Basics of Marketing - Kotler Philip

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


After reading this chapter, you should be able to:

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

2. Identify the main channels that the firm can use.

3. Tell about how the company develops the goals of commodity circulation.

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

The 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 home view and the fragrance of freshly cut flowers. Bouquets of flowers were decorated and an official reception in the huge hall, and afternoon tea in the living room.

Large-scale commercial floriculture began in the first years of this century, when the public started a habit of buying fresh flowers in various cases. To serve this ever-expanding market, commercial growers began to grow flowers in greenhouses built right on the outskirts of large cities. Soon, wholesale traders appeared on the stage, who undertook the delivery of grown flowers from greenhouses to flower shops in cities. Perishable goods allowed to conduct business only locally and without a large scale. Flowers had to be cut off, delivered to the city and sold to retailers very quickly, so that they could get to the consumer even fresh.

However, the appearance of air transport 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 areas with warm climates, such as California and Florida, and sell them to wholesalers for distribution in any part of the country.

Even more important for the flower industry was the emergence of jet aircraft. Thanks to it, foreign florists were able to participate in the competition on the American market. For example, most of the carnations and flowers not yet blossoming in buds are being grown in Colombia. Delivery of a batch of flowers by air from Colombia to the East Coast costs almost as much as the delivery of the same lot from California. For the right to sell their flowers on the territory of the United States, Colombian growers have to pay a fee, but the 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 flower growers often spend huge money on heating greenhouses. Among other countries, which compete in the American flower market, Holland and Israel. As a result of foreign competition, some American floriculturists were forced out of the market, while others had to switch to cultivating such kinds of flowers that, according to them, are not imported from abroad.

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

Wholesalers say that the growth of the flower industry is unlikely until retailers begin to promote flowers as a commodity for everyday use. Today, Americans usually buy flowers only for official events such as weddings and funerals. One of the retailers - Al Felly from Madison, Wisconsin - agrees with wholesalers. He calculated that if each of the 80,000 households in the city bought 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 take the example of Europe. Several years ago European consumers had a habit of buying flowers everyday. The "educational" process consisted of three stages. First, it was necessary to debug the distribution system so that flowers would get to the stores faster than before. Secondly, retailers cut margins that attracted more consumers and allowed them to buy more colors. And finally, the European retail began to offer a wider variety of colors than in the USA. The US flower industry could benefit from improving its marketing practices and distribution system in a European manner, because, as one of the wholesalers remarked sadly, "Do you know any other industry whose products everyone loves, but no one buys?" 1.

The decision to choose a distribution channel is one of the most difficult decisions that management must take. The channels chosen by the company most directly influence all other marketing decisions. The price policy depends on which dealers the firm chose - large and first class or medium and private. Decisions on own sales personnel depend on the scale of commercial and training work, which will need to be conducted with dealers. In addition, the firm's decisions on distribution channels involve issuing long-term obligations to other firms. When a truck manufacturer signs agreements with independent dealers, he can not immediately replace them with his own sellers in the event of a change in the situation. So the management should choose distribution channels with an eye not only for today, but also on the prospective commercial environment of tomorrow.

In this chapter, we will consider three basic questions. 1) What is the nature of the distribution channels? 2) What are the problems faced by firms in the formation and organization of their distribution channels? 3) What role do the decisions on the organization of goods movement play in attracting customers and ensuring their satisfaction? In Ch. 13 we will consider the distribution channels problems with retailers and wholesalers.