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Part 4: Deliver and Communicate the Value Proposition
Chapter 11
Deliver the Goods: Determine Distribution Strategy
I. CHAPTER OVERVIEW
When retailers and manufacturers work together within a channel of distribution, linkages can be
made stronger and profitability of all channel members can be improved. In this chapter, students
learn the definition and functions of a distribution channel. Length and intensity of channels are
explained. Continually emphasized is the need for developing channel objectives, careful selection
of channel members, and the management of the channel. Through these systematic efforts,
businesses can maintain a higher level of customer satisfaction and profitability.
II. CHAPTER OBJECTIVES
1.Explain what a distribution channel is, identify types of wholesaling intermediaries, and describe
the different types of distribution channels.
2.List and explain the steps to plan a distribution channel strategy.
3.Discuss the concepts of logistics and supply chain.
III. Chapter Outline
►MARKETING MOMENT INTRODUCTION
Tell students to assume that their friend owns a catering business that disposes of an enormous
amount of uneaten food. Then say, “You’d like to get that left-over food to hungry people.
Figure out a system to feed the hungry.” This is a great opportunity to point out the challenges in
distribution. How do you find/contact the hungry? How do you transport the food to the hungry?
How do you organize volunteers? etc., etc.
p. 341 REAL PEOPLE, REAL CHOICES—HERE’S MY
PROBLEM AT BDP INTERNATIONAL
BDP International, Inc. is the world’s premiere international
logistics company, specializing in customized logistics solutions.
PepsiCo is one of BDP’s clients. In 2015, the World Economic
Forum (WEF) was holding a meeting in Switzerland, the perfect
setting for PepsiCo’s Quaker Foods to provide samples of its new
“breakfast bars.” Two weeks before the conference, Quaker asked
us to transport 102 boxes of bars. The problem is the European
Union (EU) imposes very strict controls on the ingredients it
allows for import. BDP had to move the goods from the United
States and persuade Swiss Customs to clear the shipment. The EU
requires all food products to carry a label that lists all ingredients,
and this label has to be printed in Italian, German, or French. If
BDP had to relabel more than 4000 Quaker bars in one of the
Copyright © 2018 Pearson Education, Inc.
Part 4: Deliver and Communicate the Value Proposition
permitted languages, the resources required would make it
unrealistic to move the order.
Michael had three options:
1. Convince Swiss Customs to allow us to put a new label on the
outside of each of the 102 boxes rather than on each of the
4020 individual bars in the shipment.
2. Identify a different Quaker Foods product that is
manufactured in Europe and convince the client to substitute
this for the breakfast bars.
3. Provide the list of required ingredients in the requested
language as our contact at Swiss Customs proposed.
The vignette ends by asking the student which option he/she
would choose.
Michael chose option #3.
p. 342
p. 342
p. 343
1. TYPES OF DISTRIBUTION CHANNELS AND
WHOLESALE INTERMEDIARIES
The delivery of goods to customers involves physical
distribution, which refers to the activities used to move finished
goods from manufacturers to final customers. Physical
distribution activities include order processing, warehousing,
materials handling, transportation, and inventory control.
The focus of logistics is on the customer. The customer’s goals
become the logistics provider’s goals.
A channel of distribution consists of, at a minimum, a producer
—the individual or firm that manufactures or produces a good or
service—and a customer. This is a direct channel. Channels often
are indirect because they include one or more channel
intermediaries—firms or individuals such as wholesalers,
agents, brokers, and retailers who in some way help move the
product to the consumer or business user.
1.1 Functions of Distribution Channels
Channels provide time, place, and ownership utility.
Distribution channels provide a number of logistics or physical
distribution functions that increase the efficiency of the flow of
goods from producer to customer.
Distribution channels create efficiencies because they reduce the
number of transactions necessary for goods to flow from many
different manufacturers to large numbers of customers. This
occurs in two ways. The first is breaking bulk. Wholesalers
and retailers purchase large quantities (usually cases) of goods
Copyright © 2018 Pearson Education, Inc.
Chapter 11: Deliver the Goods
p. 343
p. 343
p. 344
p. 344
p. 344
from manufacturers but sell only one or a few at a time to many
different customers. Second, channel intermediaries reduce the
number of transactions when they create assortments—
they provide a variety of products in one location—so that
customers can conveniently buy many different items from one
seller at one time. The transportation and storage of goods are
other physical distribution functions.
Channel intermediaries also perform a number of facilitating
functions that make the purchase process easier for customers and
manufacturers. Channel members perform risk-taking functions.
Intermediaries perform a variety of communication and
transaction functions, providing marketing information to the
sales force and to customers with complaints or other inputs
concerning the product.
1.2 Evolution of Distribution Functions
In the future, channel intermediaries that physically handle the
product may become obsolete. Already companies are eliminating
many traditional intermediaries because they find that they do not
add enough value in the distribution channel—a process we call
disintermediation (of the channel of distribution). For
marketers, disintermediation reduces costs.
Some companies use the Internet to make coordination among
members of a supply chain more effective in ways that end
consumers never see. These firms develop better ways to
implement knowledge management, which refers to a
comprehensive approach that collects, organizes, stores, and
retrieves a firm’s information assets. These assets include both
databases and company documents and the practical knowledge
of employees whose past experience may be relevant to solving a
new problem.
One of the more vexing problems with Internet distribution is the
potential for online distribution piracy, which is the theft and
unauthorized repurposing of intellectual property via the Internet.
For example, unauthorized downloads of music continue to pose a
major challenge to the “recording” industry.
1.2.1 Wholesaling Intermediaries
Wholesaling intermediaries are firms that handle the flow of
products from the manufacturer to the retailer or business user.
1.2.2 Independent Intermediaries
Independent intermediaries do business with many different
Figure 11.1
Process: Reduce
Transactions via
Intermediaries
Exhibit: Geek
Squad
Figure 11.2
Snapshot: Key
Types of
Intermediaries
Table 11.1:
Types of
Copyright © 2018 Pearson Education, Inc.
Part 4: Deliver and Communicate the Value Proposition
p.344
p. 345
p. 346
p. 346
manufacturers and many different customers. Because no
manufacturer owns or controls them, they make it possible for
many manufacturers to serve customers throughout the world
while they keep prices low.
Merchant wholesalers are independent intermediaries that buy
goods from manufacturers and sell to retailers and other
business-to-business customers. Because merchant wholesalers
take title to the goods (that is, they legally own them), they
assume certain risks and can suffer losses if products are
damaged, become outdated or obsolete, are stolen, or just do not
sell. On the other hand, because they own the products, they are
free to develop their own marketing strategies including setting
the prices they charge their customers. There are several different
kinds of merchant wholesalers:
Full-service merchant wholesalers provide a wide range
of services for their customers, including delivery, credit,
product-use assistance, repairs, advertising, and other
promotional support—even market research.
In contrast, limited-service merchant wholesalers provide
fewer services for their customers. Like full-service
wholesalers, limited-service wholesalers take title to
merchandise but are less likely to provide services such as
delivery, credit, or marketing assistance to retailers.
Specific types of limited-service wholesalers include the
following:
a. Cash-and-carry wholesalers provide low-cost
merchandise for retailers and industrial customers
that are too small for other wholesalers’ sales
representatives to call on.
b. Truck jobbers carry their products to small
business customer locations for their inspection
and selection.
c. Drop shippers are limited-function wholesalers
that take title to the merchandise but never actually
take possession of it.
d. Mail-order wholesalers sell products to small
retailers and other industrial customers, often
located in remote areas, through catalogs rather
than a sales force .Rack jobbers supply retailers
with specialty items such as health and beauty
products and magazines.
