Channel Management

The use of intermediaries enables producers to make larger profits because intermediaries

May sell more than the producer could sell on its own. By using intermediaries, a producer may be able to increase the size of its sales force by sharing the selling activities with other businesses. Although the use of intermediaries may help to reduce the per-unit cost of a good, this does not automatically increase the profits of the producer. By using intermediaries, producers are unable to deal directly with ultimate consumers or industrial users. The use of intermediaries decreases the number of retailer-to-producer contacts.

Retailers perform an important channel activity by negotiating with consumers on issues such as

Delivery. Retailers perform an important channel activity by negotiating with customers on issues such as delivery, installation, and price. Consumers are not involved in risk-taking, promotion, or manufacturing.

Channels of distribution benefit businesses by

Getting their products to consumers more efficiently. Channels of distribution benefit businesses by getting their products to consumers more efficiently. This may help to raise profits, but it is not a guarantee. Channels may lower the prices of some but not all industrial goods. Channels allow businesses to share channel tasks, but they will not be able to avoid all channel tasks—every channel member contributes.

Providing marketing information is an important channel activity. Businesses rely on marketing information to determine

Their target markets' needs and wants. Businesses rely on marketing information to determine their target markets' needs and wants. Intermediaries are often able to provide producers with valuable marketing information since they deal with final consumers more closely. Marketing information may or may not help businesses determine how intermediaries are performing, how much to charge for their products, or what to name their products.

Wal-Mart, Domino's Pizza, and Avis Rent-a-Car are examples of

Retailers. Retailers are businesses that buy consumer goods or services and sell them to the ultimate consumer. Wal-Mart, Domino's Pizza, and Avis Rent-a-Car all sell directly to consumers. Wholesalers are businesses that buy goods from producers or agents and sell to retailers. Agents assist in the sale and/or promotion of goods and services but do not take title to them. Industrial distributors are intermediaries that buy industrial goods and services and sell them to industrial users.

Which of the following is NOT a condition that must exist for channels to be effective: Select one: a. Channel members must share common goals. b. They must have at least five members. c. Channel members must share tasks appropriately. d. They must be properly managed.

They must have at least five members. To be effective, channels must be properly managed, channel members must share common goals, and channel members must share tasks appropriately. Channels can be effective no matter how many members they have.

An advantage for producers in using the producer to wholesaler to retailer to consumer distribution channel is that

Wholesalers usually buy in large quantities. Many producers cannot afford to fill requests for small orders; however, small retailers are usually unable to place large orders. Therefore, wholesalers help to fill the gap between producers and small retailers by buying large quantities and selling smaller quantities to individual retailers. By using intermediaries, producers are giving up some of their channel control. Wholesalers do take title to goods, but agents do not. Producers use the producer to retailer to ultimate consumer channel to reach large retailers indirectly.

Marketers determine distribution intensity so they can achieve

Ideal market exposure. Marketers determine distribution intensity so they can achieve ideal market exposure—that is, they want to make their product available to each and every customer who might buy it, but they don't want to over-distribute the product and waste money. This condition is not known as complete market coverage or total market saturation—ideal market exposure often does not cover an entire market. It is also not referred to as perfect market balance.

Quality Distributors buys electrical equipment and supplies from ABC Electric and sells them to local electrical contractors. Quality Distributors is an example of a(n)

Intermediary. Intermediaries are channel members operating between the producer and the consumer or industrial user to help in the movement of goods and services. In this situation, the intermediary is a wholesaler. Producers are the growers, providers, or manufacturers of goods or services. Retailers are businesses that buy consumer goods or services and sell them to the ultimate consumer. Agents are intermediaries that assist in the sale and/or promotion of goods and services but do not take title to them.

Channel members add value to a product by

Performing certain channel activities expertly

Which indirect channel of distribution is used to reach large retailers when the producer does not want responsibility for the selling activities?

Producer to agent to retailer to consumer. Some producers don't want to take the responsibility, or spend the time or money to sell their own goods, but are prepared to handle other marketing functions. These producers contract with an agent to sell the goods, to retailers. When the producer to retailer to consumer channel is used, the producer retains control of selling activities. The producer to wholesaler to retailer to consumer channel is frequently used to reach small retailers. Producer to consumer is a direct channel of distribution.

A wholesaler breaks down a large shipment of a product and sells portions of it to several retailers. The wholesaler is reducing a discrepancy of

Quantity. The wholesaler is reducing a discrepancy of quantity by breaking down a large quantity of a product into smaller quantities for retailers to buy and sell to final consumers. Reducing a discrepancy of assortment means making a variety of related products available in one place. There is no such thing as a discrepancy of installation or a discrepancy of promotion.

Intermediaries buy large quantities of goods from producers and sell smaller quantities to other intermediaries or to consumers. The result is that intermediaries __________ their per-unit cost for goods.

Reduce. When intermediaries buy large quantities of goods from producers, large-scale production enables the producers to reduce their per-unit cost of the items. Intermediaries do not have the power to stabilize or control prices.

