MARK Chapter 12 Short Answers

What types of products are exclusively distributed?

Exclusive distribution is often used for luxury brands, such as expensive automobiles and prestige clothing.

What is a conventional distribution channel?

A conventional distribution channel consists of one or more independent producers, wholesalers, and retailers. Each is a separate business seeking to maximize its own profits, perhaps even at the expense of the system as a whole.

Explain channel power in a vertical marketing system.

A vertical marketing system (VMS) consists of producers, wholesalers, and retailers acting as a unified system. One channel member owns the others, has contracts with them, or wields so much power that they must all cooperate.

How have changes in technology and the growth of online marketing affected the design of marketing channels?

Changes in technology and the growth of online marketing have increased disintermediation, which is the cutting out of marketing channel intermediaries by product or service producers, or the displacement of traditional intermediaries with radically new types. In many industries, traditional intermediaries are dropping by the wayside. For example, many airlines now sell directly to final buyers, cutting retailers and sales agents from their marketing channels. Online marketers take business from traditional brick-and-mortar retailers.

What type of products are intensively distributed?

Convenience products and common raw materials must be available where and when consumers want them; examples include chewing gum, soft drinks, and toothpaste.

Provide an example of a company which has used an imaginative distribution system to gain a competitive advantage.

Enterprise Rent-A-Car revolutionized the car-rental business by setting up off-airport rental offices. Apple turned the retail music business on its head by selling music for the iPod via the Internet on iTunes. And Amazon.com forever changed the face of retailing and became the Walmart of the Internet by selling anything and everything without using physical stores.

What is selective distribution?

In selective distribution, more than one, but fewer than all, of the intermediaries who are willing to carry a company's products are used. Products include appliances and some branded clothing.

How do intermediaries add value to a marketing system?

Intermediaries reduce the amount of work that must be done by both producers and consumers. They transform the assortment of products made by producers into the assortment wanted by consumers. They buy large quantities from many producers and break them down into the smaller quantities and broader assortments wanted by consumers. Intermediaries help to match supply and demand. Intermediaries add value by bridging the major time, place, and possession gaps that separate goods and services from those who would use them.

Why is the term "value delivery network" a more relevant expression to use than the term "supply chain" or "demand chain"?

The term "supply chain" may be too limited, because it takes a make-and-sell view of the business. It suggests that raw materials, productive inputs, and factory capacity should serve as the starting point for market planning. The term "demand chain" is better because it suggests a sense-and-respond view of the market. Under this view, planning starts by identifying the needs of target customers, to which the company responds by organizing a chain of resources and activities with the goal of creating customer value. However, even a demand chain view of a business may be too limited because it takes a step-by-step, linear view of purchase-production-consumption activities. Most large companies today are engaged in building and managing a complex, continuously evolving value delivery network. A value delivery network is made up of the company, suppliers, distributors, and, ultimately, customers who "partner" with each other to improve the performance of the entire system.

What is vertical conflict? Illustrate your answer with an example.

Vertical conflict occurs between different levels of the same channel; an example would be conflict created between a manufacturer and its dealers when it decides to open an online e-commerce Web site for the same product.

How can a firm benefit from involvement in a contractual VMS?

A contractual VMS consists of independent firms at different levels of production and distribution that join together through contracts to obtain more economies or sales impact than each could achieve alone.

Compare a conventional distribution channel with a vertical marketing system (VMS)

A conventional distribution channel consists of one or more independent producers, wholesalers, and retailers. Each is a separate business seeking to maximize its own profits, even at the expense of the system as a whole. No channel member has much control over the other members, and no formal means exists for assigning roles and resolving channel conflict. On the other hand, a vertical marketing system is a unified system made up of producers, wholesalers, and retailers. While members of a conventional distribution channel seek to maximize their own profits, members of a vertical marketing system all cooperate because either one member owns the others, one has contracts with the others, or one wields more power than the others.

Evaluate how public policy affects distribution decisions.

For the most part, companies are legally free to develop whatever channel arrangement suits them, as long as they do not substantially lessen competition or tend to create a monopoly, and as long as both parties enter into the agreement voluntarily. Exclusive territorial agreements in which a producer attempts to keep a dealer from selling outside of a designated territory have become a major legal issue. Producers are free to select their dealers, but they must have legitimate cause to terminate a relationship with a dealer.

What is horizontal conflict? Illustrate your answer with an example.

Horizontal conflict is conflict which occurs among firms at the same level of the channel. For example, Chevrolet would experience horizontal conflict if two of its dealers in the same area complain that each is being undercut by the other.

What are the key functions that members of the marketing channel perform?

Members of the marketing channel help to complete transactions by gathering and distributing information, developing and spreading promotions, contacting prospective buyers, matching and shaping the offer to the buyer's needs, and negotiating price and other terms. Others help to fulfill the completed transactions through physical distribution, financing, and risk taking.

What are the advantages of multichannel distribution systems?

Multichannel distribution systems exist when a single firm sets up two or more marketing channels to reach one or more customer segments. Such a system offers advantages to firms facing large and complex markets. It allows the firms to expand sales and market coverage. It allows firms to tailor their products and services to the specific needs of diverse customer segments. Larger bottom-line profits may result.

Compare the three distribution strategies that producers use, providing examples of products for each type of distribution.

Producers of convenience products and common raw materials typically seek intensive distribution as a strategy to stock their products in as many outlets as possible. The goods are available where and when consumers want them. Toothpaste, detergents, and soft drinks are examples of this kind of distribution. Selective distribution is used when selling to more than one but fewer than all of the intermediaries who are willing to carry a company's products in a given market. Examples are name-brand blue jeans and computers. Exclusive distribution is used when the producer wants to stock its products with only one or a few dealers in an area. Examples are expensive cars.

What does the concept of integrated logistics management advocate?

This concept recognizes that providing better customer service and trimming distribution costs require teamwork, both inside the company and among all the marketing channel organizations. Inside, the company's various departments must work closely together to maximize its own logistics performance. Outside, the company must integrate its logistics system with those of its suppliers and customers to maximize the performance of the entire distribution network.

How can a firm benefit from participating in a horizontal marketing system?

Two or more companies at one level join together to follow a new marketing opportunity; by working together, companies can combine their financial, production, or marketing resources to accomplish more than any one company could alone.

Explain how companies select, motivate, and evaluate intermediaries or channel members.

When selecting intermediaries, the company should evaluate each channel member's qualifications and select those who best fit its channel objectives. The company should use economic criteria, control issues, and adaptive criteria to analyze each possible channel member. Once selected, channel members must be continuously motivated to do their best. The company must sell not only through the intermediaries but also to and with them. It should work to forge long-term partnerships with channel partners to create a marketing system that meets the needs of both the manufacturer and the partners. The company must also regularly check channel member performance against established performance standards, rewarding intermediaries who are performing well and assisting or replacing weaker ones