Merchandise agents or brokers are a second major
type of independent intermediary. Agents and brokers provide
services in exchange for commissions. They may or may not take
Intermediaries
Exhibit: L.L.
Bean
Copyright © 2018 Pearson Education, Inc.
Chapter 11: Deliver the Goods
p. 347
p. 348
possession of the product, but they never take title; that is, they do
not accept legal ownership of the product. Agents normally
represent buyers or sellers on an ongoing basis, whereas clients
employ brokers for a short period.
Manufacturers’ agents, or manufacturers’ reps, are
independent salespeople who carry several lines of
non-competing products.
Selling agents, including export/import agents, market a
whole product line or one manufacturer’s total output.
Commission merchants are sales agents who receive
goods, primarily agricultural products such as grain or
livestock, on consignment—that is, they take possession
of products without taking title.
Merchandise brokers, including export/import brokers, are
intermediaries that facilitate transactions in markets such
as real estate, food, and used equipment, in which there
are lots of small buyers and sellers.
1.2.3 Manufacturer-Owned Intermediaries
Sometimes manufacturers set up their own channel
intermediaries. In this way, they can operate separate business
units that perform all the functions of independent intermediaries
while at the same time they can still maintain complete control
over the channel.
Sales branches are manufacturer-owned facilities that, like
independent wholesalers, carry inventory and provide
sales and service to customers in a specific geographic
area.
Sales offices are manufacturer-owned facilities that, like
agents, do not carry inventory but provide selling
functions for the manufacturer in a specific geographic
area.
Manufacturers’ showrooms are manufacturer owned or
leased facilities. These showrooms contain products that
are permanently displayed.
1.3 Types of Distribution Channels
When they develop distribution (place) strategies, marketers first
consider different channel levels. This refers to the number
of distinct categories of intermediaries that make up a channel of
distribution.
1.3.1 Consumer Channels
The simplest channel is a direct channel. A direct channel is used
for a number of reasons. It may allow the producer to serve its
customers better and at a lower price than is possible using a
Figure 11.3|
Snapshot:
Different Types
Copyright © 2018 Pearson Education, Inc.
Part 4: Deliver and Communicate the Value Proposition
retailer. Using a direct channel gives control to the producer.
When the producer handles distribution, it maintains control of
pricing, service, and delivery—all elements of the transaction.
The producer–retailer consumer channel is the shortest indirect
channel.
The producer–wholesaler–retailer–consumer channel is a
common distribution channel, giving retailers a large selection of
products.
of Channels of
Distribution
Exhibit:
Aimee Mann
p. 351 1.3.2 B2B Channels
Business-to-business distribution channels facilitate the flow of
goods from a producer to an organizational or business customer.
They can be direct or indirect. The simplest indirect channel in
industrial markets occurs when the single intermediary—a
merchant wholesaler we refer to as an industrial distributor rather
than a retailer—buys products from a manufacturer and sells them
to business customers. Because business-to-business marketing
often means selling high-dollar, high-profit items to a market
made up of only a few customers, direct channels are common.
p. 351 1.3.3 Dual and Hybrid Distribution Systems
A dual or multiple distribution system occurs when producers,
dealers, wholesalers, retailers, and customers interact with more
than one type of channel. This is common in the pharmaceutical
industry. Instead of serving a target market with a single channel,
some companies combine channels—direct sales, distributors,
retail sales, and direct mail to create a hybrid marketing
system.
Exhibit: eBay
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p. 352
1.4 Distribution Channels and the Marketing Mix
How do decisions regarding place relate to the other three Ps?
Place decisions affect pricing. Marketers that distribute products
through low-priced retailers such as Walmart, T.J. Maxx, and
Marshalls will have different pricing objectives and strategies
than will those that sell to specialty stores or traditional
department stores.
Distribution decisions can sometimes give a product a distinct
position in its market. For example, Enterprise Rent-a-Car avoids
being overly dependent on the cutthroat rental car market as it
opens retail outlets in primary locations in residential areas and
local business centers.
Subscription boxes represent a new business model for
distribution that supplies surprises by sending out a box each
Copyright © 2018 Pearson Education, Inc.
Chapter 11: Deliver the Goods
p. 353
month filled with items you never knew you wanted but you just
have to have.
1.5 Ethics in the Distribution Channel
Many large retail chains force manufacturers to pay a slotting
allowance—a fee paid in exchange for agreeing to place a
manufacturer’s products on a retailer’s valuable shelf space.
Product diversion is the distribution of a product through one or
more channels not authorized for use by the manufacturer of the
product. A diverter is an entity that facilitates the distribution of a
product through one or more channels not authorized for use by
the manufacturer of the product.
Another ethical issue involves the sheer size of a particular
channel intermediary—be it manufacturer, wholesaler, retailer, or
other intermediary. Giant retailer Walmart, increasingly criticized
for forcing scores of independent competitors (i.e.,
“mom-and-pop stores”) to go out of business, has begun a very
visible program to help its smaller rivals.
It is important for all channel intermediaries to behave and treat
each other in a professional, ethical manner—and, to do no harm
to consumers (financially or otherwise) through their channel
activities.
►Marketing Moment In-Class Activity
Personal computer manufacturers frequently use a hybrid marketing system. Ask students to
identify how/where they can buy a PC.
Discussion: What factors are important in determining whether a manufacturer should choose a
direct or indirect channel? Why do some firms use hybrid distribution channels?
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p. 354
2. DEVELOP A CHANNEL STRATEGY
Firms that operate within a channel of distribution—
manufacturers, wholesalers, and retailers—do distribution
planning, which is a process of developing distribution
objectives, evaluating internal and external environmental
influences on distribution, and choosing a distribution strategy
The following is a discussion of distribution planning from the
perspective of manufacturers, wholesalers, and retailers.
2.1 Step 1: Develop Distribution Objectives
The first step to decide on a distribution plan is to develop
objectives that support the organization’s overall marketing goals.
In general, the overall objective of any distribution plan is to
make a firm’s product available when, where, and in the
quantities customers want at the minimum cost. More specific
Figure 11.4
Process: Steps in
Distribution
Planning
Copyright © 2018 Pearson Education, Inc.
Part 4: Deliver and Communicate the Value Proposition
distribution objectives, however, depend on the characteristics of
the product and the market.
p. 354 2.2 Step 2: Evaluate Internal and External Environmental
Influences
After they set their distribution objectives, marketers must
consider their internal and external environments to develop the
best channel structure. The organization must also examine issues
such as its own ability to handle distribution functions, what
channel intermediaries are available, the ability of customers to
access these intermediaries, and how the competition distributes
its products. Finally, when they study competitors’ distribution
strategies, marketers learn from their successes and failures.
Exhibit: Harley-
Davidson
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p. 356
2.3 Step 3: Choose a Distribution Strategy
Distribution intensity means the number of intermediaries at
each level of the channel. Planning a distribution strategy means
making at least three decisions.
2.3.1 Conventional, Vertical, or Horizontal Marketing
System?
A conventional marketing system is a multilevel distribution
channel in which members work independently of one another.
Their relationships are limited to simply buying and selling from
one another.
