Multimedia Marketing/Marketing.iso/market/chapter6.4p

Text File | 1996-08-22 | 17KB | 359 lines

SECTION 6.4 Distribution Intensity

INSTRUCTIONS Try to decide how you would determine the number of intermediaries
to use at each level in the channel. Then pursue this section for more information on the subject.

EXAMPLE

A company had, for many years, a mission of selling plastic laminated
sheets for use in construcion. One use was in the making of doors.
In earlier years the company operated its own door manufacturing
plant that used the plastic sheets on the door exteriors. Company
personnel handled all distribution and promotion activities; this
did not work very well, resulting in poor sales performance.

Later the firm switched to using wholesalers to handle its doors,
but again this arrangement did not work well because the company's
mission was to sell the plastic sheets, not doors. Later the company
developed 25 independent door manufacturers as "approved sources",
which helped expand sales of the plastic sheets. Still later,
firm had expanded the concept of "approved sources" to cabinet
makers, building supply outlets, and home improvement centers,
turning the company into a very profitable operation. Relying on
intermediaries turned the firm around.

DETAILS

Distribution intensity, the width of a channel, is a cornerstone of
distribution strategy. Several degrees of intensity are possible.
While intensity is a continuum, it helps to think of three discrete
alternatives: intensive, selective, and exclusive.

Intensive distribution is the strategy of making an item available
at all locations where customers expect to find it. It is especially
appropriate for consumer convenience items such as gum and candy
bars, and for certain producer supplies such as common lubricants,
floor-cleaning products, and other commodity items that face heavy
direct competition. Intensive distribution is common for low-priced
items.

Many buyers of such products accept substitutes if their favorite
brand is unavailable. Hence, intensive distribution is important
whenever a convenient location is a critical factor to buyers and
when a high level of competition exists between brands. If consumers
cannot find convenience items in their favorite shopping location
they will simply buy a competitor's product.

Because numerous locations are required, intensive distribution always
necessitates the use of many intermediaries. All intermediaries where
target  customers shop should be included. All retailers for a paint
brush manufacturer, for instance, might mean all paint, hardware, and
discount stores.

Intensive distribution can be expensive to the manufacturer. It is
necessary to set up a distribution channel that includes many
intermediaries and to manage this large channel. This requires more
time and effort than if the producer dealt with only a few
intermediaries. Further, the marketer may experience difficulty in
inducing intermediaries to promote a product more agressively than
competing products.

In the consumer goods field, marketers of convenience goods frequently
seek intensive distribution. Producers of soft drinks, cigarettes,
and detergents are examples. Consumers want these products in convenient
locations. They are not willing to exert a great deal of effort to
obtain them.

In the industrial-goods field, numerous marketers of operating
supplies seek intensive distribution. The producers of lubricating
oil and pencils fall into this category. Each manufacturer of these
items knows that the market is made up of consumers from a variety
of industries. This being the case, the producer seeks a large
number of industrial distributors.

PROBLEM 1

Intensive distribution may be necessary for a marketer of gum
because:

A. Consumers are willing to go to considerable effort to acquire
   their favorite brand of gum.
B. Intensive distribution is a low cost pattern.
C. Intensive distribution is needed for specialty goods.
D. Many buyers of convenience goods accept substitutes if their
   favorite brand is unavailable.

WORKED

Intensive distribution may be necessary for a marketer of gum because
many buyers of convenience goods accept substitutes if their favorite
brand is unavailable. These consumers are not willing to exert much
effort to obtain their favorite brand. They expect the producer to
make it widely-available and may change brands if they experience
difficulty finding the item. Of course, what is a convenience
product to one consumer may be a specialty product to another. There
probably are some consumers who will go to considerable effort to
find their favorite brand of gum. But this number probably is not
very large.

ANSWER  D
INSTRUCTIONS Try to decide how you would determine the number of intermediaries
to use at each level in the channel. Then pursue this section for more information on the subject.

EXAMPLE

A company had, for many years, a mission of selling plastic laminated
sheets for use in construcion. One use was in the making of doors.
In earlier years the company operated its own door manufacturing
plant that used the plastic sheets on the door exteriors. Company
personnel handled all distribution and promotion activities; this
did not work very well, resulting in poor sales performance.

