Chapter 11

Question 1

Value delivery network:

• *

Answer 1

Value delivery network: the network made up of the company, suppliers, distributors, and ultimately customers who partner with each other to improve the performance of the entire system in delivering customer value.

• Upstream relationships: set of firms that supply the raw materials, components, part, information, finances, and expertise needed to create a product or service.
• Downstream relationships: the marketing/distribution channels that look toward the customers (wholesalers and retailers)

Question 2

What is a Channel?

• *

Answer 2

What is a Channel?

• Marketing channel (or Distribution channel): a set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business customer (they work as intermediaries)
• A company’s channel decisions directly affect every other marketing decision. Whether a company develops or acquires certain new products may depend on how well those products fit the capabilities of its channel members.

Question 3

How Channels Add Value

Answer 3

How Channels Add Value

• Through their contacts, experience, specialization, and scale of operation, intermediaries usually offer the firm more than it can achieve on its own.
• Reduce the amount of work that must be done by both producers and consumers.
• Intermediaries also play an important role in supply and demand
• Information gathering and distribution: channel partners, such as retailers that are closer to the final customer, have access to information the manufacturer might not have. Channel partners can collect market intelligence and communicate it back to the original producer.
• Promotion at point of purchase: such as locally advertised sales
• Contact: they can find new customers
• Matching and arranging: channel partners often play a role in adapting the product to fit the buyer’s needs, such as customizing the installation of kitchen cabinets
• Negotiation: channel partners such as brokers negotiate price and terms so that the product can move from one channel member to another
• Physical distribution
• Financing: companies that sell cars may have finance organizations, as well as companies like Canadian Tire who offer store credit cards
• Risk taking: risk of handling, transporting and storing the products
• After-sales support Types

Question 4

Channel partners:

• • • a and b
• a
• b
• B
• A

•
•

Answer 4

Channel partners: businesses that are owned and operated independently from the manufacturer, and that are contracted by the manufacturer to perform a specific function in the movement of the product

• Retailers: a business that primarily sells products and services to consumers.
• Wholesalers: companies whose primary business is selling goods and services to those buying for resale or business use (buy from producers and seek to retailers, business customers). Apple and Samsung are wholesalers. Merchant wholesaler is like Costco who purchases the product then physically distributes it to consumers.
• Drop Shippers and Rack Jobbers
• Drop shipper: an intermediary that takes orders and payment from the customer, then arranges to have the merchandise shipped to the customer directly from the supplier (usually for items that are not in stock).
• Rack Jobber: a wholesaler that buys merchandise and resells it on “racks” inside the retail store, in partnership with the retailer. They retain ownership of the goods until they are sold, and once they are sold, the rack jobber bills the retailer for the items that were sold.
• Brokers: a wholesaler that does not take title to goods and whose function is to bring buyers and sellers together and assist in negotiation. (Think of a stockbroker, who buys stock on behalf of a client and earns a commission)
• Agents: a representative, either of a buyer or a seller, who performs only a few functions and does not take title to goods.

• Manufacturer’s agents: sells the manufacturer’s goods to buyers and receives a
commission from the manufacturer (usually small manufacturers that don’t have their own sales staff)
• Advertising agencies: provide marketing communications services such as designing and producing advertisements and buying the media in which to run them

Question 5

Organization and Management of Channels

1.

• M

2.

3.

• • • A
    • C
• • C

4.

More:

*

Answer 5

Organization and Management of Channels

1. Select channel partners
   * Marketers must evaluate each potential partners’ year in business, other lines carried, location, growth and profit record, cooperativeness, and reputation
2. Decide how many channel levels to create

• Channel level: a layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer. (produces and find consumers are part of every channel)
• The number of channel members that function as intermediaries between the producer and the consumer, constitutes as the length of the channel
• Direct marketing channel: a marketing channel that has no intermediary levels
• Indirect marketing channel: a marketing channel containing one or more intermediary levels
• Very few companies use a direct marketing channel

3. Decide between vertical and horizontal marketing systems

• Vertical Marketing System (VMS): a distribution channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate.
  
