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