Chapter 10

Which of the following is true of logistics?

Companies can gain a powerful competitive advantage by using improved logistics to enhance customer service or lower prices.

Most producers sell their goods directly to final users.

FALSE

Which of the following is true of an exclusive dealing arrangement between a producer and a dealer?

It does not allow other producers to sell to that dealer.

Which of the following is true of a conventional distribution channel?

It has each channel member acting as a separate business unit trying to maximize its own profits.

Which of the following is true of a vertical marketing system?

It has one channel member owning all the other channel members or has contracts with all other channel members.

Which of the following is true of an intensive distribution strategy?

It strives to make products available where and when consumers want them.

________ are sets of interdependent organizations that help make the product or service of a company available for use by consumers or business users.

Marketing channels

________ distribution typically allows manufacturers to develop good working relationships with intermediaries and expect a better-than-average selling effort. It also gives producers good market coverage with more control and less cost than intensive distribution.

Selective

Which of the following is a difference between storage warehouses and distribution centers?

Storage warehouses store goods for moderate to long periods, while distribution centers are used to move goods rather than just store them.

Performance Inc. sells its newest athletic shoe styles to The Sneaker Store and distributes dated or slightly defective merchandise through Sports Discounters. Performance Inc.'s main competitor is Topnotch Manufacturers. Performance Inc. also markets its products through the company Web site. They decide to offer a short-term online promotion to encourage consumers to buy their newest athletic shoes, promoting a 20 percent discount off current retail prices. In such a distribution channel, which of the following would be considered a vertical conflict?

a conflict between Performance Inc. and The Sneaker Store

Vertical conflicts in distribution channels are conflicts that occur between ________.

different levels of the same channel

Mary Kay Cosmetics and Amway sell their products through home and office sales parties, online Web sites, and social media. Both companies use a(n) ________ channel to distribute their offerings.

direct

In a logistics system, minimizing distribution costs most likely involves ________.

large shipping lots

Rage, a leading motor vehicle manufacturer, introduces a new superbike model. It invites proposals from independent dealers who are willing to set up exclusive showrooms that only sell Rage's superbikes. Chosen dealers will sell and service the superbikes, and Rage will oversee national advertising. This is most likely an example of a(n) ________.

manufacturer-sponsored retailer franchise system

Selective distribution is a strategy in which ________.

more than one, but fewer than all, willing intermediaries are used by a seller

The use of both rail and trucks for transporting goods is called ________.

piggybacking

Managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers is known as ________.

supply chain management

Which of the following is true of RFID or "smart tag" technology?

"Smart shelves" can tell when it is time to reorder and can place orders automatically.

The authors suggest that the term "supply chain" may be too limited because it takes a "make-and-sell" view of the business. They believe the term ________ is more appropriate because it suggests a "sense-and-respond" view of the market.

"demand chain"

A multichannel marketing system is one in which a producer sells to multiple markets using the same distributional channel.

FALSE

An administered vertical marketing system integrates successive stages of production and distribution under single ownership.

FALSE

Direct marketing is the longest distribution channel between a producer and consumer.

FALSE

Full-line forcing is considered an illegal arrangement that violates the Clayton Act.

FALSE

Historically, conventional distribution channels have provided channel leadership and have had the power to assign roles and manage conflict.

FALSE

In an administered VMS, the producer assumes the leadership position in a distribution channel by default.

FALSE

Inbound logistics involves managing the flow of products from an intermediary to a customer.

FALSE

Intensive distribution occurs when only one intermediary is used by a producer to sell all its products.

FALSE

________ is a practice whereby a producer agrees to sell a brand to a dealer only if the dealer agrees to sell some or all of the rest of the producer's merchandise.

Full-line forcing

Moving products and materials from suppliers to the factory is known as ________ logistics.

Moving products and materials from suppliers to the factory is known as ________ logistics.

________ involves combining two or more systems of transportation to move products.

Multimodal transportation

A horizontal marketing system can develop between a company and its competitor.

TRUE

A vertical marketing system consists of producers, wholesalers, and retailers acting as a unified system.

