The Role of Retailing in the Distribution Channel

1. Retailing

When marketers plan their distribution strategies, they must determine which channel is best suited to get their goods and services into the hands of consumers. A distribution channel is a set of businesses that move the product or service from the manufacturer to the end user or buyer. These businesses, often called intermediaries, play important roles in the distribution of goods and services. Intermediaries are companies that act as liaisons between the buyer and seller. These companies can take on a variety of roles to facilitate the transfer of products and services from a manufacturer to the end user. The path that a product or service takes from seller to buyer, including the intermediaries, is called the distribution or marketing channel. The length of the channel—short or long—will depend on many factors, including the product itself.

IN CONTEXT

It might seem logical for producers to simply provide goods and services directly to the consumer. Imagine that you were thirsty and wanted a cold can of Pepsi. However, you did not have any at home, and retailers did not exist. How would you get your Pepsi? Well, without retailers, you would have to rely on either going directly to the closest Pepsi bottling plant or requesting a Pepsi employee to deliver a can to your home. Can you imagine how costly that would be for PepsiCo? Now imagine doing that for every single product you wish to purchase. Obviously, this seems implausible—and almost laughable. While many companies have traditionally utilized longer channels to distribute their products, companies today often use more direct (shorter) channels or multiple channels. When a manufacturer utilizes multiple channels to distribute its product, it’s known as an omnichannel strategy. Amazon, for example, uses multiple distribution channels. Some products are sold directly to the consumer, while other products come from independent retailers, who then fulfill the order.

Consider another example: You are planning a trip with your friends. You have found a Marriott hotel that suits your needs. You may choose to book directly with Marriott through its website or reservation phone number. Alternatively, you may choose to book through a third party, such as Hotels.com, or even by calling your travel agent. Marriott is utilizing multiple channels for its service, so it is utilizing an omnichannel distribution approach.

key concept

Today, even social media plays a role in the distribution channel. Looking at the above example, Marriott might consider using social media as another contact for the organization’s employees and customers to interact with. Customers can often book a room and receive customer service directly through the company’s social media platforms. As you will learn later, the choice of which distribution channel to use depends largely on the type of product and the manufacturer’s strategy.

Regardless of how many channel members are included in the distribution channel, retailing is the final stop in the channel before products and services reach the consumer. Retailing is the process of selling goods and services to consumers. As it relates to the distribution channel, retailers do not often manufacture the goods being sold. Rather, retailers buy products from manufacturing firms or wholesalers and resell them to the consumer. While the number of traditional brick-and-mortar retail establishments has declined drastically over the past few decades, retailers remain an important part of the distribution channel. Retailing entails all activities involved in selling the goods and services to the consumer; in other words, retailers have their own marketing mix plan to accomplish their goals.

big idea

Because retailing is the final link between the manufacturer and consumer, retailers have as much incentive to sell products as those who produce the product.

terms to know

Distribution Channel

A set of businesses that move the product or service from the manufacturer to the end user or buyer.

Intermediaries

Companies that act as liaisons between the buyer and seller.

Omnichannel Strategy

When a manufacturer utilizes multiple channels to distribute its product

Omnichannel Distribution Approach

When a manufacturer uses multiple channels for its service

Retailing

The process of selling goods and services to consumers.

2. Functions of Retailing in the Distribution Channel

Retailing has many essential functions in the distribution channel. Consider Target, a general merchandise retailer with stores in all 50 states and the District of Columbia, as well as locations across the globe. Target offers a wide variety of consumer goods in each of its large brick-and-mortar locations. In addition to what we, as consumers, see when shopping at Target, there are many other essential functions for Target and other retailers in the distribution channel. They include providing customer feedback, providing assortment, buying in bulk, storing inventory, providing convenience to consumers, and providing services to consumers. Let us look at these functions in detail.

Provide Assortment: Retailers provide an assortment for consumers. Assortment simply refers to the number of options in each product category or the number of products offered. Consider the Pepsi beverage example from earlier in the chapter. What if you were not sure which drink you wanted? Rather than go directly to a Pepsi bottling plant, you decide to go to Target where you will find an assortment of drink varieties and brands to choose from.

