Chapter 1 Marketing Channel Concepts.

Chapter 1 Marketing Channel Concepts

Why the growing importance of marketing channels?
Objective 1: 1 Why the growing importance of marketing channels? 1. The explosion of information technology and E-commerce 2. A greater difficulty in gaining a sustainable competitive advantage 3. The growing power of distributors, especially retailers in marketing channels 4. The need to reduce distribution costs

The explosion of information technology and E-commerce
1. 2. A greater difficulty in gaining a sustainable competitive advantage 3. The growing power of distributors, especially retailers in marketing channels 4. The need to reduce distribution costs 1 The prediction: Disintermediation — reduction of number of intermediaries Yahoo! eBay Amazon.com The reality: Reintermediation—evolution of a new type of intermediary

A greater difficulty in gaining a sustainable competitive advantage
1 The explosion of information technology and E- commerce 2. The growing power of distributors, especially retailers in marketing channels The need to reduce distribution costs A greater difficulty in gaining a sustainable competitive advantage Place (distribution), or Marketing Channel Strategy Sustainable competitive advantage Potential for gaining competitive advantage because place is more difficult for competitors to copy

The growing power of distributors
1 The explosion of information technology and E-commerce A greater difficulty in gaining a sustainable competitive advantage 3. The need to reduce distribution costs The growing power of distributors Power retailers as of consumer markets gatekeepers Act as buying agents for customers rather than as selling agents for manufacturers

The need to reduce distribution costs
1 The explosion of information technology and E-commerce A greater difficulty in gaining a sustainable competitive advantage The growing power of distributors 4. The need to reduce distribution costs Marketing channels are the most recent target for reducing distribution costs. The focus is on channel structure and management.

What is a marketing channel?
Objective 2: 1 What is a marketing channel? Outside the firm Firm involved in negotiatory functions Management’s involvement in the process External contactual organization that management operates to achieve its distribution objectives Goals that change, causing variations in contactual organization & the way in which management operates it

What is a channel manager?
1 What is a channel manager? Anyone in a firm or organization who is involved in marketing channel decision making

Objective 3: 1 How does marketing channel strategy relate to the rest of the marketing mix? Marketing Mix or the four Ps Challenges Product Limited ability to gain and hold competitive advantage Price Price wars erode profitability & provide unstable basis for sustaining competitive advantage Promotion Expensive and short-lived Place (Distribution) Marketing channels support & enhance other Ps to meet demands of target markets

The change of focus to channel strategy
1 The change of focus to channel strategy Creates competitive advantage with long-term viability Builds strong relationships between manufacturers and channel members Based on trust, confidence, and people power

Channel Strategy and Logistics Management
1 Channel Strategy and Logistics Management Part of distribution variable • Concerned with entire process of starting and operating contactual organization • Formulated before logistics management Focused specifically on providing product availability at appropriate time & place

Marketing Channel Flows
1 Objective 4: Marketing Channel Flows Product Flow Negotiation Flow Ownership Flow Information Flow Promotion Flow

Transportation Company
1 Product Flow Manufacturer Transportation Company Wholesalers Retailers Consumers

1 Negotiation Flow Manufacturer Wholesalers Retailers Consumers

Ownership Flow 1 Manufacturer Wholesalers Retailers Consumers

Transportation Company
Information Flow 1 Manufacturer Transportation Company Wholesalers Retailers Consumers

Promotion Flow 1 Manufacturer Advertising Agency Wholesalers Retailers
Consumers

Distribution through intermediaries
Objective 5: 1 Distribution through intermediaries Factors that determine the role of intermediaries Technology the Internet Economic Specialization & Considerations Division of Labor Contactual Efficiency

Specialization & Division of Labor
1 Specialization & Division of Labor Distribution Tasks Production Tasks Distributed interorganizationally Distributed intraorganizationally

Contactual Efficiency Granada Guitar Co.
1 Negotiation Effort Estimated Dollar Costs of Inputs Distribution Objective (Output) Contactual Efficiency 100 sales visits 100 phone calls 20 magazine ads @ $50 = $5,000 @ = @1,000 = 20,000 $25,300 Get 500 music stores to carry new guitar line Negotiation effort in dollar terms relative to achieving the distribution objective = $25,300

Channel Structure v. Ancillary Structure
Objective 6: 1 Channel Structure v. Ancillary Structure Channel Structure The group of channel members to which a set of distribution tasks has been allocated Why are single-channel structures currently the exception? Ancillary Structure The group of institutions that assist channel members in performing distribution tasks Why is managing the ancillary structure most likely to be less complex than managing the channel structure?

Chapter 2 The Channel Participants

Major Participants in the Marketing Channel
Objective 1: 2 Major Participants in the Marketing Channel * Commercial Channel * Target Markets

Why shift distribution tasks to intermediaries?
Objective 2: 1 Why shift distribution tasks to intermediaries? Producers & Manufacturers Intermediaries • lack expertise • lack economies of scale • spread high fixed costs over large quantities of diverse products • achieve economies of scope and economies of scale

Example: Distribution of Crayons
2 Manufacturer direct to customers • Huge order processing facility • Huge inventory • Several warehouse locations • Transportation of product to consumers = cost prohibitive

Major Types of Wholesalers
Objective 3: 2 Major Types of Wholesalers

Merchant Wholesalers 2 Buy Take title to Store Handle
Large quantities of products Resell to Industrial, commercial, or institutional concerns other Wholesalers Retailers

Agents, Brokers, & Commission Merchants
2 Involved in buying & selling while acting on behalf of clients Commissions on sales or purchases

Manufacturers’ Sales Branches & Offices
2 Separated from manufacturing plants Distribute manufacturer’s products at wholesale Owned & operated by manufacturers Some wholesale allied & supplementary products purchased from other manufacturers.

Major Trends in Wholesale Structure
Objective 4: 2 Major Trends in Wholesale Structure 1987—1997 69.7% Manufacturer’s sales branches & offices 60.8% Wholesale trade 57.8% Merchant wholesalers 50.0% Agents, brokers, & commission merchants

Trends in Size & Concentration
2 Measured by: Types of Wholesalers Size of wholesaler Majority are small businesses Sales volume Nearly 40% of all firms have annual sales of less than $1 million # of Employees per firm Almost 50% of firms had fewer than 5 employees Economic concentration in terms of % of total sales 50 largest manufacturers’ sales branches & offices garnered nearly 53% of sales for this type

Merchant Wholesalers Specialize in Performance Distribution Tasks
Objective 5: 2 Merchant Wholesalers Specialize in Performance Distribution Tasks  Provide market coverage  Make sales contacts  Hold inventory  Process orders  Gather market information  Offer customer support • Operate at high levels of effectiveness and efficiency • Average cost curves lower than those for their suppliers

Merchant Wholesalers’ Distribution Tasks Serve Customers
2  Assure product availability  Provide customer service  Extend credit & financial assistance  Offer assortment convenience  Break bulk  Help customers with advice & technical support

Agent Wholesalers’ Distribution Tasks
2 Manufacturers’ Agents Market coverage Sales contacts

2 Agent Wholesalers’ Distribution Tasks Selling agents Market coverage Sales contacts Order processing Marketing information Product availability Customer services

2 Brokers Market coverage Sales contacts Order processing Marketing information Product availability Customer services

2 Commission Merchant Market coverage Sales contacts Order processing Breaking bulk Credit Holding inventory

Retail Structure 2 Alternative Bases for Classifying Retailers
Objective 6: Retail Structure 2 Alternative Bases for Classifying Retailers By Ownership of Establishment By Kind of Business (Merchandise Handled) By Size of Establishment By Degree of Vertical Integration By Type of Relationship with other Business Organizations By Method of Consumer Contact By Type of Location By Type of Service Rendered By Legal Form of Organization By Management Organizations or Operational Technique

Kind-of-Business Classifications
2 Retail Trade Motor vehicle & parts dealers Furniture & home furnishings stores Electronics & appliance stores Building material & garden equip. & supply dealers Food & beverage stores Health & personal care stores Gasoline stations Clothing & clothing accessories stores Sporting goods, hobby, book, & music stores General merchandise stores Miscellaneous store retailers Nonstore retailers

Retail Structure Trends
Objective 7: Retail Structure Trends 1 Decreasing number of establishments Increasing sales = increase in size of retail establishments measured by average sales volume per store

Concentration in Retailing
1 In 1997 4% of all retail firms accounted for nearly 80% of total sales!!