TRUE

An independent logistics provider that performs all of the functions required to get a client's product to market is known as a third-party logistics (3PL) provider.

TRUE

Companies selling perishable products generally prefer direct marketing, which minimizes delays.

TRUE

Customer-centered logistics starts with the marketplace and works backward to the factory.

TRUE

Disintermediation occurs when product or service producers cut out intermediaries and sell directly to final buyers.

TRUE

Exclusive dealing that creates a monopoly comes under the scope of the Clayton Act of 1914.

TRUE

From a producer's point of view, a greater number of levels in a supply chain means less control and greater channel complexity.

TRUE

In exclusive dealing, a producer may agree not to sell to other dealers in a given area.

TRUE

Marketing channel design calls for analyzing consumer needs, setting channel objectives, identifying major channel alternatives, and evaluating those alternatives.

TRUE

Marketing logistics involves getting the right product to the right customer in the right place at the right time profitably.

TRUE

Supply chain management involves managing both upstream and downstream value-added flows of materials.

TRUE

With a vendor-managed inventory system, the supplier takes full responsibility for managing inventories and deliveries.

TRUE

What are the responsibilities of channel members?

The producer and the intermediaries need to agree on the terms and responsibilities of each channel member. They should agree on price policies, conditions of sale, territory rights, and the specific services to be performed by each party. The producer should establish a list price and a fair set of discounts for the intermediaries. It must define each channel member's territory, and it should be careful about where it places new resellers. Mutual services and duties need to be spelled out carefully, especially in franchise and exclusive distribution channels. In turn, franchisees must meet company standards for physical facilities and food quality, cooperate with new promotion programs, provide requested information, and buy specified food products.

Which of the following is an advantage of exclusive dealing between a seller and a dealer?

The seller's distinctive position is reinforced through customer service and the dealer obtains steady support from the seller.

Which of the following is an example of a horizontal conflict in a distribution channel?

a Ford car dealer complaining that another Ford dealer is underpricing the same models

Which type of channel arrangement is a retailer like Home Depot likely to follow?

administered vertical marketing system

More than 80 percent of McDonald's restaurants worldwide are owned and operated by franchisees. This illustrates a(n) ________ marketing system.

contractual vertical

Integrating the entire distribution chain — from its own design and manufacturing operations to distribution through its own managed stores — has turned Spanish clothing chain Zara into the world's fastest-growing fast-fashion retailer. This is an example of a(n) ________ marketing system.

corporate vertical

Producers use marketing intermediaries because they ________.

create greater efficiency in making goods available to target markets

When a seller requires that only certain dealers carry its products, its strategy is known as ________.

exclusive distribution

Faber Motors manufactures three lines of cars: high-end security cars for government agencies, commercial cars for consumers and individuals, and professional racing cars. The high-end security cars are sold directly to government buyers by the company. The consumer cars are sold through dedicated dealers who only sell Faber's lines at their outlets. For its professional racing cars, Faber collaborates with Radium Tires, an innovative and renowned tire manufacturer. Faber provides the engine and body, while Radium provides the tires and its expertise on the racing industry. Which term best describes Faber's channel arrangements?

multichannel distribution system

Outbound logistics refers to moving ________.

products from the factory to resellers and ultimately to customers

Which of the following is a cost-effective mode for shipping large amounts of bulk products — coal, sand, minerals, and forest products — over long distances?

railroads

In a just-in-time logistics system, ________.

retailers carry small inventories of merchandise to last for only a few days

When Toyota announces a product recall on its Camry model due to a faulty igniter, they are using ________ to coordinate with dealers and car owners.

reverse logistics

A firm that uses direct marketing would most likely sell its products through ________.

the company Web site

What is disintermediation? With a suitable example, explain the opportunities and problems that disintermediation presents for producers and resellers.

