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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

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. 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

Chapter 11: Deliver the Goods

p. 343

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

Part 4: Deliver and Communicate the Value Proposition

p.344

p. 345

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

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

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

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

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?

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

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

p. 355

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

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

p. 357

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.

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

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

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

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>

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

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?

Part 4: Deliver and Communicate the Value Proposition

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.

Chapter 11: Deliver the Goods

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

Part 4: Deliver and Communicate the Value Proposition

Michael chose Option #3.

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:

Part 4: Deliver and Communicate the Value Proposition

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

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.

Part 4: Deliver and Communicate the Value Proposition

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?

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.

Part 4: Deliver and Communicate the Value Proposition

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

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.

Part 4: Deliver and Communicate the Value Proposition

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

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.

Part 4: Deliver and Communicate the Value Proposition

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>

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?

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?

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

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?

Part 4: Deliver and Communicate the Value Proposition

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.

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

Part 4: Deliver and Communicate the Value Proposition

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.

Chapter 11: Deliver the Goods

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

Part 4: Deliver and Communicate the Value Proposition

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

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.

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

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