Distribution Tasks Performed by Retailers
Objective 8: Distribution Tasks Performed by Retailers 2 The role of the retailer in the distribution channel, regardless of his size or type, is to interpret the demands of his customers and to find and stock the goods these customers want, when they want them, and in the way they want them. This adds up to having the right assortments at the time customers are ready to buy. — Charles Y. Lazarus

Distribution Tasks Performed by Retailers
2 Distribution Tasks Performed by Retailers Offer manpower & physical facilities close to consumers’ residences Provide personal assistance to help sell products Interpret and relay consumer demand Divide large quantities into consumer-sized lots Offer storage Remove risk by ordering in advance of the season

Retailers’ Growing Power in Marketing Channels
Objective 9: 2 Retailers’ Growing Power in Marketing Channels Increased size & buying power Become power retailers & category killers Application of advanced Technologies Information technology & the Internet; threetailing Use of modern marketing strategies Modern techniques; relationship marketing

Facilitating Agencies in Marketing Channels
Objective 10: 2 Facilitating Agencies in Marketing Channels Transportation agencies Storage agencies Order processing agencies Advertising agencies Financial agencies Insurance companies Marketing research firms

Chapter 3 The Environment of Marketing Channels

The Environment 3 Consists of all external
Objective 1: 3 The Environment Consists of all external uncontrollable factors within which marketing channels exist Affects channel members and nonmembers, such as facilitating agencies = All channel participants

The Environment 3 Producers Environment & Manufacturers Locus of
Economic Sociocultural Competitive Technological Legal Locus of channel management Member participants Intermediaries Target Markets Nonmember participants Facilitating agencies

The Economic Environment
Objective 2: The Economic Environment 3 Recession Inflation Major Economic Forces Deflation

Recession = Reduced sales volume Consumer Reduced Corporate
3 Consumer and/or Corporate spending Reduced sales volume Reduced profitability Firms caught with large inventories = Channel strategy: Manufacturers provide channel member support by financing high inventory costs

Inflation Continued high spending Spending, fueling a recession 3 OR
Possible channel strategy: • Reduce manufacturer’s product mix from higher-price to lower-price products • Reduce inventory burden on members with: Streamlined product line Faster order processing & delivery Higher inventory turnover through stronger promotional support

Deflation Pass cost-induced price increases through channel 3 Prices
Challenge: Pass cost-induced price increases through channel when built-in cost pressures from labor contracts were negotiated several years earlier

Other Economic Factors
Objective 3: 3 Real interest rates Strong U.S. Dollar Difficult to sell products through channel members 1. 2. = Demand Costs = U.S. products less competitive

The Competitive Environment
Objective 4: 3 The Competitive Environment Global in scope

Types of Competition 3 Vertical Horizontal Channel System Intertype
Objective 5: 3 Types of Competition Vertical Horizontal Channel System Intertype

Horizontal Competition
3 M M W W R R

Intertype Competition
3 M M W W R R

Vertical Competition 3 M W R

Channel System Competition
3 Channel System Competition M M M M M M

The Sociocultural Environment
Objective 6: 3 The Sociocultural Environment Pervades all aspects of a society Influences both national and international marketing channels Influences wide variations among channel structures worldwide

Sociocultural Developments
3 Population Age Patterns Ethnic Mix Educational Trends Family or Household Structure U.S. pop. Becoming both younger & older # of minority-owned businesses Levels = people more demanding Smaller & more varied Role of Women # = changing shopping needs

The Technological Environment
Objective 7: 3 The Technological Environment Scanners Computerized inventory management & Portable computers Help retailers & wholesalers closely monitor success or failure of products they handle

3 The Technological Environment EDI - Electronic Data Interchange = Enhanced Distribution Efficiency • Links together channel information systems • Provides real-time responses • Enhanced by Internet

3 “Computer sales People” Accelerating technology Mobile robots 3-D modeling Ultra-wideband technology

The Legal Environment 3 The set of laws that impact marketing channels
Objective 8: 3 The Legal Environment The set of laws that impact marketing channels • Continually evolving • Affected by changing values, norms, politics, & precedents • Knowledge of basics helps channel manager avoid serious & costly legal problems

Legislation Affecting Marketing Channels
3 Sherman Antitrust Act 1890; Fundamental antimonopoly law Public welfare best served through competition Clayton Act 1914; Strengthen Sherman Antitrust Act Prohibits specific practices among competing firms Federal Trade Commission Act 1914; Established FTC Power to investigate & enforce

Legislation Affecting Marketing Channels
3 Robinson-Patman Act 1936; Amendment to Clayton Act Prohibits price discrimination Allows price differentials to different customers under specific circumstances Celler-Kefauver Act 1950; Amendment to Clayton Act Prohibits vertical mergers & acquisitions

Legal Issues in Channel Management
Objective 9: 3 Legal Issues in Channel Management • Dual Distribution, or multi-channel distribution Producer or manufacturer uses 2 or more different channel structures for distributing the same product Exclusive Dealing Supplier requires its channel members to sell only its products or to refrain from selling directly to competitive suppliers •Full-Line Forcing Supplier requires channel members to carry a full-line of its products in order to sell any particular products in supplier’s line

3 Legal Issues in Channel Management • Price Discrimination Supplier sells at different prices to the same class of channel members Price Maintenance Supplier dictates prices charged by channel members to their customers • Refusal to Deal Supplier has right to refuse to deal with whomever they want as channel members

3 • Resale Restrictions Manufacturer attempts to stipulate to whom and in what geographical market channel members may resell the manufacturer’s products Tying Agreements Supplier sells a product to a channel member on condition that the channel member also purchase another product • Vertical Integration Firm owns and operates organizations at other levels of the distribution channel

Chapter 4 Behavioral Processes in Marketing Channels

Marketing Channel as Social System
Objective 1: 4 Marketing Channel as Social System Social System • Generated by any process of interaction on sociocultural level • Between two or more actors • Actor is individual or collectivity = Interorganizational Social System Individuals or collectivities Interacting within marketing channel

Behavioral Processes Objective 2: 4 Conflict Power Roles Communication

How Conflict Emerges When a channel member perceives
Objective 3: How Conflict Emerges 4 When a channel member perceives that another member’s actions impede the attainment of his or her goals Cause Direct, personal, and opponent-centered behavior Behavioral trademarks

Causes of Channel Conflict
Objective 4: 4 Causes of Channel Conflict Role Incongruities Resource Scarcities Perceptual Differences Expectational Differences Decision Domain Disagreements Goal Incompatibilities Communication Difficulties

Conflict & Channel Efficiency
Objective 5: 4 Does conflict decrease efficiency? Can conflict increase efficiency? How does conflict affect channel efficiency? Does conflict have any affect?

Effects of Channel Conflict
4 Negative Effect: Reduced Efficiency As the level of conflict increases, Channel efficiency declines

4 No Effect: Efficiency Remains Constant Exists in channels characterized by high level of dependency among members Channel efficiency is not affected

4 Effects of Channel Conflict Positive Effect: Efficiency Increased Conflict might be impetus for either or both members to reappraise their policies Channel efficiency increases

Managing Channel Conflict
Objective 6: Managing Channel Conflict 4 Detecting conflict Managing Conflict Appraising the effect of conflict Resolving conflict

Detecting Channel Conflict
4 Regularly survey other members’ perceptions of firm’s performance Perform marketing channel audit OR Form distributors’ advisory councils or channel members’ committees OR

Appraising the Effect of Conflict
4 Subjective process that relies on manager’s judgment

Resolving Conflict 4 Creative action on the part of some party
to the conflict is needed if the conflict is to be successfully resolved. Conversely, if conflict is simply “left alone,” it is not likely to be successfully resolved and may get worse.

Power in the Marketing Channel
Objective 7: 4 Power in the Marketing Channel The capacity of a particular channel member to control or influence the behavior of another channel member Keys to understanding Power: • Power Bases • Use of Power Bases

Bases of Power for Channel Control
4 Reward Power Coercive Power Legitimate Power Referent Power Expert Power

Using Power in the Marketing Channel
4 1. Identify available power bases Bases are a function of size of: • producer or manufacturer • organization of channel • particular set of circumstances 2. Select and use appropriate power bases to better or worsen channel relationships

Basic Research Findings
Objective 8: 4 Basic Research Findings Classic Findings Expert and referent power in conventional channels may be more effective than direct monetary incentives or threats in inducing channel members to accept controls. Power employed by manufacturers based on economic rewards or coercion provided a higher degree of control over channel members than power based on legitimacy, expertise, or reference

4 Noncoercive power bases satisfaction in “weaker” channel members, such as franchises 1. Franchisees are likely to have higher morale. 2. Franchisees are more likely to cooperate with the franchisor. Franchisees are less likely to terminate their contracts. Franchisees are less likely to file individual suits against the franchisor. Franchisees are less likely to file class action suits. Franchisees are less likely to seek protective legislation such as the “Franchise Full Disclosure Act” (1970).

4 General Inferences from findings Power must be exercised to influence member behavior. Effectiveness of power bases to influence members is situation-specific. The exercise of power and how it is used affects the degree of cooperation, conflict, and satisfaction among channel members. The use of coercive power probably promotes conflict and dissatisfaction to a greater degree than the other power bases. The use of coercive power can reduce channel’s stability and viability.

Roles in Marketing Channels
Objective 9: 4 Roles in Marketing Channels A set of prescriptions defining what the behavior of a position member should be • Roles change over time. • Straying far from a role may cause conflict. • Roles help describe & compare the expected behavior of channel members and provides insight into the constraints under which they operate.

Roles in Marketing Channels
3 Questions to help the channel manager What role does the channel manager expect a particular channel member to play in the channel? What role is this member expected to play by his or her peers? Do the manager’s expectations for this member conflict with those of the member’s peers? What role does this member expect the manager to play?

Communication Processes
Objective 10: 4 Communication Processes Behavioral Problems in Channel Communications 1. Differences in goals between manufacturers & their retailers 2. Differences in the kinds of language they use to convey information

Communication Processes
4 Behavioral Problems in Channel Communications 3. Perceptual differences among members 4. Secretive behavior 5. Inadequate frequency of communication

Chapter 5 Strategy in Marketing Channels

Marketing Channel Strategy
Objective 1: 5 Marketing Channel Strategy Channel Strategy: The broad principles by which the firm expects to achieve its distribution objectives for its target market(s)

Distribution Decisions
Objective 2: 5 Distribution Decisions The role of distribution in the firm’s overall objectives & strategies The role distribution should play in the marketing mix The design of the firm’s marketing channels The selection of channel members The management of the marketing channel in order to implement the firm’s channel design effectively & efficiently on a continuing basis The evaluation of channel member performance

Channel Strategy as Overall Corporate Objective
5 Channel Strategy as Overall Corporate Objective The higher the priority given to distribution, the higher the level at which it should be considered in formulating the organization’s overall objectives and strategies

The Value Chain 5 Firm infrastructure Human resource management Margin
Technology development Support Activities Margin Inbound Operations Outbound Marketing Service logistics logistics & sales Margin Primary Activities

Determining the Priority Given to Distribution
5 Distribution does increasingly warrant the attention of top management, because competition has made the issue of distribution too important for top management to ignore. • Rayovac Corp. • WD-40 • Coca-Cola • Procter & Gamble Company

Channel Strategy & the Marketing Mix
Objective 4: 5 Channel Strategy & the Marketing Mix The essence of modern marketing management: To develop a marketing mix of product, price, promotion, & distribution (place)

Emphasis on Distribution Strategy
Objective 5: 5 Emphasis on Distribution Strategy Distribution is the most relevant variable for satisfying target market demands. Parity exists among competitors in the other three variables of the marketing mix. A high degree of vulnerability exists because of competitors’ neglect of distribution. Distribution can enhance the firm by creating synergy from marketing channels. IF: or or or THEN: The firm should choose distribution strategy for strategic emphasis

5 Target Market Demand Firms should stress distribution when it serves customers’ needs in the target market. Marketing channels are so closely linked to customer need satisfaction because it is through distribution that firms can provide the kinds and levels of service that make for satisfied customers.