  • Corporate VMS: combines successive stages of production and distribution under single ownership; channel leadership is established through common ownership. Example: Zara either owns or controls most of its distribution systems, from manufacturing through to retailing. Example: Loblaw Companies Limited owns, produces and distributes its brands President’s Choide and Joe Fresh.
  • Administered VMS: coordinates successive stages of production and distribution,not through common ownership or contractual ties, but through the size and power of the parties. Example: General Electric, P&G, and Kraft can command unusual cooperation from retailers regarding displays, shelf space, promotions and price policies.
  • Contractual VMS: independent firms at different levels of production and distribution work together under contract. The most common type of contractual VMS is the franchise organization: a marketing system that links several stages in the production and distribution prices, and controls operations form a central head office
• Horizontal Marketing System: an arrangement in which two or more companies that operate at the same channel level going together to follow a new marketing opportunity.
  
  • Companies in a horizontal marketing system might join forces with competitors or non competitors. Example: Tim Hortons set up express versions of its stores at Esso gas stations so that commuters can fill up and get coffee on the way to work without making 2 stops.
• Multichannel (Hybrid) Distribution System: a distribution system in which a single firm sets up two or more marketing channels to reach one or more target segments. Example: Zara sells its merchandise both online and through its traditional retail distribution channel.
• Caution! Can be hard to control and may create channel conflict.

4. On an ongoing basis, manage and motivate channel partners and AVOID channel conflict

• Just as companies use CRM software systems to help manage customer relationships, companies now use Partnership Relationship Management (PRM) software to help recruit,train, organize, motivate, and evaluate relationships with channel partners.
• Channel Conflict: disagreement among marketing channel members over goals, roles and rewards. Example: Samsung wants its products distributed as widely as possible to end up in the hand sou as many consumers as possible. However, its distributors (TELUS, Bell, Rogers) see things differently: they want to distribute as many new devices as possible to their customers, but don’t favour one manufacturer over the other.
  
  • Horizontal conflict: occurs among firms that perform the same function at the same level of the channel. Example: Toyota Laval feels that Toyota Montreal is stealing business by pricing too low. Example: a Holiday Inn franchise owner feels that another Holiday Inn franchise is giving poor service, hurting the brand image.
  • Vertical conflict: conflict between different levels of the same channel *common* Example: KFC came into conflict with its franchisees over the brand’s decision to emphasize frilled chicken over the brand’s traditional fried chicken.

Changing Channel Organization

• Disintermediation: the cutting out of marketing channel intermediaries by product or service producers or the displacement of traditional resellers by radical ew types of intermediaries.

Question 6

Distribution (Channel) Strategy

Answer 6

Distribution (Channel) Strategy

• Intensive distribution: distribute products in as many locations as possible. *not always the best strategy*
• Selective Distribution: marketer selects a set if retailers that specialize in their product category. Example: Sony and Bose are high-quality brands that would only be found in highend electronic retailers and not at discount retailers.
• Exclusive Distribution: marketer gives the rights to distribute its products to only one retailer, or to only one retailer in a particular geographic territory (Usually associated with luxury brands such as Rolex and Tiffany). Example: The Cindy Crawford line in home furnishing is available exclusively at The Brick.

Question 7

Channel Design Decisions

Answer 7

Channel Design Decisions

• Marketing Channel Design: designing effective marketing channels by analyzing customer needs, setting channel objectives, determining the types and responsibilities of channel members, and making decisions about international distribution channels
  
  • Analyzing customer needs: Designing the marketing channel starts with finding out what customers want from that channel.
  • Setting channel objectives: the company should decide which segments to serve and the best channels to use in each case. Influences by nature of the company, its competitors, its environment, its marketing intermediaries, and its products.
  • Types and responsibilities of channel members: Each channel alternative should be evaluated against economic (what will be investment required by each channel alternative, and what returns will result?), control (how much control will the intermediary take?), and adaptability (will a channel involving long-term commitment be flexible?) criteria.
  • International distribution channels: each country has its own unique distribution system, so rather than to change channel, international marketers usually adapt their channel strategies to the existing structures within each country.