The first decision that marketers must make when managing channels is

Setting channel objectives. The first decision that marketers must make when managing channels is setting channel objectives. They can't make any further decisions until they've determined what they're trying to achieve. After channel objectives have been set, marketers can move on to decisions such as determining distribution patterns, selecting channel members, and determining channel responsibilities.

An intermediary function that makes goods available to consumers where they are wanted and needed is

Transporting and storing. Intermediaries transport and store goods so that they will be available to consumers or industrial users where and when they are wanted or needed. In this way, goods are on hand when consumers or industrial users are ready to buy them rather than when they are produced. Other functions performed by intermediaries include providing market information to producers, promoting the sale of goods and services, extending credit, servicing sales, and providing management services.

Channel members should share an equal commitment to the product's

Quality. Channel members should share an equal commitment to the product's quality. Channels are effective only when channel members share this common goal. Channel members may not have an equal commitment to a product's price, name, or packaging.

Channels of distribution allow channel members to share

Risk. Channels of distribution allow channel members to share risk. Moving products through a channel requires financing and includes an inherent financial risk. Channel members do not share profits, equipment, or employees.

The costs of promoting products are often

Shared by channel members. The costs of promoting products are often shared by channel members instead of being paid for entirely by one channel member. All products need to be promoted—promotion costs are unavoidable and are often expensive, especially for new products.

Top-Notch Wheels buys mountain bikes from The Great Colorado Mountain Bike Company and sells them to bike shops. Top-Notch Wheels is an example of a(n)

Wholesaler. Wholesalers buy goods from producers or agents and sell them to retailers. Top-Notch is a wholesaler. Agents are intermediaries that assist in the sale and/or promotion of goods and services but do not take title to them. Retailers are businesses that buy consumer goods or services and sell them to the ultimate consumer. Producers are the growers, providers, or manufacturers of goods or services.

Which of the following is an example of an ultimate consumer: Select one: a. A manager buying office supplies b. A teenager buying her/his first car c. A farmer buying seed for crops that will be sold at market d. A restaurant owner buying a new oven for the restaurant's kitchen

A teenager buying her/his first car. An ultimate consumer is the person who will actually be using the good or service. The other alternatives are examples of industrial users who will be using the goods in the operation of their businesses or to produce other goods.

Which of the following intermediaries never actually owns the products it promotes and sells: a. Agents b. Retailers c. Wholesalers d. Industrial users

Agents. These are businesses or individuals that assist in the sale and/or promotion of goods and services but do not take title to them. Wholesalers are businesses that buy goods from producers or agents and sell to retailers. Retailers are businesses that buy consumer goods and services and sell them to ultimate consumers. Industrial users are businesses that buy materials or goods that will be used to make other goods and services or in the operation of the business.

A retailer buys a variety of toys from a number of different producers and makes them all available for sale in the same place. The retailer is reducing a discrepancy of

Assortment. The retailer is reducing a discrepancy of assortment by making a variety of toys available in one place. Reducing a discrepancy of quantity means breaking down a large quantity of a product into smaller quantities for final consumers to buy. There is no such thing as a discrepancy of installation or a discrepancy of promotion.

The total number of members in a channel is called

Channel length. The total number of members in a channel is called channel length. Channel length may be long or short depending on what makes the most economic sense. Distribution intensity and patterns have to do with intensive, selective, or exclusive distribution. Channel width refers to the number of middlemen available at the same level of a channel.

Producers who eliminate all middlemen in the channel are said to be using __________ distribution

Direct. Producers who eliminate all middlemen in the channel are said to be using direct distribution. This method of distribution is often impractical. Indirect distribution refers to the use of middlemen in the channel. Consumer and industrial channels may or may not use middlemen.

The goal of channels of distribution is to move products from producers to

Final consumers. The goal of channels of distribution is to move products from producers to final consumers. Along the way, products may go through channel members known as intermediaries or middlemen. Industrial distributors are a type of intermediary.

When marketers are trying to reach the greatest number of consumers possible, they use a(n) __________ distribution pattern.

Intensive. When marketers are trying to reach the greatest number of consumers possible, they use an intensive distribution pattern. Intensive distribution means selling a product through every available wholesaler and retailer in a geographic area where consumers might look for it. Selective distribution means selling a product through a limited number of wholesalers and retailers in a geographic area. Marketers use this method when they want to deal with the middlemen they feel will do the best job of promoting and selling their products. Exclusive distribution means selling a product through just one middleman in a geographic area. Marketers use this method when they need to maintain tight control over a product. There is no such pattern as inclusive distribution.

Which of the following retailers would be most likely to be part of the producer to retailer to consumer channel: Select one: a. Large retail chain b. Small boutique c. Locally owned pharmacy d. Specialty shop

Large retail chain. Large department stores and retail chains are among those who usually deal directly with producers. When it is not possible for a producer to reach a large number of consumers on a direct basis, retailers can provide wide distribution of products to consumers at lower costs than producers can on a direct basis. All of the other alternatives are businesses that would buy from intermediaries because their orders would be too small for direct purchase from the producers.