A vertical marketing system (VMS) is a channel in which there
is formal cooperation among channel members at two or more
different levels: manufacturing, wholesaling, and retailing. Often,
a vertical marketing system can provide a level of cooperation
and efficiency not possible with a conventional channel. There are
three types of vertical marketing systems:
oIn an administered VMS, channel members remain
independent but voluntarily work together to become the
power of a single channel member.
oIn a corporate VMS, a single firm owns manufacturing,
wholesaling, and retailing operations, giving the firm total
control over all channel operations.
oIn a contractual VMS, cooperation is enforced by a
contract that spells out each member’s rights and
responsibilities and how they will cooperate. The channel
members can have more impact as a group than they could
alone. A discussion of three types of contractual VMS
follows:
In a wholesaler-sponsored VMS, wholesalers get
retailers to work together under their leadership in a
Copyright © 2018 Pearson Education, Inc.
Chapter 11: Deliver the Goods
p. 356
voluntary chain.
A retailer cooperative is a group of retailers that has
established a wholesaling operation to help them
compete more effectively with the large chains.
Franchise organizations</emphasis> are a third type
of contractual VMS. Franchise organizations include a
<emphasis>franchiser</emphasis> (a manufacturer or
a service provider) who allows an entrepreneur (the
<emphasis>franchisee</emphasis>) to use the
franchise name and marketing plan for a fee. In these
organizations, contractual arrangements explicitly
define and strictly enforce channel cooperation.
In a horizontal marketing system, two or more firms at the same
channel level agree to work together to get their product to the
customer. Sometimes these agreements are between unrelated
businesses.
Exhibit: Wetzels
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p. 357
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p. 358
2.3.2 Intensive, Exclusive, or Selective Distribution?
The three basic choices for deciding how many wholesalers and
retailers to carry a product are intensive, exclusive, and selective
distribution.
Intensive distribution aims at maximizing market coverage by
selling a product through all wholesalers or retailers that will
stock and sell the product. Availability is more important than any
other consideration in customers’ purchase decision. Products
such as gum, milk, and soft drinks are intensively distributed.
Exclusive distribution means limiting distribution to a single
outlet in a particular region. Some cars, pianos, and products with
high price tags are sold this way. The grey market is a
distribution channel in which a product’s sale to a customer is
technically legal, but is viewed as inappropriate by the
manufacturer of the related product. Grey markets often emerge
around high-end luxury goods sold through exclusive distribution.
Selective distribution fits when demand is so large that exclusive
distribution is inadequate, but selling costs, service requirements,
or other factors make intensive distribution a poor fit. Selective
distribution is suitable for shopping products such as household
appliances and electronic equipment.
Table 11.2
Characteristics
that Favor
Intensive versus
Exclusive
Distribution
Exhibit: Chicago
Cubs
p. 359 2.4 Step 4: Develop Distribution Tactics
These decisions are usually about the type of distribution system
to use, such as a direct or indirect channel, or a conventional or
integrated channel. These decisions have a direct impact on
customer satisfaction.
Copyright © 2018 Pearson Education, Inc.
Part 4: Deliver and Communicate the Value Proposition
p. 359 2.4.1 Select Channel Partners
Selecting channel partners usually results in a long-term
commitment. Questions to be considered include: Will the
member contribute to profitability? Can the member provide
services the customer wants? What impact will this have on
channel control? Who are the channel members’ competitors
channel partners? What is the firm’s dedication to social
responsibility?
p. 359
p. 360
p. 360
2.4.2 Manage the Channel
The channel leader, sometimes called a channel captain, is the
dominant firm that controls the channel. The captain has power
relative to other channel members. The power comes from a
variety of sources:
A firm has economic power when it has the ability to
control resources.
A firm such as a franchiser has legitimate power if it has
legal authority to be in charge.
A producer firm has reward or coercive power if it
engages in exclusive distribution and has the ability to
give profitable products and to take them away from the
channel intermediaries.
Channel cooperation is to the benefit of everyone. It occurs
when producers, wholesalers, and retailers depend on one another
for success. Channel conflict refers to incompatible goals, poor
communication, and disagreement over roles, responsibilities, and
functions among firms at different levels of the same distribution
channel that may threaten a manufacturer’s distribution strategy.
p. 360
p. 361
3. LOGISTICS AND THE SUPPLY CHAIN
Marketers place a great deal of emphasis on logistics, the process
of designing, managing, and improving the movement of products
through the supply chain. Logistics is also a relevant
consideration regarding product returns, recycling and material
reuse, and waste disposal—<emphasis>reverse
logistics</emphasis>.
3.1 The Lowdown on Logistics
When a firm does logistics planning, the focus also should be on
the customer. Logistics aims to deliver exactly what the customer
wants—at the right time, in the right place, and at the right price.
Figure 11.5
Process: The
Five Functions of
Logistics
p. 361 3.1.1 Order Processing
Order processing</keyterm> includes the series of
activities that occurs between the time an order comes into the
Copyright © 2018 Pearson Education, Inc.
Chapter 11: Deliver the Goods
p. 362
organization and the time a product goes out the door.
Fortunately, many firms automate this process with <keyterm
id="ch15term31" linkend="gloss15_031" preference="0"
role="strong">enterprise resource planning (ERP)
systems</keyterm>. An ERP system is a software solution
that integrates information from across the entire company,
including finance, order fulfillment, manufacturing, and
transportation. Data need to be entered into the system only once,
and then the organization automatically shares this information
and links it to other related data.
p. 362 3.1.2 Warehousing
Warehousing</keyterm>—storing goods in anticipation
of sale or transfer to another member of the channel of
distribution—enables marketers to provide <emphasis>time
utility</emphasis> to consumers by holding on to products until
consumers need them.
Part of developing effective logistics means making decisions
about how many warehouses we need and where and what type of
warehouse each should be.
Firms use private and public warehouses to store goods.
Private warehouses have a high initial investment but they
lose less inventory due to damage.
Public warehouses allow firms to pay for a portion of
warehouse space rather than having to own an entire
storage facility.
A distribution center is a warehouse that stores goods for
short periods and that provides other functions such as
breaking bulk.
p. 362 3.1.3 Materials Handling
Materials handling is the moving of products into, within, and
out of warehouses. Once in the facility the goods may be handled
over a dozen separate times. Procedures that limit the number of
times a product must be handled decrease the likelihood of
damage and reduce the cost of materials handling.
p. 363 3.1.4 Transportation
Logistics decisions take into consideration options for <keyterm
id="ch15term34" linkend="gloss15_034" preference="0"
role="strong">transportation</keyterm>, the mode by
which products move among channel members. Modes of
transportation differ in their:
Dependability: ability to deliver goods safely and on time
Cost:</title><para><inst> </inst>the total
transportation costs to move a product from one location
Exhibit: Amazon
Table 11.3
A Comparison of
Transportation
Modes
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Part 4: Deliver and Communicate the Value Proposition
p. 363
p. 364
to another, including any charges for loading, unloading,
and in-transit storage
Speed of delivery including loading and unloading
Accessibility: number of different locations carrier serves
Capability to handle different products such as large and
small, fragile or bulky
Traceability: ability to locate goods in shipment
<para>Each mode of transportation has strengths and weaknesses
that make it a good choice for different transportation needs.