Distribution advantages are not easily copied by competitors.
Competitive Parity 5 Distribution advantages are not easily copied by competitors. Distribution advantages are based on a combination of superior strategy, organization, and human capabilities.

Distribution Neglect 5 Competitors’ neglect of distribution strategies provides excellent opportunities. The channel manager must analyze target markets to determine whether competitors have neglected distribution and whether vulnerabilities exist that can be exploited.

Distribution and Synergy
5 “Hooking up” with a mix of cooperative channel members will strengthen the channel. Because each channel member is an independent entity, rewarding opportunities exist for channel managers to cultivate cooperation among members.

Differential Advantage & Channel Design
Objective 6: 5 Differential Advantage & Channel Design Differential advantage, also called sustainable competitive advantage, occurs when a firm attains a long-term, advantageous position in the market relative to competitors. • Caterpillar

Positioning the Channel
5 Positioning the Channel A firm that plans the channel and makes decisions by viewing the relationship with channel members as a partnership or strategic alliance that offers recognizable benefits to the manufacturer & channel members on a long-term basis • Infiniti

Selection of Channel Members
Objective 7: Selection of Channel Members 5 Because customers perceive channel members as an extension of the manufacturer’s own organization, members should: Reflect channel strategies the firm has developed to achieve its distribution objectives Be consistent with the firm’s broader marketing objectives & strategies Reflect the objectives & strategies of the organization as a whole

Channel Strategy & Managing the Channel
Objective 8: 5 Channel Strategy & Managing the Channel How close a relationship should be developed with the channel members? How should the marketing mix be used to enhance channel member cooperation? 3 Strategic Questions How should the channel members be motivated to cooperate in achieving the manufacturer’s distribution objectives?

Closeness of Channel Relationships
5 Factors to consider Distribution intensity Targeted markets Products Company policies Middlemen Environment Behavioral dimensions

Marketing Mix in Channel Management
5 Product strategy Marketing Mix Pricing strategy Distribution strategy Promotion strategy

Motivation of Channel Members
Objective 9: 5 Motivation of Channel Members Portfolio concept: A tool for motivating different types and sizes of channel members participating in various channel structures who may respond differently to various motivation strategies.

Evaluation of Channel Member Performance
Objective 10: 5 Evaluation of Channel Member Performance Channel manager’s involvement in evaluating member performance is integral to developing & managing channel Have provisions been made in the design and management of the channel to assure that channel member performance will be evaluated effectively?

Chapter 6 Designing the Marketing Channel

Channel Design Channel Design:
Objective 1: 6 Channel Design Channel Design: Decisions involving the development of new marketing channels either where none had previously existed or to the modification of existing channels

Channel Design 6 Distinguishing points of the definition include:
A decision made by the marketer The creation or modification of channels The active allocation of distribution tasks in an attempt to develop an efficient structure The selection of channel members A strategic tool for gaining a differential advantage

Who Engages in Channel Design?
Objective 2: 6 Who Engages in Channel Design? Firms Wholesalers Retailers • Look up the channel to secure suppliers • Producers, manufacturers, service providers, franchisors • Look down the channel toward the market • Look both up and down the channel

Channel Design Paradigm
Objective 3: 6 Channel Design Paradigm Recognize the need for channel design decision 7. Select channel members 2. Set & coordinate distribution objectives 6. Choose the “best” channel structure 3. Specify distribution tasks 5. Evaluate relevant variables 4. Develop alternative channel structures

When to Make a Channel Design Decision
Objective 4: When to Make a Channel Design Decision 6 Dealing with changes in availability of particular kinds of intermediaries Opening up new geographic marketing areas Facing the occurrence of major environmental changes Meeting the challenge of conflict or other behavioral problems Reviewing and evaluating Developing a new product or product line Aiming an existing product at a new market Making a major change in some other component of the marketing mix Establishing a new firm Adapting to changing intermediary policies that may inhibit attainment of distribution objectives

Distribution Objectives
6 Distribution Objectives Setting distribution objectives requires knowledge of which, if any, existing objectives & strategies may impinge on these distribution objectives.

The Need for Congruency
6 Firm’s overall objectives & strategies General marketing objectives & strategies Product marketing objectives & strategies Pricing marketing objectives & strategies Promotion marketing objectives & strategies Distribution marketing objectives & strategies

= Distribution Tasks 6 Outlining distribution tasks is specific
Objective 6: 6 Distribution Tasks Outlining distribution tasks is specific and situationally dependent on the firm. For example: Distribution tasks for a manufacturer of consumer products differs from those for products sold in industrial markets. = Distribution tasks are a function of the distribution objectives and the types of firms involved.

Channel Structure Dimensions
Objective 7: 6 Channel Structure Dimensions 1. Number of levels in the channel 2. Intensity at the various levels Allocation Alternatives 3. Types of intermediaries at each level

Number of Levels Range from two to five or more
6 Range from two to five or more Number of alternatives is limited to two or three choices Limitations result from the following factors: Particular industry practices Nature & size of the market Availability of intermediaries

Intensity at the Various Levels
6 Relationship between the intensity of distribution dimension & number of retail intermediaries used in a given market area Intensity Dimension Intensive Selective Exclusive Numbers of Intermediaries (retail level) Many Few One

Types of Intermediaries
6 Types of Intermediaries Numerous types Manager’s emphasis on types of distribution tasks performed by these intermediaries Watch emerging types Electronic online auction firms (eBay) Industrial products sold in B2B markets (Chemdex, Converge.com)

Variables Affecting Channel Structure
Objective 8: 6 Variables Affecting Channel Structure Categories of Variables Market Variables Product Variables Company Variables Intermediary Variables Environmental Variables Behavioral Variables

Market Variables 6 Market Geography Location, geographical size,
& distance from producer Market Size Number of customers in a market Market Density Number of buying units (consumers or industrial firms) per unit of land area Market Behavior Who buys, & how, when, and where customers buy

Product Variables Bulk & Weight Perishability Unit Value
6 Bulk & Weight Perishability Unit Value Degree of Standardization Technical versus Nontechnical Newness

Company Variables 6 Size The range of options is
relative to a firm’s size Financial The greater the capital, the Capacity lower the dependence on intermediaries Managerial Intermediaries are necessary Expertise when managerial experience is lacking Objectives Marketing & objectives may & Strategies limit use of intermediaries

Intermediary Variables
6 Availability Availability of intermediaries influences channel structure. Cost Cost is always a consideration in channel structure. Services Services that intermediaries offer are closely related to the selection of channel members.

Environmental Variables
6 Competitive Economic Sociocultural The impact of environmental forces is a common reason for making channel design decisions. Technological Legal

Behavioral Variables 6 Develop congruent roles for channel members.
Be aware of available power bases. Attend to the influence of behavioral problems that can distort communications.

Heuristics in Channel Design
Objective 9: 6 Heuristics in Channel Design Benefit Fairly simple prescriptions for channel structure Limitation Mostly useful as rough guide to decision making

Choosing an Optimal Channel Structure
Objective 10: Choosing an Optimal Channel Structure 6 Why is choosing an optimal channel structure not possible? Management is incapable of knowing all possible alternatives. 2. Precise methods for calculating the exact payoffs associated with each alternative structures do not exist. BUT Techniques exist for developing more exact methods.

Approaches for Choosing Channel Structure
Objective 11: 6 Approaches for Choosing Channel Structure “Characteristics of Goods & Parallel Systems” Approach Financial Approach Transaction Cost Analysis Approach Management Science Approaches Judgmental-Heuristic Approach

Judgmental-Heuristic Approaches
Objective 12: 6 Judgmental-Heuristic Approaches IF Management’s ability to make sharp judgments is high + Good empirical data on costs and revenues is available It’s possible to make highly satisfactory channel-choice decisions using judgmental-heuristic approaches

Chapter 7 Selecting the Channel Members

Channel Member Selection
Objective 1: Channel Member Selection 7 The last phase of channel design Selection may or may not be the result of channel design. Firm may need additional outlets to allow for growth To replace channel members that have left

Selection & Distribution Intensity
Objective 2: 7 Selection & Distribution Intensity The greater the intensity of distribution The less the emphasis on selection

The Selection Process 7 2. Applying 3. Securing the selection criteria
to determine the suitability of prospective channel members Finding prospective channel members 3. Securing the prospective channel members as actual

Finding Members 7 Field sales organization 7. Other sources
Objective 3: Finding Members 7 Field sales organization 7. Other sources 2. Trade sources 6. Trade shows 3. Reseller inquiries 5. Advertising 4. Customers

Field Sales Organization
7 Salespeople are the best positioned to know about potential intermediaries BUT: They are often able to pick up information about likely intermediaries. They may have lined up prospective intermediaries. The manufacturer must adequately reward salespeople for their time & effort establishing connections.

