1. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

2. LO1 Explain what is meant by a marketing channel of distribution and why intermediaries are needed. Distinguish among traditional marketing channels, electronic marketing channels, and different types of vertical marketing systems. LO2 LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 15, YOU SHOULD BE ABLE TO: 15-2

3. LO3 Describe the factors and considerations that affect a company’s choice and management of a marketing channel. Recognize how conflict, cooperation, and legal considerations affect marketing channel relationships. LO4 LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 15, YOU SHOULD BE ABLE TO: 15-3

4. CALLAWAY GOLF: DESIGNING AND DELIVERING THE GOODS FOR GREAT GOLF 15-4

5. FIGURE 15-1 FIGURE 15-1 The variety of terms used for marketing intermediaries that vary in specificity and use in consumer and business markets 15-5

6. NATURE AND IMPORTANCE OF MARKETING CHANNELS THE VALUE CREATED BY INTERMEDIARIES LO1  Marketing Channel Marketing Channel  Functions Performed by Intermediaries Transactional Function Logistical Function Facilitating Function  Utilities Received by Consumers 15-6

7. FIGURE 15-2 FIGURE 15-2 Intermediaries minimize the number of transactions and the cost of distribution for producers and customers 15-7

8. FIGURE 15-3 FIGURE 15-3 Marketing channel intermediaries perform three functions, each consisting of different activities 15-8

9. CHANNEL STRUCTURE & ORGANIZATION MARKETING CHANNELS FOR CONSUMER PRODUCTS AND SERVICES LO2  Direct Channel  Indirect Channel Retailers Wholesalers  Retailers Agents  Wholesalers  Retailers 15-9

10. FIGURE 15-4 FIGURE 15-4 Common marketing channels for consumer offerings by the kind and number of intermediaries 15-10

11. CHANNEL STRUCTURE & ORGANIZATION MARKETING CHANNELS FOR BUSINESS PRODUCTS AND SERVICES LO2  Direct Channel  Indirect Channel Industrial Distributor Agents Agents  Industrial Distributors 15-11

12. FIGURE 15-5 FIGURE 15-5 Common marketing channels for business offerings by the kind and number of intermediaries 15-12

13. CHANNEL STRUCTURE & ORGANIZATION ELECTRONIC & DIRECT MARKETING CHANNELS; MULTICHANNEL MARKETING LO2  Electronic Marketing Channels Electronic Marketing Channels  Direct Marketing Channels Direct Marketing Channels  Multichannel Marketing Multichannel Marketing 15-13

14. FIGURE 15-6 FIGURE 15-6 Consumer electronic marketing channels are similar to those for consumer and business offerings 15-14

15. CHANNEL STRUCTURE & ORGANIZATION DUAL DISTRIBUTION & STRATEGIC CHANNEL ALLIANCES LO2  Dual Distribution Dual Distribution  Strategic Channel Alliances Strategic Channel Alliances 15-15

16. MARKETING MATTERS Nestlé and General Mills— Cereal Partners Worldwide LO2 15-16

17. FIGURE 15-7 FIGURE 15-7 Functions performed by independent wholesaler types 15-17

18. CHANNEL STRUCTURE & ORGANIZATION CHANNEL INTERMEDIARIES LO2  Merchant Wholesalers Merchant Wholesalers Full-Service Wholesalers  General Merchandise (Full-Line) Wholesalers  Specialty Merchandise (Limited-Line) Wholesalers 15-18

19. CHANNEL STRUCTURE & ORGANIZATION CHANNEL INTERMEDIARIES LO2  Merchant Wholesalers Merchant Wholesalers Limited-Service Wholesalers  Rack Jobbers  Cash and Carry Wholesalers  Drop Shippers/Desk Jobbers  Truck Jobbers 15-19

20. CHANNEL STRUCTURE & ORGANIZATION CHANNEL INTERMEDIARIES LO2  Agents and Brokers Manufacturer’s Agents or Representatives Manufacturer’s Agents or Representatives Selling Agents Brokers  Manufacturers Branch Offices Sales Offices 15-20

21. FIGURE 15-8 FIGURE 15-8 Three types of vertical marketing systems: corporate, contractual (most popular), and administered 15-21

22. CHANNEL STRUCTURE & ORGANIZATION VERICAL MARKETING SYSTEMS LO2  Vertical Marketing Systems Vertical Marketing Systems  Corporate Systems Wholesaler-Sponsored Voluntary Chains  Contractual Systems Retailer-Sponsored Cooperatives Forward Integration Backward Integration 15-22

23. CHANNEL STRUCTURE & ORGANIZATION VERICAL MARKETING SYSTEMS LO2  Contractual Systems Franchising  Manufacturer-Sponsored Retail Franchise Systems  Manufacturer-Sponsored Wholesale Systems  Service-Sponsored Retail Franchise Systems  Service-Sponsored Franchise Systems 15-23

24. Sherwin-Williams, Tiffany, and H&R Block What vertical marketing system does each use? LO2 15-24

25. CHANNEL STRUCTURE & ORGANIZATION VERICAL MARKETING SYSTEMS LO2  Administered Systems  Channel Partnership Channel Partnership 15-25

26. CHANNEL CHOICE AND MANAGEMENT FACTORS AFFECTING CHANNEL CHOICE LO3  Environmental Factors  Consumer Factors  Product Factors  Company Factors 15-26

27. MARKETING MATTERS Avon is Calling Again in China LO3 15-27

28. CHANNEL CHOICE AND MANAGEMENT CHANNEL CHOICE CONSIDERATIONS LO3  Target Market Coverage Intensive Distribution Exclusive Distribution Selective Distribution 15-28

