12: Channels of Distribution

Which of the following is not an advantage of vertical marketing systems?

-improved cooperation between channel members -better service to ultimate consumers -reduced conflict in the channel -improved efficiencies and reduced costs -ALL OF THE ABOVE ARE ADVANTAGES!

In a corporate vertical marketing system,

A firm at one level of the channel owns the firms at the next level or owns the entire channel.

How to disseminate information about products?

All channel members get involved by advertising and promoting

What is dealer selection? (legislation)

Colgate case of 1919. Manufacturers can select their middlemen unless there is an attempt to create a monopoly and to drop a dealer there must be a proven cause. Illegal to drop if they do not want to tye contracts or carry competing products

Product type

Convenience- intensive distribution Shopping- selective distribution Specialty- exclusive distribution

Intensive distribution

Obtain the maximum exposure of every retail store suited for the product and so that, customers will not go out of their way to purchase a product (convenience good)

Palouse Red is a small producer of red bell pepper sauce. It does not have its own sales force. Which channel of distribution is it most likely to use?

Producer to agent to retailer to consumer

What are the four major areas of legislation?

Dealer selection Exclusive dealing Tying contracts Exclusive territories

What are some advantages of business format franchising for both the franchisee and franchisor?

Franchisor- less capital, fast expansion, shared risk Franchisee- risk reduced, managerial expertise, buying power, scale economies in promotion

Exclusive distribution

Restrict sale of product to one outlet per geographic area (ex: Mercedes Maybach 62 dealers)

Selective distribution

Restricts the sale of product to limited outlets and must select sores that reach a target market (shopping & specialty goods)

What is exclusive dealing? (legislation)

The supplier prohibits dealers from selling products of competing supplies, this becomes illegal when the manufacturers sales volume takes up a large amount in the industry (ex: Brown Shoe Company, Standard Oil of California)

How do Voluntary Chains work?

Wholesaler "sponsors" retailers and retailers benefit by scale economies in purchasing and promotion, while wholesalers benefit by generating loyalty.

When the UNT bookstore brings together the range of books, supplies, sundries, and gifts it believes customer want, it is engaged in ____

assorting

What is Assorting? Why is it important?

bringing together the assortments customers can select from. Important to have the 'keyed' products that satisfy wants and needs of target market

Bulky products characteristics

building materials, soft drinks, agricultural goods. Must minimize shipping distance

Breaking Bulk (Allocating):

buy in large quantities, sell in smaller quantities.

Accumulating Bulk:

buying units of the same product from many small producers, which offers the larger amounts to buyers that prefer to purchase in large quantities, sorting follows.

What is Corporate VMS?

common ownership of two or more levels in a single channel; maximizing control of quality, image, sales, processes, customer satisfaction

Polo (Ralph Lauren) not only manufactures clothing but also operates its own retail stores (factory outlets). Polo is an example of a(n):

corporate VMS

The polo outlet at grapevine mills, a large factory outlet center, is an example of which channel structure?

corporate vertical marketing system

A channel consisting of only producers and final customers, with no middlemen providing assistance, is called ____________ distribution.

direct

Communications Function (Buying and Selling)

disseminating (spreading) information about products and gathering information about markets

A _____ consists of the set of people and firms involved in the transfer of title to a product as it moves from producer to ultimate consumer or business user.

distribution channel

The tendency for producers to employ multiple channels of distribution to reach the same target markets is called:

dual distribution

The Olympics Store is the only place in Chicago where a collector of Olympic memorabilia can buy a set of eight Olympic pins priced at $300,000. (They are made of diamonds, rubies, and other precious stones). What kind of distribution coverage strategy is being used?

exclusive

___________ occurs when a manufacturer prohibits its dealers from carrying products of its competitors.

exclusive dealing

Company requirements include:

financial strength and resources, control desired, experience, services provided to middlemen (training)

Facilitating operation-Financing

funding to expand operations (ex: fleming foods)

Retailer Cooperatives:

group of independent retailers who's major goal is effective control of wholesaling needs; adds financial resources and expertise (since it's a group)

Which of the following retailers is most likely to be involved in a retailer cooperative?

hardware store

Unit value (product characteristics)

high unit value often sold direct; low unit value need longer channels

Vertical marketing systems work to:

influence cooperation and control in channel by common ownership, contracts, and power relationships

What is an example of sorting?

investment firm sorts investment opportunities by risk and return

Traditional marketing channels

made up of independent firms, having different objectives and priorities, unavoidable conflicts, reduced efficiency and user satisfaction

