Multimedia Marketing/Marketing.iso/market/chapter6.3p

Text File | 1996-08-22 | 15KB | 319 lines

SECTION 6.3 Determining Needed Marketing Activities

INSTRUCTIONS Try to imagine what factors (such as type of customer and type of
product) determine the channel of distribution that a company will find to be optimal.

EXAMPLE

A southwestern producer of packaged sandwiches uses a direct channel.
The firm produces the sandwiches, wraps them, and then delivers
them directly to convenience stores, gasoline stations, and
supermarkets where they are sold to consumers. When the company
was founded, management investigated using food wholesalers to
distribute the sandwiches to retailers. The investigation revealed
that this would place these products on retailers'shelves two days
later than would direct distribution. This being the case, the
company installed that pattern and has been successfully utilizing
it since.

DETAILS

Just what constitutes an optimal channel system depends upon the
particular environment confronting the firm. The best set of channel
attributes for steel is quite different than that for ice cream,
for instance. But an optimal channel's characteristics may also vary
among firms within the same industry. Different target markets,
different objectives, and a host of other factors can bring management
to place varied emphasis on particular marketing functions. In turn,
these factors affect the desirability of including certain
intermediaries in a channel.

There are five major categories of factors to consider when attempting
to determine the marketing activities that a channel should accomplish:

1. Target customer characteristics.
2. Product characteristics.
3. Intermediary characteristics.
4. Environmental characteristics
5. Company characteristics.

Probably the single most important class of characteristics influencing
a channel system's design are those relating to target customers.
When there are numerous customers, each purchasing small quantities
on a frequent basis, producers tend to develop rather lengthy channel
systems that are also quite broad--that is, with many intermediaries
at each level. This is especially true when customers are widely-
dispersed geographically.

In contrast, producers tend to develop short and narrow channels
when there are only a few geographically concentrated target customers,
especially when large purchase quantitites are involved. These
conditions favor direct distribution. Large steel mills, for instance,
market directly to companies in the metal-working industry because
of their geographical concentration and large potential orders.

Product characteristics also play a major role in the design of a
channel system. In general, the greater the value of an item, the
shorter should be the channel for two reasons. First expensive products
usually require a heavy personal selling effort (as in the case of
large computer systems). Short channels have greater flexibility when
it comes to meeting individual customer needs such as specially
arranged deliveries, financing, and instructions for use.

Second, short channels can reduce an entire system's total inventory and
related carrying costs. If numerous retailers and wholesalers stored
fur coats, for instance, inventory carrying costs would mushroom
dramatically.

A product's bulk and weight are also important. Large items cost more
to store, ship, and handle; the greater these costs as compared to
an item's unit value, the greater is the need to emphasize efficient
handling and transportation. Thus, bulky and heavy items with low
unit values tend to have longer channels.

Perishable items deteriorate over time; from decay (aging food) or
from style deterioration (many types of fashion clothing). Highly
perishable items usually require shorter channels so as to speed
delivery to market. Milk typically has a shorter channel than
canned vegetables. Similarly, fragile items typically have short
channels.

Further, if items are custom-made to buyer specifications, a short
channel is usually necessary. In contrast, highly standardized
offerings such of jars of peanut butter can be efficiently handled
by functional specialists, so longer channels tend to be used.
The degree of required servicing, such as adjustments and installation,
is also a consideration. Products that require extensive servicing
typically move through short channels, as is the case with central
air conditioners.

PROBLEM 1

Logically, which of the following would have a short channel of
distribution?

A. A brand of pancake syrup.
B. A personal computer.
C. Men's dress stockings.
D. Sabre saws (sold to consumers).

WORKED

Personal computers tend to have a short channel of distribution.
Target customers make large dollar purchases on an infrequent
basis. The product is of high unit value and marketers who use
short channels are able to prevent very high inventory cost by
avoiding extensive use of intermediaries. The products are also
heavy and bulky. Further the products require considerable customer
service, which manufacturers prefer to do themselves, rather than
delegating this responsibility to intermediaries. The result is
that direct distribution is common.

ANSWER  B

INSTRUCTIONS Try to imagine what factors (such as type of customer and type of
product) determine the channel of distribution that a company will find to be optimal.

EXAMPLE

A southwestern producer of packaged sandwiches uses a direct channel.
The firm produces the sandwiches, wraps them, and then delivers
them directly to convenience stores, gasoline stations, and
supermarkets where they are sold to consumers. When the company
was founded, management investigated using food wholesalers to
distribute the sandwiches to retailers. The investigation revealed
that this would place these products on retailers'shelves two days
later than would direct distribution. This being the case, the
company installed that pattern and has been successfully utilizing
it since.

DETAILS

Intermediary characterisitics affect channel design. It is evident
that intermediaries vary in their ability and desire to perform
various marketing functions, such as storing, advertising, and
personal selling. Producers should take these differences into account
when designing interorganizational arrangements.

For example, large retailers such as major department stores can
provide extensive exposure for a product because of their ability
to draw heavy shopping traffic. On the other hand, smaller specialty
stores might offer greater sales potentials. While small units typically
attract fewer shoppers than department stores, their customers often
are more focused. A sporting goods store might not attract a large
total number of shoppers each day, but those that do enter are
predisposed toward buying sporting goods. Further, the relative
promotion emphasis that a particular product receives is likely to
be greater in a small store than in a large one.