Later the firm switched to using wholesalers to handle its doors,
but again this arrangement did not work well because the company's
mission was to sell the plastic sheets, not doors. Later the company
developed 25 independent door manufacturers as "approved sources",
which helped expand sales of the plastic sheets. Still later,
firm had expanded the concept of "approved sources" to cabinet
makers, building supply outlets, and home improvement centers,
turning the company into a very profitable operation. Relying on
intermediaries turned the firm around.

DETAILS

In the case of selective distribution, the producer uses only
a limited number of intermediaries in each geographic area. Rather
than selling through very large numbers of wholesalers and retailers,
the company attempts to target those that appear to be the most
promising.

Selective distribution requires being a bit more discriminating
about which companies are to be included in the channel. Shopping
goods are typical products for selective distribution. Customers
are usually willing to search longer and travel more than for
convenience items so that they can compare competing brands. Thus,
convenient locations are less important than for convenience items
and fewer intermediaries become necessary.

In the industrial goods category, slective distribution is found
in accessories and parts and processed materials. In all these
cases, producers are highly interested in obtaining substantial
competition from intermediaries.

While fewer intermediaries are needed, the objective of selective
distribution is not based upon numbers. Customers do not buy items
because they are offered in fewer places. Instead, the goal is
high-quality performance from wholesalers and retailers. Because
few channel members exist, less intrachannel competition is involved
and the producer can expect more from intermediaries.

Further, selective distribution enables the producer to exclude
marginal dealers such as those with low sales, bad credit ratings,
and small orders. Therefore, when customers are willing to seek out
a product beyond the nearest convenient location and when a moderate
marketing effort by intermediaries is required, selective distribution
is likely to be appropriate.

This policy enables the marketer to avoid using intermediaries who
are unprofitable because they:

1. Place extremely small orders.
2. Request excessive levels and types of services.
3. Fail to pay their bills promptly.
4. Return an excessive number of goods to the manufacturer.
5. Do not agressively promote the manufacturer's offerings.

By carefully examining the records of past relationships with
intermediaries, the manufacturer can identify those that
have caused excessive costs in the past. Often a large reduction
in expense can result from eliminating the costly accounts from
a channel.

PROBLEM 2

A shoe manufacturer might choose selective distribution because.

A. Shoes are convenience goods to most consumers.
B. The manufacturer can expect more from intermediaries than is the
   case for intensive distribution.
C. Selective distribution enables the manufacturer to attract
   marginal dealers.
D. Shoes are typically purchased on impulse.

WORKED

A shoe manufacturer might choose selective distribution because the
manufacturer can expect more from intermediaries than is the case
for intensive distribution. If only a few intermediaries stock the
product, they realize that any efforts expended to improve the sales
of the item in question will benefit them substantially. Thus,
they are likely to give the product favorable display and substantial
advertising and other promotion. There is little incentive to do
this under intensive distribution, because efforts extended to
promote the product will assist competitors.

ANSWER  B
INSTRUCTIONS Try to decide how you would determine the number of intermediaries
to use at each level in the channel. Then pursue this section for more information on the subject.

EXAMPLE

A company had, for many years, a mission of selling plastic laminated
sheets for use in construcion. One use was in the making of doors.
In earlier years the company operated its own door manufacturing
plant that used the plastic sheets on the door exteriors. Company
personnel handled all distribution and promotion activities; this
did not work very well, resulting in poor sales performance.

Later the firm switched to using wholesalers to handle its doors,
but again this arrangement did not work well because the company's
mission was to sell the plastic sheets, not doors. Later the company
developed 25 independent door manufacturers as "approved sources",
which helped expand sales of the plastic sheets. Still later,
firm had expanded the concept of "approved sources" to cabinet
makers, building supply outlets, and home improvement centers,
turning the company into a very profitable operation. Relying on
intermediaries turned the firm around.

DETAILS

The most restrictive strategy regarding a channel's breadth is
exclusive distribution. With it, selected channel members receive
an agreement, granting them sole rights to sell a product line in
a certain territory. Producers of consumer specialty items and
of parts and equipment sold to producers frequently employ
exclusive distribution. They have no need for extensive networks
of  channel members to sell their products, as the function can be
handled well by just a few.

Management can restrict the channel to low cost wholesalers and
retailers who are willing to stock large inventories, perform
services such as installation and repair, promote the product
rigorously, and follow the price suggestions of the manufacturer.