The movement of parts and materials from their sources of supply into the manufacturing process is ____

materials management

Facilitating operation- Risk taking

middlemen stock inventories and if inventories don't sell they get damaged

Customer service needs

on time deliveries, willingness to meet emergency requirements, careful handling, etc. Setting customer service standards/goals for each major factor helps ensure happy customers

The movement of finished goods from the manufacturer into the hands of final consumers is ____

physical distribution

Transportation:

physical movement of merchandise from production to consumption

Channel of distribution (movement of "title")

physical product may not move through the same network as the title to that product

Which distribution channel is the manufacturer of small safes for businesses most likely to use?

producer to industrial distributor to user

If there is a traditional channel for consumer goods, it is:

producer-whoelsaler-retailer-consumer

What are the two costs involved with Total costs and Profits?

promotion costs and physical distribution costs (exactly how it sounds, physical distribution of finished goods)

What are promotion costs?

promotional allowances, sales management costs, and trade promotion

What would be an example of 'Retailer Cooperatives'?

retail hardware industry like, True Value Hardware and Ace Hardware

Sorting:

separating products in 'grades' and 'quantity levels' desired by customers. Used in accumulating bulk.

For which of the following products is a manufacturer most likely to use intensive distribution?

softdrinks

What is an example of storage?

storage warehousing and distribution centers

The channel of distribution for consumer products does not include which of the following?

suppliers of component parts to the producer

What are channels of distribution?

system of organization and individuals involved in taking a product from producer to ultimate user

Storage:

temporarily holding product to create time and place utility

The entire set of organizations that are involved in supplying component parts to producers, these producers, and the organizations involved in moving finished goods to consumers is ____

the channel of distribution

What is the objective of physical distribution costs?

to minimize total physical distribution costs required to achieve getting products to customers

Many manufacturers require that their distributors purchase a 'full line' of products as part of their contractual arrangement. Such contracts are referred to as:

tying contract

Customer and market characteristics include:

type and number of customers, geographic concentration, buyers needs and purchasing preferences

The primary distinction between voluntary chains and retailer cooperatives is:

whether they are set up by wholesalers or by retailers

The main difference between retailer cooperatives and voluntary chains is:

who organizes them

Who primarily uses Assorting?

wholesalers and retailers

Franchises:

~Agreement between franchisor and a number of independent franchisees. ~Product franchises (dealerships, gas stations) ~Business format franchises (services, products)

How do channels facilitate exchange?

~Buying and selling functions: transferring ownership creates possession utility and exchange of title. ~Also reducing the number of transactions between manufacturers and retailers to wholesaler.

What are Administered VMS?

~One member dominates and is the power of influence over channel activities. ~Non dominant members work with "channel captains" who are large producers or retailers.

Who would be considered the dominant member of administered VMS and the "channel captains"?

~Producer, wholesaler, or retailer ~Producers or retailers (proctor&gamble, wal-mart)

What are tying contracts? (legislation)

"full-line forcing" requiring buyer to purchase something(s) that may be unwanted, not selling, etc. and makes the purchase look supplementary when it usually is not. Generally illegal

Facilitating Operations:

Financing, Risk-taking, Business and management services

What is an example of a Voluntary Chain?

In the grocery industry, Fleming Foods sponsors IGA

Product life cycle stage

Intro- exclusive/selective Growth- selective Maturity- selective/intensive

A vertical marketing system:

Is used to improve the channel operating efficiency and effectiveness.

How do exclusive territories work (legally and illegally)? (legislation)

Legally- supplies guarantees a distributor exclusive rights to sell in a given area (no obligation) Illegally- distributor is forced to sell only in own territory

How to gather information about markets?

Producers conduct market research, pass down the channel to wholesalers, and retailers

The most common channel of distribution for consumer goods is ____

Producer~Wholesaler~Retailer~Consumer

What companies would fall under Corporate VMS?

Sherwin williams, sears, liz claiborne, goodyear

The VMS in which a large scale wholesaler brings together or sponsors a number of independent retailers is called a:

Voluntary chain

Which of the following channels for consumer goods is Avon using when it sells its products at the avon.com website?

a direct channel to consumers

A tying contract may be legal if:

a new small company is trying to enter the market

Bringing together relatively small quantities purchased from suppliers and combining these quantities into a single larger shipment for sale to a buyer is called:

accumulating

Ralston-Purina, with its lines of cereal, snack foods, and pet foods has such brand equity and market position that it is able to coordinate distribution activities through its market power. Its distribution illustrates a(n):

administered VMS

Aggregate chemical supply is a large wholesaler of chemical products. Aggregate buys in large quantities from its suppliers and then resells these chemicals in smaller amount to its customers across the Southwest US. Which supply chain (channel) function is being performed by Aggregate?

allocating