Disintermediation occurs when product or service producers cut out intermediaries and go directly to final buyers or when radically new types of channel intermediaries displace traditional ones. Disintermediation presents both opportunities and problems for producers and resellers. Channel innovators who find new ways to add value in the channel can sweep aside traditional resellers and reap the rewards. In turn, traditional intermediaries must continue to innovate to avoid being swept aside. For example, when Netflix pioneered online DVD-by-mail video rentals, it sent traditional brick-and-mortar video stores such as Blockbuster into ruin. Then, Netflix itself faced disintermediation threats from an even hotter channel — video streaming. But instead of simply watching developments, Netflix has led them. Like resellers, to remain competitive, product and service producers must develop new channel opportunities, such as the Internet and other direct channels. However, developing these new channels often brings them into direct competition with their established channels, resulting in conflict. To ease this problem, companies often look for ways to make going direct a plus for the entire channel.

What is a contractual vertical marketing system? Give an example of a type of business that works as 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. Channel members coordinate their activities and manage conflict through contractual agreements. The franchise organization is the most common type of contractual relationship. In this system, a channel member called a franchiser links several stages in the production-distribution process. Almost every kind of business has been franchised — from motels and fast-food restaurants to dental centers and dating services, from wedding consultants and handyman services to funeral homes, fitness centers, and moving services. For example, Two Men and a Truck moving services — "Movers Who Care" — grew quickly through franchising. Started 30 years ago by two brothers with a pickup truck looking to make extra money while in high school, Two Men and a Truck now has a national network of 306 independently owned franchise locations with 1,900 trucks, pulling in $350 million in annual revenues.

Compare a conventional distribution channel and a vertical marketing system.

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. No channel member has much control over the other members, and no formal means exists for assigning roles and resolving channel conflict. Historically, conventional distribution channels have lacked leadership and power, often resulting in damaging conflict and poor performance. In contrast, 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. The VMS can be dominated by the producer, the wholesaler, or the retailer.

Kevin Pinker is a freelance computer programmer who writes computer algorithms for companies such as SoftStar and BlueHill. SoftStar and BlueHill use these algorithms to make specific programs based on online market research. These programs are then sold to the online retailer, Abundon, which then sells them to individual consumers and businesses. Which of the following is a marketing intermediary in this chain?

Abundon

How do companies generally manage and motivate their channel members? What technological tools are available to help with this task?

Channel members must be continuously managed and motivated to do their best. The company must sell not only through the intermediaries but also to and with them. Most companies see their intermediaries as first-line customers and partners. They practice strong partner relationship management to forge long-term partnerships with channel members. This creates a value delivery system that meets the needs of both the company and its marketing partners. In managing its channels, a company must convince suppliers and distributors that they can succeed better by working together as a part of a cohesive value delivery system. Many companies are now installing integrated high-tech partnership relationship management (PRM) systems to coordinate their whole-channel marketing efforts. Companies can now use PRM and supply chain management (SCM) software to help recruit, train, organize, manage, motivate, and evaluate relationships with channel partners.

Differentiate between intensive distribution, exclusive distribution, and selective distribution strategies. Provide examples of products that would be appropriate for each.

Companies must determine the number of channel members to use at each level of a value network chain. Three strategies are available: intensive distribution, exclusive distribution, and selective distribution. Producers of convenience products and common raw materials typically seek intensive distribution — a strategy in which they stock their products in as many outlets as possible. These products must be available where and when consumers want them. For example, toothpaste, candy, and other similar items are sold in millions of outlets to provide maximum brand exposure and consumer convenience. Kraft, Coca-Cola, Kimberly-Clark, and other consumer goods companies distribute their products in this way. By contrast, some producers purposely limit the number of intermediaries handling their products. The extreme form of this practice is exclusive distribution, in which the producer gives only a limited number of dealers the exclusive right to distribute its products in their territories. Exclusive distribution is often found in the distribution of luxury brands. Between intensive and exclusive distribution lies selective distribution — the use of more than one but fewer than all of the intermediaries who are willing to carry a company's products. Most television, furniture, and home appliance brands are distributed in this manner.

How does a company determine its channel objectives? What factors influence the channel objectives of a company?