.<link linkend="ch15table03"
preference=</para><itemizedlist mark="bull"
spacing="normal"><listitem><i</inst><title>Railroads:</
title><para><inst> </inst>Railroads are best to carry heavy
or bulky items, such as coal and other mining products,
over long distances. Railroads are about average in their
cost and provide moderate speed of delivery.
.</para></listitem>
<listitem><</inst><title>Water:</title><para><inst> </in
st>Ships and barges carry large, bulky goods and are very
important in international trade. Water transportation is
relatively low in cost but can be slow.</para><link
linkend="ch15informal16" preference="1"
role="generated"/></listitem>
.<listitem><in</inst><title>Trucks:</title><para><inst> <
/inst>Trucks or motor carriers are the most important
transportation mode for consumer goods, especially for
shorter hauls. Motor carrier transport allows flexibility
because trucks can travel to locations missed by boats,
trains, and planes. Trucks also carry a wide variety of
products, including perishable items. Although costs are
high for longer-distance shipping, trucks are economical
for shorter deliveries. Because trucks provide door-to-door
service, product handling is minimal, and this reduces the
chance of product damage.</para></listitem>
<listitem><inst></inst><title>Air:</title><para><inst> </
inst>Air transportation is the fastest and the most
expensive transportation mode. It is ideal to move
high-value items such as important mail, fresh-cut flowers,
and live lobsters.
Pipeline:</title><para><inst> </inst>Pipelines carry
petroleum products such as oil and natural gas and a few
other chemicals. Pipelines flow primarily from oil or gas
fields to refineries. They are very low in cost, require little
energy, and are not subject to disruption by
weather.</para></listitem>
Copyright © 2018 Pearson Education, Inc.
Chapter 11: Deliver the Goods
<listitem><ins</inst><tThe
Internet:</title><para><inst> </inst>As we
discussed earlier in this chapter, marketers of services
such as banking, news, and entertainment take advantage
of distribution opportunities the Internet provides.
Use website here: www.freightquote.com
Freight broker who coordinates shipments with several trucking companies
►Marketing Moment In-Class Activity
Suppose you are responsible for shipping the following goods to the appointed destinations.
What shipping methods would you choose and why?
Parakeets Ship from Wichita KS to Seattle Washington
Oil Ship from Alaska to Arizona
Modular Homes Ship from Pittsburgh to New Orleans
Steel Ship from Bethlehem PA to Denver CO
Toys Ship from San Francisco to Casper WY
P.S.—Barges were used to transport semi-built houses to New Orleans after Hurricane Katrina.
Activity: Assume that you are the director of marketing for a firm that manufactures cleaning
chemicals used in industries. You have traditionally sold these products through manufacturer’s
reps. You are considering adding a direct Internet channel to your distribution strategy, but you
aren’t sure whether this will create channel conflict. Make a list of the pros and cons of this
move. What do you think is the best decision?
p. 364
p. 364
3.1.5 Inventory Control
Inventory control means developing and implementing a process
to ensure that the firm always has sufficient quantities of goods
available to meet customers’ demands.
Some companies are even phasing in a sophisticated technology
(similar to the EZ Pass system many drivers use to speed through
tollbooths) known as <keyterm id="ch15term36"
linkend="gloss15_036" preference="0" role="strong">radio
frequency identification (RFID)</keyterm>. RFID
lets firms tag clothes, pharmaceuticals, or virtually any kind of
product with tiny chips that contain information about the item’s
content, origin, and destination. This technology has the potential
to revolutionize inventory control and help marketers ensure that
their products are on the shelves when people want to buy them.
Firms store goods for many reasons, such as enabling
production to meet seasonal demand and creating economies in
ordering.
►Marketing Moment In-Class Activity
Think about a store in which your can of beans has a radio code and can be located at any
minute. What are the advantages to such a system (especially when tracking more
expensive/volatile products than beans)? Do you see any ethical implications?
Copyright © 2018 Pearson Education, Inc.
Part 4: Deliver and Communicate the Value Proposition
p. 365
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p. 365
p. 366
Inventory control has a major impact on the overall costs of a
firm’s logistics initiatives. Level loading is a manufacturing
approach intended to balance the inventory holding capabilities
and production capacity constraints of a manufacturer for a
particular product through the implementation of a consistent
production schedule, employed both during and beyond periods
of peak demands. Stock-outs are zero-inventory situations
resulting in lost sales and customer dissatisfaction may be very
negative. To balance these two opposing needs, manufacturers
turn to <keyterm id="ch15term37" linkend="gloss15_037"
preference="0" role="strong">just in time
(JIT)</keyterm> inventory techniques with their suppliers.
JIT sets up delivery of goods just as they are needed on the
production floor. This minimizes the cost of holding inventory
while it ensures the inventory will be there when customers need
it.
3.2 Pulling It All Together through the Supply Chain
A large part of the marketer’s ability to deliver a value proposition
rests on the ability to understand and develop effective
distribution strategies. The <keyterm id="ch15term2"
linkend="gloss15_002" preference="0" role="strong">supply
chain</keyterm> includes all the activities necessary to turn
raw materials into a good or service and put it into the hands of
the consumer or business customer. A large part of the marketer’s
ability to deliver a value proposition rests on the ability to
understand and develop effective supply chain strategies.
Outsourcing occurs when firms obtain outside vendors to provide
goods or services that might be supplied in-house. Outsource
firms are organizations with whom the company has developed a
partnership or cooperative business arrangement.
Discussion: The supply chain concept looks at both the inputs of
a firm and the means of firms that move the product from the
manufacturer to the consumer. Do you think marketers should be
concerned with the total supply chain concept? Why or why not?
► METRICS MOMENT
One of the most used measures of inventory control is inventory
turnover or inventory turns, which is the number of times a
firm’s inventory completely cycles through during a defined time
frame (usually in one year). Marketers can measure inventory
turnover by using the value of the inventory at cost or at retail, or
this metric can even be expressed in units.
Copyright © 2018 Pearson Education, Inc.
Chapter 11: Deliver the Goods
p. 367
p. 367
p. 367
p. 367
Benchmarks for inventory turnover vary greatly. A firm can up its
profitability through increases in inventory turnover; however,
management will have to calculate whether increased volume
adds to profits.
Apply the Metrics
1Spider’s Auto Parts Store ended its fiscal year last month
with a cost of sales of $3,600,000 and an average
inventory of $450,000. What is Spider’s inventory
turnover for that fiscal year?
2Spider’s would like to boost its turns to 10 during the next
fiscal year. What suggestions do you have that will help
them accomplish this objective?
Supply chain management is the coordination of flows among
the firms in a supply chain to maximize total profitability. These
“flows” include not only the physical movement of goods but also
the sharing of information about the goods—that is, supply chain
partners must synchronize their activities with one another.
Insourcing occurs when companies contract with a specialist who
services their supply chains. Unlike the outsourcing process
where a company delegates nonessential tasks to subcontractors,
insourcing means that the client company brings in an external
company to run its essential operations.
The major difference between a supply chain and a channel of
distribution is the number of members and their functions. A
supply chain is broader; it consists of those firms that supply the
raw materials, component parts, and supplies necessary for a firm
to produce a good or service <emphasis
role="underline">plus</emphasis> the firms that facilitate the
movement of that product to the ultimate users of the product.
This last part—the firms that get the product to the ultimate users
—is the <keyterm id="ch15term5" linkend="gloss15_005"
preference="0" role="strong">channel of
distribution</keyterm>.
