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?
11-2 Explain the functions of distribution channels.
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:
Merchandise Agents and Brokers
Manufacturer-owned intermediaries:
Sales branches—wholesaler-type facilities owned and run by a manufacturer.
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Chapter 11: Deliver the Goods
11-4 What factors are important in determining whether a manufacturer should choose a direct
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.
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.
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.
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.
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Chapter 11: Deliver the Goods
d. Develop distribution tactics.
Select channel partners
Manage the channel
Develop logistics strategies
11-8 What is logistics? Explain the functions of logistics. What is reverse logistics?
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:
1 Order processing—transferring title and handling paperwork related to distribution.
2 Warehousing—storing goods before they reach final customers.
3 Materials handling—moving products into, within, and out of warehouses.
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.
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
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Chapter 11: Deliver the Goods
11-11 What is a supply chain, and how is it different from a channel of distribution?
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
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,
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?
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Chapter 11: Deliver the Goods
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
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
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?
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:
1 What logistics services does UPS offer its customers?
2 What does UPS say to convince prospective customers that its services are better than
those of the competition?
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Chapter 11: Deliver the Goods
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
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.
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.
APPLY MARKETING METRICS
Companies track a wide range of metrics within the supply chain area. Some of the most
common ones are the following:
a. On-time delivery
b. Forecast accuracy
c. Value-added productivity per employee
d. Returns processing cost as a percentage of product revenue
e. Customer order actual cycle time
f. Perfect order measurement
Let us look at the last measure in more detail. The perfect order measurement 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)! It helps managers track the multiple steps involved in getting a product from a
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Chapter 11: Deliver the Goods
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:
Order entry accuracy: 99.95 percent correct (five errors per 1,000 order lines)
Warehouse pick accuracy: 99.2 percent
Delivered on time: 96 percent
Shipped without damage: 99 percent
Invoiced correctly: 99.8 percent
11-21 Calculate the perfect order measurement for the above purchase order process. Interpret
your result.
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?
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?
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
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Chapter 11: Deliver the Goods
CHOICES: WHAT DO YOU THINK?
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:
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?
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?
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
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Chapter 11: Deliver the Goods
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
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,
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?
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
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
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Chapter 11: Deliver the Goods
products made by such companies? How far down the supply chain should retailers be
responsible for the business practices of their vendors?
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.
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.
V. MARKETING IN ACTION CASE: REAL CHOICES AT
TARGET
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
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Chapter 11: Deliver the Goods
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
11-34 What is the decision facing Target?
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?
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Chapter 11: Deliver the Goods
11-36 What are the alternatives?
11-37 What decision(s) do you recommend?
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
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?
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