For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Chapter 11: Place and Development of Channel Systems

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Strategy Decision Areas in Place Exhibit Type of channel Type of physical distribution facilities needed How to manage channels Middlemen/ facilitators needed Degree of market exposure desired IndirectDirect Place objectives Customer service level desired

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Why a Firm May Want to Use Direct Channels Greater Control Lower Cost Value added subsequent to production process Value added subsequent to production process Direct contact with Customer Needs Direct contact with Customer Needs Quicker Response or Change in Marketing Mix Quicker Response or Change in Marketing Mix Suitable Middlemen Not Available Suitable Middlemen Not Available Some Reasons for Choosing Direct Channels Some Reasons for Choosing Direct Channels 11-4

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Advantages of Indirect Channels Much lower investment costs Target may prefer to shop for certain products at specific places. Can fit existing buying patterns Channel may provide credit (more important to weaker or smaller firms)

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Disadvantages of Indirect Channels You are one of many. Hard to obtain special marketing effort. You lose direct customer contact You lose control

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Accumulating Bulk- Breaking Bulk- Breaking Assorting Sorting Regrouping Activities 11-5

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Vertical Marketing Systems Exhibit Characteristics Type of channel Little or none Some to good Fairly good to good Complete None Economic power and leadership Contracts One company ownership Typical “inde- pendents” McDonald’sFlorsheim General Electric Amount of cooperation Traditional Vertical marketing systems AdministeredContractualCorporate Control maintained by Examples

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill = number of outlets Intensive Selective Exclusive What Market Exposure Fits the Marketing Objectives 11-8 Market Exposure

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Internet Distribution Internet Makes Direct Distribution Somewhat Easier Especially true for niche products with limited demand that are not profitable through regular channels But, consumer must be aware of & use web site Delivered price must be competitive with other channels

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Internet Distribution Works Best When: Product can be downloaded Product is intangible & proof of purchase can be downloaded (airline tickets) Product is not easily damaged & can be sent inexpensively through the regular mail (books) Product lacking standardization to the degree that there are few direct channels (used items)

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Value to Weight Ratio Definition = sales price / product weight Ex. High value to weight is computer chips Ex. Low value to weight is dog food The lower the value to weight ratio the less likely that direct distribution can be successful (including internet distribution). Consider the cost to ship a bunch to one location to shipping individually to each customer