Multimedia Marketing/Marketing.iso/market/chapter6.1p

Text File | 1996-08-22 | 12KB | 279 lines

SECTION 6.1 Channel Structures

INSTRUCTIONS Based on what you have learned so far, give your own definition
of a channel of distribution. Then go through this section to enlarge your understanding of this entity.

EXAMPLE

Many of the large producers of home exercise equipment in the United
States sell their products through retail stores. One of the few
exceptions advertises in magazines and television and delivers the
product by mail. This gives the firm several advantages. One is a
low distribution cost, since the firm does not have to reimburse
wholesalers or retailers. Another is differential advantage by selling
in a unique fashion that enables the firm to stand out from its
rivals. These strategies have allowed the company to capture a large
market share.

DETAILS

Management makes two types of distribution decisions. First, it
establishes inter-organizational arrangements--termed "channels
of distribution", which are networks of organizations that arrange
for changes of title to goods as they move from manufacturers to final
customers. Second, management seeks a means of physically distributing
items to customers. This section focuses on the first of the two
decision areas.

Because producers and final customers are separated from each other
due to specialization, the gap between them necessitates the
development of delivery systems to permit exchange. This delivery
is not only in terms of physically moving items, but also in the
sense of all economic transactional flows.

Consider a producer of antacids for stomach pain. The company is
located in Indiana, but sells its products around the world.
Accordingly, management must cultivate several arrangements to
facilitate transaction flows, including becoming aware of consumer
needs, arranging for distribution around the world, making potential
customers aware of the product's availability and performance,
transferring ownership to buyers, and obtaining funds for supplying
the product.

In other words, managers undertake activities to develop the needed
flows to bring together buyers and sellers in the marketplace. The
activities may be grouped into nine key marketing functions that
need to be performed.

1. Buying.
2. Selling.
3. Financing
4. Standardizing and grading.
5. Transporting.
6. Risk-bearing.
7. Pricing.
8. Storing.
9. Obtaining market information.

PROBLEM 1

A producer of kitchen cabinets, like other marketers, is in need of
activities to develop the needed flows to get together with consumers.
Which of the following is not one of these activities?

A. Selling.
B. Transporting.
C. Storing.
D. Advertising.

WORKED

A producer of kitchen cabinets that is in need of activities to develop
the needed flows to get together with consumers is in need of selling,
transporting, and storing activities. The manufacturer must sell
goods in order to transmit title and permit physical possession by
consumers. Further, the firm must take steps to transport the cabinets
to consumers, perhaps through other companies. Also, the producer
must store goods in some fashion, so that they are available when
consumers want them. All of these activities help promote exchange.

ANSWER  D
INSTRUCTIONS Based on what you have learned so far, give your own definition
of a channel of distribution. Then go through this section to enlarge your understanding of this entity.

EXAMPLE

Many of the large producers of home exercise equipment in the United
States sell their products through retail stores. One of the few
exceptions advertises in magazines and television and delivers the
product by mail. This gives the firm several advantages. One is a
low distribution cost, since the firm does not have to reimburse
wholesalers or retailers. Another is differential advantage by selling
in a unique fashion that enables the firm to stand out from its
rivals. These strategies have allowed the company to capture a large
market share.

DETAILS

Simply put, channels of distribution are the sets of institutions and
agencies that are used to make a product or service available to
customers. The set of institutions used for a particular product is
called a channel system, which is responsible for collectively
performing all of the needed functions to bring buyers and sellers
together.

Some producers attempt to perform for themselves all or most of
the needed channel functions, resulting in rather simple channel
configurations: direct from the producer to final customers. They
rely on their own marketing personnel to do most of the work.

In contrast, most producers rely upon other businesses that are
functional specialists to perform many of the needed marketing tasks.
Retailers, wholesalers, and transportation companies are the three
major types of  specialists that producers call upon to help in
performing major distribution functions. They are called intermediaries
because they represent intermediate steps linking producers and final
customers. The first two, retailers and wholesalers, are selling
intermediaries--they directly engage in making sales. Transportation
companies are shipping intermediaries. Their shipping expertise and
transportation services can be important in facilitating sales.

While the institutions involved in a channel system are important,
what is even more important are the functions that they perform.Thus
a channel system can be thought of as both the institutions and the
work that they do. A new channel system results, then, when there
is a change  in either the institutions or their functions.

PROBLEM 2

A new channel system results when a shoe manufacturer:

A. Changes the work that its retailers do.
B. Changes the advertising agency that it retains.
C. Elects to trademark a brand or brands.
D. Lowers its prices to certain market segments.

