Multimedia Marketing/Marketing.iso/market/chapter6.6p

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SECTION 6.6  Channel Leadership

INSTRUCTIONS Provide an answer to the question: "Should producers always be the
leaders of a channel?" Then go into this section in search of answers.

EXAMPLE

An automobile producer made some marketing decisions that surprised
and even dismayed some of its dealers. The firm's sales were off,
yet it raised its prices by more than three percent. Most of the
firm's dealers were baffled, especialy since company auto sales
were down by six percent from a year before.In the face of this,
dealers had inventories that were 30 percent above normal.

The dealers expected the company to launch new sales incentives
eventually, but probably not until inventories dropped. Then,
they predicted that the firm would roll out case rebates. In the
meantime, many dealers were suffering from the double crunch of
large inventories and reduced sales.

Many producers would experience reduced dealer performance under
such conditions. However, this producer has built up a high degree
of motivation and a cooperative arrangement with dealers. Many
were optimistic that the company was doing the right thing, despite
the unfavorable signs. Some dealers indicated that they had
accumulated large inventories to take care of the expected large
surge in sales later in the year. In addition, the producer offered
rebates and low-interest financing on some slow-selling models to
help alleviate its inventory problems.

DETAILS

To this point it has been assumed that producers are the developers
and prime coordinators of the channel. In a sense, producers have
the ultimate decision making power because they can always decide
whether they wish to produce an item or not. But short of this
extreme, producers are not always the principal channel decision
makers.

In each channel system there is one firm that assumes a leadership
position in determining who is to perform which functions. This
firm is the channel's leader or "captain"--the principal decision
maker within a channel system. A product's manufacturer often
fills this role, but sometimes it is an intermediary.

A producer is always the leader in a direct channel since no
intermediaries are involved. The leader of a lengthier channel might
instead be a wholesaler or retailer. Usually, the strongest member
of a channel system emerges as its leader.

Producers tend to be the leaders when large-scale expenditures are
required in the marketing, production, or technological development
of a product line. Examples include industries such as soft drinks,
patent medicines, and automobiles. The major factors leading to a
producer channel control is that a large expenditure is required for
marketing, production, or both; the items are targeted for mass
markets in multiple geographic areas; and the products are likely
to be highly differentiable from others within their generic product
classes.

In general, intermediaries do not have the single product capabilities,
sufficient capital, or sufficiently large markets to develop products
requiring large scale efforts. Developing a new TV set, for instance,
might cost a producer in excess of ,50 million. Larger markets than
those served by intermediaries are typically necessary for such an
investment to be financially feasible. Since producers can distribute
through numerous intermediaries, large investments become more
feasible.

In some cases, producers are the leaders because they have developed
a reputation in the industry, over a period of time, and the public
has come to accept their brands as traditional market leaders. These
brands have accumulated considerable consumer loyalty and goodwill.
It would take very large expenditures on promotion for intermediaries
to break the grip on the market enjoyed by these brands. Accordingly,
the producer is the leader of the channel.

PROBLEM 1

Which of the following is not a major factor leading to producer
control of a channel for cereal:

A. The cereal is highly differentiable from other cereals
B. A large expenditure is required for marketing the cereal.
C. The cereal is targeted for mass markets in multiple geographic
   areas.
D. The cereal has considerable brand loyalty.

WORKED

Producer control of a channel for cereal is likely when the product
is highly differentiable from other cereals. This makes it difficult
for intermediaries to develop their own brands, because the product
has a strong and established image that is hard to overcome.


Producer control is also likely if a large expenditure is required
for marketing the cereal, as many intermediaries do not have the
resources for such expendiures. If the cereal is targeted for mass
markets in multiple geographic areas, producer control is likely,
since producers serve such markets, whereas most intermediaries
focus on smaller and geographically concentrated markets.

ANSWER  D
INSTRUCTIONS Provide an answer to the question: "Should producers always be the
leaders of a channel?" Then go into this section in search of answers.

EXAMPLE

An automobile producer made some marketing decisions that surprised
and even dismayed some of its dealers. The firm's sales were off,
yet it raised its prices by more than three percent. Most of the
firm's dealers were baffled, especialy since company auto sales
were down by six percent from a year before.In the face of this,
dealers had inventories that were 30 percent above normal.

The dealers expected the company to launch new sales incentives
eventually, but probably not until inventories dropped. Then,
they predicted that the firm would roll out case rebates. In the
meantime, many dealers were suffering from the double crunch of
large inventories and reduced sales.

