For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER TEN Place and Development of Channel Systems

1. Understand what product classes suggest about Place objectives. 2. Understand why some firms use direct channel systems while others rely on intermediaries and indirect systems. 3. Understand how and why marketing specialists develop to make channel systems more effective. 4. Understand how to develop cooperative relationships and avoid conflict in channel systems. 5. Know how channel members in vertical marketing systems shift and share functions—to meet customer needs. 6. Understand the differences between intensive, selective, and exclusive distribution. © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin When we finish this lecture you should

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Place Decisions Are an Important Part of Marketing Strategy Exhibit 10-1

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Key Elements of Distribution Strategy

Key Issues © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Place Decisions Are Guided by “Ideal” Place Objectives Product Classes Suggest Objectives Product Classes Suggest Objectives Place System Is Not Automatic Place System Is Not Automatic Decisions Have Long-run Effects

Internet Makes Direct Distribution Easier Greater Control Lower Cost Direct Contact with Customer Needs Quicker Response or Change in Marketing Mix Greater Control Lower Cost Direct Contact with Customer Needs Quicker Response or Change in Marketing Mix Suitable Middlemen Not Available © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Channel System May Be Direct or Indirect SomeReasons For Choosing Direct Channels

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Direct Channels Are Common with Business Customers and Services +

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin When Indirect Channels Are Best +

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Middlemen May Invest in Inventory +

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Channel Specialists May Reduce Discrepancies and Separations +

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin A Discrepancy of Assortment +

Sorting Bulk-Breaking Accumulating Channel Specialists Adjust Discrepancies with Regrouping Activities © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Assorting

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Interactive Exercise: Channel Efficiency

Common Objectives Conflict Handling Whole-Channel Product- Market Commitment Choosing the Type of Relationship Channel Relationship Must Be Managed © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Role of Channel Captain Key Issues In Channel Management

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Producers or Middlemen May Be Channel Captains Exhibit 10-2

Vertical Marketing Systems Focus on Final Customers © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Fairly good to good Contracts McDonald’s Complete One company ownership Florsheim Some to good Economic power and leadership General Electric Characteristics Type of channel Little or none None Typical “inde- pendents” Amount of cooperation Traditional Vertical marketing systems AdministeredContractualCorporate Control maintained by Examples

Intensive Selective Intensive Selective The Best Channel System Should Achieve Ideal Market Exposure © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin = number of outlets Exclusive Market Exposure Strategies

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Intensive Distribution

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Interactive Exercise: Ideal Market Exposure

Retailer Horizontal Arrangements Are Illegal Limiting Market Exposure © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Retailer Producer Vertical Arrangements May Be Legal Wholesaler

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Channel Systems Can Be Complex Exhibit 10-4

Place Channel of distribution Direct marketing Discrepancy of quantity Discrepancy of assortment Regrouping activities Accumulating Bulk-breaking Sorting © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Key Terms Assorting Traditional channel systems Channel captain Vertical marketing systems Corporate channel systems Vertical integration Administered channel systems Contractual channel systems

Ideal market exposure Intensive distribution Selective distribution Exclusive distribution Multichannel distribution Reverse channels © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Key Terms