►ETHICS CHECK
Find out what other students taking this course would do and why
at www.mymktlab.com
Do you think restaurants should be required to purchase their
ingredients from sustainable suppliers like Fiscalini, which
produces food while it gives back to the environment?
Real People, Real Choices: Here’s My Choice at
Ripped from the
Headlines:
Ethical/
Sustainable
Decisions in the
Real World
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Michael chose Option #3.
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Chapter 11: Deliver the Goods
IV. END-OF-CHAPTER ANSWER GUIDE
Chapter Questions and Activities
CONCEPTS: TEST YOUR KNOWLEDGE
11-1 What is a channel of distribution? What are channel intermediaries?
A channel of distribution is a series of firms or individuals that facilitate the movement of a
product from the producer to the final customer. Channel intermediaries are the firms or
individuals such as wholesalers, agents, brokers, or retailers who help move a product from the
producer to the consumer or business user.
11-2 Explain the functions of distribution channels.
Certain functions help the consumer with their purchase decision. Channels provide time,
place, and ownership utility for consumers. Channel members handle the physical distribution
function for products, including the activities of breaking and accumulation of bulk, creating
assortments, reducing the number of transactions necessary for the flow of goods,
transportation, and storage. Intermediaries in channels of distribution also perform a variety of
both communications and facilitating functions.
11-3 List and explain the types of independent and manufacturer-owned wholesaling
Intermediaries.
Independent intermediaries:
Merchant wholesalers—buy goods (take title) from producers and sell to organizational
customers. May be general or limited line wholesalers. Specific types of merchant wholesalers
include:
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Cash-and-carry wholesalers—limited function; limited line; small retailers purchase at
this wholesaler’s location.
Truck jobbers—limited function; sell perishable food and tobacco items.
Drop shippers—limited function; take orders from and bill retailers; products are
drop-shipped from manufacturer; take title to product but do not have physical
possession of it.
Mail-order wholesalers—limited functions; sell through catalogs, telephone, or mail
order.
Rack jobbers—full function; limited line; call on retailers to provide display units and
check on inventory levels.
Merchandise Agents and Brokers
● Manufacturers’ agents—use independent salespeople; carry several lines of non-
competing products.
● Selling agents, including export/import agents—handle the entire output on one or
more producers.
● Commission merchants—receive commission on sales price of products.
Manufacturer-owned intermediaries:
Sales branches—wholesaler-type facilities owned and run by a manufacturer.
Sales offices—like sales branches, are typically located in strategic geographic
areas in order to be closer to customers.
Manufacturers’ showrooms—producer-owned facilities that customers visit to
see the firm’s products attractively displayed.
11-4 What factors are important in determining whether a manufacturer should choose a direct
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Chapter 11: Deliver the Goods
or indirect channel? Why do some firms use hybrid marketing systems?
A direct channel is a channel of distribution in which there are no intermediaries or middle
levels. Factors could be cost, speed of delivery, or channel control.
An indirect channel is the distribution of goods in which manufacturers reach end users
through intermediaries—wholesalers, dealers, distributors, agents and/or retailers. Factors
could be familiarity with intermediaries, consumer buying behavior, or ability to reach
consumers.
Instead of serving a target market with a single channel, companies have added new channels
—direct sales, distributors, retail sales, and direct mail. As they add channels and
communications methods, they create a hybrid marketing system.
11-5 What are conventional, vertical, and horizontal marketing systems?
A conventional marketing system is a multiple-level distribution channel in which members
work independently of one another.
A vertical marketing system (VMS) is a channel of distribution in which there is cooperation
among members at the manufacturing, wholesaling, and retailing levels.
A horizontal marketing system is an arrangement within a channel of distribution in which two
or more firms at one channel level work together for a common purpose.
11-6 Explain intensive, exclusive, and selective forms of distribution.
Intensive distribution aims at maximizing market coverage by selling a product through all
wholesalers or retailers that will stock and sell the product. Example: chewing gum.
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Exclusive distribution means limiting distribution to a single outlet in a particular region.
Example: pianos or cars.
Selective distribution fits in between exclusive and intensive distribution.
11-7 Explain the steps in distribution planning.
Distribution planning is best accomplished when marketers follow the steps as follows:
a. Develop distribution objectives.
b. Evaluate internal and external environmental influences.
c. Choose a distribution strategy.
Number of channel levels
Conventional, vertical or horizontal marketing system
Intensive, exclusive or selective distribution
d. Develop distribution tactics.
Select channel partners
Manage the channel
Develop logistics strategies
oOrder processing
oWarehousing
oMaterials handling
oTransportation
oInventory control
11-8 What is logistics? Explain the functions of logistics. What is reverse logistics?
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Chapter 11: Deliver the Goods
Logistics is the process of designing, managing, and improving the movement of products
through the supply chain. Physical distribution includes activities used to move finished goods
from manufacturers to final customers as listed below:
1Order processing—transferring title and handling paperwork related to distribution.
2Warehousing—storing goods before they reach final customers.
3Materials handling—moving products into, within, and out of warehouses.
4Transportation—physically moving the goods from one location to another.
5Inventory control—determining what amounts and types of goods should be kept on hand
before sale.
Logistics planning focuses on the customer and decisions are the best trade-off between low
costs and high customer service, thus providing the product to the customer at the lowest cost
possible as long as the firm meets delivery requirements. Logistics is also a relevant
consideration regarding product returns, recycling and material reuse, and waste disposal—
reverse logistics.
11-9 What are the advantages and disadvantages of shipping by rail? By air? By ship? By
truck?
Rail transport is good for bulky and heavy products. It is moderate in cost and speed. A
disadvantage is that it cannot carry goods to every community.
Air transport is good for highly perishable products such as flowers and lobster or
time-sensitive products to include the mail, it is the fastest; however the expense is prohibitive
for many products.
Ships are good for international cargo. A disadvantage is the slow speed.
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Trucks provide the most important transportation mode for consumer goods. They can carry a
wide variety of products and can provide door-to-door service. Some disadvantages are fuel
costs, traffic congestion, and time for cross-country movement.
11-10 What is inventory control, and why is it important?
Inventory control means developing and implementing a process to ensure that the firm always
has sufficient quantities of goods available to meet customers’ demands—no more and no less.
This explains why firms work so hard to track merchandise so that they know where their
products are and where they are needed in case a low-inventory situation appears imminent.
11-11 What is a supply chain, and how is it different from a channel of distribution?
The supply chain includes all the activities necessary to turn raw materials into a good or
service and to put it into the hands of the consumer or business customer. The distribution
channels are a subset of the supply chain.
ACTIVITIES: APPLY WHAT YOU’VE LEARNED
11-12 Creative Homework/Short Project Assume that you are the director of marketing for a
firm that manufactures cleaning chemicals used in industries. You have traditionally sold
these products through manufacturer’s reps. You are considering adding a direct Internet
channel to your distribution strategy, but you aren’t sure whether this will create channel
conflict. Make a list of the pros and cons of this move. What do you think is the best
decision?
MyMarketingLab for answers to Assisted Graded Questions.
11-13 For Further Research (Individual) Find an example of disintermediation that has been
employed by a particular firm. Research the specific impact of the disintermediation on the
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Chapter 11: Deliver the Goods
organization’s operations and its customers’ experience with the firm. Evaluate both the pros
and the cons of the related example of disintermediation.
