Chapter 14 Marketing Channels and Supply Chain Management 413
they can accommodate shipments of only a small
6. Air freight
a. The air freight industry grew steadily for years, but has
7. Comparing the five modes of transport
a. The five transportation modes can be compared based on
several operating characteristics
b. Reliability, speed, and cost are prioritized when choosing
the best option for a particular good
Assessment check questions
7.1. Identify the five major modes of transport. The five major modes of
7.2. Which mode of transport is currently experiencing a resurgence, and
why? Railroad transport is currently experiencing a resurgence because of
its efficiency in transporting large amounts of freight for less fuel.
Chapter Objective 8: Discuss the role of transportation intermediaries, combined
transportation modes, and warehousing in improving physical distribution.
Key Term: storage warehouses, distribution warehouses, vendor-managed inventory, materials
handling system, unitizing, containerization
PowerPoint Basic: 21–22
PowerPoint Expanded: 53–60
1. Freight forwarders and supplemental carriers
a. Freight forwarders act as transportation intermediaries,
consolidating shipments to gain lower rates for their
customers
b. Rates on less-than-truckload (LTL) and less–than-carload
(LCL) shipments often double the rates on truckload (TL)
and carload (CL) shipments
2. Intermodal coordination
414 Part 5 Distribution Decisions
a. Transportation companies emphasize specific modes and
serve certain kinds of customers, often combining services
to give shippers the cost advantages of each
i. Piggyback service, the most widely used form of
intermodal coordination, is a combination of rail and
truck
3. Warehousing
a. Products flow through two types of warehouses: storage and
distribution warehouses
b. Types of warehouses
i. Storage warehouses hold goods for moderate to
long periods to balance supply and demand for
producers and purchasers; for instance, a controlled–
atmosphere or cold-storage warehouse, serves
f. Automated warehouse technology
i. Automated warehousing technology can cut
distribution costs and dramatically improve customer
service
ii. It is an expensive investment, but can cut costs for
high-volume distributors such as grocery chains,
g. Warehouse locations
i. Every company must make major logistics decisions
when it determines the number and locations of
storage facilities
Chapter 14 Marketing Channels and Supply Chain Management 415
ii. Two categories of costs affect this choice:
4. Inventory control systems
a. Companies need to maintain inventory to meet customer
demand without incurring unneeded costs for carrying
excess goods
b. Some firms attempt to keep inventory levels under control
5. Order processing
a. Order processing directly affects the firm’s ability to meet its
customer service standards
b. A company may have to compensate for order-processing
problems by shipping via expensive transportation modes or
maintaining large inventories
c. Order processing consists of four major activities:
i. Conducting a credit check
6. Protective packaging and materials handling
a. A materials handling system refers to the arrangement and
control of activities for moving products within plants,
7. Strategic Implication of Marketing in the 21st Century
416 Part 5 Distribution Decisions
a. Several factors are driving changes in channel development,
logistics, and supply chain management
b. As the Internet continues to affect distribution of goods,
Assessment check questions
8.1. What are the benefits of intermodal transportation? Intermodal
8.2. Identify the two types of warehouses, and explain their function. The
two types of warehouses are storage and distribution. Storage warehouses
hold goods for moderate to long periods of time to balance supply and
demand. Distribution warehouses assemble and redistribute goods as
quickly as possible.
ANSWERS AND TEACHING NOTES TO CHAPTER EXERCISES
Chapter 14 Assurance of Learning Review
1. What is a marketing intermediary? What is the intermediary’s role?
2. Explain why the following firms might choose a dual distribution strategy:
a. Netflix
b. Home Shopping Network
c. The Gap
3. Describe the three levels of distribution intensity. Give an example of a product in each level.
Answer: Distribution intensity refers to the number of intermediaries through which a manufacturer
distributes its goods. The three levels are as follows: Intensive distribution distributes a product through
all available channels in a trade area. Dove practices intensive distribution for many of its products.
4. Compare and contrast the two types of channel conflict. Why is channel conflict damaging to all
parties?
