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1 Chapter 11
2 Managing Marketing Channels and Points of Customer Interface
1.1 ETHICAL DIMENSION 11
Ethical Perspective
1. Apple: How aggressive should Apple be in making sure its suppliers follow strict labor rules
and policies? Should the company enforce U.S. labor standards or simply the standards of the
local country?
2. Consumers: If you were aware that Apple was using a supplier that violated established
labor practices, would you buy an Apple product? Do you research a company’s policies
about supplier labor practices or environmental policies before buying a product? If you
don’t, should you?
1.2 KEY TERMS
value network An overarching system of formal and informal relationships within which the
firm participates to procure, transform, and enhance, and ultimately supply its offerings in final
form within a market space.
value co-creation The combining of capabilities among members of a value network to create
value.
network organization (virtual organization) - Organizations that eliminate many in-house
business functions and activities in favor of focusing only on those aspects for which it is best
equipped to add value.
nimble To be in a position to be maximally flexible, adaptable, and speedy in response to the
many key change drivers affecting business.
channel of distribution A system of interdependent relationships among a set of organizations
that facilitates the exchange process.
intermediaries Organizations that play a role in the exchange process between producers and
consumers.
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merchant intermediaries Intermediaries who take title to the product during the exchange
process.
agent intermediaries Intermediaries who do not take title to the product during the exchange
process.
physical distribution (logistics) The integrated process of moving input materials to the
producer, in process inventory through the firm, and finished goods out of the firm through the
channel of distribution.
supply chain A complex logistics network characterized by high levels of coordination and
integration among its members.
supply chain management The process of managing the aspects of the supply chain.
breaking bulk A shipping method used by manufacturers to better match quantities needed in
terms of the space constraints and inventory turnover requirements of their buyers.
accumulating bulk A function performed by intermediaries that involves taking product from
multiple sources and sorting it into different classifications for sales through the channel.
sorting The process of classifying products for sale through different channels.
creating assortments The process of accumulating products from several sources to then make
those products available down the channel as a convenient assortment for consumers.
reducing transactions The process of lowering the number of purchasing transactions carried
out by a firm by utilizing the services of intermediaries.
transportation and storage Commonly provided intermediary functions for producers that do
not perform these functions themselves.
facilitating functions Activities that help fulfill completed transactions and also maintain the
viability of the channel relationships.
disintermediation The shortening or collapsing of marketing channels due to the elimination of
one or more intermediaries.
outsourcing (third-party logistics 3PL) Handing over one or more of their core internal
functions, such as most or all of their supply chain activities, to other (third-party) companies
that are experts in those areas.
vertical marketing system (VMS) Vertically aligned networks behaving and performing as a
unified system.
corporate VMS The investment of a channel member in backward or forward vertical
integration by buying controlling interest in other intermediaries.
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vertical integration Buying a controlling interest in other intermediaries.
contractual VMS The binding of otherwise independent entities in the vertical marketing
system legally through contractual agreements.
franchise organization A contractual relationship between a franchisor who is the grantor of the
franchise, and the franchisee who is the independent entity entering into an agreement to perform
at the standards required by the franchisor.
retailer cooperative The binding of retailers across a variety of product categories to gain cost
and operating economies of scale in the channel.
wholesaler cooperative When retailers contract for varying degrees of exclusive dealings with a
particular wholesaler.
administered VMS When the channel control of a vertical marketing system is determined by
the size and power of one of its channel members.
channel captain (channel leader) The lead player in an administered vertical marketing system
(VMS).
partner relationship management (PRM) strategies A strategic alliance that includes
connectivity of inventory, billing systems, and market research among marketing channel
members.
channel power The degree to which any member of a marketing channel can exercise influence
over the other members of the channel.
channel conflict Disagreements among channel members that can result in their relationship to
become strained or even fall apart.
coercive power An explicit or implicit threat that a channel captain will invoke negative
consequences on a channel member if it does not comply with the leader’s request or
expectations.
reward power A channel member’s ability to coerce vendors by offering them incentives.
expert power A channel member’s utilization of its unique competencies and knowledge to
influence others in the channel.
referent power A channel member’s ability to influence other members based on respect,
admiration, or reverence.
legitimate power A channel member’s ability to influence other members based on contracts or
other formal agreements.
distribution intensity The number of intermediaries involved in distributing the product.
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intensive distribution A distribution strategy designed to saturate every possible intermediary,
especially retailers.
convenience goods Frequently purchased, relatively low-cost products for which customers have
little interest in seeking new information about or considering other product options.
impulse goods Goods whose sales rely on the consumer seeing the product, feeling an
immediate want, and being able to purchase now.
shopping goods Products that require consumers to do research and compare across product
dimensions like color, size, features, and price.
selective distribution A distribution strategy in which goods are distributed only to a limited
number of intermediaries.
exclusive distribution Distribution strategy built on prestige, scarcity, and premium pricing in
which a producer only distributes its products to one or very few vendors.
push strategy Promotional and distribution strategy in which the focus is on stimulating demand
within the channel of distribution.
slotting allowance (shelf fee) Extra incentives paid to wholesalers or retailers by the
manufacturer for placing a particular product into inventory.
pull strategy Promotional and distribution strategy in which the focus is on stimulating demand
for an offering directly from the end user.
outbound logistics The process of a product’s movement from production by the manufacturer
to purchase by the end-user consumer.
inbound logistics The process of sourcing materials and knowledge inputs from external
suppliers to the point at which production begins.
reverse logistics The process of moving goods back to the manufacturer or intermediary after
purchase.
stock-out When an item is not in stock.
enterprise resource planning (ERP) system A software application designed to integrate
information related to logistics processes throughout the organization.
just-in-time (JIT) inventory control system An inventory management system designed to
balance levels of overstock and stock-out in an effort to reduce warehousing costs.
materials requirement planning (MRP) The overall management of the inbound materials
from suppliers to facilitate minimal production delays.