A producer of rifles and handguns employs an exclusive distribution
strategy. The product is a specialty good in the minds of many
firearm buyers. They will go to considerable trouble to seek out
retailers that stock this particular brand and if the item they
want is not in stock will wait for the retailer to order it and have
it in stock at a later time.

A problem with exclusive distribution is that the manufacturer must
determine which intermediaries are to be given exclusive status. This
is a difficult and potentially hazardous task. If management is not
effective in judging intermediaries, good outlets may be excluded and
poor outlets included in the channel. Further, those intermediaries
who are not profitable at present may iprove their operations and
become desirable accounts in the future when the manufacturer,
however, is tied to the exclusive distribution agreements with other
intermediaries.

In short, this policy makes the producer dependent upon particular
intermediaries for distributing the product. If they are not
effective, the entire marketing effort may fail.

PROBLEM 3

A manufacturer of expensive television sets that are in high demand
by upscale consumers uses exclusive distribution. A probable reason
is that:

A. Consumers will go to considerable effort to acquire the sets.
B. Consumers treat the product as a luxury good.
C. Some consumers will buy the product on impulse.
D. Consumers will respond to advertising by retailers, and buy
   the product.

WORKED

A manufacturer of expensive television sets that are in high demand
by upscale consumers uses exclusive distribution. A probable reason
is that consumers will go to considerable effort to acquire the
sets. There is no need to stock this product in numerous retail
stores, since consumers will seek it out, regardless of where it is
located. A major benefit is that the transaction costs to the
manufacturer are less than if the company used extensive or selective
distribution, since fewer retailers are involved in the channel.

ANSWER  A
INSTRUCTIONS Try to decide how you would determine the number of intermediaries
to use at each level in the channel. Then pursue this section for more information on the subject.

EXAMPLE

A company had, for many years, a mission of selling plastic laminated
sheets for use in construcion. One use was in the making of doors.
In earlier years the company operated its own door manufacturing
plant that used the plastic sheets on the door exteriors. Company
personnel handled all distribution and promotion activities; this
did not work very well, resulting in poor sales performance.

Later the firm switched to using wholesalers to handle its doors,
but again this arrangement did not work well because the company's
mission was to sell the plastic sheets, not doors. Later the company
developed 25 independent door manufacturers as "approved sources",
which helped expand sales of the plastic sheets. Still later,
firm had expanded the concept of "approved sources" to cabinet
makers, building supply outlets, and home improvement centers,
turning the company into a very profitable operation. Relying on
intermediaries turned the firm around.

DETAILS

The advantage of exclusive distribution to producers is that they
can expect chosen channel members to effectively perform many of
the needed marketing functions. For example, successfully selling
top-quality skis and boots typically requires salespeople who
are both skiing and equipment experts and sources of consumer advice.
Retailers who have exclusive distribution are more willing to hire
experts at premium salaries to help customers satisfy their unique
needs.

To intermediaries, exclusive distribution means that they have less
direct competition. There may be others who handle the same line in
nearby regions; however, the territories are usually large enough
to avoid substantial direct competition. If the producer has not
carefully designed the territories, however, direct competition can
result and this can be very damaging to retailer morale.

New or small producers may not have a choice over the intensity
strategy they employ. Established intermediaries may demand exclusive
distribution before they will carry a product. By obtaining exclusive
rights, they can reap a greater share of the benefits of helping to
establish a successful product. This may bring about vigorous
intermediary efforts for a producer, but it may also result in lost
control. Therefore, management must exercise extreme care in
assuring that distributors are capable of both serving the identified
target and helping the producer to attain its objectives in the long
run.

PROBLEM 4

A producer of expensive watches might employ exclusive distribution
because:

A. Exclusive distribution is useful for shopping goods.
B. Exclusive distribution is useful for convenience goods.
C. Channel members will effectively perform many of the needed
   marketing functions.
D. This will result in more direct competition between intermediaries.

WORKED

A producer of expensive watches might employ exclusive distribution
because channel members will effectively perform many of the needed
marketing functions. The producer might sell the watches only in
selected upscale department stores and gift shops, where each store
has an exclusive in its territory. The company would avoid selling
through outlets such as discounters and mass market jewelers. There
would be an incentive for channel members to give the watches
prominent display, to bring them to the attention of customers,
to give them advertising support, and to cooperate with the producer
in carrying out the producer's mission, objectives, and goals.

ANSWER  C