Companies should state their marketing channel objectives in terms of targeted levels of customer service. Usually, a company can identify several segments wanting different levels of service. The company should decide which segments to serve and the best channels to use in each case. In each segment, the company wants to minimize the total channel cost of meeting customer service requirements. The company's channel objectives are also influenced by the nature of the company, its products, its marketing intermediaries, its competitors, and the environment. For example, companies selling perishable products may require more direct marketing to avoid delays and too much handling. In some cases, a company may want to compete in or near the same outlets that carry competitors' products. In other cases, companies may avoid the channels used by competitors. Finally, environmental factors such as economic conditions and legal constraints may affect channel objectives and design. For example, in a depressed economy, producers will want to distribute their goods in the most economical way, using shorter channels and dropping unneeded services that add to the final price of the goods.

Introducing intermediaries into a distribution chain increases the number of direct channel transactions between a manufacturer and its customers.

FALSE

The franchise organization is an example of a corporate vertical marketing system.

FALSE

The goal of any logistics system should be to maximize sales, not profits.

FALSE

What criteria should a firm consider before choosing a channel alternative?

If a company has identified several channel alternatives and wants to select the one that will best satisfy its long-run objectives, each alternative should be evaluated against certain economic, control, and adaptability criteria. Using economic criteria, a company compares the likely sales, costs, and profitability of different channel alternatives. The company must also consider control issues. Using intermediaries usually means giving them some control over the marketing of the product, and some intermediaries take more control than others. Other things being equal, the company prefers to keep as much control as possible. Finally, the company must apply adaptability criteria. Channels often involve long-term commitments, yet the company wants to keep the channel flexible so that it can adapt to environmental changes. Thus, to be considered, a channel involving long-term commitments should be greatly superior on economic and control grounds.

The USA Cotton Growers Cooperative sells unfinished cotton to The Weaving Experts who refine the raw material for sale to The Sheet Factory. It's then used in the manufacturing process of 300, 400, and 500 thread count bed sheet sets. The Sheet Factory distributes their products through a number of wholesalers, including Linen Traders. Linen Traders then resells the bed sheet sets to retailer Bedding Plus who markets the products to consumers. Which of the following represents a marketing intermediary transaction?

Linen Traders selling to Bedding Plus

What is marketing logistics? What are the components of marketing logistics?

Marketing logistics — also called physical distribution — involves planning, implementing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption, to meet customer requirements at a profit. Marketing logistics involves (a) outbound logistics, which is moving products from the factory to resellers and ultimately to customers, (b) inbound logistics, which is moving products and materials from suppliers to the factory, and (c) reverse logistics, which is reusing, recycling, refurbishing, or disposing of broken, unwanted, or excess products returned by consumers or resellers.

What are the different functions of the members of a marketing channel?

Members of a marketing channel perform many key functions. Some help to complete transactions, which include: Information: Gathering and distributing information about consumers, producers, and other actors and forces in the marketing environment needed for planning and aiding exchange. Promotion: Developing and spreading persuasive communications about an offer. Contact: Finding and communicating with prospective buyers. Matching: Shaping offers to meet the buyer's needs, including activities such as manufacturing, grading, assembling, and packaging. Negotiation: Reaching an agreement on price and other terms so that ownership or possession can be transferred. Others help to fulfill the completed transactions, such as: Physical distribution: Transporting and storing goods. Financing: Acquiring and using funds to cover the costs of the channel work. Risk taking: Assuming the risks of carrying out the channel work.

Explain multichannel distribution systems with an example

Multichannel distribution occurs when a single firm sets up two or more marketing channels to reach one or more customer segments. For example, John Deere, a manufacturer of agricultural machinery, sells its familiar green-and-yellow lawn and garden tractors, mowers, and outdoor power products to consumers and commercial users through several channels, including John Deere retailers, Lowe's home improvement stores, and online. It sells and services its tractors, combines, planters, and other agricultural equipment through its premium John Deere dealer network. It sells large construction and forestry equipment through selected large, full-service John Deere dealers and their sales forces.

What are the advantages and disadvantages of using a multichannel distribution system?

