1. Place and Development of Channel Systems
Chapter Eleven
Place and Development of Channel Systems
Chapter 11
Place and Development of Channel Systems
For use only with Perreault/Cannon/McCarthy or Perreault/McCarthy texts. © 2011 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 1

2. At the end of this presentation, you should be able to:
This slide refers to material on pp. 284.
Understand what product classes suggest about Place objectives.
Understand why some firms use direct channel systems while others work with intermediaries and indirect systems.
Understand how and why marketing specialists develop to make channel systems more effective.
Understand how to develop cooperative relationships and avoid conflict in channel systems.
Know how channel members in vertical marketing systems shift and share functions to meet customer needs. 2

3. At the end of this presentation, you should be able to:
This slide refers to material on pp. 284.
Understand the differences between intensive, selective, and exclusive distribution.
Know the main approaches firms use to reach customers in international markets.
Understand important new terms. 3

4. Place Decisions Are Guided by “Ideal” Place Objectives (e. g
Place Decisions Are Guided by “Ideal” Place Objectives (e.g., time, place, possession)
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Product
Classes Suggest
Objectives (urgency,
Convenience, information)
Place
System
Is Not Automatic (more than one
place arrangement needed)
Key Issues
Place Decisions Have Long-run Effects 6

5. Channel System May Be Direct or Indirect
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Greater Control
Some
Reasons
For Choosing
Direct Channels
Lower Cost
Internet Makes Direct Distribution Easier
Direct Contact with Customers
Quicker Response or Change in Marketing Mix
Suitable Intermediaries Not Available 7

6. Direct Channels Are Common with Business Customers and Services
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7. When Indirect Channels Are Best (convenience)
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8. Checking Your Knowledge
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Mary’s Kitchen is a catering business that operates by means of its own website. Customers order party platters, pastries, and other foods that the company makes to order. The items are then vacuum-packed in dry ice and shipped to the customer’s address via overnight delivery. Mary’s Kitchen is part of a(n):
indirect channel.
dual channel.
intermediary channel.
direct channel.
traditional channel.
Answer: D 10

9. Channel Specialists Adjust Discrepancies with Regrouping Activities
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Accumulating
(collecting products from many small producers)
Bulk-Breaking (dividing larger quantities into smaller quantities)
Assorting (putting together a variety of products)
Sorting (separating products into the grades) 13

10. Channel Specialists May Reduce Discrepancies and Separations
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11. A Discrepancy of Assortment
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A Discrepancy of Assortment 12

12. Channel Relationship Must Be Managed
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Choosing the Type of Relationship (e.g., traditional or VMS).
Key Issues In Channel Management
Whole-Channel Product-Market Commitment
Conflict Handling
Role of Channel Captain (guides channel relationships) 15

13. Producers or Intermediaries May Be Channel Captains
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14. Vertical Marketing Systems Focus on Final Customers
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Characteristics
Type of channel
Little or
none
None
Typical “inde-pendents”
Amount of cooperation
Traditional
Vertical marketing systems
Administered
Contractual
Corporate
Control maintained by
Examples
Some to good
Economic power and leadership
General Electric
Fairly good
to good
Contracts
McDonald’s
Complete
One company ownership
Florsheim 17

15. Channel Relationships
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© 2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 18

16. Checking Your Knowledge
This slide relates to material on pp. 298.
Dave runs “Maid to Perfection,” a residential and business cleaning service. He paid a fee to be part of the “Maid to Perfection” system of local operators. The written agreement gives him the right to use the company name and operations manual, and the agreement promises Dave that there will not be another “Maid to Perfection” operator in his immediate area. He operates as a semi-independent entrepreneur, but is still part of a national organization. Dave is part of a(n):
traditional channel.
contractual channel.
corporate channel.
administered channel.
dual channel.
Answer: B 19

17. Market Exposure Strategies
The Best Channel System Should Achieve Ideal Market Exposure (product available to satisfy target customer needs)
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Intensive
Selective
Market Exposure Strategies
Exclusive
= number of
outlets 20

18. Intensive Distribution
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© McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 21

19. Interactive Exercise: Ideal Market Exposure
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20. Checking Your Knowledge
This slide relates to material on pp. 298.
Chocolate Dreams is a manufacturer of expensive, high- quality, hand-made “old style” candies that are sold through fine department stores and certain bookstores and fine gift shops. The ideal market exposure for products manufactured by Chocolate Dreams is:
intensive.
comprehensive.
exclusive.
extensive.
selective.
Answer: E 23

21. Limiting Market Exposure
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Retailer
Producer
Vertical Arrangements May Be Legal
Wholesaler
Retailer
Horizontal Arrangements Are Illegal 24

22. Channel Systems Can Be Complex (multichannel distribution)
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23. Key Elements of Distribution Strategy
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© 2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 26

24. Entering International Markets
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Exporting
Licensing
(e.g., patent)
Management Contracting
(mgt/mkt skills)
Joint Venture
(partnership)
Direct Investment
(ownership)
Generally increasing investment, risk, and control of marketing 27

25. Study Question 1
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Carl is working his way through college as an independent distributor of the Mack-The-Knife Co. The Mack product line includes kitchen knives, hunting knives, and other special-purpose cutlery. Carl makes sales presentations to potential customers in their homes. If a customer wants to make a purchase, Carl buys the knives from Mack and sells them to the customer at a markup. For example, Mack's most popular knife is a chef's knife that Carl buys for $25 and resells to the consumer for $50. Carl: 
A. Is part of a direct-to-customer channel. B. Is engaged in direct marketing. C. Is engaged in direct selling, but is part of an indirect channel. D. All of the above. E. None of the above.
Answer: C

26. Study Question 2
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Small farmers in the mountains of Peru pick coffee beans by hand, obtaining only a bucket a day. Then they sell them to buyers who put the beans in large bags to be shipped to processors. This regrouping activity is called: 
A. Assorting B. Wholesaling C. Bulk-breaking D. Sorting E. Accumulating
Answer: E

27. Study Question 3
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Costco is a warehouse store that sells groceries, household items, and business products. Purchase quantities tend to be larger than in traditional stores that serve final consumers. For example, soft drinks are only sold in 24-can cases, not in 6-packs. Coffee is sold in 3-pound cans instead of one-pound foil packs. Which regrouping activity is Costco shifting to the consumer? 
A. Accumulating. B. Adjusting discrepancies. C. Assorting. D. Bulk-breaking. E. Sorting.
Answer: D

28. Study Question 4
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Retail stores that sell "seconds" and "irregular" products at discount prices are flourishing all over the country. These stores are needed because of what regrouping activity? 
A. Accumulating B. Bulk-breaking C. Sorting D. Assorting E. None of the above
Answer: C

29. Study Question 5
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A large food retailer acquiring a cheese factory is an example of: 
A. dual distribution. B. vertical integration. C. a tying contract. D. horizontal integration. E. internal expansion.
Answer: B