Trade Sources 7 For Example: Industrial Distribution magazine
The Verified Directory of Manufacturers’ Representatives The National Association of Wholesaler-Distributors The National Retail Federation The Encyclopedia of Associations Trade associations Trade publications Directories Trade shows Firms selling similar products The “grapevine”

Reseller Inquiries 7 Many firms learn about direct
inquiries from intermediaries interested in handling their product. This is the main source of information about potential new channel members for some manufacturers. Reseller Inquiries Firms receiving the highest number of inquiries are the more prestigious in their industry.

Advertising 7 Trade magazine advertising can generate a large number
of inquiries from prospective Members. It therefore can provide a large pool from which to make selections.

** Small manufacturers meet face-to-face with
Trade Shows 7 Wholesale and retail trade associations hold annual conventions. Attending manufacturers have access to a wide variety of potential channel members. ** Small manufacturers meet face-to-face with wholesalers & retailers.

Other Sources 7 Chambers of commerce, banks, & local real estate dealers Classified telephone directories or the yellow pages Direct-mail solicitations Contacts from previous applications Independent consultations List brokers that sell lists of names of businesses Business databases The Internet

Selection Criteria 7 Credit & Financial Condition Sales Strength
Objective 4: Selection Criteria 7 Credit & Financial Condition Sales Strength Product Lines Reputation Market Coverage Sales Performance Management Succession Management Ability Attitude Size

Adapting Selection Criteria
Objective 5: Adapting Selection Criteria 7 Because no list of criteria is adequate for a firm under all conditions, the channel manager should be flexible when using selection criteria.

Who Selects? Who does the selecting? 7 Producers & Manufacturers
Objective 6: 7 Who Selects? Who does the selecting? Producers & Manufacturers Wholesale Intermediaries Retail Intermediaries

Securing Channel Members
7 . . . The supplier produces, the distributor sells, and each is dependent upon the other. Together they form a team, and teamwork is essential if the association is to prove mutually beneficial. — Pegram

Offering Inducements 7 Good, profitable product line
Objective 7: 7 Good, profitable product line Advertising & promotional support Management assistance Fair dealing policies & Friendly relationships

Product Line 7 Product line inducements:
1. Manufacturer offers good product line with strong sales & profit potential 2. Stress value of good product line from channel members’ perspective

Advertising & Promotion
7 Advertising & promotion inducements Consumer Market: Gain immediate credibility by using a strong program of national advertising. Industrial Market: Gain recognition by using a strong program of trade paper advertising.

Management Assistance
7 Management assistance inducements: Prospective members want to know whether the Manufacturer will help with the following: • training programs • financial analysis & planning • market analysis • inventory control procedures • promotional methods

Fair Dealing & Friendly Relationship
Objective 8: 7 Fair Dealing & Friendly Relationship Manufacturer’s Responsibility: To convey to prospective channel members that he or she is genuinely interested in establishing a good relationship based on trust and concern for their welfare as both business Entities and as people

Chapter 8 Target Markets and Channel Design Strategy

Market Variables 8 The target market’s needs and wants
Objective 1: 8 The target market’s needs and wants should drive the manner in which the channel manager shapes the design of the firm’s marketing channels.

Framework for Market Analysis
Objective 2: 8 Framework for Market Analysis Market geography Market behavior Market size Market density Target Markets

Market Geography Channel manager’s task: 8
Objective 3: Market Geography 8 Market geography refers to the geographical extent of markets and where they are located. Channel manager’s task: To evaluate market geography relative to channel structure to ensure that the structure is able to serve the markets effectively and efficiently.

Locating Markets 8 Channel manager delineates geographical
locations of target markets by using a combination of the following: The Bureau of Census data for geographical entities such as states, regions/divisions, counties, metropolitan statistical areas, towns & townships 2. Postal ZIP codes

Tracking Changes in Market Geography
8 In the U.S. Globally A high degree of mobility within the U.S. means that market geography changes frequently. Southeast Asian countries & former Eastern bloc countries of central & eastern Europe have become key locations.

Market Size Channel manager’s task: 8
Objective 4: 8 Market size refers to the number of buyers or potential buyers (consumer or industrial) in a given market. Channel manager’s task: When using Bucklin’s model for market size data, it is important also to consider the peculiarities of particular situations and other relevant variables.

Market Density 8 Market density refers to the number of
Objective 5: 8 Market density refers to the number of buyers or potential buyers per unit of geographical area. This market dimension’s relationship to channel structure is illustrated in the concept of efficient congestion.

Market Density & Channel Strategy
8 Efficient congestion Congested (high-density) markets can promote efficiency in the performance of several basic distribution tasks, particularly those of transportation, storage, communication, and negotiation.

Market Density & Channel Strategy
8 The opportunity to achieve a high level of customer access at low cost is higher in dense markets than in more dispersed ones. Strategic Implication = Manufacturers of a wide array of products seek out distributors and retailers that operate in dense markets.

Market behavior consists of four
Objective 6: Market Behavior 8 Market behavior consists of four subdimensions: When the market buys Where the market buys How the market buys Who buys

When the Market Buys Implications for the channel manager: 8
Variations occur: Seasonally Weekly Daily Implications for the channel manager: Variations create peaks & valleys in the manufacturer’s production schedule. He or she should attempt to select channel members who are in tune with these changing patterns.

Where the Market Buys Implications for the channel manager: 8
Determined by: The types of outlets from which final buyers choose to make their purchases 2. The location of those outlets Implications for the channel manager: 1. He or she should know where customers generally buy particular types of products He or she should know whether these patterns may be changing.

How the Market Buys Versus 8 Large quantities Self-service
One-stop shopping Impulse buying 5. Cash 6. Shopping at home 7. Expending substantial effort through comparison shopping 8. Demanding extensive service Small quantities Assistance by salespeople Buying from several stores Extensive decision making prior to purchase Credit Shopping at stores Expending little effort 8. Demanding little service Versus

Who Buys 8 Who makes the physical purchase? May influence the kinds of
channel members used to serve industrial markets Affects the type of retailers chosen in the consumer market Who decides to make the purchase? In context of family unit at consumer level Buying centers at industrial level

Buying Centers 8 Sets of people who participate in industrial
buying decisions and who are responsible for the consequences resulting from the decision Users Influencers Deciders Approvers Buyers Gatekeepers

Changes in Market Behavior
Objective 8: 8 Changes in Market Behavior Must be tuned in to changes that are likely to occur Needs to determine whether changes are temporary or long term Channel Manager’s Role

Implications of Changes
8 Good personal selling at the retail level Making a comeback in department and specialty store sectors due to increasing consumer demand for knowledgeable and helpful salespeople

Implications of Change
8 Retail stores with spartan surroundings & minimum service but very low prices Consumers demanding membership in warehouse clubs (Sam’s Club)

8 Mail-order buying Shoppers are trying to save time and avoid the inconvenience of shopping at crowded stores and fighting traffic congestion

8 Online shopping Personal computers are a means for consumers to supplement their in-store shopping

8 Auto retailing & foreign auto manufacturers Car buyers demanding fewer hassles & confrontations typically common when buying a car

8 Internet Shopping Growing in all sectors, especially in industrial or B2B

8 Innovations undertaken by channel member Kohl’s racetrack layout exposes customers to the maximum amount of merchandise in the shortest time.

Chapter 9 Motivating the Channel Members

Channel Management Channel Management: 9
Objective 1: 9 Channel Management: The administration of existing channels to secure the cooperation of channel members in achieving the firm’s distribution objectives

Motivation Management
9 Motivation Management: The actions taken by the manufacturers to foster channel member cooperation in implementing the manufacturer’s distribution objectives

Channel Management versus Channel Design
Objective 2: 9 Channel Management versus Channel Design Channel Design Channel Management “Setting up” the channel “Running” the channel

Motivating Channel Members
Objective 3: 9 Motivating Channel Members Basic Framework 1. Find out the needs and problems of channel members. 2. Offer support to the channel members that is consistent with their needs and problems. 3. Provide leadership through the effective use of power.

Channel Member Needs & Problems
Objective 4: Channel Member Needs & Problems 9 Approaches for learning about member needs & problems: Research studies of channel members Research studies by outside parties Marketing channel audits Distributor advisory councils

Research Studies of Channel Members
9 Less than 1 percent of manufacturers’ research budgets is spent on channel member research! BUT: Manufacturer-initiated research can be useful because certain types of needs or problems may not be at all obvious.

Research Studies by Outside Parties
9 Why use outside parties to conduct research? They provide a level of expertise that the manufacturer may not possess. They provide a higher assurance of objectivity.

Supporting Channel Members
Objective 5: Supporting Channel Members 9 3 Types of Programs 1. Cooperative 2. Partnership or strategic alliance 3. Distribution programming

Cooperative Arrangements
9 Focuses on channel member needs & problems Simple & straightforward Conveys a clear sense of mutual benefit

Cooperative Arrangements
9 Typical types of cooperative programs provided by Manufacturers to channel members Cooperative advertising allowances Payments for interior displays Contests for buyers, salespeople, etc. Allowances for warehousing functions Payments for window display space Detail men who check inventory Demonstrators Coupon-handling allowance Free goods

Partnerships & Strategic Alliances
9 Focus on a continuing and mutually supportive relationship between the manufacturer and its channel members in an effort to provide a more highly motivated team, network, or alliance of channel members

Partnerships & Strategic Alliances
9 Three basic phases Manufacturer should make explicit statement of policies in areas such as product availability, technical support, pricing, etc. Manufacturer should assess all existing distributors as to their capabilities for fulfilling their roles 3. Manufacturer should continually appraise the appropriateness of the policies guiding his or her relationship with the channel members

Distribution Programming
9 A comprehensive set of policies for the promotion of a product through the channel Developed as a joint effort between the manufacturer and the channel members to incorporate the needs of both

Distribution Programming
9 Steps for developing a program: Manufacturer develops analysis of marketing objectives & the kinds of levels of support needed from channel members • Ascertains channel members’ needs & problem areas Formulate specific channel policies that offer: • Price concessions to channel members • Financial advice • Some kind of protection for channel members

Relationship Differences
Objective 6: Relationship Differences 9 Cooperative Arrangements Intermittent interactions between manufacturer & channel members Partnerships & Strategic Alliances Continuing & mutually supportive relationship Distribution Programming Deals with virtually all aspects of the channel relationship

The Selective Use of Power
Objective 7: The Selective Use of Power 9 The channel manager must exercise effective leadership on a continuing basis to attain a well-motivated team of members.