Disintermediation is the removal of intermediaries from a supply chain, or “cutting out the
middlemen” in connection with a transaction or a series of transactions. Instead of going
through traditional distribution channels, which had some type of intermediary (such as a
distributor, wholesaler, broker, or agent), companies may now deal with customers directly, for
example via the Internet. Disintermediation may decrease the total cost of servicing customers
and may allow the manufacturer to increase profit margins and/or reduce prices.
Using the Internet or business press, students can find examples of companies that sell directly
to the consumer without intermediaries. They can assess the pros and cons of disintermediation
in the company selected.
11-14 Creative Homework/Short Project Your friend’s small business makes hand-crafted papers that
she sells directly to her customers online. Fortunately, her business is growing quickly, and she
is considering selling her unique product to other businesses. From your marketing class, you
know that different channel structures exist for both consumer and B2B markets. Summarize
the differences between these two channel structures. What advice can you give him or her?
In a consumer channel, producers sell directly to customers? One reason is that a direct channel
may allow the producer to serve its customers better and at a lower price than is possible if it
included a retailer. Another reason to use a direct channel is control. When the producer handles
distribution, it maintains control of pricing, service, and delivery—all elements of the
transaction. In a direct channel, a producer works directly with customers, so it gains insights
into trends, customer needs and complaints, and the effectiveness of its marketing strategies.
A B2B channel is an indirect channelsto reach consumers. A reason in many cases is that
customers are familiar with certain retailers or other intermediaries—it’s where they always go
to look for what they need. Getting customers to change their normal buying behavior—can be
difficult. In addition, intermediaries help producers by creating utility and transaction
efficiencies. Channel members make producers’ lives easier and enhance their ability to reach
customers. The producer–retailer–consumer channel is the shortest indirect channel. Because
the retailers buy in large volume, they can obtain inventory at a low price and then pass these
savings on to shoppers. This gives them a competitive advantage over smaller, more specialized
stores. The size of retail giants also means they can provide the physical distribution functions,
such as transportation and storage, that wholesalers handle for smaller retail outlets. The
Internet is the wave of the future and all producers should at least consider this option. Students
can discuss which channel would be best for a small business that makes hand-crafted papers.
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11-15 In Class, 10–25 Minutes for Teams As the one-person marketing department for a
candy manufacturer (your firm makes high-quality, hand-dipped chocolates using only
natural ingredients), you are considering making changes in your distribution strategy.
Your products have previously been sold through a network of food brokers that call on
specialty food and gift stores. But you think that perhaps it would be good for your firm to
develop a corporate vertical marketing system (i.e., vertical integration). In such a plan, a
number of company-owned retail outlets would be opened across the country. The
president of your company has asked that you present your ideas to the company
executives. In a role-playing situation with one of your classmates, present your ideas to
your boss, including the advantages and disadvantages of the new plan compared to the
current distribution method.
As a starting point, students should review the material in the text on VMS as compared to the
conventional channel method. The conventional method has many players which all have their
own plans, objectives, and agendas. In a VMS system, there is cooperation, mutual objectives,
and an attention to reducing costs. However, the VMS approach reduces control of any
individual member. The corporate version has ownership with one major party and, therefore,
requires not only knowledge as a requirement but a sizable outlay of cash as well. Could this
company pull this off? Other VMS formats might be considered.
11-16 For Further Research (Individual) Do a little research and find an example of a firm
that attempted to sell a product or set of products online and failed.
a. What do you believe are the key factors that led to the failure?
b. What could the firm have done differently to increase the chances for success?
Students can look in the business press online and find examples of failed companies. They
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Chapter 11: Deliver the Goods
can discuss the challenge facing online companies and suggest ways to increase chances for
success. On-time delivery expectations by customers; free shipping; and online customer
ratings make a big difference in the success or failure of a company.
11-17 For Further Research (Individual) Visit the website for UPS www.ups.com
UPS has positioned itself as a full-service provider of logistics solutions. After reviewing
its website, answer the following questions:
1What logistics services does UPS offer its customers?
2What does UPS say to convince prospective customers that its services are better
than those of the competition?
Student answers to this question should include the following five characteristics of logistics:
order processing, warehousing, materials handling, transportation, and inventory control.
Students should be encouraged to include many of the concepts in this chapter on logistics in
their answers.
11-18 In Class, 10–25 Minutes for Teams Assume that you have recently been hired by a firm that
manufactures furniture. You feel that marketing should have an input into supplier selection for
the firm’s products, but the purchasing department says that should not be a concern for
marketing. You need to explain to the department head the importance of the value chain
perspective. In a role-playing exercise, explain to the purchasing agent the value chain concept,
why it is of concern to marketing, and why the two of you should work together.
Before proceeding with the design of the role-play scenario, students should review the sections
in the chapter on supply chains and value chains. During this review, pay particular attention to
the material that indicates that supply chains involve other members of the distribution channel
and, therefore, value chains do too. Each member may have separate strategies for marketing
and different objectives in the pursuit of the customer. It is therefore a good idea that all of these
firms be on the same page or at least able to discuss or negotiate with one another about what is
important and what is not. For these reasons, marketing should be concerned with who is
selected as a supply chain partner. Additionally, marketing would want to know what value this
partner brings to the overall value chain. Students should try to work these ideas and others into
the presentation to the role-played purchasing agent.
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11-19 For Further Research (Individual) It is increasingly important for companies to find ways
to make their supply chains more sustainable. Find examples of how a company has
implemented a sustainable practice within each of the following components of the supply
chain: raw materials sourcing, distribution, warehousing, and retailing. For each component a
separate company can be selected for use as your example.
This question could be assigned as a research paper. Students can find many companies that
make their supply chain sustainable.
11-20 Creative Homework/Short Project Your friend is studying for an upcoming marketing test but
doesn’t quite understand logistics. Write up a summary of the various logistics functions and
devise a short multiple-choice quiz that will help him test his comprehension of the subject.
MyMarketingLab for answers to Assisted Graded Questions.
<instruction><para> APPLY MARKETING METRICS
<sidebar float="1" id="ch15sb04" type="bx1">:<hide><supertitle id="ch15sb04.supertitle">A
Metrics Moment</supertitle></hide>:<para>Companies track a wide range of metrics within the
supply chain area. Some of the most
common ones are the following:</para>
a. <itemizedlist mark="bull" spacing="normal"><listitem><para>On-time
delivery</para></listitem>
b. <listiForecast accuracy</para></listitem>
c. <listitem><parValue-added productivity per employee</para></listitem>
d. <listitem><para>Returns processing cost as a percentage of product
revenue</para></listitem>
e. <listitem><para>Customer order actual cycle time</para></listitem>
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Chapter 11: Deliver the Goods
f. <listitem><para>Perfect order measurement</para></listitem></itemizedlist>
<para>Let us look at the last measure in more detail. The <emphasis>perfect order
measurement</emphasis> calculates the error-free rate of each stage of a purchase order—you
are looking for a perfect order process (or at least as close to one as you can get)! <endnoteref
label="14" olinkend="ch15endnoteset14"/> It helps managers track the multiple steps
involved in getting a product from a manufacturer to a customer in order to pinpoint processes
that need improvement—a bit like TQM we learned about earlier. For example, a company can
calculate its error rate at each stage and then combine these rates to create an overall metric of
order quality. As an example, let us suppose the company identifies the following error
rates:</para>
<itemizedlist mark="bull" spacing="normal"><listitem><para>Order entry accuracy:
99.95 percent correct (five errors per 1,000 order lines)</para></listitem>
<listitem><para>Warehouse pick accuracy: 99.2 percent</para></listitem>
<listitem><para>Delivered on time: 96 percent</para></listitem>
<listitem><para>Shipped without damage: 99 percent</para></listitem>
<listitem><para>Invoiced correctly: 99.8 percent</para></listitem></itemizedlist>
11-21 Calculate the perfect order measurement for the above purchase order process. Interpret
your result.
