Chapter 7
As you read the chapter, make notes about each of the following:
 | Functions of Intermediaries |
| Channel Members |
| Wholesale Distribution of Consumer Products |
| Retail Distribution |
| Wholesalers |
| Retailers |
| Market Intensity |
| Channel Management |
| Physical Distribution |
| The Internet |
| Business to Business |
| Business to Consumer |
Define each key term you find.
Summarize each term in your own words. List the important points for
each term. Give a "real life" example of each term.
(hover your mouse over the word for a popup definition)
Answer the objectives.
These tell you what you are expected to know upon completion of the
chapter.
I have made some notes for you. Expand on any that are new to you.
- Define the functions of marketing channels and physical distribution.
A channel of distribution is the arrangement businesses use when involved in performing marketing functions and transferring goods and services and their ownership from manufacturers to end-users.Physical distribution is the aspect of marketing responsible for the movement and storage of products as they flow through the channel of distribution.
- Describe the roles of channel intermediaries.
To facilitate the exchange process between the original creators of products (e.g., manufacturers, farmers, miners, and service providers) and the end users of these goods and services.
- Demonstrate business to business channels.
| direct to the business customers who are the end users in business-to-business marketing; |
| indirect via agents or brokers; |
| indirect via distributors; and |
| indirect via agents/brokers and distributors |
- Demonstrate consumer channels.
| short, direct-to-consumer arrangement |
| long, producer-to-agents/brokers-to-wholesalers-to-retailers-to-consumer channel |
- Define vertical marketing systems.
The term vertical marketing system (VMS) describes a marketing channel whereby channel members unify their efforts and cooperate in order to best serve their own needs as well as those of their direct customers and the ultimate consumers. Three types of vertical marketing systems are recognized: administered, corporate, and contractual VMSs.
- Discuss channel dynamics.
| Channel power is the ability of one channel member to exert influence over and dictate the behavior of other channel members. When channel members disagree on the methods used to perform their channel functions, conflict arises. A channel member who exerts channel leadership is one who uses authority to direct or guide the channel's activities. |
- Review legal considerations.
Absent of any intent to create a monopoly, and thus violate the Sherman Antitrust and Clayton Acts, sellers may deal with whomever they wish. There are three problematic situations, however, where sellers may be engaging in unlawful behavior when exerting their market power: exclusive dealing, tying agreements, and closed sales territories.
- Analyze the various forms of physical distribution.
Physical distribution activities include receiving and processing orders, storing and controlling inventory, transporting, and servicing customers.
- Discuss the number and types of wholesalers.
| In the United States approximately 470,000 wholesalers generate more than
$2,525 billion (i.e. over $2.5 trillion) in sales. Three general forms of wholesaling
intermediaries can be distinguished by their specialized activities: (1) a manufacturer's own sales offices (operates like an independent agent and does not carry inventory) and branches (sells products and provides support services for the manufacturer's sales force) (2) independent merchant wholesalers
(3) independent agents (manufacturer's agents, selling agents) and brokers. |
- Discuss the number and types of retailers.
In the United States in excess of 1.5 million retailers generate nearly $1.9 trillion in sales in the United States.
(Strategies: Product Lines and Assortments, Service Quality, Price and Margins, Atmospherics)
*scrambled merchandising
*franchising
*Specialty stores
*Supermarkets
*department stores
*discount stores
- Analyze new trends in retailing.
*category killer
*outlet malls
*general merchandise outlets (membership clubs, hypermarkets, warehouse and catalog showrooms, home improvement centers)
- Describe types of nonstore retailing.
| catalog marketing |
| telemedia |
| direct selling |
| automatic merchandising |
| electronic retailing |
- Discuss the evolution of retailing.
The wheel of retailing hypothesis describes how retail institutions change during their evolutionary life cycles. New retailing institutions enter the market as low-status, low-margin, low-price operations. As these retailers achieve success, attempts are made to increase their customer base and sales. Products are upgraded, facilities are improved, and new services are added. Prices and margins are increased to support these higher costs. New retailers enter the market to fill the low-status, low-margin, low-price niche. The cycle begins again.
- Analyze the future of retailing.
Shopping that offers convenience will continue to grow. Shop-at-home networks and shopping by computer will also offer the convenience and savings in time consumers seek. I The retailing industry will experience greater vertical integration both on the part of retailers moving vertically backward and manufacturers moving vertically forward. Retailing will become more global.
Answer the Discussion Questions
- Motorola, a manufacturer of audio equipment for automobiles, sells equipment to manufacturers where it is factory-installed in automobiles and to dealers where it is custom-installed for consumers. Discuss the differences in the channels of distribution required to serve the two markets.
- Most items found in a hardware store are sold through a series of intermediaries such as a full-service wholesaler. What services do these intermediaries provide to justify the markup that adds to the price of the products for the hardware store?
- What are the characteristics of a consumer product that would suggest a long channel would be the appropriate method of distribution?
- A number of consumer products companies (e.g. Amway, Avon, and Mary Kay Cosmetics) have established impressive sales growth through direct marketing. What factors have led to this success? (For a contrast, review your answers to Question 3.)
- What merchandising trends that are taking place in today’s economy threaten wholesalers? What are wholesalers doing to counter these trends?
- Discuss the major differences between a full-service and a limited-service wholesaler.
- What are the key features of service quality that retailers must observe in order to survive in today’s competitive environment? Provide examples of good and bad retailer practices with regard to these functions. (see Wal-Mart)
- How can retailers ensure that they are maintaining a level of quality that is satisfactory to their customers? (see Starbucks)
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