Limited Control 9 Loosely arranged firms = few advantages from
Objective 8: 9 Loosely arranged firms = few advantages from central direction Reward & penalty system not precise Interorganizational System Overall planning uncoordinated Diffused perspective necessary to maximize total system effort

Chapter 10 Product Issues in Channel Management

Marketing Mix Resources
Objective 1: 10 Marketing Mix Resources By understanding how the other marketing mix variables interface with the channel variable, and the implications of such, the channel manager could coordinate all strategic components to create the synergy needed to meet customers’ needs.

Product-Channel Management Interfaces
Objective 2: Product-Channel Management Interfaces 10 New product planning & development The product life cycle 3 Major areas of product management Strategic product management

Objective 3: New Product Planning 10 What input, if any, can channel members provide into new product planning? What has been done to assure that new products will be acceptable to the channel members? Do the new products fit into the present channel members’ assortments? Will any special education or training be necessary to prepare the channel members to sell the new products effectively? Will the product cause the channel members any special problems?

Encouraging Member Input
10 Solicit ideas for new products. Gather feedback on product size or on packaging. Solicit feedback during the test-marketing or commercialization stage.

Member Acceptance of New Products
10 Member Acceptance of New Products Determining Factors How the product will sell Whether the product is easy to stock & display Whether the product will be profitable

Adding Products to the Assortment
10 Key Considerations: Will existing channel members view the new product as appropriate to add to their assortments? Will channel members feel competent to handle the new product?

Educating Channel Members
10 Manufacturer goal: To sell new products successfully Educate or train channel members in the product’s use and the special features to emphasize in sales presentations Method:

Trouble-Free New Products
10 Care in new product planning = New product problems

Product Life Cycle 10 Sales ($) Sales curve Introduction Profit curve
Objective 4: Product Life Cycle 10 Sales ($) Sales curve Introduction Profit curve Time Growth Maturity Decline

Introduction 10 Assure sufficient number of channel
members for adequate market coverage Assure adequate supply on channel members’ shelves

Growth 10 Assure sufficient number of channel member
inventories for adequate market coverage Monitor the effects of competitive products on channel member support

Maturity 10 Extra emphasis on motivating channel members
to mitigate competitive impact Investigate possibility for changes in channel structure to extend maturity stage & possibly foster new growth stage

Decline 10 Phase out marginal channel members
Investigate impact of product deletion on channel members

Strategic Product Management
Objective 5: Strategic Product Management 10 Successful product strategies depend on: Product quality, innovativeness, or technological sophistication Capabilities of managers overseeing product line Firm’s financial capacity & willingness to provide promotional support Channel members’ role in implementing product strategies

Product Strategies 10 Product differentiation Product positioning
Objective 6: Product Strategies 10 Product differentiation Product positioning Product line expansion & contraction Trading up & trading down Product brand strategy

Product Differentiation
10 Creating a differential product involves getting consumers to perceive a difference. Implications for channel management: • Channel managers should try to select & help develop members who fit the product image when product differentiation strategy is affected by who will be selling the product. • Channel managers should provide retailers with the kind of support needed to properly present the product when this strategy is influenced by how the product is sold at retail.

Product Positioning 10 The manufacturer’s attempt to have consumers perceive the product in a particular way relative to competitive products Implications for channel management: • Possible interfaces between the product positioning strategy and where the product will be displayed and sold to consumers should be considered before the strategy is implemented. • Elicit retailer support before attempting to implement strategy. • Maintain backup supply of retailer incentives

Product Line Expansion & Contraction
10 Manufacturers often engage in both expansion and contraction simultaneously. Implications for channel management: • Difficult to balance channel member satisfaction & Support for reshaped product lines • Channel members are making increasing demands on Manufacturers to have the right mix of products

Trading Down, Trading Up
10 Adding lower-priced products or product lines, or higher-priced products or product lines, to a product mix Implications for channel management: • Whether existing channel members provide adequate coverage of high-end or low-end market segments to which trade-up or trade-down product is aimed • Whether the channel members have confidence in the manufacturer’s ability to successfully market the trade-up or trade-down product

Product Brand Strategy
10 When manufacturers sell under both national and private brands, direct competition with channel members may result Implications for channel management: • Do not sell both national & private brand versions of products to the same channel members. • Sell national and private brand versions in different geographical territories. • Physically vary products enough to minimize direct competition.

Product Service Strategy
Objective 6: 10 It is the role of the marketing channel to provide necessary service along with the product to the final user Manufacturers should provide after-sale service • by offering it directly at the factory • through their own network of service centers • through channel members • through authorized independent service centers • by some combination of the above

Chapter 11 Pricing Issues in Channel Management

The Importance of Pricing
Objective 1: 11 The Importance of Pricing Pricing decisions cause top-level marketing executives more concern than any other strategic marketing decision area. Pricing is viewed as having a more direct link to the firm’s bottom line.

Anatomy of Channel Pricing Structure
Objective 2: 11 Anatomy of Channel Pricing Structure Channel participants each want a part of the total price sufficient to cover their costs and provide a desired level of profit.

The “Golden Rule” of Channel Pricing
11 It is not enough to base pricing decisions solely on the market, internal cost considerations, and competitive factors. Rather, for those firms using independent channel members, explicit consideration of how pricing decisions affect channel member behavior is an important part of pricing strategy. = Pricing decisions can have a substantial impact on channel member performance.

Influencing Pricing Strategy
Objective 3: Influencing Pricing Strategy 11 The major challenge for the channel manager: To help foster pricing strategies that promote channel member cooperation and minimize conflict

Channel Manager’s Role
11 Major areas of consideration in a manufacturer’s pricing decision Internal cost considerations Target market considerations Competitive considerations Channel considerations Channel manager must focus on the channel considerations and work to incorporate them into the firm’s pricing decisions

11 To find out about channel member views and to appraise their effects on channel member performance

11 Have channel members’ viewpoints on pricing issues included as an integral part of the manufacturer’s price-making process Such action anticipates and hopefully avoids problems that may arise after pricing decisions have taken effect

Channel Pricing Guidelines
Objective 4: Channel Pricing Guidelines 11 Why? 1. To help those involved in pricing decisions to focus more clearly on the channel implications of their pricing decisions To provide general prescriptions on how to formulate pricing strategies that will help promote channel member cooperation and minimize conflict

Profit Margins 11 Guideline #1: Each efficient reseller must obtain
unit profit margins in excess of unit operating costs. OR Channel members who believe that the manufacturer is not allowing them sufficient margins are likely to seek out other suppliers or establish and promote their own private brands.

Different Classes of Resellers
11 Guideline #2: Each class of reseller margins should vary in rough proportion to the cost of the functions the reseller performs. Do channel members hold inventories? Do they make purchases in large or small quantities? Do they provide repair services? Do they extend credit to customers? Do they deliver? Do they help train the customers’ sales force?

Rival Brands 11 Guideline #3: At all points in the vertical chain
(channel levels), prices charged must be in line with those charged for comparable rival brands. Channel managers should attempt to weigh any margin differentials between their own and competitive brands in terms of what kind of support their firms offer and what level of support they expect from channel members.

Special Arrangements 11 Guideline #4: Special distribution arrangements— variations in functions performed or departures from the usual flow of merchandise—should be accompanied by corresponding variations in financial arrangements. The margin structure should reflect any changes in the usual allocation of distribution tasks between the manufacturer and the channel members.

Conventional Norms in Margins
11 Guideline #5: Margins allowed to any type of reseller must conform to the conventional percentage norms unless a very strong case can be made for departing from the norms. Exceptions are possible if they can be justified in the eyes of the channel members. However, it is the job of the channel manager to attempt to explain to the channel members any margin changes that deviate downward from the norm.

Margin Variation on Models
11 Guideline #6: Variations in margins on individual models and styles of a line are permissible and expected. However, they must vary around the conventional margin for the trade. Channel members are often amenable to accepting the lower margins associated with promotional products so long as they are convinced of the promotional value of the product in building patronage.

Price Points 11 Guideline #7: A price structure should contain
offerings at the chief price points, where such price points exist. Price points are specific prices, usually at the retail level, to which consumers have become accustomed. Failure to recognize retail price points can create problems for the manufacturer as well as its channel members if consumers expect to find products at particular price points and such products are not offered.

Product Variations 11 Guideline #8: A manufacturer’s price structure
must reflect variations in the attractiveness of individual product offerings. If the price differences are not closely associated with visible or identified product features, the channel members will have a more difficult selling job.

Guideline Caveat 11 There is no Guarantee
Objective 5: Guideline Caveat 11 There is no Guarantee Particular circumstances and situations exist in which these guidelines will not apply or will be irrelevant.

Other Channel Pricing Issues
Objective 6: 11 Other Channel Pricing Issues Exercising control in channel pricing Changing price policies Passing price increases through the channel Using price incentives in the channel Dealing with the gray market & with free riding

Exercising Control in Pricing
11 Because channel members typically view pricing as the area over which they have total control. . . First: Rule out any type of coercive approaches to controlling channel member pricing policies. Second: The manufacturer should encroach on the domain of channel member pricing policies only if the manufacturer believes that it is in his or her vital long-term strategic interest to do so. Finally: If the manufacturer believes that it is necessary to exercise some control over member pricing, he or she should do so through “friendly persuasion.”

