailer, Al Felli of Madison, Wisconsin, agrees with the wholesalers. He estimated that if each of the 80 thousand households in the city would buy once a week a bouquet of flowers worth $ 3, the total annual turnover of local flower shops would be about $ 12 million. In fact, the receipts for 1980 were only in the amount of about 200 thousand dollars. To increase sales, the American flower industry could use the example of Europe. A few years ago, European consumers formed a habit of everyday shopping for flowers. The “educational” process consisted of three stages. Firstly, it was necessary to adjust the distribution system so that the flowers hit the stores faster than before. Secondly, retailers cut margins, which attracted more consumers and allowed them to buy more flowers. And finally, European retailers began to offer a wider variety of colors than in the United States. The US flower industry could benefit from improving its marketing practices and distribution systems in a European manner, because, as one of the wholesalers sadly observed, “Do you know any other industry whose goods everyone loves but no one buys?” one.

The decision to choose a distribution channel is one of the most difficult decisions that management needs to make. The channels chosen by the company directly affect all other marketing decisions. The price policy depends on which dealers the firm has chosen - large and first-class or medium and ordinary. Decisions about your own sales staff depend on the extent of the commercial and training work that will need to be done with dealers. In addition, the firm's decisions regarding distribution channels involve the issuance of long-term obligations to other firms. When a truck manufacturer signs agreements with independent dealers, he will not be able to immediately replace them with his own sellers in the event of a change in situation. So, management should choose distribution channels with an eye not only for today, but also for tomorrow’s proposed business environment.

In this chapter we will consider three main issues. 1) What is the nature of the distribution channels? 2) What problems do firms face in the formation and organization of their distribution channels? 3) What role do decisions on the organization of goods distribution play in attracting customers and ensuring their satisfaction? In ch. 13 we will examine the problems of distribution channels by retailers and wholesalers.