Page 579 - Business Principles and Management

Unit 6

Businesses create form utility by designing a product that is better or easier
to use. Creating a product that is durable, has important features, or is sold in
the size or quantity desired enhances form utility.
Distribution creates both time and place utility. Time utility is created when
consumers are able to purchase a product when they need it. Time utility is
enhanced when a customer can obtain a product at a convenient time and does
not have to wait for delivery. Distribution creates place utility by having prod-
ucts and services available at a convenient location so customers do not have to
drive a long distance to find them or are unable to purchase several related items
at the same location.
Possession utility is created by developing a product that consumers can
afford to purchase. Businesses can increase possession utility by extending
credit, allowing the customer to make several payments for the purchase over
a period of time.

CHECKPOINT
Describe the four types of economic discrepancies.

Channels of Distribution

The routes products follow while moving from producer to consumer, includ-
ing all related activities and participating organizations, are called channels of
distribution. Businesses that participate in activities that
transfer goods and services from the producer to the user
business note are called channel members.
Channel members are generally retailers and whole-
salers. As you learned in Chapter 20, a retailer sells di-
rectly to the consumer. A wholesaler, on the other hand,
buys from and sells to other businesses or organizations
Marketers take a systems perspective when rather than to final consumers. Wholesalers, retailers, and
they design channels of distribution. This other channel members serve important and specific roles
means that they look at how all parts of a in the exchange process.
distribution system work together to meet Determining the number and type of businesses and the
customers’ needs at the lowest possible cost. activities they will perform in a channel of distribution is an
Businesses use their distribution systems to important decision. Adding businesses to the channel makes
gain competitive advantages. the channel more complex and difficult to control. How-
In some industries, such as retailing,
distribution is so important that top man- ever, using businesses that have particular expertise in trans-
portation, product handling, or other distribution activities
agers specialize in this field. The last two may result in improved distribution or actual cost savings.
chief executive officers of Wal-Mart, David The activities that need to be performed as a product moves
Glass and Lee Scott, both had expertise in from producer to consumer help to determine the number
distribution. Why would the retail industry and types of businesses in the channel.
consider channels of distribution a top prior- Customers influence the development of a distribu-
ity? Why would Wal-Mart hire CEOs with a tion channel. When developing a channel, businesses
background in distribution?
must consider the location of customers, the number of
customers wanting the product, and the ways in which
customers prefer to purchase and consume the product.

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