Changing Price Policies
11 Changes in manufacturer pricing policies or related terms of sale cause reactions among channel members. Channel members fear such changes because they have become accustomed to the strategy, or their own pricing strategies may be closely tied to those of the manufacturer.

Passing Price Increases Through the Channel
11 Strategies for channel members to use in order to avoid simply passing along price increases through the channel: First: Manufacturers should consider the long- and the short-term implications of such increases versus maintaining the current prices. Second: Manufacturers should do whatever possible if passing on the price increase is unavoidable. Finally: Manufacturers could change their strategies in other areas of the marketing mix to help offset the effects of such increases.

Using Price Incentives in the Channel
11 Manufacturers face difficulties gaining strong retailer acceptance and follow-through on pricing promotions. Possible Solutions: • Make pricing promotions as simple and straightforward as possible. • Design price-promotion strategies to be at least as attractive to retailers as they are to consumers.

Gray Market & Free Riding
11 Gray Market The sale of brand-name products at very low prices by unauthorized distributors or dealers Free Riding Describes the behavior of distributors & dealers who offer extremely low prices but little service to customers Channel design decisions that result in closely controlled channels and selective distribution as well as changing buyer preferences may help limit the growth of the gray market and free riding.

Chapter 13 Logistics and Channel Management

Logistics Logistics 13 Planning, implementing, and controlling the
Objective 1: Logistics 13 Logistics Planning, implementing, and controlling the physical flows of materials and final goods from points of origin to points of use to meet customers’ needs at a profit.

Supply Chain Management
Objective 2: Supply Chain Management 13 Supply Chain Management Logistical systems that emphasize close cooperation and comprehensive interorganizational management to integrate the logistical operations of the different firms in the channel

The Role of Logistics 13 Its Essence
Objective 3: The Role of Logistics 13 Its Essence The movement of the right amount of the right products to the right place at the right time

Third-Party Logistics Providers
13 Specialize in performing most or all of the logistical tasks that manufacturers or other channel members would normally perform themselves Provide service at lower cost than the firms who hire third-party providers Currently growing rapidly into a major industry

Systems Concept 13 Transportation Materials Warehousing Handling
Objective 4: 13 Transportation Warehousing Materials Handling Interrelated components of a system Order Processing Inventory Control Packaging

Addresses all the costs of
Total Cost Approach 13 Systems Concept Total Cost Approach Addresses all the costs of logistics together; seeks to minimize the total cost

Logistics System Components
Objective 5: Logistics System Components 13 Transportation Materials Handling Order Processing Inventory Control Warehousing Packaging

Transportation 13 • Most fundamental and necessary component
• Accounts for the highest percentage of the total cost of logistics • Overriding issue facing the firm: Choosing the optimum mode of transportation to meet customer service demands

Materials Handling 13 • Range of activities & equipment involved
in the placement & movement of products in storage areas • Issues: 1. Minimizing the distances products are moved within the warehouse during the course of receiving, storage, & shipping 2. Choosing the kinds of mechanical equipment that should be used 3. Making the best use of labor when receiving, shipping, & handling products

Order Processing 13 • Its importance in logistics lies in its relationship with order cycle time—the time between when an order is placed & when it is received by the customer. • Issue: Developing an efficient order processing system

Inventory Control 13 • The firm’s attempt to hold the lowest level of
inventory that will still enable it to meet customer demand • Issue: Keeping inventory at the lowest possible level while concurrently placing orders for goods in large quantities

Warehousing 13 • The holding of products until they are ready
to be sold • Issues: 1. The location of warehouse facilities 2. The number of warehousing units 3. The size of the units 4. The design of the units 5. The question of ownership

Packaging 13 • Packaging & its associated costs can affect
the other components of the system • Issue: Using packaging to make a significant difference in the effectiveness & efficiency of the logistics system

The Output of a Logistics System
Objective 6: 13 The Output of a Logistics System Customer service is the collection of activities performed in filling orders and keeping customers happy or creating in the customer’s mind the perception of an organization that is easy to do business with.

Logistics Service Standards
13 Time from order receipt to order shipment Order size & assortment constraints Percentage of items out of stock Percentage of orders filled accurately Percentage of orders filled within a given number of days from receipt of the order Percentage of orders filled Percentage of customer orders that arrive in good condition Order cycle time Ease & flexibility of order placement Heskett, Galskowsky, & Ivie

Key Elements of Customer Service
13 Product availability Order cycle time Distribution system flexibility Distribution system information Distribution system malfunction Postsale product support LaLonde

Concerned specifically
Logistics Management Objective 7: 13 Logistics Management Channel Management Concerned specifically with product flow The administration of all the major channel flows

Key Interface Areas between Logistics & Channel Management
Objective 8: 13 Key Interface Areas between Logistics & Channel Management Interface 1 Defining of logistics service standards Interface 2 Making sure the logistics program meets channel members’ service standards Interface 3 Selling the logistics program Interface 4 Monitoring the results of the logistics program

Defining Logistics Service Standards
13 The higher the service standards, the higher the costs. Key issue for Channel Manager: Determining precisely the types and levels of logistics service desired by channel members

Evaluating the Logistics Program
13 If included as a major component of the manufacturer’s overall approach for supporting channel member needs, the logistics program may be the key feature of a strategic alliance. Key issue for Channel Manager: Ensuring that the program the experts prepare is what the channel members want.

Selling the Logistics Program
13 Minimize out-of-stock occurrences. Reduce channel member inventory requirements. Strengthen the manufacturer-channel member relationship. Key issue for Manufacturers: Extending superior logistics capabilities to help channel members improve their logistics and marketing capabilities.

Monitoring the Logistics System
13 Logistics systems must be continually monitored, both in terms of how successfully they are performing for the manufacturer and how well they are meeting changing channel member needs. Key issue for Channel Manager: Continually monitoring the channel members’ reactions to logistics programs.

Chapter 14 Evaluating Channel Member Performance

Evaluating Member Performance
Objective 1: 14 Evaluating Member Performance The importance of channel member performance equals that of employee evaluations within the firm. Except The channel manager works with individual firms rather than with individual employees. The setting is interorganizational rather than intraorganizational.

Scope & Frequency of Evaluations
Objective 2: Scope & Frequency of Evaluations 14 1. Degree of the manufacturer’s control over channel members 2. Relative importance of channel members 3. Nature of the product 4. Number of channel members

Degree of Control 14 Control that a producer,
manufacturer, or franchisor has over members is based on strong contractual agreements Manufacturer lacks strong market acceptance for its products & strong channel control based on contractual commitments Channel manager can demand a great deal of information on member operations Manufacturer can exert little control over channel members

Importance of Channel Members
14 Evaluation of channel members is more comprehensive for manufacturers who sell all of their output through intermediaries than for manufacturers who rely less on intermediaries. Why? Because the firm’s success in the market is directly dependent on the channel members’ performance

+ Nature of the Product 14 The more complex the product,
the broader the scope of evaluation + For products of very high unit value, the gain or loss of a single order is important to the manufacturer

Number of Channel Members
14 Manufacturers who use intensive distribution Manufacturers who use highly selective distribution Channel member evaluation may be cursory Channel member evaluation is comprehensive

Evaluation versus Monitoring
Objective 3: Evaluation versus Monitoring 14 Performance Evaluation Day-to-Day Monitoring Overall performance reviews that give management a complete & objective analysis of each distributor’s operations Appraisals that assist management in maintaining current operating control of distributors’ efforts

Performance Audit 14 Three Phases
Objective 4: 14 Three Phases Developing criteria for measuring channel member performance Periodically evaluating the channel members’ performance against the criteria Recommending corrective actions to reduce the number of inadequate performances

Key Criteria for Performance Audit
Objective 5: Key Criteria for Performance Audit 14 Sales performance of channel members Inventory maintenance of channel members Selling capabilities of channel members Attitudes of channel members Competition faced by channel members General growth prospects of channel members

Sales Performance 14 Criteria channel manager
should use to evaluate sales data: 3. Comparisons of the channel member’s sales with predetermined quotas 1. Comparisons of the channel member’s current sales to historical sales 2. Cross comparisons of a member’s sales with those of other members

Inventory Maintenance
14 Key Criteria for evaluating member inventory performance: 1. Total level of channel member’s inventory 2. Shelf or floor space devoted to inventory 3. Shelf or floor space provided relative to competitors’ inventory Breakdown by particular products in units & dollars Comparison of figures with channel members’ estimated purchases of related & competitive lines Condition of inventory & inventory facilities Amount of old stock on hand & efforts made to move it Adequacy of channel member’s inventory control & record-keeping system

Selling Capabilities 14 Manufacturer who obtains sales records
for channel members’ salespeople should examine the following factors: 1. Number of salespeople the channel member assigns to manufacturer’s product line 3. Salesperson interest in manufacturer’s products 2. Technical knowledge and competence of channel member’s salespeople

Attitudes of Channel Members
4 Attitudes Not usually evaluated unless sales performance is unsatisfactory Negative ones often addressed after they have contributed to poor performance Should be evaluated independently of sales data

Competition 14 Channel manager should consider
two types of competition: 1. Competition from other intermediaries 2. Competition from other product lines carried by the manufacturer’s own channel members

General Growth Prospects
14 Key issues for evaluating channel member growth prospects: Past performance Overall performance Expansion or improvement of organization Level of growth and qualification in personnel Management, age, health, or succession arrangements Adaptability & overall capacity to meet market expansions Member’s estimates of its own medium- & long-range outlooks

