Chapter–by–chapter aids: Chapter 10
A firm that sells installations might want to use direct distribution in its domestic market.
Installations are often a high–ticket purchase for the business customer and there may be
The promotion emphasis is likely to be on personal selling. Direct distribution gives the
marketing manager control over salesforce training, motivation (compensation), and how effort
is allocated to different accounts or potential accounts. Further, direct contact with the
While there are often advantages to direct distribution, in international markets the potential
benefits of direct distribution might be offset by the disadvantages of not having a specialist
involved who is more knowledgeable about the foreign market environment, including
regulations related to importing or knowledge of local business conventions.
demands of individual consumers who may want only one or two of a variety of items. But
since consumers usually want a wide variety of items and producers tend to specialize, there is
bound to be a discrepancy of assortments. As a result, we see assorting – at least at the retail
In the case of steel being sold to the automobile industry, however, most sales are direct or
through a wholesaler (broker or drop shipper who doesn’t handle the goods). The size of the
automobile plants may be about the same – that is, in carloads, barge loads, or shiploads.
The greater the discrepancies of quantity and assortment between the producer and the
consumer, the more complicated the channel that is required.
of the regrouping activities. Which and how much of each of these activities are needed
depends on how big the discrepancies of quantity and assortment are. There is obviously a big
discrepancy of quantity between most producers of these products and the small building
discrepancy of quantity, the longer the channel may be – requiring more bulk breaking. Given
that this industry is concerned with “finished” products that are produced in reasonable quantity
in a factory, there probably is little need for the accumulating process.
When it comes to adjusting assortment discrepancies, there may be great need for the
assorting process, but little need for the sorting process (except to sort out and dispose of
“seconds” in discount outlets). Assorting might be done by a small hardware store or a building
supply wholesaler.
One would expect to find both direct and indirect channels in this industry. The large producers
selling a single product or narrow assortments to larger builders might sell directly with their
own sales reps – or agents. Indirect channels, on the other hand, would be necessary to reach
the many small hardware stores and building supply wholesalers.
Part IV
Chapter–by–chapter aids: Chapter 10
handle it direct. Obviously, this can produce conflict. As another example, during the energy
crisis many chainsaw producers started to distribute through mass–merchandisers as well as
through the power equipment retailers who had traditionally handled the saws. The dealers felt
that the producers had abused them – and many complained that they couldn’t compete with
the low prices offered by the mass–merchandisers. Some argued that the big chains were
selling at retail for less than the dealer had to pay the producer.
10- 9. A channel captain could show the independent firms how they could work together to simulate
the activities of an integrated channel for the mutual benefit of all. Actually, independent firms
are part of one or more channels of distribution – whether they realize it or not. This text
captain would provide the leadership in this direction.
ways: lower costs or more control. For example, a garden shop that sells landscaping plants
may also grow some plants itself – to make certain that it has the supply it needs when
10–11. The dominant role that some retailers are playing in channels is discussed further in Chapter
12. But here the student ought to see that the retailer is close to the consumer and ought to
have the best notion what his target customers want, better than wholesalers or manufacturers
who are more remote from the final consumer. Consider also, retailers may have to serve
organization. When retailers come to realize their importance, they may assume the role of the
channel captain – or simply become overbearing and dominate the channel rather than being
concerned about coordinating it.
items. This may be especially necessary in a highly competitive market. Selective distribution
may be adequate for the many business products and shopping and specialty products that
are truly differentiated. Exclusive distribution may only be feasible for specialty products or for
An exclusive distribution policy might require a little more Promotion and a good Product, while
maintaining Price at somewhat competitive levels. It is used at times in highly competitive
markets to tie up good intermediaries. Exclusive distribution is much more common with
10–13. Intermediaries would seek to be exclusive distributors to obtain the benefits of their own or the
producer’s planning and promotion of a good marketing mix. They would be less eager to get
an exclusive if they had to carry large stocks and to do an aggressive promotion job. They may
not be equally eager for any type of product, either, because if the product requires extremely
widespread distribution, then the producer may expect them to cover the market. If they do not
happen to cover the whole market, this may mean that they will have to aggressively expand
Part IV
IV–10-6 Perreault, Cannon, & McCarthy
Producers, on the other hand, frequently give an exclusive relationship to secure the help of a
more aggressive intermediary who will provide the necessary inventory and service facilities.
They should specify the Place and Promotion job that needs to be done and use exclusive
intermediaries only if they feel that giving an exclusive arrangement will motivate them to do
this job. Otherwise, they may be narrowing their coverage unnecessarily.
Exclusive distribution (at least in smaller markets) might make sense from the producer’s
viewpoint for golf clubs, televisions, and industrial woodworking machinery – because a strong
selling effort might be desirable. From an intermediary‘s viewpoint, he would be willing to
accept an exclusive on any of the items if no strings were attached. If, however, an
intermediary were required to expand his customer list in an effort to reach all potential
customers – or lose his franchise – then he might not be interested in any of the items. The
10–14. See section “The Best Channel System Should Achieve Ideal Market Exposure.”
The situation: A small producer of a single line of very high–quality cocktail glasses makes
exclusive arrangements with one store (or chain) in New York, Chicago, and San Francisco –
competitors do not have any such exclusive distribution policies.