Channels of distribution benefit consumers by

Making a variety of products available to them. Channels of distribution benefit consumers by making a variety of products available to them. Without these channels, consumers could only buy products directly from producers, which would be impractical. Channels may lower some but not all consumer product prices. They may raise the quality of some but not all consumer products. Increased profits for businesses is not a benefit for consumers.

A producer feels that a retailer is not marketing its product to final consumers aggressively enough. This is an example of

Vertical conflict. Vertical conflict occurs between channel members at different levels within the same channel. It often occurs between producers and wholesalers or producers and retailers. Horizontal conflict occurs between channel members at the same level. Chargebacks and sanctions are two types of negative economic motivators used in channels.

Which of the following is a benefit of channels of distribution: a. We can more easily obtain products from all over the world. b. Retailers must spend more money. c. We spend more time looking for products we want. d. Producers must spend more money.

We can more easily obtain products from all over the world. Channels of distribution allow consumers, industrial users, producers, and other channel intermediaries to save time and money. They also allow us to more easily obtain products from all over the world, since we do not have to travel and search for each individual item we wish to purchase.

What type of intermediary would purchase baseball bats from one producer, mitts from another, and balls from still another, and then sell an assortment to sporting goods stores?

Wholesaler. A wholesaler is a business that buys goods from producers or agents and sells them to retailers. Agents do not buy goods from producers; rather, they assist in selling and promoting a producer's goods. Producers are growers, providers, or manufacturers of goods or services. Retailers are businesses that buy consumer goods or services and sell them to the ultimate consumer.

Where does a channel of distribution begin?

With the producer. A producer is the grower, provider, or manufacturer of goods or services. Products originate with producers. The channel ends with an industrial user or ultimate consumer. An intermediary is a channel member operating between the producer and the consumer or industrial user to help in the movement of goods and services.

A channel task should be performed by the channel member who

Performs it best. A channel task should be performed by the channel member who performs it best. This allows the channel to be more effective and efficient and benefits all channel members. Channel tasks should not be assigned based on how much money a member has or a level of desire to perform the task.

What distribution channel is used for high-priced industrial goods when the producer does not have its own sale force?

Producer to agent to user. When the producer does not have its own sales force, it contracts with agents to sell and promote its goods. If goods have high unit costs, agents can afford to sell directly to industrial users. If the goods have low unit costs, the agent will sell the goods to industrial distributors, who will then sell the goods to industrial users. In the other alternatives, the producer retains control of the selling activities.

What is the most common channel of distribution for large industrial goods?

Producer to industrial user. This is the direct route most commonly used for large industrial goods since most large industrial goods require installation or special servicing which producers feel they are best qualified to provide. The other alternatives are indirect channels that are less frequently used than the direct channel.

Which of the following is a direct channel of distribution for consumer goods and services: Select one: a. Producer to distributor to consumer b. Producer to retailer to consumer c. Producer to ultimate consumer d. Producer to industrial user

Producer to ultimate consumer. With this route, goods and services move straight from the producer to the ultimate consumer. It is the simplest of all channels. Although producer to industrial user is a direct route, it is used for industrial rather than consumer goods and services. The producer to retailer to ultimate consumer channel and the producer to distributor to consumer channel are considered indirect channels because they involve the use of intermediaries.

Which of the following products would likely use an exclusive distribution pattern: Select one: a. A silk necktie b. A home-decorating magazine c. A large piece of farm machinery d. A gallon of milk

A large piece of farm machinery. Exclusive distribution means selling a product through just one middleman in a geographic area. Marketers use this method when they need to maintain tight control over a product. This is why exclusive distribution is often used for specialty products that are technical in nature or require specialized services such as installation or repair. Examples of these products are airplanes and large machinery. Milk and magazines are examples of convenience products, which usually use intensive distribution patterns. A silk necktie is an example of a consumer shopping good, which usually uses a selective distribution pattern.

Which of the following services would be distributed by a producer to agent to consumer channel: a. Health care b. Travel planning c. Vehicle repair d. Income tax preparation

Travel planning. Travel planning is provided by travel agents who sell transportation, lodging, tours, etc., to consumers for the companies that provide each of these services. Other services such as health care, vehicle repair, and income tax preparation use a direct producer to consumer channel because the services must be delivered directly to the user.

Which of the following is an example of an industrial user: Select one: a. A family buying a new home computer b. A parent buying a picture frame for his/her desk c. A teacher buying a book to read on vacation d. A hairstylist buying new scissors to perform haircuts

A hairstylist buying new scissors to perform haircuts. A hairstylist purchasing scissors is an example of an industrial user. S/he is purchasing the product to use in the operation of his/her business—in this case, for providing a service. The other alternatives are examples of ultimate consumers, the people who will actually be using the good or service for themselves.

Producers are able to match their production to the needs of consumers or industrial users because intermediaries

Develop an assortment of goods. Intermediaries collect goods from a variety of producers and divide the goods into quantities and assortments that consumers will want. Intermediaries may decrease producers' distribution costs since the producer can usually pass some of these costs on to the intermediaries. Producers can promote goods without the aid of intermediaries, but they may choose to share this function. The fact that some intermediaries extend credit services to consumers does not help producers to match their production to consumers' needs.