Place and Development of Channel Systems Chapter Eleven Place and Development of Channel Systems Chapter 11 Place and Development of Channel Systems For use only with Perreault/Cannon/McCarthy or Perreault/McCarthy texts. © 2011 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 1

At the end of this presentation, you should be able to: This slide refers to material on pp. 284. Understand what product classes suggest about Place objectives. Understand why some firms use direct channel systems while others work with intermediaries and indirect systems. Understand how and why marketing specialists develop to make channel systems more effective. Understand how to develop cooperative relationships and avoid conflict in channel systems. Know how channel members in vertical marketing systems shift and share functions to meet customer needs. 2

At the end of this presentation, you should be able to: This slide refers to material on pp. 284. Understand the differences between intensive, selective, and exclusive distribution. Know the main approaches firms use to reach customers in international markets. Understand important new terms. 3

Place Decisions Are Guided by “Ideal” Place Objectives (e. g Place Decisions Are Guided by “Ideal” Place Objectives (e.g., time, place, possession) This slide refers to material on pp. 285-286.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Product Classes Suggest Objectives (urgency, Convenience, information) Place System Is Not Automatic (more than one place arrangement needed) Key Issues Place Decisions Have Long-run Effects 6

Channel System May Be Direct or Indirect This slide refers to material on pp. 286-287.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Greater Control Some Reasons For Choosing Direct Channels Lower Cost Internet Makes Direct Distribution Easier Direct Contact with Customers Quicker Response or Change in Marketing Mix Suitable Intermediaries Not Available 7

Direct Channels Are Common with Business Customers and Services This slide relates to material on pp. 288-289. 8

When Indirect Channels Are Best (convenience) This slide relates to material on pp. 289. 9

Checking Your Knowledge This slide relates to material on pp. 289. Mary’s Kitchen is a catering business that operates by means of its own website. Customers order party platters, pastries, and other foods that the company makes to order. The items are then vacuum-packed in dry ice and shipped to the customer’s address via overnight delivery. Mary’s Kitchen is part of a(n): indirect channel. dual channel. intermediary channel. direct channel. traditional channel. Answer: D 10

Channel Specialists Adjust Discrepancies with Regrouping Activities This slide refers to material on pp. 291-293.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Accumulating (collecting products from many small producers) Bulk-Breaking (dividing larger quantities into smaller quantities) Assorting (putting together a variety of products) Sorting (separating products into the grades) 13

Channel Specialists May Reduce Discrepancies and Separations This slide relates to material on pp. 290-291. 11

A Discrepancy of Assortment This slide relates to material on pp. 291. A Discrepancy of Assortment 12

Channel Relationship Must Be Managed This slide refers to material on pp. 293-295.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Choosing the Type of Relationship (e.g., traditional or VMS). Key Issues In Channel Management Whole-Channel Product-Market Commitment Conflict Handling Role of Channel Captain (guides channel relationships) 15

Producers or Intermediaries May Be Channel Captains This slide refers to material on pp. 295-296. 16

Vertical Marketing Systems Focus on Final Customers This slide refers to material on pp. 296-298.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Characteristics Type of channel Little or none None Typical “inde-pendents” Amount of cooperation Traditional Vertical marketing systems Administered Contractual Corporate Control maintained by Examples Some to good Economic power and leadership General Electric Fairly good to good Contracts McDonald’s Complete One company ownership Florsheim 17

Channel Relationships This slide refers to material on p.295. © 2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 18

Checking Your Knowledge This slide relates to material on pp. 298. Dave runs “Maid to Perfection,” a residential and business cleaning service. He paid a fee to be part of the “Maid to Perfection” system of local operators. The written agreement gives him the right to use the company name and operations manual, and the agreement promises Dave that there will not be another “Maid to Perfection” operator in his immediate area. He operates as a semi-independent entrepreneur, but is still part of a national organization. Dave is part of a(n): traditional channel. contractual channel. corporate channel. administered channel. dual channel. Answer: B 19

Market Exposure Strategies The Best Channel System Should Achieve Ideal Market Exposure (product available to satisfy target customer needs) This slide refers to material on pp. 298-300.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Intensive Selective Market Exposure Strategies Exclusive = number of outlets 20

Intensive Distribution This slide refers to material on p.298-299. © 2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 21

Interactive Exercise: Ideal Market Exposure This slide refers to material on pp. 298-299. 22

Checking Your Knowledge This slide relates to material on pp. 298. Chocolate Dreams is a manufacturer of expensive, high- quality, hand-made “old style” candies that are sold through fine department stores and certain bookstores and fine gift shops. The ideal market exposure for products manufactured by Chocolate Dreams is: intensive. comprehensive. exclusive. extensive. selective. Answer: E 23

Limiting Market Exposure This slide refers to material on pp. 300-301.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Retailer Producer Vertical Arrangements May Be Legal Wholesaler Retailer Horizontal Arrangements Are Illegal 24

Channel Systems Can Be Complex (multichannel distribution) This slide refers to material on pp. 301-303. 25

Key Elements of Distribution Strategy This slide refers to material on p.301. © 2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 26

Entering International Markets This slide refers to material on pp. 304-305. Exporting Licensing (e.g., patent) Management Contracting (mgt/mkt skills) Joint Venture (partnership) Direct Investment (ownership) Generally increasing investment, risk, and control of marketing 27

Study Question 1 This slide relates to material on pp. 305-306. Carl is working his way through college as an independent distributor of the Mack-The-Knife Co. The Mack product line includes kitchen knives, hunting knives, and other special-purpose cutlery. Carl makes sales presentations to potential customers in their homes. If a customer wants to make a purchase, Carl buys the knives from Mack and sells them to the customer at a markup. For example, Mack's most popular knife is a chef's knife that Carl buys for $25 and resells to the consumer for $50. Carl:  A. Is part of a direct-to-customer channel. B. Is engaged in direct marketing. C. Is engaged in direct selling, but is part of an indirect channel. D. All of the above. E. None of the above. Answer: C

Study Question 2 This slide relates to material on pp. 305-306. Small farmers in the mountains of Peru pick coffee beans by hand, obtaining only a bucket a day. Then they sell them to buyers who put the beans in large bags to be shipped to processors. This regrouping activity is called:  A. Assorting B. Wholesaling C. Bulk-breaking D. Sorting E. Accumulating Answer: E

Study Question 3 This slide relates to material on pp. 305-306. Costco is a warehouse store that sells groceries, household items, and business products. Purchase quantities tend to be larger than in traditional stores that serve final consumers. For example, soft drinks are only sold in 24-can cases, not in 6-packs. Coffee is sold in 3-pound cans instead of one-pound foil packs. Which regrouping activity is Costco shifting to the consumer?  A. Accumulating. B. Adjusting discrepancies. C. Assorting. D. Bulk-breaking. E. Sorting. Answer: D

Study Question 4 This slide relates to material on pp. 305-306. Retail stores that sell "seconds" and "irregular" products at discount prices are flourishing all over the country. These stores are needed because of what regrouping activity?  A. Accumulating B. Bulk-breaking C. Sorting D. Assorting E. None of the above Answer: C

Study Question 5 This slide relates to material on pp. 305-306. A large food retailer acquiring a cheese factory is an example of:  A. dual distribution. B. vertical integration. C. a tying contract. D. horizontal integration. E. internal expansion. Answer: B