Channels for industrial products

Industrial products are items sold to businesses that use them to produce other goods, to provide services, to resell, or in their daily operations. Machinery, tools, and raw materials used in manufacturing processes are examples of industrial products. There are four common Channels of distribution for industrial goods.

Producer to Industrial User. The majority of industrial products (and services) are sold by producers or manufacturers directly to industrial users. They are often designed for a specific use. Examples include an elevator for a factory building, aircraft for an airline, and refinery equipment for an oil company.

Producer to Agent to Industrial User. A firm without its own sales force may use this distribution channel. Also, because of their knowledge of an industry, companies may use agents rather than their own sales representatives to introduce a new product or enter a new market.

Producer to Industrial Distributor to Industrial User. Producers or manufacturers of some items use industrial distributors to help them reach their markets. Industrial distributors are wholesalers who buy goods from producers or manufacturers and sell them to industrial users. They usually handle lower priced goods such as accessory equipment and operating supplies. Accessory equipment includes items such as typewriters, small power tools, cash registers, and small lathes. Lubricating oil, pencils, and office stationery are examples of operating supplies. Industrial distributors often keep quantities of products on hand. Thus, they can supply numerous industrial users rapidly.

Producer to Agent to Industrial Distributor to Industrial User. Small manufacturers or producers often hire agents as an independent sales force to contact large industrial distributors. They do not have the resources to sell their goods directly to these distributors.

Retailing

Retailing is that part of marketing in which goods and services are sold to ultimate consumers (the people who buy them for personal use). Most retailing occurs in stores where customers initiate the transactions. There are nearly a million and a quarter retail businesses in the United States employing in excess of fifteen million people.¹

Consumers usually buy in small quantities. This results in a large number of individual sales transactions for each retailer. A record store may have annual sales of $1,000,000. This means that it has sold, for example, an average of $10 worth of records 100,000 times that year.

Retail businesses can be classified by (1) ownership, (2) product lines carried, and (3) methods of reaching customers.

Ownership

One method of classifying retail businesses is according to ownership. The four major types of retail businesses by ownership are independent retail stores, chain stores, franchise businesses, and manufacturer-owned stores.

Independent Retail Stores. The typical independent retail store is a small business that is managed by the owner or owners. Retailing in the United States consists of a large number of small stores, many medium-sized stores, and a small number of large stores. Generally independents are numerous but small; that is, they have small sales volumes. One in every ten retail stores is operated by a firm that owns only one store. Independent retail stores account for more than 50 percent of all retail sales.

Chain Stores. When a business operates more than one store selling similar products, it is called a chain. Chain stores are the major competitors of independent retail stores.

Many chain store organizations started as single stores; Having met the needs of consumers in local areas, the owner(s) decided to expand into other areas, usually nearby communities. These companies grew by buying already established stores or by building one or more new stores.

Chain store companies acquire merchandise by placing large orders with producers or other suppliers. For example, if a firm has fifty stores in various cities, it can place a large order for tires from one manufacturer and then have them shipped to its stores. By buying in large quantities, the chain can save money. This may also result in lower prices for the chain’s customers.

Franchise Businesses. A franchise is an agreement by which a parent company gives an individual or another small company the right to do business in a standardized manner. The parent company is the franchiser. It can be a manufacturer, wholesaler, or service company. The person or company given rights by a franchiser is called the franchisee. These rights may include the authority to sell the franchiser’s products and to use its name, trademark, and operating procedures. Rights may vary from franchise to franchise.

A franchise combines features of independent retail stores and chain stores. Franchise owners invest their own money in the business, enjoy the profits of success, and accept responsibility for failure. At the same time they are connected with a well-known company that can provide assistance in setting up and operating the business.

Manufacturer-Owned Stores. By having their own retail outlets ‑ called manufacturer-owned stores ‑ companies can have complete control over the channel of distribution for their products. Some manufacturers of candy, shoes, and men’s clothing prefer to sell their products only through their own stores. Other producers use manufacturer-owned stores but not as sole outlets for their products. For instance, they may have stores to test the sales of new products or to dispose of outdated styles or products that have slight defects.