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 Place Decisions Place - making goods and services available in the right quantities and locations when customers want them. Channel of distribution - any series of firms or individuals who participate in the flow of product from producer to final user or consumer.

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 “Place” Issues Place decisions: are aided by knowing about the product classes. may require several strategies - no one best place decision exists. may focus on the selection and use of middlemen and facilitators. may focus on the location of retail stores and wholesale facilities. are harder to change than product, promotion or price decisions.

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Direct vs Indirect Channels Direct channel - the producer sells directly to the final customer or consumer. Indirect channel - use middlemen to reach the final customer or consumer.

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 Why a Firm May Want to Use Indirect Channels Established buying patterns Consumers want convenience Reduces inventory costs Reduces credit risk Some Reasons for Choosing Indirect Channels Some Reasons for Choosing Indirect Channels 11-4

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 Managing Channel Relationships Role of Channel Captain Common Objectives Conflict Handling Whole-Channel Product- Market Commitment Choosing the Type of Relationship - traditional vs vertical Key Issues in Channel Management 11-6

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Traditional vs Vertical Marketing Systems Traditional channel system - various channel members make little or no effort to cooperate with each other. Vertical marketing system - channel system in which the whole channel focuses on the same target market at the end of the channel (the most common system in the U.S.).

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Traditional vs 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