<para>The company can then combine these individual rates into an overall perfect order
measurement by multiplying them together: 99.95 99.2 96 99 99.8 = 94.04 percent.
The results show that overall the company is carrying out logistics activities most of the time.
However, there is room for improvement particularly in the area of on-time delivery.
11-22 Do you think the firm should be satisfied with this level of performance? Why or why
not? What particular areas need attention, if any?
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Part 4: Deliver and Communicate the Value Proposition
The company should generally be satisfied with this level of performance. However, there is
room for improvement particularly in the area of on-time delivery.
11-23 Is a zero error rate realistic? How close should a firm be expected to come to zero errors?
How do you suggest motivating employees toward reducing these errors?
A zero error rate seems unrealistic. It is a goal that can motivate employees. A reward system
can be put in place to add additional motivation to reduce errors.
11-24 Given this particular example, what are some things the manufacturer might work on to
bring the overall perfect order measurement higher? What would be the advantages to the
firm of investing in making this already good number even better for customers?
Students will come up with a variety of opinions here. One strategy is to focus on the highest
error rate above (“Delivered on time”) before tackling the second highest error rate (“Shipped
without damage”), and so on. As for the advantages to the firm for investing in decreasing the
error rates across categories, the focus of a firm and its marketing strategy should always be
about continuous improvement to ensure the proper and accurate delivery of product to the
consumer. In light of this, the text provides the following:
When a firm does logistics planning, however, the focus also should be on the customer.
When managers thought of logistics as physical distribution only, the objective was to deliver the
product at the lowest cost. Today, forward-thinking firms consider the needs of the customer first.
The customer’s goals become the logistics provider’s goals. In addition, this means that when they
make most logistics decisions, firms must decide on the best trade-off between low costs and high
customer service. The appropriate goal is not just to deliver what the market needs at the lowest
cost but to provide the product at the lowest cost possible <emphasis>as long as the firm meets
delivery requirements</emphasis>. Although it would be nice to transport all goods quickly by air,
that is certainly not practical. However, sometimes air transport is necessary to meet the needs of
the customer, no matter the cost.
CHOICES: WHAT DO YOU THINK?
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Chapter 11: Deliver the Goods
11-25 Critical Thinking Many entrepreneurs choose to start a franchise business rather than “go it
alone.” Do you think franchises offer the typical businessperson good opportunities? What are
some positive and negative aspects of purchasing a franchise?
The easy answer to the question is that franchising must be good because so many people do
it. The more sophisticated answer is that franchising is popular because the local owner can
specialize in customer interaction and turn over other functional responsibilities to other
members of the franchise network (i.e., product shipment and acquisition, promotion, national
image, etc.). Buying a franchise rather than starting from scratch often confers certain
advantages:
1Using the franchise name gives the merchant advertising clout, purchasing power, and
name
2recognition.
3The franchise provides services for the operator such as employee training, giving access
to
4lower prices for needed materials, and helping pick a location with visibility.
There is a cost, however. Disadvantages include:
1The owner must pay a percentage of revenue for the right to be a franchise member.
2The business format of the franchise must be followed to the letter.
3If the franchise gets into difficulty, the individual operators are affected.
11-26 Critical Thinking Would you purchase a durable product (such as a watch) online at a
significantly lower price than the MSRP (Manufacturer Suggested Retail Price) if you knew
that the retailer was not officially authorized by the product’s manufacturer to sell it? Putting
ethical concerns aside for a moment, what risks would most concern you about making such a
purchase and what steps could the related retailer take to lessen those risks?
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Students can have a lively discussion about the risks of online shopping. How can a shopper
know if he/she is getting the item itself or an imitation. For example, I needed a watch strap
for a Cartier Tank Watch. Many were offered online, but I couldn’t verify whether they were
produced by Cartier or not. I ended up buying the watch strap at a Cartier dealership.
11-27 Critical Thinking As colleges and universities are looking for better ways to satisfy their
customers, an area of increasing interest is the distribution of their product (which of course is a
student’s education). Describe the characteristics of your school’s channel(s) of distribution.
What types of innovative distribution might make sense for your school to try?
To answer this question, students should be encouraged to think about how the educational
product is delivered to them. They might remember that the educational product might come
through classroom lecture, television, continuing education, extended or distance learning,
video or audiotape, or foreign travel. New forms that might be explored are CD-ROM, surface
transportation (such as on a train), the Internet, websites, teleconferencing, or other recorded
means. The students should be encouraged to look at the factors (such as cost, competition,
technology, mission identification, etc.) that would affect the choice of these forms.
11-28 Critical Thinking Can a company’s reverse logistics system have a significant influence on
how a consumer views the organization and its brand? Are there specific types of products for
which a company’s reverse logistics system could play a more important role in contributing to
a customer’s view of the organization? For those companies what characteristics would you
expect their reverse logistics systems to have in order to create high added value for a
customer?
Logistics is also a relevant consideration regarding product returns, recycling and material
reuse, and waste disposal—reverse logistics. Reverse logistics becoming even more important
as firms start to more seriously consider sustainability as a competitive advantage and put more
effort into maximizing the efficiency of recycling to save money and the environment at the
same time. There are many companies, for example, coffee companies, that boast about
fair-trade products and an environmentally friendly supply chain. More and more consumers
make purchases based on whether or not a product is made by a company, seriously interested
in protecting the environment. Reverse logistics adds value to a product from the customer’s
perspective.
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Chapter 11: Deliver the Goods
11-29 Ethics RFID tags are extremely useful for retailers, but many consumers have responded
negatively to them, even calling them “spy chips.” What are the ethical issues that retailers
must be aware of when they use these chips? What responsibility do retailers have to educate
consumers about how they will use the information contained in these chips?
Technology known as radio frequency identification (RFID) is used to tag clothes,
pharmaceuticals, or virtually any kind of product with tiny chips that contain information about
the item’s content, origin, and destination. This technology has the potential to revolutionize
inventory control and help marketers ensure that their products are on the shelves when people
want to buy them. Some consumer groups are creating a backlash against RFID, which they
refer to as “spy chips.” Through blogs, boycotts, and other anti-company initiatives, these
groups proclaim that RFID violates privacy. Students can debate whether RFID is an invasion
of privacy that could give retailers information that customers do not want them to have (e.g.,
purchase history).
11-30 Critical Thinking Music, video, or textbook downloading (even when done clandestinely) is just
a way to create a more efficient supply chain because it “cuts out the middleman” (e.g., stores
that sell music, video, and books). Do you agree? Why or why not?
This question might be very familiar to students. There will be those that desire traditional
storefronts, while others like the just-in-time newest release downloads. Many companies such
as Tower Records closed their stores since they could not compete with online downloads that
are readily available.
11-31 Critical Thinking The supply chain concept looks at both the inputs of a firm and the firms that
facilitate the movement of the product from the manufacturer to the consumer. Do you think
marketers should be concerned with the total supply chain concept? Why or why not?