IN CONTEXT

Target also offers a wide variety of other products. So, while you are there, you decide to purchase your drink and some home furnishings and groceries. The assortment of brands and products in general gives the consumer options and convenience—something most consumers value in their busy lives.

Many large retailers also offer their own brand of products. This allows the company to provide competing options to consumers at different price points, typically lower than the name brands.

EXAMPLE

Walmart offers various name brands of acetaminophen, one being the more popular brand Tylenol and the other a lower-priced, comparable product labeled Great Value. By providing multiple purchase options, the retailer can target more than one consumer market.

Buy in Bulk: Because retail establishments are often large and have ample storage, they can purchase and sell items in bulk. Consider the quantity of one product, such as Pepsi 12-packs, that Target has on its shelves. In addition, the store has stock in the back room for when the shelves are empty. Target’s ability to buy in bulk allows it to serve many consumers at any given time.

From a broader standpoint, consider the number of Pepsi 12-packs that the entire Target store network purchases each week. Target’s ability to purchase such massive quantities allows it to negotiate lower prices with PepsiCo (and other channel members). In turn, retailers can provide consumers with lower prices than if the consumer purchased directly from Pepsi.

Store Inventory: The ability of retailers to hold inventory allows them to quickly restock shelves or, in the case of Internet retailers, get the product shipped quickly. This allows consumers the convenience of being able to get an item as quickly as possible.

Provide Convenience to Consumers: Retailers provide a considerable amount of convenience to consumers. Consider the distance from your home or work to your closest retailer. For most consumers, retailers are within a few miles. This proximity makes retailers convenient.

key concept

The process of choosing a retail location for development has become somewhat of a science in recent decades. There are companies that specialize in partnering with retailers to determine the best locations for store placement. To determine locations, things like traffic patterns and demographics are collected and analyzed.

A second service that retailers provide is convenient hours of operation. Consider Walmart, which has locations that are open 24 hours, or grocery stores that are open on Thanksgiving morning for last-minute food purchases.

Retailers also allow consumers to more closely evaluate a product for purchase.

EXAMPLE

Some consumers would much rather purchase clothing items from a brick-and-mortar retailer rather than online because they can feel the texture of the cloth and try the item on to determine if it fits and looks good.

Providing Services to Customers: Most retailers provide services to consumers that are not core product offering.

EXAMPLE

You can purchase groceries and household essentials at retailers such as Walmart or Kroger, but you can also purchase stamps, buy a lottery ticket, refill your prepaid phone minutes, drop off mail, and in some locations get a haircut or an eye exam and deposit a check at the bank. With the convenience of multiple services, retailers make other tasks more convenient for consumers.

While there is an added value to the consumer in having all these services in one location, it is also a benefit to the retailers. For example, the hair salon located inside Walmart has the added benefit of the higher foot traffic inside the store. Since so many consumers are already in the store, they may be more apt to stop in for a haircut. Furthermore, while hair salon owners or individual stylists pay rent on the space inside Walmart, they do not have the overhead that might come with a standalone building. The advantage of this partnership for Walmart is that it receives additional income through the rent paid by the hair salon. The company also may build consumer loyalty since it is providing its consumers with additional convenience by offering these services.

Collecting and Providing Feedback: A key factor in any distribution channel is that of member relationships. Remember that all parties in the distribution channel have a stake in one another’s success. Because retailers are the last link between the product and the consumer, they have a unique opportunity to collect feedback from customers and share that with other channel members. This can take many different forms.

EXAMPLE

If you use a loyalty card at your favorite grocery retailer, your purchases are tracked. The data collected is a wealth of information that informs a retailer’s strategy and decisions. For example, the company may use the data to inform the type of promotions to run or coupons to offer.

Retailers also provide customer feedback to their channel partners. This feedback can let suppliers know the demand for products and if products are being offered at the right time and the right place. If products are not selling well in a retail establishment, the retailer and channel partners can look to customer feedback to determine the issue and resolve it.

term to know

Assortment

The number of options in each product category or the number of products offered.