Part 4 PRODUCT AND PRICE DECISIONS

10: Product, Branding, and Packing Concepts 11: Business Markets and Buying Behavior 12: Developing and Managing Prices 13: Marketing Channels and Supply-Chain Management 14: Retailing, Direct Marketing, and Wholesaling

Chapter 13 Marketing Channels and Supply-Chain Management Professor Jason C. H. Chen, Ph.D. School of Business Administration Gonzaga University Spokane, WA 99258 chen@jepson.gonzaga.edu

Marketing Applications

1. Keurig is the North American leader in single-cup coffee brewing 1. Keurig is the North American leader in single-cup coffee brewing. Introduced in 1998, the Keurig system uses self-contained coffee K-Cups, which allow users to brew one cup of coffee or other hot beverage in about one minute. After the K-Cup is pierced with a nozzle, hot water is forced through its contents and filter and into a mug below. …. Describe the different channels used to distribute Keurig’s K-Cups in terms of customer characteristics, competition, and characteristics of the intermediaries. How would you define the intensity of market coverage? Does it make sense? Are there any strategic issues in managing these marketing channels? (p.392)

Answers should include the following points. Some of the different channels used by Keurig to distribute its K-Cups are dual distribution, strategic channel alliance, and selective distribution. Students should compare the attributes associated with each channel (supermarkets, big box stores, specialty stores, coffee websites, Green Mountain website). Customer characteristics will be slightly different for each channel; for example, customers shopping at big box stores may be looking for a low price while customer shopping at specialty stores may be looking for quality or brand-name coffees. Competition will also differ, although all channels are competing with coffee shops like Starbucks. The characteristics of the intermediaries will also vary, especially if Green Mountain sells to customers directly.

Answers (cont.) Intensity of coverage refers to the number and kinds of outlets in which a product will be sold. The intensity of coverage for Keurig’s K-Cups is good as the cups are sold in many places such as supermarkets, selected big box stores, specialty stores, and department stores. They are also found online at specialty coffee websites and Keurig and Green Mountain Coffee Roasters e-commerce stores. Some may believe that covering so many channels is a good decision while other may believe that Green Mountain may be creating too much competition with itself.   Students may say that there are strategic issues like channel conflict, disagreements on objectives and policies, environmental issues, arguments on channel leadership, etc.

3. Marketers can select from three major levels of marketing coverage when determining the number and kinds of outlets in which to sell a product: intensive, selective, or exclusive distribution. Characteristics of the product and its target market determine the intensity of coverage a product should receive. Indicate the intensity level best suited for the following products, and explain why it is appropriate. a. Personal computers b. Deodorant c. Canon digital cameras d. Nike athletic shoes

Ans: Intensive distribution uses all available outlets for distributing a product and is appropriate for most convenience products. Selective distribution uses only some available outlets in an area to distribute a product and is appropriate for shopping products and durable goods. Selective distribution is also desirable when a special effort, such as customer service from a channel member, is important to customers. Exclusive distribution uses only one outlet in a relatively large geographic area and is suitable for products purchased infrequently, consumed over a long period of time, or requiring service or information to fit them to buyers’ needs. a. Personal computers ____________ b. Deodorant ___________ c. Canon digital cameras _________ d. Nike athletic shoes _______________ selective intensive selective intensive/selective

Internet Exercise Fed Ex Many companies lack their own distribution systems. Firms in this situation may rely on the services provided by companies like FedEx to handle their distribution. Learn more about the services provided by FedEx at www.fedex.com

1. What tools does FedEx provide to make the shipping process easier?   FedEx provides a variety of tools, including online pickup scheduling, online ordering, online payment, online address books, package tracking, etc. 2. Other than shipping products, what other services does FedEx provide? FedEx recently purchased Kinkos, so they also provide copying and printing services. They also provide a knowledge sharing site and some computer services.

Figure 13.3 - Typical Marketing Channels for Business Products Direct channel (>50% of business products, esp. expensive equipment) Industry distribution takes title to products and carries inventories and most effective when a product has broad market appeal Agent does not acquire title to the products and usually does not take possession When producer wishes to cover a large geographic area

3. Is there information on the FedEx website that would help a potential FedEx customer evaluate FedEx regarding some of the selection criteria shown in Figure 13.3?   Figure 13.3 shows common marketing channels for business products. FedEx sells services directly to business consumers, so a potential customer has all the information available on the website. FedEx provides options depending on the size and type of package, shipping speed, transportation method, etc.

Video Case 13.1 Taza Cultivates Channel Relationships with Chocolate

Summary   Taza Chocolate is a small manufacturer of stone-ground organic chocolate made in the classic Mexican tradition. The company markets most of its products through U.S. retailers, wholesalers, and distributors. Individual customers around the world can also buy Taza chocolate directly from the Taza website, and local customers can visit the company’s food truck or factory. The case presents the different marketing challenges that come with each form of distribution. Taza also seeks to build positive relationships across the entire supply chain.

1. Which distribution channels does Taza use, and why are they appropriate for this company?   Taza markets most of its products through U.S. retailers, wholesalers, and distributors. Individual customers around the world can also buy Taza chocolate bars, baking squares, chocolate-covered nuts, and other specialty items directly from the Taza website. If they live in Somerville, Massachusetts, they might even find a Taza employee riding a “chococycle,” selling products and distributing samples at an upscale food truck festival or a weekend market festival. Selling to distributors and retailers helps the company to sell a high volume of product, while selling to individuals helps them to make personal connections and reach a different set of customers.

2. In what ways does Taza benefit from selling directly to some consumers? What are some potential problems of selling directly to consumers?   Selling directly to consumers helps the company to reach people who aren’t near a retailer or who want a specific product. Selling directly to consumers also helps to forge relationships. However, it is less efficient to ship directly to individuals and complicated to control the chocolate’s quality (i.e., melting).

3. In what ways are Taza’s distribution efforts influenced by the fact that its products are organic?   Taza seeks to make personal connections with all the certified organic growers who supply its ingredients. High quality ingredients are important to the company, so Taza believes that direct relationships with farmers ensure the best product. Dealing directly with suppliers allows Taza to meet its social responsibility goals while ensuring the kind of quality that commands a premium price.