Multichannel distribution systems offer many advantages to companies facing large and complex markets. With each new channel, the company expands its sales and market coverage and gains opportunities to tailor its products and services to the specific needs of diverse customer segments. But such multichannel systems are harder to control, and they can generate conflict as more channels compete for customers and sales. For example, when John Deere, a manufacturer of agricultural machinery, began selling selected consumer products through Lowe's home improvement stores, many of its dealers complained loudly. To avoid such conflicts in its Internet marketing channels, the company routes all of its Web site sales to John Deere dealers.

Explain integrated logistics management and the different ways through which a company can achieve it.

The concept of integrated logistics management 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. This can be achieved by: 1. Cross-functional teamwork inside the company: This can be achieved by creating close working relationships between departments. Some companies have created permanent logistics committees composed of managers responsible for different physical distribution activities. Companies can also create supply chain manager positions that link the logistics activities of functional areas. Companies can also employ sophisticated, system-wide supply chain management software, now available from a wide range of software enterprises. 2. Building logistics partnerships: This can be achieved by working with other channel partners to improve the whole-channel distribution. The success of each channel member depends on the performance of the entire supply chain. Smart companies coordinate their logistics strategies and forge strong partnerships with suppliers and customers to improve customer service and reduce channel costs, while other companies partner through shared projects. 3. Outsourcing logistics to third-party logistics (3PL) providers: Companies use third-party logistics providers for several reasons. First, because getting the product to market is their main focus, using these providers makes the most sense, as they can often do it more efficiently and at a lower cost. Outsourcing typically results in a 10 to 25 percent cost savings. Second, outsourcing logistics frees a company to focus more intensely on its core business. Finally, integrated logistics companies understand increasingly complex logistics environments.

Differentiate between the three types of franchises and provide examples of each type.

There are three types of franchises. The first type is the manufacturer-sponsored retailer franchise system — for example, Ford and its network of independent franchised dealers. The second type is the manufacturer-sponsored wholesaler franchise system — Coca-Cola licenses bottlers (wholesalers) in various world markets that buy Coca-Cola syrup concentrate and then bottle and sell the finished product to retailers locally. The third type is the service-firm-sponsored retailer franchise system — for example, Burger King and its nearly 12,100 franchisee-operated restaurants around the world.

Describe the legal aspects of exclusive arrangements such as exclusive dealing and exclusive distribution.

When a seller allows only certain outlets to carry its products, this strategy is called exclusive distribution. When the seller requires that these dealers not handle competitors' products, its strategy is called exclusive dealing. Both parties can benefit from exclusive arrangements: the seller obtains more loyal and dependable outlets, and the dealers obtain a steady source of supply and stronger seller support. But exclusive arrangements also exclude other producers from selling to these dealers. This situation brings exclusive dealing contracts under the scope of the Clayton Act of 1914. They are legal 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 dealing often includes exclusive territorial agreements. The producer may agree not to sell to other dealers in a given area, or the buyer may agree to sell only in its own territory. The first practice is normal under franchise systems as a way to increase dealer enthusiasm and commitment. It is also perfectly legal — a seller has no legal obligation to sell through more outlets than it wishes. The second practice, whereby the producer tries to keep a dealer from selling outside its territory, has become a major legal issue.

In a(n) ________ marketing system, leadership over production and distribution is assumed through the size and power of one or a few dominant channel members

administered vertical

Jupiter Steel is the chief provider of metals to Greystone Motors. Greystone Motors has two models of cars — one for commercial and regular consumers and another for professional car racing teams. Greystone Motors has designated dealers to sell its commercial cars to consumers, while racing cars are sold directly to the racing teams. In such a distribution channel, which of the following would be considered a horizontal conflict?

a conflict between two Greystone Motors car dealerships

Java Jane's first coffeehouse was very successful due to the unique flavors, on-site baked goods, and inviting ambiance. The owner, Jane Phillips, decided to franchise her operation when she was approached by several interested investors. Which type of marketing system has Java Jane's most likely adopted?