Applying Performance Criteria
Objective 6: 14 Applying Performance Criteria Separate performance evaluations on one or more criteria 2. Multiple criteria combined informally to evaluate overall performance qualitatively Three Approaches 3. Multiple criteria combined formally to arrive at a quantitative index of overall performance

Separate Performance Evaluations
14 Commonly used when the number of channel members is very large & when criteria are limited to no more than sales performance, inventory maintenance, & possible selling capabilities

Multiple Criteria Combined Informally
14 Operational performance measures obtained Managerial judgment used to combine performance measures Qualitative judgment made about overall channel member performance

Multiple Criteria Combined Formally
14 5 Steps Criteria & associated operational measures are decided on Weights assigned to each of the criteria Each member evaluated is rated on each of the criteria Score on each criterion multiplied by weight for that criterion Weighted criterion ratings summed to yield overall performance rating for each member

Recommending Corrective Actions
Objective 7: Recommending Corrective Actions 14 Channel manager should attempt to find out why members have performed poorly Develop concrete & practical approaches to actively seek information on member needs and problems Programs of member support must be congruent with member needs & problems Constraints imposed by interorganizational setting of marketing channel must be understood

Chapter 15 Electronic Marketing Channels

Electronic Marketing Channels
Objective 1: Electronic Marketing Channels 15 Computers Technology Internet Impact on Design & Management of Marketing Channels

Electronic Marketing Channels
Objectives 2 & 3: Electronic Marketing Channels 15 Not physical availability Web-TV, PDAs The use of the Internet to make products & services available so that the target market with access to computers or other enabling technologies can shop & complete the transaction for purchase via interactive electronic means Actually purchasing products through the use of PCs, Web-TV, PDAs

Structure of Electronic Marketing Channels
15 Disintermediation versus reintermediation Information flow versus product flow Virtual channel structure versus physical channel structure Three Key Phenomena

Disintermediation and Reintermediation
Objective 4: Disintermediation and Reintermediation 15 Disintermediation Reintermediation Shifting, changing, or adding middlemen to the channel Intermediaries become superfluous because producers gain exposure to vast numbers of customers in cyberspace Amazon.com Auto-By-Tel Corp. Peapod, Inc. Dell Computer Corp.

Disintermediation versus Reintermediation
15 Disintermediation versus Reintermediation No matter how technologically sophisticated the Internet becomes or how much it is hyped, the laws of economics as they relate to channel structure do not change. Efficiency in the performance of distribution tasks is what ultimately determines what form channel structure will take. = The Internet has not eliminated middlemen, or caused total disintermediation.

Internet Limits 15 Product Flow • Cannot be digitized
Objective 5: 15 Product Flow • Cannot be digitized • Processed slowly, often by people • Is basis for all other flows—negotiation, ownership, information, & promotion

Developments & Trends 15 • Online shopping to $36 billion from
Objective 6: 15 • Online shopping to $36 billion from mid-1990s to the end of 2002 • Online shopping has become a routine shopping choice • PCs, peripherals, software, & books accounted for a significant portion of total retail spending on these products Electronic Marketing Channels

Profile of Online Shoppers
15 • Age range of 25 to 54 • Income level range $35,000 to about $99,999 • College graduates & those with postgraduate education make up 54% • Professional/managerial occupations make up 32% Highest Percentages

Future of Online Shopping
15 Online Sales as a Percentage of Total Retail Sales, 1999–2002 Year Online as % of Retail Sales % Change from Previous Year 1999 0.700 2000 0.925 32.1 2001 1.125 21.6 2002 1.300 19.7

Advantages & Disadvantages
Objective 7: 15 Advantages of Electronic Marketing Channels Global scope & reach Convenience/rapid transaction processing Information processing efficiency & flexibility Data-based management & relationship capabilities Lower sales & distribution costs

Advantages & Disadvantages
15 Disadvantages of Electronic Marketing Channels Lack of contact with actual products & delayed possession 2. Fulfillment logistics not at Internet speed or efficiency Clutter, confusion, & cumbersomeness of Internet Nonpurchase motives for shopping not addressed Security concerns of customers

Implications 15 Objectives & strategies of the firm & electronic
marketing channels • Role of electronic marketing channels in the marketing mix • Channel design & electronic marketing channels • Channel member selection & electronic marketing channels • Channel management & electronic marketing channels • Evaluation & electronic marketing channels

Objectives & Strategies of the Firm
15 Role of distribution more complex because of electronic marketing channels = Channel manager must consider whether Internet-based channels fundamentally affect the firm’s decision about the priority given to distribution

The Marketing Mix 15 The Internet arms large numbers of customers with more information about products & services to level the playing field The fourth P, place (distribution), may assume a larger role relative to the other three variables for more & more firms

Channel Design 15 The channel manager of retailers, industrial, and B2B markets should provide “channel-surfing” consumers with whatever channels or combinations of channels they desire = A facet of the development of an effective multichannel marketing strategy

Channel Member Selection
15 Complexity grows as channel member selection may include the need to avoid conflict with conventional channel members = The need to select members carefully

Multichannel challenge of conventional and
Channel Management 15 Multichannel challenge of conventional and electronic channels = The fundamental issues of motivating channel members, building cooperation, managing conflict, & coordinating elements of the marketing mix requires manager’s full attention

Evaluation 15 Likely to change Unlikely to change
Specific criteria for Performance expectations, performing evaluations & criteria, & measurement of technological means for how well they are being met doing so by channel members

Chapter 16 Direct Selling & Direct Marketing Channel Systems

Alternative Channels 16 Growing in importance Direct Selling
Objective 1: Alternative Channels 16 Growing in importance Direct Selling Direct Marketing

Objective 2: Direct Selling 16 Direct selling is the sale of a consumer product or service person-to-person, away from a fixed retail location Three key points: • Goes directly to consumers’ homes, offices, or other locations • Concerned with the sale of consumer products in consumer markets rather than industrial products in industrial markets • Involves salespeople meeting fact-to-face with customers

Structure & Trends in Direct Selling
Objective 3: 16 Markets Served Types of Products Sold Firms Involved in Direct Selling Problems & Prospects for Direct Selling

Markets Served 16 Location of Direct Selling Channel Sales, 2001
Percent of Sales Home 64.4 Telephone 14.7 Workplace 8.7 Internet 5.5 Temporary locations 4.1 Other 2.6

Types of Products Sold 16 Major Product Categories Sold through Direct Selling Channels as a Percentage of Total Sales Product Category Percent of Total Sales Personal Care Products 26.4 Home/Family Care Products 33.7 Leisure/Educational 6.5 Services/Miscellaneous/ Other 33.4

Firms Involved in Direct Selling
16 • Hundreds exist • Range in size from those with annual sales over $1 billion to those with sales well under $1 million Facts • Tupperware Corp. • Avon Products, Inc. • Worldbook, Inc. • Amway Corporation Examples

Problems & Prospects for Direct Selling
16 Many potential customers lack an awareness of direct selling as an alternative. A significant portion of potential customers have a negative impression of direct selling in general. There is a lower availability of consumers for at-home sales calls and parties. The perceived risk indicated by consumers toward buying products through direct sales in the home is high compared to other modes of shopping. 5. Recruitment of salespeople has become more difficult.

Rationale for Designing Direct Selling Channels
Objective 4: 16 Rationale for Designing Direct Selling Channels A method of distribution for providing products & services to customers But: The decision to choose the direct selling channel or some other channel should be based on an objective analysis of the advantages or disadvantages of each channel alternative.

Categories of Variables
16 Market variables & the direct selling channel Product variables & the direct selling channel 3) Company variables & the direct selling channel 4) Intermediary variables & the direct selling channel 5) Environmental variables & the direct selling channel 6) Behavioral variables & the direct selling channel

Market Variables 16 Developments in consumer attitudes & behaviors
that could make direct selling more attractive: 3. Consumers are seeking increased convenience in all spheres of their lives, including shopping. 1. Increasing numbers of consumers have less time available for shopping in traditional stores. 2. Consumers are becoming more sophisticated & demanding more & better product information.

Product Variables 16 Products that are high quality, that are unique, or that require specialized information & advice are logical choices for direct selling: Product quality may become apparent only when consumers are informed about them in conjunction with hands-on demonstrations. Consumer satisfaction may depend on whether the consumer has proper information. Product uniqueness may become apparent only through the direct help of salespeople.

policies of the company
Company Variables 16 Basic variables to consider: 4. Basic objectives & policies of the company 1. Size of the company 2. Financial capacity of the company 3. Managerial expertise in distribution

Intermediary Variables
16 Basic intermediary variables to consider: 3. Services that alternatives are capable of or willing to provide 1. Availability of alternatives 2. Cost of using channel alternatives

Environmental Variables
16 Major categories: 5. Legal 1. Economic 4. Technological 2. Competitive 3. Sociocultural

The “people” side of the marketing channel:
Behavioral Variables 16 The “people” side of the marketing channel: Communications processes Conflict Power Role

Direct Marketing 16 An interactive system of marketing that uses
Objective 5: Direct Marketing 16 An interactive system of marketing that uses more advertising media to effect a measurable response and/or transaction at any location Key Points: Direct marketing is a system or an approach to marketing. Direct marketing relies on one or a combination of advertising media to inform and stimulate customer purchase responses. Direct marketing includes the ability to measure responses.