Such an arrangement would have some value to the retailer company as any promotion done
by the producer or any word–of–mouth advertising would work to their advantage. The
not change his distribution policy – and how they feel about the quality and eventual consumer
acceptance of the product.
10–15. This question is anticipating the material in Chapter 13 on developing a promotion blend. But
first the student must clearly understand what is involved in channel planning for different
products and target markets. Therefore, the focus here will be on the nature of the target
market and the product, and then on the appropriate channel. Then, it should be clear what
scratch. Further, it would be relevant whether he was going to use a pushing or a pulling policy
– because pushing would require more personal selling while pulling would rely more heavily
on advertising.
The dress producer would face similar decisions. The issues would be similar for a small
producer of installations – but there would probably need to be more emphasis on personal
selling (perhaps with agents if the company could not afford its own sales force).
2) licensing, 3) management contracting, 4) joint venture, and 5) direct investment. As shown
in Exhibit 10-6, this represents a continuum – and moving up the ladder has the advantage of
giving the marketing manager greater control over marketing mix decisions – but also involves
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Chapter–by–chapter aids: Chapter 10
Instructor’s Manual to Accompany Essentials of Marketing IV–10-7
and increasing investment and greater risk to the marketing manager. A discussion of control
would help students understand that, in some of these entry modes, the marketing manager in
the home country has little control over target market and marketing mix decisions.
Other advantages and disadvantages by specific entry mode:
1. Exporting tends to be an easy and fast way to enter a foreign market – as intermediaries
can handle some of the complexities associated with international trade (e.g., customers,
taxes, shipping, and exchange rates). The downside is that the exporting firm has little
and little financial cost. But the risk can go up if the licensee handles the product poorly
and ruins the seller’s reputation in a new market.
3. Management contracting helps keep the risk inherent in developing markets relatively low.
But the seller gives up significant control over the marketing mix and must be careful in
selecting partners.
two partners usually work together to develop a marketing strategy. This process gives the
seller more control over the direction and implementation of a marketing strategy.
5. Direct investment, of course, involves the greatest level of financial investment and risk –
particularly in markets where the marketing manager has little experience. This increases
the possibility of losses, which might force a firm to leave. On the other hand, building a
local presence helps the company develop a local reputation and learn more about an
international market.
DISCUSSION OF COMPUTER-AIDED PROBLEM 10: INTENSIVE VS. SELECTIVE
DISTRIBUTION
A manager for a company that has been selling to industrial customers is thinking about expanding into a
consumer market – and the strategy requires new channels of distribution. The manager is trying to
decide whether to use intensive or selective distribution. The student compares the two alternatives under
different business conditions – and recommends which approach would be most profitable and why. The
analysis helps the student to see how other elements of the marketing mix may change – depending of
the exposure level chosen.
The initial spreadsheet for this problem follows:
Part IV
P L U S – Spreadsheet
Intensive
Selective
Number of Retailers
5600
*
280
*
Retailers per Sales Rep
300
*
70
*
Sales Reps Needed
19
4
Salary per Sales Rep
18000.00
*
18000.00
*
Personal Selling Expense
342000.00
72000.00
Mass–selling Expense
200000.00
*
50000.00
*
Overhead Cost
120000.00
*
80000.00
*
Cost to Produce a Pump
35.00
*
35.00
*
Total Pumps Sold by Dealers
175000
*
26000
*
Hydropump’s Percent of Dealers’ Units
12.00
*
40.00
*
Total Expected Units
21000
10400
Price to Retailers
70.00
*
75.00
*
Hydropump Total Revenue
1470000.00
780000.00
Hydropump Total Cost
1397000.00
566000.00
Hydropump Profit
73000.00
214000.00
Answers to Computer–Aided 10:
a. Based on the initial spreadsheet (above), selective distribution looks like the wisest choice. In a
“bottom line” sense, it produces the greatest profit – $214,000.00 vs. profit of only $73,000 with
b. Even if Hydropump had to spend an additional $50,000 on mass selling – to generate customer
interest and help recruit dealers through added “pull” – the selective distribution approach would still
be favored. In fact, expected profits to Hydropump would be more than twice as large with selective
distribution as with intensive distribution. The advertising dollars are not the only issue here. The
P L U S – Spreadsheet
Intensive
Selective
Number of Retailers
5600
*
280
*
Retailers per Sales Rep
300
*
70
*
Sales Reps Needed
19
4
Salary per Sales Rep
18000.00
*
18000.00
*
Personal Selling Expense
342000.00
72000.00
Mass–selling Expense
200000.00
*
100000.00
*
Overhead Cost
120000.00
*
80000.00
*
Cost to Produce a Pump
35.00
*
35.00
*
Total Pumps Sold by Dealers
175000
*
26000
*
Hydropump’s Percent of Dealers’ Units
12.00
*
40.00
*
Total Expected Units
21000
10400
Price to Retailers
70.00
*
75.00
*
Hydropump Total Revenue
1470000.00
780000.00
Hydropump Total Cost
1397000.00
616000.00
Hydropump Profit
73000.00
164000.00
c. Hydropump would need would need to get 14.08 percent of the retailers‘ total unit sales to make