29. CHANNEL CHOICE AND MANAGEMENT CHANNEL CHOICE CONSIDERATIONS LO3  Satisfying Buyer Requirements Information Convenience Variety Pre- or Post-Sale Service 15-29

30. Jiffy Lube and Petco What buyer requirements have been satisfied? LO3 15-30

31. GOING ONLINE Visit an Apple Store to See What All the Excitement is About LO3 15-31

32. CHANNEL CHOICE AND MANAGEMENT CHANNEL CHOICE CONSIDERATIONS LO3  Profitability Margins Earned Channel Costs  Global Dimensions of Marketing Channels 15-32

33. USING MARKETING DASHBOARDS Channel Sales and Profit at Charlesburg Furniture LO3 15-33

34. CHANNEL CHOICE AND MANAGEMENT CHANNEL RELATIONSHIPS LO4  Sources of Channel Conflict Sources of Channel Conflict Vertical Conflict Disintermediation Horizontal Conflict 15-34

35. CHANNEL CHOICE AND MANAGEMENT CHANNEL RELATIONSHIPS LO4  Channel Captain Channel Captain  Channel Influence Economic Expertise Identification Legitimate Right 15-35

36. MAKING RESPONSIBLE DECISIONS Pay to Play: The Ethics of Slotting Allowances LO4 15-36

37. CHANNEL CHOICE AND MANAGEMENT CHANNEL RELATIONSHIPS LO4  Legal Considerations Dual Distribution Vertical Integration Exclusive Dealing Tying Arrangements Refusal to Deal Resale Restrictions 15-37

38. FIGURE 15-9 FIGURE 15-9 The Clayton Act and Sherman Act place legal restrictions on specific marketing channel strategies and practices 15-38

39. ACT II MICROWAVE POPCORN: THE SURPRISING CHANNEL VIDEO CASE 15 15-39

40. VIDEO CASE 15 ACT II MICROWAVE POPCORN 15-40

41. VIDEO CASE 15 ACT II MICROWAVE POPCORN 1. Visit ACT II’s website at www.ACTII.com and examine the assortment of products offered today. Are the assortment or the packaging related to its distribution channels or the segments they serve? 15-41

42. VIDEO CASE 15 ACT II MICROWAVE POPCORN 2. Use Figure 15–4 to create a description of the channels of distribution being used for ACT II popcorn today. 15-42

43. VIDEO CASE 15 ACT II MICROWAVE POPCORN 3. Compared to selling through the non-grocery channels, what kind of product, price, and promotion strategies might ConAgra Foods use to reach the grocery channel more effectively? 15-43

44. VIDEO CASE 15 ACT II MICROWAVE POPCORN 4. What special marketing issues does ConAgra Foods face as it pursues growth in global markets? 15-44

45. Marketing Channel A marketing channel consists of Individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users. 15-45

46. Industrial Distributor An industrial distributor is an intermediary that performs a variety of marketing channel functions, including selling, stocking, delivering a full product assortment, and financing. 15-46

47. Electronic Marketing Channels Electronic marketing channels employ the Internet to make products and services available for consumption or use by consumers or business buyers. 15-47

48. Direct Marketing Channels Direct marketing channels allow consumers to buy products by interacting with various advertising media without a face-to-face meeting with a salesperson. 15-48

49. Multichannel Marketing Multichannel marketing involves the blending of different communication and delivery channels that are mutually reinforcing in attracting, retaining, and building relationships with consumers who shop and buy in traditional intermediaries and online. 15-49

50. Dual Distribution Dual distribution involves an arrangement whereby a firm reaches different buyers by employing two or more different types of channels for the same basic product. 15-50

51. Strategic Channel Alliances Strategic channel alliances is a practice whereby one firm’s marketing channel is used to sell another firm’s products. 15-51

52. Merchant Wholesalers Merchant wholesalers are independently owned firms that take title to the merchandise they handle. 15-52

53. Manufacturer’s Agents Manufacturer’s agents are agents who work for several producers and carry noncompetitive, complementary merchandise in an exclusive territory. Also called manufacturer’s representatives. 15-53

54. Selling Agents Selling agents are agents who represent a single producer and are responsible for the entire marketing function of that producer. 15-54

55. Brokers Brokers are independent firms or individuals whose principal function is to bring buyers and sellers together to make sales. 15-55

56. Vertical Marketing Systems Vertical marketing systems are professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact. 15-56

57. Franchising Franchising involves a contractual arrangement between a parent company (a franchisor) and an individual or firm (a franchisee) that allows the franchisee to operate a certain type of business under an established name and according to specific rules. 15-57

58. Channel Partnership A channel partnership consists of agreements and procedures among channel members for ordering and physically distributing a producer’s products through the channel to the ultimate consumer. 15-58

59. Intensive Distribution Intensive distribution is a level of distribution density whereby a firm tries to place its products and services in as many outlets as possible. 15-59

60. Exclusive Distribution Exclusive distribution is a level of distribution density whereby only one retailer in a specific geographical area carries the firm’s products. 15-60

61. Selective Distribution Selective distribution is a level of distribution density whereby a firm selects a few retailers in a specific geographical area to carry its products. 15-61

62. Channel Conflict Channel conflict arises when one channel member believes another channel member is engaged in behavior that prevents it from achieving its goals. 15-62

63. Disintermediation Disintermediation involves channel conflict that arises when a channel member bypasses another member and sells or buys products direct. 15-63

64. Channel Captain A channel captain is a channel member (producer, wholesaler, or retailer) that coordinates, directs, and supports other channel members. 15-64