a contractual marketing system

Luccia's is a restaurant based in Illinois that exclusively sells Italian food. Luccia's sells the rights to its recipes to a British firm, Clover Trading, which then opens an outlet in London under the Luccia's brand name. Which kind of channel arrangement does Luccia's most likely have with Clover Trading?

a contractual vertical marketing system

In which of the following situations is a producer guaranteed full control over product sales?

a direct marketing channel

Which of the following would be considered an upstream partner in a company's supply chain?

a firm that provides technical expertise in the production of a product

Sonic Shack, an audio equipment retailer, signs an agreement with PineWire, a renowned electronics company, to sell PineWire products. The deal requires Sonic Shack to provide PineWire products with superior displays, shelf space, and promotion compared to competing products. Sonic agrees to these terms as PineWire products command a huge share in the market. Which of the following types of channel arrangements do PineWire and Sonic Shack most likely have?

administered vertical marketing system

Which mode of transportation is best for carrying perishable goods to distant markets?

air carriers

Changes in technology and the explosive growth of direct and online marketing are having a profound impact on the nature and design of marketing channels. One major trend is toward ________ insofar as product or service producers cut out intermediaries and go directly to final buyers or when radically new types of channel intermediaries displace traditional ones.

disintermediation

For over 10 years, Erudite, a publishing and educational company that produces college textbooks, has been selling its books online through studysmart.com, a popular online retailer that sells textbooks published by different companies. Recently, Erudite stopped selling its books through studysmart.com and set up its own Web site to sell its books. This change in channel organization is called ________.

disintermediation

High-end luxury brands like Bentley for cars, Louis Vuitton for handbags, and Rolex for watches use ________ distribution, giving a limited number of dealers the sole right to sell products in a specified geographic territory.

exclusive

Bateman Gray Motors sells the cars it produces using dedicated dealers who only sell Bateman Gray's products at their outlets. What kind of marketing strategy has Bateman Gray adopted with its car dealers?

exclusive dealing

Many athletic stadiums enter into contractual agreements with national beverage companies and food franchises to distribute only their brand-name products at the respective venues. This is an example of ________.

exclusive dealing

Brandy's, a national candy store chain, decides to open both a coffee house and ice cream shop within their stores to create a multi-faceted experience for shoppers. The company decides to enter into deals with two well-known retailers — The Beanery and Creamy Creations. As stipulated in their respective contracts, The Beanery and Creamy Creations cannot enter into the same type of agreement with any other candy retailers. All three companies will enjoy greater sales, and ultimately profits, from the arrangement. This is most likely an example of a(n) ________ marketing system.

horizontal

A channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity is referred to as a(n) ________.

horizontal marketing system

All the institutions in a channel are connected by several types of flows. When a retailer conveys to a wholesaler that a new line of hip-hop clothing is not selling, this is an example of ________.

information flow

Producers of convenience products and common raw materials typically seek ________ distribution — a strategy in which they stock their products in as many outlets as possible

intensive

Victoria's Closet, a manufacturer of bohemian-style clothing and accessories, sells its products through its online Web site, a catalogue, and specialty boutiques that target women. Which kind of channel arrangement does Victoria's Closet employ to distribute its products?

multichannel distribution system

Which of the following applies to a marketing intermediary who buys brand name toothpaste from 10 different manufacturers, consolidates offerings, and then resells the various brands to 500 supermarkets in Florida?

transform the assortments of products made by producers into the assortments wanted by consumers

Which of the following is most efficient for short hauls of high-value merchandise and is highly flexible in its routing and time schedules?

trucks

A ________ is made up of a company, its suppliers, distributors, and, ultimately, customers who "partner" with each other to improve the performance of the entire system.

value delivery network

Under ________, a customer shares real-time data on sales and current inventory levels with a supplier, and the supplier then takes full responsibility for managing inventories and deliveries.

vendor-managed inventory systems

A ________ consists of producers, wholesalers, and retailers acting as a unified system. The system can be dominated by any one of the interdependent members.

vertical marketing system

A(n) ________ is considered a marketing intermediary.

wholesaler