Small Business

Distribution and Location

Chapter 11

McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
 Learning Objectives

LO1 Recognize the different types of direct

marketing and their pros and cons
LO2 Learn how to do non-direct distribution
LO3 Differentiate the types of international
strategies
LO4 Identify the factors to consider in selecting
your business location

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 Learning Objectives

LO5 Recognize the key issues in leasing.

LO6 Know what to look for in a potential site
layout
LO7 Understand the pros and cons of buying,
building, or leasing

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 Distribution

Distribution
– process of getting your product to your
customers
 “Where are my customers?”
 “Where should I be?”

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 Typical Distribution Channels

Figure 11.1

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 Direct Marketing

Word-of-mouth
– A means of spreading information about
your business through the comments
friends and customers make to other
potential customers.

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 Direct Marketing

Direct sales
– Methods of going directly to your
customer in order to sell your product.
– Vending machines, door-to-door
salespeople, leasing space at a craft fair,
farmers’ markets, party sales, and most
industrial sales

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 Direct Marketing

Direct mail
– A method of selling in which catalogs,
brochures, letters, videos, and other
pieces of marketing materials are mailed
directly to customers from which they can
mail, call, or e-mail an order.
– Direct faxing and direct e-mailing are
more modern forms of direct mail.

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 Direct Marketing

Mail order
– Sales made from ads in newspapers or
magazines, with purchases made online
or by phone as well as by mail.

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 Direct Mail and Its Variants

Microinventory
– A set of goods or service that consists of
only one or a few items.

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 Direct Mail and Its Variants

Just-in-time inventory
– Having just enough product on your
shelves to meet the immediate purchases.
– Usually requires frequent shipment from
your supplier.

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 Question

Which marketing style is a telephone call

from a salesperson?
A. telemarketing
B. direct marketing
C. guerilla marketing
D. direct response advertising

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 Direct Marketing

Telemarketing
– Contact via telephone for the express
purpose of selling a product or service.
– can either be inbound (customer calls
company) or outbound (company calls
customer).

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 Direct Marketing

Direct response advertising

– Placing an advertisement in a magazine
or newspaper, on television or radio, or in
any other media.
– ad contains an order blank with a phone
number and e-mail or regular mail
address with the intent of having the
customer place an immediate order.

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Cost per 1,000 for Various Forms
of Direct Response Advertising

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 Direct Marketing

Guerilla marketing
– The use of creative and relatively
inexpensive ways to reach your customer.
– Examples include door-knob hangers,
flyers under windshield wipers, T-shirts,
balloons, and messages written on
sidewalks.

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 Direct Marketing

Multichannel marketing
– The use of several different channels to
reach your customers, for example, a
Web site, direct mail, and traditional
retailing.

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 Distribution Issues for Direct
Marketing
 Fulfillment center  Retailer
– A company that – A middleman
will warehouse business which sells
your products and to consumers or
fill your customers’ end-users of a
orders for you. product (typically
in single or small
quantities).

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 Nondirect Distribution

Wholesaler
– A middleman business which buys
(typically in large quantities) and sells
(typically in smaller quantities) to
businesses rather than consumers.

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 Nondirect Distribution

Agent
– A middleman business which represents a
manufacturer’s product or service to
other business-to-business middleman
firms.

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 Nondirect Distribution

e-tailer
– An electronic retailer; a store that exists
only on the Internet.
Born international
– A new firm that opens a Web site
immediately, thus being exposed to
customers from around the world.

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 Question

Exporting using no middlemen is

__________.
A. Indirect exporting
B. Freight forwarding
C. Express exporting
D. Direct exporting

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 Exporting

 Direct exporting  Indirect exporting

– Exporting using no – Exporting using
intermediaries intermediaries such
as agents, export
management
companies, or
export trading
companies.

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 Exporting

Freight forwarders
– Firms specializing in arranging
international shipments— packaging,
transportation, and paperwork.

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Government Sources of Export
Assistance

Table 11.2
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 Exporting

 Letter of credit  Documentary draft

– A document issued – A draft which can
by a bank that be exercised only
guarantees a when presented
buyer’s payment with specified
for a specified shipping
period of time documents.
upon compliance
with specified
terms.

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 Importing

Importing
– similar to exporting, but buyers and sellers
are reversed
 Travel abroad - look for products that are
selling well in the country you’re visiting
 Trade mission and domestic and
international trade shows are also good
sources

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 Location

First choice for many entrepreneurs is

their hometown
– Local banker knows you, more likely to
loan money
– You understand market’s needs and
wants
– Friends and family are usually first
customers

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 Service Firms

Three types of locations

 At the client’s location
 At a mutually accessible location
 At your firm’s location

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 Service Firms

At the client’s location

– Services include such things as house or
office cleaning, pest control, remodeling,
lawn and gardening services, carpet
cleaning, and similar services which must
be performed at the client’s house
– As the firm grows, it may outgrow its
home-based headquarters

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 Service Firms

Mutually accessible location:

– Too much specialized equipment to be
readily transported
– A need for at least some client
involvement
– Barbershops, dentist offices, video rental
stores restaurants

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 Manufacturers

Contract manufacturing
– An existing firm with the correct
manufacturing capabilities makes your
product for you.
Sheltered workshop
– A nonprofit organization or institution that
provides business services by using
handicapped or rehabilitated workers

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 Site Selection

High customer contact business

– Three critical site selection considerations:
• Traffic
• Customer ease
• Competition
– Presence of traffic generators in the area
– Parking is also an issue

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 Site Selection

Low customer contact business

– Manufacturing business
– Commercial space might be appropriate
– Support businesses will be in or near the
area
– Business incubator: www.nbia.org

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 Leasing: Location Issues

“As is” versus Compliant property

HVAC

Signs

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Leasing : Operational Issues

Hidden Use of
charges premises

Hours of
Noncompete
operation

Moves and
Rent default
remodels
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 Typical Manufacturing Layout

Figure 11.2

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Typical Retail Layouts

Figure 11.3
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 Build, Buy, or Lease

Building has the advantage of having

the perfect layout in the perfect
location and the street appeal of a
new building, but it is costly and slow
Buying something already in existence
shortens the time and may be
somewhat cheaper

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 Build, Buy, or Lease

Leasing is an option with a

considerably lower initial cash outlay
– Often the only feasible choice
– Lease expenses are deductible business
expenses

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