Structure & Trends in Direct Marketing
Objective 6: Structure & Trends in Direct Marketing 16 Estimating total sales is tricky because various estimates often include different categories of products and/or services as well as different market segments Challenges Some sales data may be included or excluded that may or may not cover direct marketing sales

Structure & Trends in Direct Marketing
16 Markets Served Firms are increasingly targeting affluent customers Types of Products Sold Apparel, sporting goods, consumer electronics, books, records, gourmet foods, insurance, etc. Firms Involved Many are well-known retailers or manufacturers that supplement their conventional methods Problems & Prospects Potential customers cannot examine or touch product; high operating costs; low response rates; intense competition; image problem

Rationale for Designing a Direct Marketing Channel
Objective 7: Rationale for Designing a Direct Marketing Channel 16 One of several alternative marketing channel structures But: When deciding whether to use direct marketing, direct selling, conventional retail, or some combination of these, the channel manager should apply objective analysis of relevant variables & circumstances.

Categories of Variables
16 Market variables & the direct marketing channel 2) Product variables & the direct marketing channel 3) Company variables & the direct marketing channel 4) Intermediary variables & the direct marketing channel 5) Environmental variables & the direct marketing channel 6) Behavioral variables & the direct marketing channel

Chapter 17 Pricing in Retailing RETAIL MANAGEMENT: A STRATEGIC
APPROACH 11th Edition BERMAN EVANS 339

Chapter Objectives To describe the role of pricing in a retail strategy and to show that pricing decisions must be made in an integrated and adaptive manner To examine the impact that consumers, government, manufacturers, wholesalers and other suppliers, current/potential competitors have on pricing decisions To present a framework for developing a retail price strategy: objectives, broad policy, basic strategy, implementation, and adjustments 340

Pricing Options for Retailers
Discount orientation At-the-market orientation Upscale orientation 341

Figure 17-1: Barnes & Noble – A Huge Selection and Discounts
342

Figure 17-2: Comparison Shopping
343

Figure 17-3: Factors Affecting Retail Price Strategy
344

Price Elasticity of Demand
The sensitivity of customers to price changes in terms of the quantities they will buy: Elastic – Small percentage changes in price lead to substantial percentage changes in the number of units bought. Inelastic – Large percentage changes in price lead to small percentage changes in the number of units bought. 345

Table 17-1: A Movie Theater’s Elasticity of Demand
346

Market Segments by Price Sensitivity
Economic consumers Status-oriented consumers Assortment-oriented consumers Personalizing consumers Convenience-oriented consumers 347

The Government and Retail Pricing
Horizontal Price Fixing Vertical Pricing Fixing Price Discrimination (Robinson-Patman Act) Minimum Price Laws Unit Pricing Item Price Removal Price Advertising 348

Justifiable Price Discrimination Under the Robinson-Patman Act
Products are physically different. The retailers paying different prices are not competitors. Competition is not injured. Price differences are due to differences in supplier costs. Market conditions change – costs rise or fall or competing suppliers shift prices. 349

Competition and Retail Pricing
Market pricing – Retailers often price similarly to each other and have less control over price because consumers can easily shop around. Administered pricing – Firms seek to attract consumers on the basis of distinctive retailing mixes. 350

Figure 17-4: A Framework for Developing a Retail Price Strategy
351

Objectives and Pricing
Market Skimming Market Penetration 352

Figure 17-6: Specific Pricing Objectives
353

Price Policy Choices No competitors will have lower prices; no competitors will have higher prices; or prices will be consistent with competitors. All items will be priced independently or the prices for all items will be interrelated to maintain image and ensure proper markups. Price leadership will be exerted; competitors will be price leaders and set prices first; or prices will be set independent of competitors. Prices will be constant over a year or season; or prices will change if costs change. 354

Demand-oriented pricing Cost-oriented pricing
Price Strategy Demand-oriented pricing Cost-oriented pricing Competition-oriented pricing 355

Demand-Oriented Pricing
Psychological pricing Price-quality association Prestige pricing 356

Table 17-4: Markup Equivalents
357

Figure 17-7: How to Determine Direct Product Profitability
358

Integration of Approaches to Price Strategy
If prices are reduced, will revenues increase greatly? (Demand orientation) Should different prices be charged for a product based on negotiations with customers, seasonality, and so on? (Demand orientation) Will a given price level allow a traditional markup to be attained? (Cost orientation) What price level is necessary for a product requiring special costs? (Cost orientation) What price levels are competitors setting? (Competitive orientation) Can above-market prices be set due to a superior image? (Competitive orientation) 359

Figure 17-8: Specific Pricing Decisions
360

Price Strategy Concepts
Customary Pricing Everyday Low Pricing Variable Pricing Yield Management Pricing One-Price Policy Flexible Pricing Contingency Pricing Odd Pricing Leader Pricing Multiple-Unit Pricing Price Lining 361

Figure 17-9: Wal-Mart and Everyday Low Pricing
362

Figure 17-10: Odd Pricing 363

Reasons to Use Multiple-Unit Pricing
A firm could seek to have shoppers increase their total purchases of an item. This approach can help sell slow-moving and end-of-season merchandise. Price bundling may increase sales of related items. 364

Adaptive mechanism Markdown Additional markup Employee discount
Price Adjustments Adaptive mechanism Markdown Additional markup Employee discount 365

Figure 17-11: Price Change Authorization Form
366

Staggered markdown policy Automatic markdown plan Storewide clearance
Timing Markdowns Early markdown policy Late markdown policy Staggered markdown policy Automatic markdown plan Storewide clearance 367

Figure 17-12: Giant Eagle – Going Beyond Everyday Low Pricing
368

Chapter 18 International Channel Perspectives

The International Perspective
Objective 1: The International Perspective 18 What drives the need to focus on international markets? Slow growth in domestic markets Fierce foreign competition

The Complex Environment
Objective 2: 18 Behavioral processes in international channels From an International Perspective Environment of international channel management Designing international channels Motivating international channel members

Key Environmental Factors
Objective 3: Key Environmental Factors 18 Economic Factors Competitive Environment Sociocultural Environment Technological Environment Legal/Political Environment

Economic Factors Inflation Deflation Fluctuating Recession 18
conditions that appear in the domestic environment can also occur in foreign environments, but the changes can be more dramatic. Fluctuating currency rates Recession

Competitive Environment
18 Many less-developed countries do not have free & open competition Different cultures Because competitive structure in foreign countries can be quite different from that in the United States, channel structure needs to be able to adapt to a wide variety of circumstances. Different currencies Different languages

Sociocultural Environment
18 Varying cultural values Varying attitudes Because sociocultural elements can influence all elements of the marketing mix, the channel variable is sensitive because of the often necessary person-to-person or organization-to-organization involvement. Varying perceptions Varying behavior norms

Technological Environment
18 Some less-developed countries have relatively primitive communications & transportation technology In some developed countries, technology often matches or surpasses that of the United States. Varying levels of technological advancement around the world require U.S. channel strategy either to force foreign suppliers to meet technological demands or to raise the bar of their own levels of technology.

Legal/Political Environment
18 Government regulations Tariffs Firms seeking to establish channels in foreign markets need to investigate the legal environment of each country because of the wide array of complex & burdensome issues. Import restrictions Political pressures Quotas Policies

Behavioral Processes 18 In order to avoid negative conflict, use
Objective 4: 18 In order to avoid negative conflict, use power effectively, & establish good communications, the channel manager must understand the behavioral aspects of channel systems. • Japan & Bose speakers

Designing International Channels
Objective 5: Designing International Channels 18 Phase 1 Recognize that a channel design decision must be made. Phase 2 The design will need to reflect whether the firm’s distribution objectives specify reaching overseas markets. Phase 3 The firm must examine carefully the kinds of tasks that need to be performed to successfully meet the firm’s distribution objectives. Phase 4 Develop a set of channel structure alternatives for the specific international environment.

Alternative Channel Structures
Objective 6: 18 Indirect Exporting

Casual Exporting 18 The firm is just beginning to sell its products
overseas. Unsolicited orders from foreign countries may also account for significant parts of this type of exporting.

Trading Companies 18 They are large and have
access to many world markets. They can provide a U.S. firm with rapid entry into foreign countries. But: Because the trading companies are so large, U.S. firms have little influence over how their products are sold.

Export Management Companies
18 Domestically based wholesalers or manufacturers’ representatives who specialize in overseas sales They offer an attractive alternative to the firm that seeks a higher level of involvement in international marketing than that provided by casual exporting or trading companies.

Cooperative or Piggyback Arrangements
18 The carrier is the firm already involved in exporting. The rider is the firm that uses the international expertise and capabilities of the carrier to enter foreign markets. This method can offer the rider an opportunity to gain entry into foreign markets with little capital outlay, while the carrier can obtain a desirable product to sell.

Alternative Channel Structures
18 Alternative Channel Structures Direct Exporting

Foreign Distributors 18 The manufacturer’s ability to exercise control
over how its products are marketed by distributors is a crucial issue in domestic and in international marketing. But: Modern technology has made it much easier and more efficient for U.S. manufacturers to communicate with foreign distributors.

Foreign Agents 18 They are independent, but they do not take title to, and usually do not take physical possession of, the products they represent. They can arrange for the performance of most of the international marketing tasks.

Overseas Marketing Subsidiary
18 When the manufacturer establishes its own foreign sales branch overseas and it can perform most or all of the international marketing tasks Requires substantial commitment and investment in international marketing But: Because the subsidiary is owned by the manufacturer, the degree of control possible is greater.

Motivating Channel Members
Objective 7: Motivating Channel Members 18 Three facets of motivation management: Finding out the needs & problems of channel members Offering support to the channel members that is consistent with their needs & problems Providing leadership through the effective use of power

Leading Foreign Marketing Channels
Objective 8: Leading Foreign Marketing Channels 18 1. Roles & routines of foreign distributors were not rigidly set by overseas manufacturer, but were adapted by distributor to changing circumstances in market Marketing strategy decisions were made jointly by manufacturer & distributors High degree of personal contact between manufacturer & foreign distributors maintained through personal visits, phone calls, & letters Effective leadership occurs under the following circumstances

Chapter 1 Marketing Channel Concepts.

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