Many producers would experience reduced dealer performance under
such conditions. However, this producer has built up a high degree
of motivation and a cooperative arrangement with dealers. Many
were optimistic that the company was doing the right thing, despite
the unfavorable signs. Some dealers indicated that they had
accumulated large inventories to take care of the expected large
surge in sales later in the year. In addition, the producer offered
rebates and low-interest financing on some slow-selling models to
help alleviate its inventory problems.

DETAILS

An intermediary is likely to be a channel's leader when one of
three factors exist. First, strong intermediaries may have to
assume leadership when producers are too weak to do so. Large
department store chains, for instance, are channel leaders for
many of the items that they sell. By contracting with weaker
manufacturers, to provide items sold under the chains' own brands,
both the retailer and its affiliated producers benefit. The
department stores are able to control the entire marketing effort
of their products and manufacturers obtain access to large markets
they would otherwise be unable to penetrate.

Second, strong intermediaries can develop leadership roles by
helping to differentiate otherwise basic commodities. To illustrate,
many shoppers think of cans of corn being pretty much alike despite
their production origins. Reasonable quality is important in
determining which brand they select, but so is price. Intermediaries
can and do develop their own brands. In this case, the intermediary
brand provides an assurance of reasonable quality.

Finally, when producers experience difficulty in forecasting or
stimulating demand in local areas, intermediaries are in a good
position to become channel leaders. This is largely the case for
fashion-oriented apparel and household items. The "in" clothing
in New York is different from what is found on the West coast
or in Kansas City. Locally, intermediaries generally are in the
best position to judge what consumers will demand in their trade
areas. Accordingly, they generally assume channel leadership.

In short, whichever channel member is in the best posiion to absorb
risk is best able to assume control. When adjusting to local
conditions is critical, retailers or wholesalers are often in the best
position.  When a larger scale is required, producers generally
assume channel leadership. It is the leader's responsibility to
develop an effective channel system and to see that it functions
properly. This requires making plans and strategies, monitering
the performance of the channel, motivating channel members toward
overall goals, and taking remedial action when necessary.

PROBLEM 2

A pasta manufacturer has found that retailers tend to be leaders
for its company brands. This is likely because:

A. There are no major differences in regional demands for
   pasta products.
B. Many consumers consider pasta to be a commodity.
C. The pasta manufacturer is a large company.
D. Production expenditures for the pasta are large.

WORKED

A pasta manufacturer has found that retailers tend to be leaders
for its company brands. This is likely because many consumers
consider pasta to be a commodity, that is, a product class where
most of the brands are physically similar. If many consumers think
that the pasta produced by manufacturer A is about the same as
those produced by other manufacturers, there is limited opportunity
for differential advantage at the manufacturer level. Promotion
expenditures used in an attempt to establish differential advantage
are likely to be wasted. On the other hand, retailers can develop
their own brands and build demand for them, perhaps on a low price
basis or based upon perceived quality of store brands.

ANSWER  B
INSTRUCTIONS Provide an answer to the question: "Should producers always be the
leaders of a channel?" Then go into this section in search of answers.

EXAMPLE

An automobile producer made some marketing decisions that surprised
and even dismayed some of its dealers. The firm's sales were off,
yet it raised its prices by more than three percent. Most of the
firm's dealers were baffled, especialy since company auto sales
were down by six percent from a year before.In the face of this,
dealers had inventories that were 30 percent above normal.

The dealers expected the company to launch new sales incentives
eventually, but probably not until inventories dropped. Then,
they predicted that the firm would roll out case rebates. In the
meantime, many dealers were suffering from the double crunch of
large inventories and reduced sales.

Many producers would experience reduced dealer performance under
such conditions. However, this producer has built up a high degree
of motivation and a cooperative arrangement with dealers. Many
were optimistic that the company was doing the right thing, despite
the unfavorable signs. Some dealers indicated that they had
accumulated large inventories to take care of the expected large
surge in sales later in the year. In addition, the producer offered
rebates and low-interest financing on some slow-selling models to
help alleviate its inventory problems.

DETAILS

Channel leaders, in order to be effective, should have clear-cut
objectives. The primary objectives which should be pursued are:

1. To develop an integrated and effective marketing program.
2. To develop a smooth-running channel system relatively free of
   interorganizational conflict.
3. To control inventories for customer service and corporate costs.
4. To provide adequate service to customers and other channel
   members.