WORKED

A new channel system results when a shoe manufacturer changes the
work that its retailers do. Hence, the manufacturer may have the
retailer suddenly handle advertising, customer service, or storage.
In this case, the retailer is now carrying out functions that the
manufacturer was once responsible for. The burden of work has shifted
to the retailer. Retailers, of course, expect to be compensated for
these added duties, so the retailer compensation system will have
to be altered to reflect this.

ANSWER  A
INSTRUCTIONS Based on what you have learned so far, give your own definition
of a channel of distribution. Then go through this section to enlarge your understanding of this entity.

EXAMPLE

Many of the large producers of home exercise equipment in the United
States sell their products through retail stores. One of the few
exceptions advertises in magazines and television and delivers the
product by mail. This gives the firm several advantages. One is a
low distribution cost, since the firm does not have to reimburse
wholesalers or retailers. Another is differential advantage by selling
in a unique fashion that enables the firm to stand out from its
rivals. These strategies have allowed the company to capture a large
market share.

DETAILS

Some channels are lengthy, involving several different types of
intermediary specialists. This is especially the case when marketing
in certain foreign countries, such as Japan. A manufacturer may
sell to a national wholesaler, who sells to a regional wholesaler,
who sells to a local wholesaler, who sells to a retailer, who sells
to consumers. Other channels are short, with producers selling
directly to target customers. Some channels are difficult to change,
over time, while others are capable of responding rapidly to emerging
environmental conditions.

The six most important channel attributes are:

1. Length--the specific number of channel levels employed. Each
different type of selling intermediary adds another level to a
channel. In Japan, for example, channels tend to be long.
2. Width--the number of channel participants used at each level.
If a manufacturer sells through many retailers in Japan, for
instance, the channel is wide.
3. Tasks--specific sets of functions to be performed by each
channel member--such as delivery and storage.
4.Adaptability--the ability of a channel to change according to
the environment.
5. Specific participants--the type, number, and specific set of
members that are part of a channel.
6. Conflict--the degree of competition among members of a channel
and between competing channels. Included is the resolution of
intrachannel conflict by a member assuming leadership control
over the channel.

PROBLEM 3

A manufacturer of canned fruits and vegetables has an adaptable
channel. This means that:

A. It has the ability to change according to the environment.
B. It has a large number of channel partipants at each level.
C. It uses a large number of channel levels.
D. There is considerable conflict among channel members.

WORKED

A manufacturer of canned fruits and vegetables has an adaptable
channel. This means that it has the ability to change according
to the environment. For most producers, the target customer and
its needs, competitors, government activities, technologies, and
other environmental elements are subject to change. An adaptable
channel is capable of adjusting to this change. The producer might
find it necessary to add or to eliminate specific channel members or
to change their functions in some way. Management might add new
kinds of wholesalers if existing ones are not selling agressively
enough, for instance.

ANSWER  A
INSTRUCTIONS Based on what you have learned so far, give your own definition
of a channel of distribution. Then go through this section to enlarge your understanding of this entity.

EXAMPLE

Many of the large producers of home exercise equipment in the United
States sell their products through retail stores. One of the few
exceptions advertises in magazines and television and delivers the
product by mail. This gives the firm several advantages. One is a
low distribution cost, since the firm does not have to reimburse
wholesalers or retailers. Another is differential advantage by selling
in a unique fashion that enables the firm to stand out from its
rivals. These strategies have allowed the company to capture a large
market share.

DETAILS

The simplest--a two level channel (also called "direct distribution")
is where a manufacturer sells directly to final customers, as in a
factory outlet store. A three level channel includes one selling
intermediary, either a retailer selling to consumers or a wholesaler
selling to industrial buyers.

Four level channels include two selling intermediaries. In consumer
markets, this usually amounts to a wholesaler and a retailer, as
when a food processor sells flour to a wholesaler who, in turn,
resells it to retailers. With industrial markets, the two
intermediaries might be two different wholesalers. Sometimes five
or more levels are included, but this is uncommon.

PROBLEM 4

A manufacturer of dress shoes for men and women uses direct
distribution. What level channel is employed?

A. One level.
B. Two level.
C. Three level.
D. Four level.
E. Five level.

WORKED

If a manufacturer of dress shoes for men and women uses direct
distribution, it has a two level channel. Here the producer sells
directly to final customers. Some shoe companies employ sales
representatives who call directly on consumers in homes, places of
work, and other locations. These companies believe that they can
control marketing activities more closely and distribute products
at a lower cost than if they used wholesalers and retailers. Since
they are not using intermediaries, however, they must undertake
all of the marketing functions needed to reach the marketing
objectives.

ANSWER  B