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exclusive dealing When a supplier creates a restrictive agreement that prohibits intermediaries
that handle its product from selling competing firms’ products.
exclusive territory The protection of an intermediary from having to compete with others
selling a producer’s goods.
tying contract A formal requirement by the seller of an intermediary to purchase a
supplementary product to qualify to purchase the primary product the intermediary wishes to
buy.
retailing any business activity that creates value in the delivery of goods and services to
consumers for their personal, nonbusiness consumption and is an essential component of the
variety The number of product categories offered by a retailer.
breadth of merchandise See variety.
assortment The number of different product items within a product category
depth of merchandise See assortment.
value equation Defines value in terms of price and delivered benefits to the customer.
food retailer Any retailer that includes food as a part of its breadth of merchandise.
showrooming When a consumer goes into a store and takes advantage of a product
demonstration and the expertise of a salesperson, and then buys the product from an online
retailer at a lower price.
non-store retailer Use alternative methods to reach the customer that do not require a physical
location.
catalog retailer Offer their merchandise in the comfort of a consumer’s home using a printed or
online catalog.
direct selling Involves independent businesspeople contacting consumers directly to demonstrate
and sell products or services in a convenient location, often the consumer’s home or workplace.
vending machine retailing Sells merchandise or services that are stored in a machine then
dispensed to the consumer when the payment has been made.
electronic commerce (e-commerce) Any action using electronic media to communicate with
customers; facilitate the inventory, exchange, and distribution of goods and services; or make
payment.
electronic retailing (e-retailing or e-tailing) The communication and sale of products or
services to consumers over the Internet.
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1.3 APPLICATION QUESTIONS
1 Consider the concept of value co-creation.
a. In your own words, explain the concept of value co-creation.
b. What are some specific ways value can be co-created?
c. Provide an example of a specific value network you believe results in a high level
of value co-creation.
d. Provide an example of a specific firm or firms that could benefit by establishing a
value network and engaging in value co-creation. In what ways would this approach be
an improvement over their existing business approach?
3. The chapter discusses the importance of being “nimble” in all aspects of a firm’s operation –
that is, to be in a position to be maximally flexible, adaptable, and speedy in response to
change.
a. Identify two firms in two different industries that you believe exhibit a nimble nature in
their operations.
b. What specific evidence leads you to believe these firms are nimble, especially in their
channel and supply chain activities?
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4. Consider the issue of disintermediation in electronic channels.
a. Do you believe that all channels will disintermediate down to simple direct channels over
time? Why or why not?
b. Does your opinion change if the question is asked only about B2C channels? Only for
B2B channels? Why?
5. Consider this statement: “It’s important in business today for all firms to work to cut out the
middleman. Intermediaries represent costs that can be saved by finding ways to cut them out
of the system. Down-channel buyers always benefit when this happens.” Do you agree with
this statement? Why or why not? Be specific in arguing your point based on what you
learned in the chapter.
6. Exhorting firms to develop networks and alliances for purposes of value co-creation sounds
like a good idea. However, is there a point at which such approaches can be taken too far (a)
from a legal perspective, (b) from an ethical perspective, and (c) from a strategic perspective?
Explain your viewpoint.
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6. Consider your school’s e-commerce capabilities.
a. From a student’s perspective, what e-commerce functions are available on your
campus website (for example, class registration, payment, delivery of course materials)?
b. How would you rate the websites ease of use for the functions you identified?
c. What functions does the campus website perform well and what functions does it
perform poorly? Explain.
d. What e-commerce functions do you think should be added to the website’s
capabilities that are not presently offered?
MANAGEMENT DECISION CASE: Pushing Supply Chain Efficiencies to the Maximum in
Retailing
Questions for Consideration
1 What type of intermediary is Li & Fung for its customers? Is it an agent, a wholesaler, a
manufacturer’s agent, jobber, or some other choice? What evidence can you offer to support
your choice?
7. Some critics have said that American consumers ultimately are to blame for a lack of safety
precautions at factories utilized by Li & Fung because they are addicted to low-cost
merchandise and generally refuse to pay higher prices for items. What is your reaction to this
statement? Are you willing to pay an extra $5 or $10 for a pair of jeans, for example, if that
additional money is used to enhance employee safety?
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8. Retailers Nordstrom and Walmart are positioned very differently in the marketplace. Using
the characteristics of store retailers addressed in the chapter, which includes merchandise
assortment, level of service, and retail value proposition, compare the retail strategy
implemented by Nordstrom to that utilized by Walmart.
1.4 SUGGESTED VIDEO
Creston Vineyard's Distribution Channels (10:47 minutes)
Description: Creston Vineyards outlines their structure of distribution channels. Video discusses
the process it takes to make their product available from the manufacturer to the consumer.
1. Should Creston Vineyard use a push or pull strategy in its channels?
2. Describe Creston Vineyard's distribution intensity strategy.
Suburban Regional Malls (19:54 minutes)
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Description: Video talks about several different shopping center types: neighborhood center,
community center, regional center, superregional center, fashion/specialty center, power center,
theme/festival center, outlet center.
1. How does the Internet threaten the traditional “bricks and clicks” retail format?
2. Which type of retail outlet do you believe will have the most growth in the future?
c
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