PROBLEM 2

A producer of high quality, expensive, prestigious television sets is
seeking the best kind of retail outlet. This is likely to be:

A. Discount stores.
B. Electronics stores.
C. Department stores.
D. Specialty T.V. stores.

WORKED

A producer of high quality, expensive, prestigious television sets
is likely to be satisfied with the services of department stores.
These units attract high income consumers who want very high
quality goods and services and are willing to pay a high price to
get them. These consumers want considerable service--such as delivery
and easy credit. They want extensive service while in the store and
after they have made the purchase. Further, some desire the prestige
of buying in an upscale department store.

ANSWER  C
INSTRUCTIONS Try to imagine what factors (such as type of customer and type of
product) determine the channel of distribution that a company will find to be optimal.

EXAMPLE

A southwestern producer of packaged sandwiches uses a direct channel.
The firm produces the sandwiches, wraps them, and then delivers
them directly to convenience stores, gasoline stations, and
supermarkets where they are sold to consumers. When the company
was founded, management investigated using food wholesalers to
distribute the sandwiches to retailers. The investigation revealed
that this would place these products on retailers'shelves two days
later than would direct distribution. This being the case, the
company installed that pattern and has been successfully utilizing
it since.

DETAILS

Various characteristics of the environment also have an impact on
a channel's design. Rapid economic expansion might require the
selection of intermediary members that would otherwise be unacceptable;
or a recession could mean that management would need to terminate
some channel members.

Managers should consider competitors' systems when designing a
channel. Producers seeking to penetrate closely related markets may
develop channel systems that display their products next to
competitive  brands. Different brands of cosmetics, for instance, often
sit side-by-side in cosmetics sections of department stores.

Various company characteristics play an important role in influencing
channel system development. Large, financially strong producers are
sometimes able to obtain scale efficiencies as specialists because of
their size. Accordingly, they often perform many needed channel
functions for themselves. Some computer manufacturers, for instance,
use well-trained and motivated sales forces to sell personal
computers to retailers.

Smaller companies, in contrast, usually rely upon intermediaries to
gain efficiency. Most personal computer software companies rely
on wholesalers to feed their products to retailers and cannot hope
to provide these stores with the same level of support as the larger
firms can.

Channel design decisions should also reflect a company's past
experience. Some firms have a history of using wholesalers to
distribute their products. Trying to reach retailers directly would
place these firms at a disadvantage, since they lack experience in
such matters. In a similar vein, marketing policies can influence
the type of channel needed. A policy of "a maximum three day delivery
deadline for 90 percent of our customers" requires certain types of
intermediaries to permit implementation.

PROBLEM 3

A vegetable and fruit produce grower uses wholesalers to distribute
its products to retailers. One reason for this could be:

A. The economy is not growing rapidly.
B. The grower is large.
C. The grower used to employ wholesalers.
D. Competing growers do not use wholesalers.

WORKED

A vegetable and fruit produce grower uses wholesalers to distribute
its products to retailers. One reason for this could be that the
grower used to employ wholesalers. The firm has experience in dealing
with these intermediaries. It could be that the grower dropped the
wholesalers when sales revenues arose to levels that permitted
economies of scale. This may no longer be the case, however, and
the grower may need the assistance of wholesalers again. It may be
difficult to gain their agressive sales support, however, as they
are aware that the grower may drop the wholesalers from the channel
again.

ANSWER  C

INSTRUCTIONS Try to imagine what factors (such as type of customer and type of
product) determine the channel of distribution that a company will find to be optimal.

EXAMPLE

A southwestern producer of packaged sandwiches uses a direct channel.
The firm produces the sandwiches, wraps them, and then delivers
them directly to convenience stores, gasoline stations, and
supermarkets where they are sold to consumers. When the company
was founded, management investigated using food wholesalers to
distribute the sandwiches to retailers. The investigation revealed
that this would place these products on retailers'shelves two days
later than would direct distribution. This being the case, the
company installed that pattern and has been successfully utilizing
it since.
DETAILS

Channel design is also influenced by the completeness of a producer's
product mix in relation to the target market's desired bundle of
items. Consider the case of an insurance company that writes only
life insurance. If it chooses a target that has very few needs for
other types of insurance, then a simple channel configuration may
be appropriate. A direct distribution channel might be appropriate
if it targets graduating college students, for example, since most
of these prospects do not yet have needs for home, annuity, and
other forms of insurance.

In contrast, consider the same life insurance carrier trying to
penetrate a target of families that also have home, retirement,
and many other types of insurance needs. Since it only handles life
insurance, its product mix only presents a small portion of a
complete insurance package to these buyers. Consequently, a more
complex channel is warranted.

By working through independent agents who handle all other types
of insurance from different carriers, the life insurance specialist
can arrange to become part of an overall package of insurance
coverage that represents a complete bundle of products to the target.

Other kinds of intermediaries provide benefits through the same
process. The wholesaler or retailer carries a wide product line,
obtained from multiple producers. When the intermediary sales
representative calls on a customer, he or she is able to satisfy
the need for different products and serve the customer in a way that
provides much better service than if only one or a few items were
carried.

PROBLEM 4

A producer of business forms for small business is more likely to
use direct distribution when:

A. The company has a tradition of using wholesalers in the channel.
B. The company has a narrow product mix.
C. The company relies on intermediaries to gain efficiencies.
D. The company is large.

WORKED

A producer of business forms for small business is more likely to
use direct distribution when the company is large. Large companies
have the funds, sales forces, warehouses, truck fleets, and other
resources needed to perform all or most of the needed marketing
functions. They do not need to rely on intermediaries to do these
functions and, because they are large, they may be able to undertake
the functions more efficiently and more effectively than most
intermediaries could. Small producers, in contrast, have few resources
and, as a corollary, must rely on intermediaries.

ANSWER  D