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Chapter 11: Deliver the Goods
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. 355
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
voluntary chain.
A retailer cooperative is a group of retailers that has
established a wholesaling operation to help them
Copyright © 2018 Pearson Education, Inc.
Chapter 11: Deliver the Goods
p. 356
compete more effectively with the large chains.
Franchise organizations are a third type of contractual
VMS. Franchise organizations include a franchiser (a
manufacturer or a service provider) who allows an
entrepreneur (the franchisee) 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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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.
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
Copyright © 2018 Pearson Education, Inc.
Chapter 11: Deliver the Goods
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?
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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.
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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—reverse logistics.
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
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p. 362
3.1.1 Order Processing
Order processing includes the series of activities that occurs
between the time an order comes into the organization and the
time a product goes out the door.
Fortunately, many firms automate this process with enterprise
resource planning (ERP) systems. An ERP system is a software
solution that integrates information from across the entire
Copyright © 2018 Pearson Education, Inc.
Chapter 11: Deliver the Goods
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—storing goods in anticipation of sale or transfer to
another member of the channel of distribution—enables marketers
to provide time utility 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.
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p. 363
3.1.4 Transportation
Logistics decisions take into consideration options for
transportation, 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: the total transportation costs to move a product from
one location 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
Each mode of transportation has strengths and weaknesses that
make it a good choice for different transportation needs.
.Railroads: Railroads are best to carry heavy or bulky
Exhibit: Amazon
Table 11.3
A Comparison of
Transportation
Modes
Copyright © 2018 Pearson Education, Inc.
Chapter 11: Deliver the Goods
p. 364
items, such as coal and other mining products, over long
distances. Railroads are about average in their cost and
provide moderate speed of delivery.
. Water: 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.
.Trucks: 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.
Air: 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: 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.
The Internet: 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
Copyright © 2018 Pearson Education, Inc.
Chapter 11: Deliver the Goods
move. What do you think is the best decision?
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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 radio frequency identi!cation (RFID). 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?
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p. 365
p. 365
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 just in time (JIT) 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 supply chain 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
Copyright © 2018 Pearson Education, Inc.
Chapter 11: Deliver the Goods
p. 366
p. 367
p. 367
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.
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
1 Spider’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?
2 Spider’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
Copyright © 2018 Pearson Education, Inc.
Chapter 11: Deliver the Goods
p. 367
p. 367
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 plus 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 channel of distribution.
►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
Michael chose Option #3.
Ripped from the
Headlines:
Ethical/
Sustainable
Decisions in the
Real World
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