Most students should see that marketers should be concerned with the total supply chain
concept. Why? For one reason, remember that supply chain management is the management
of flows in a supply chain to maximize total profitability. Distribution firms rarely are
independent from one another; therefore, a total supply chain concept allows the firms to be
part of a team and benefit from this team approach. Next, because a supply chain is only a step
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away from a value chain, students should see that a value chain is a way to build relationships
with consumers. Adding value becomes a method of achieving competitive differences and
consumer business. Additionally, this would be very important in business-to-business
relationships where adding value is not only necessary it is a necessity.
11-32 Ethics To bring cost-effective products to your door, retailers like Walmart use suppliers,
some of which may contract work out to other suppliers and so on. And while the initial
suppliers that Walmart contracts with may be socially responsible, not all suppliers are. What
should retailers do to protect themselves from working with unethical companies or selling
products made by such companies? How far down the supply chain should retailers be
responsible for the business practices of their vendors?
Due to its enormous size and purchasing power, Walmart is able to make burdensome demands
on its suppliers. This allows the company to achieve its main customer objective of providing
the lowest possible price for its general merchandise and groceries. One of the challenges of this
type of strategy is that it may be impossible to obtain because it has no endpoint. Therefore,
Walmart is constantly pressuring suppliers to continually lower its price to the firm.
Students can debate whether or not Walmart’s contracts are socially responsible.
MINI-PROJECT: LEARN BY DOING
In the United States, the distribution of most products is easy. There are many independent
intermediaries, such as wholesalers, dealers, distributors, and retailers, which are willing to
cooperate to get the product to the final customer. Our elaborate interstate highway system
combines with rail, air, and water transportation to provide excellent means for moving goods
from one part of the country to another. In many other countries, the means for distribution of
products are far less efficient and effective.
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For this mini-project, you should first select a consumer product, probably one you normally
purchase. Then use either library sources or other people or both (retailers, manufacturers, dealers,
classmates, and so on) to gather information to do the following:
a. Describe the path the product takes to get from the producer to you. Draw a model to show
each of the steps the product takes. Include as much as you can about transportation,
warehousing, materials handling, order processing, inventory control, and so on.
b. Select another country in which the same or a similar product is sold. Describe the path the
product takes to get from the producer to the customer in that country.
c. Determine if the differences between the two countries cause differences in price, availability,
or quality of the product.
11-33 Prepare and present a summary of your findings.
The purpose of the mini-project is to develop an understanding of the distribution process in
the United States.
Through four specific questions (or exercises) marketing teams are asked to examine the path
that a product takes from production to purchase by the end consumer, chart this process,
include physical distribution functions, examine how a similar product is distributed in a
foreign country, examine differences between the countries, and write a summary report that
illustrates the findings.
Instructors may wish to extend the deadline for this assignment so students have many
opportunities to think, research, write, and report their findings.
V. MARKETING IN ACTION CASE: REAL CHOICES AT
TARGET
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Summary of Case
Target’s distribution process became more complicated with the expansion of its grocery business
to include perishables. Then, the situation became more complex when online customers received
orders from warehouses or picked up online orders in stores. Because of the mess, Target has
committed to redesigning its supply chain. Growth has been hindered by unacceptable stock
levels, which are the result of the complicated supply chain. Target is spending more than $5
billion, to upgrade its distribution network and technology infrastructure. In addition, the retailer is
shrinking the number of different products it keeps in stock and reducing the number of sizes
across those products. These changes will result in less inventory and improved handling
efficiency. Store shelves are being physically restructured to hold more product, pushing inventory
out of back-rooms and onto the sales floor. Suppliers are required to adjust case sizes to increase
inventory turnover and decrease the number of times a store employee handles the merchandise. In
addition, Target wants suppliers to give a single-day arrival date to achieve better inventory
management.
Including suppliers in planning and executing the transformation is a key to success. Stock-outs
not only hurt Target, but also everyone in the supply chain. How well the company uses this
reinvigorated supply chain to deliver its value proposition to customers will be critical to its future
competitive success.
Suggestions for Presentation
This case could be assigned for various online or in-class discussion activities.
Online
Write up a short paper summarizing credible news articles about Target’s unacceptable level of
stock-outs that upset customers and decreased sales.
Develop an assessment of the strengths and weaknesses of Target based on information available
on the company website: www.target.com
In-Class
Have a class discussion on Target’s decision to reduce the number of brands and varieties of
product options on the shelves to reduce stock-outs and avoid further declines in sales.
You make the Call
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Chapter 11: Deliver the Goods
11-34 What is the decision facing Target?
Students will come up with various important decisions, among those might be:
How can the company use its reinvigorated supply chain to deliver its value proposition to
customers because this will be critical to its future competitive success?
11-35 What factors are important in understanding this decision situation?
The following factors are important in understand this decision situation:
How can Target assure that stock-outs will be kept to a minimum?
How can Target appeal to customers who want “one-stop shopping” when it no longer
carries perishable foods like meats?
Will suppliers participate effectively in the planning process?
How can online sales be improved?
Will Target continue to be competitive in discount retailing?
How can Target respond to unfavorable stories in the media?
How can Target improve customer satisfaction?
11-36 What are the alternatives?
Students might recommend a variety of different marketing strategies. One possibility would
be to use benchmarking and study the supply chains of related and unrelated companies.
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Part 4: Deliver and Communicate the Value Proposition
11-37 What decision(s) do you recommend?
Students may focus on several of the alternatives developed. Help students understand the
supply chain strategies employed by Target.
11-38 What are some ways to implement your recommendations?
Implementation strategies will depend on the recommended decision.
►MYMARKETINGLAB
Go to www.mymktlab.com for Auto-graded writing questions as well as the following
assisted-graded writing questions:
11-39 Creative Homework/Short Project. Your new boss thinks that intermediaries cost the
company too much money, but you know he is looking only at the bottom line. He has asked
you to investigate the issue. In a short memo to your boss, describe the efficiencies that
intermediaries create and identify the tangible and intangible benefits that these intermediaries
provide.
11-40 Creative Homework/Short Project. Assume that your firm recently gave you a new marketing
assignment. You are to head up development of a distribution plan for a new product line—a
series of do-it-yourself instruction videos for home gardeners. These videos would show
consumers how to plant trees, shrubbery, and bulbs; how to care for their plants; how to prune;
and so on. You know that as you develop a distribution plan, it is essential that you understand
and consider a number of internal and external environmental factors. Make a list of the
information you will need before you can begin to write the distribution plan. How will you
adapt your plan based on each of these factors?
WEB RESOURCES
Copyright © 2018 Pearson Education, Inc.
Chapter 11: Deliver the Goods
Pearson Education Inc.: www.mymktlab.com
Norvanco Logistics Company provides warehousing and transportation: www.norvanco.com
Ebay: www.ebay.com
Example of consumer channel: www.salami.com
Freight broker who coordinates shipments with several trucking companies:
www.freightquote.com
Walmart’s website: www.walmart.com
RFID Overview: www.intermec.com/learning/technologies/rfid/index.aspx?
utm&gclid=CJX1tNGkuZYCFRKLxwodnCSxLw
Railroad Industry: www.railindustry.com
UPS website: www.ups.com
Target website: www.target.com
Jack Johnson music website: www . jackjohnsonmusic.com
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