Not all channel leaders will have the same objectives, of course.
And one channel leader may place more emphasis on one of the objectives
and relegate others to a position of lesser priority. Nevertheless,
these four objectives should be incorporated into the plans of any
channel leader, in order to increase the probability of success in
the marketplace.

The first objective--to develop an integrated and effective marketing
program--is perhaps the most important. Leaders must see to it that
all channel participants integrate their efforts with one another
in such a way that all contribute to channel goals. The leader should
produce an effective marketing program--one that will succeed in
customer satisfaction and overcoming the efforts of rivals.


PROBLEM 3

A manufacturer of sandwich, yard, and garbage bags has an objective
of controlling inventories for customer service and corporate costs.
Why would this objective be important?

A. Most intermediaries have such slow inventory turnover rates
   that they cannot afford to control inventories.
B. One of the most important reasons for using intermediaries is
   to provide adequate yet not overly expensive inventories.
C. Most intermediaries want to stock more merchandise than the
   producer would prefer.
D. Most intermediaries are pursuing policies of trying to provide
   very extensive customer service, but this tends to be unduly
   expensive to many producers.

WORKED

A manufacturer of sandwich, yard, and garbage bags has an objective of
controlling inventories for customer service and corporate costs. This
objective is important because one of the most important reasons for
using intermediaries is to provide adequate yet not overly expensive
inventories. Many producers are not in a financial position to
provide these inventory carrying services to their customers. And
many lack experience in this function. This being the case, they
retain intermediaries, but they must continually moniter the work
of these companies to ensure that they purse inventory policies that
are compatible with the goals of the producer.

ANSWER  B
INSTRUCTIONS Provide an answer to the question: "Should producers always be the
leaders of a channel?" Then go into this section in search of answers.

EXAMPLE

An automobile producer made some marketing decisions that surprised
and even dismayed some of its dealers. The firm's sales were off,
yet it raised its prices by more than three percent. Most of the
firm's dealers were baffled, especialy since company auto sales
were down by six percent from a year before.In the face of this,
dealers had inventories that were 30 percent above normal.

The dealers expected the company to launch new sales incentives
eventually, but probably not until inventories dropped. Then,
they predicted that the firm would roll out case rebates. In the
meantime, many dealers were suffering from the double crunch of
large inventories and reduced sales.

Many producers would experience reduced dealer performance under
such conditions. However, this producer has built up a high degree
of motivation and a cooperative arrangement with dealers. Many
were optimistic that the company was doing the right thing, despite
the unfavorable signs. Some dealers indicated that they had
accumulated large inventories to take care of the expected large
surge in sales later in the year. In addition, the producer offered
rebates and low-interest financing on some slow-selling models to
help alleviate its inventory problems.

DETAILS

In order to accomplish their objectives, leaders must realize that
all participants, including themselves, tend to adopt a comparative
profit approach when determining the extent of their involvement
in a particular channel. That is, the degree of support that a
channel member is willing to provide is in direct proportion to
the profit that it can expect by so doing. Thus, the captain should
see that adequate financial incentives are available for all channel
members. Beyond this, interpersonal leadership and a sound marketing
program are necessary for channel member support.

Finally, some researchers propose that large firms should utilize
a channel manager to coordinate channel decisions. The firm would
receive benefits such as coordination and control  and full time
attention to the channel field. Further, this would ensure that
the company affords channel decisions as much attention as decisions
in areas such as product planning and advertising.

PROBLEM 4

A producer of degreasers for professional and do-it-yourself mechanics
is the channel captain. In order to build high involvement on the
part of channel members, the producer should:

A. Pay particular attention to the personal needs of intermediary
   managers.
B. See to it that all channel members receive adequate profits
   from the channel.
C. Attempt to improve the cash flow position of channel members.
D. Maintain a steady flow of communications directives to channel
   members.

WORKED

A producer of degreasers for professional and do-it-yourself mechanics
is the channel captain. In order to get high involvment on the part
of channel members, the producer should see to it that all channel
members receive adequate profits from the channel. If they do not
receive adequate profits, wholesalers and retailers will concentrate
their efforts on other products and brands. Degreasers tend to be
a relatively high margin offering, so it should not be difficult to
arrange for adequate profits to all channel members for this product.
Cometition for degreasers, however, is keen and the firm will have
to offer equal or better compensation to channel members as do
rivals.

ANSWER  B