Answer: Channel conflict refers to disagreements within the distribution system. Horizontal conflict results
from disagreements among channel members at the same level, often between marketing intermediaries
5. What are the benefits of owning a franchise? What are the drawbacks?
6. Why do firms choose to streamline their supply chains? Describe two or three ways a firm might go
about streamlining their supply chains.
Answer: The supply chain, or value chain, is the sequence of suppliers and activities contributing to a
product’s creation and delivery, including all aspects of the marketing the product—such as design,
manufacturing, customer service, and delivery. Each link of the chain benefits customers as raw
7. What are the five components associated with the cost of achieving customer service standards in a
physical distribution system?
Answer: Designers of a physical distribution system begin by establishing acceptable levels of customer
service. These designers then assemble physical distribution components in a way that will achieve this
8. Which mode of transport would probably be selected for the following goods?
9. Which two categories of costs influence the choice of how many storage facilities a firm might have
and where they are located?
10. Describe the two concepts that influence materials handling choices. Give an example of a product
that would be appropriate for each.
Projects and Teamwork Exercises
1. Ask the students to discuss the advantages of using the traditional channel for consumer goods. For
which products is it useful? What kind of companies would benefit from this distribution method? What
distribution methodology would an online store adopt? Would it be radically different from other methods
of distribution?
2. Students will be asked identify products that can be returned as raw materials to create another similar
or dissimilar product. Products like paper, rubber tires, plastic bottles and glass containers can be
recycled and fashioned into other products. Apart from being an eco-friendly measure, the rising prices of
raw materials, availability of recycling measures and the passage of anti-pollution laws has made reverse
channeling a valid business practice.
3. The instructor can initiate a discussion on the merits and demerits of using a direct channel. What
products would sell best through a direct channel? Would clothes or shoes be something that you would
buy through a direct channel? How does the use of the direct channel help (a) companies and (b)
consumers?
4. Students could be asked to define a franchise. What are the benefits of acquiring a franchise? Are they
any disadvantages? Are they any kinds of products which easily lend themselves to being franchised?
Students can then explain their rationale behind selecting a franchise that interested them. It would be
interesting if they can do a comparison between the services offered by the parent company and its
franchisee
5. Ask the students to make a comprehensive list of processes that they would need to initiate in order to
organize a performance. What are the problems that they can anticipate? (Weather, transportation
strikes, and so on) What strategies would they use to surmount these problems? How much would their
budget be? As a person in charge of the logistics, who would you co-opt and how would you allot work?
Chapter 14 Marketing Channels and Supply Chain Management 421
Critical-Thinking Exercises
1. Imagine a vending machine that would charge more for hot drinks—coffee, tea, and cocoa—during
cold weather. What is your opinion of a temperature-sensitive vending machine? Consumers who live in
colder climates might pay more over a longer time period each year than consumers who live in warmer
climates. Would your opinion change if alternatives were nearby, say, a convenience store or a vending
machine that is not temperature sensitive? Do you think such a machine would be successful? Why or
why not?
Answer: Student opinions will vary. Some could strongly object to this and would call it ‘price
2. Auto dealerships often have exclusive distribution rights in their local markets. How might this affect
the purchase choices consumers make? What problems might a dealership encounter with this type of
distribution?
Answer: Exclusive distribution rights limit the number of outlets available to consumers. This could
perhaps lend an air of exclusivity to the product. A dealer typically benefits from this arrangement.
3. Choose one of the following firms and identify which marketing channel or channels you think would be
best for its goods or services. Then explain the market factors, product factors, and organizational and
competitive factors contributing to your selection. (Williams-Sonoma, Quiznos Restaurants, National
Geographic Traveler magazine, LPGA, Kohl’s)
4. In their most basic form, RFID tags track the progress of products from warehouse to retail shelf to
checkout counter. But they have great potential to provide marketers with more information about
consumers’ purchase patterns. In what ways might RFID technology be used to serve customers better?
What problems might arise?
5. After a trip to Turkey, where you were inspired by the craftsmanship of artisans who make jewelry and
decorative artifacts, you decided to establish an import business focusing on their work. How would you
determine distribution intensity for your business? What mode or modes of transportation would you use
to get the goods to the United States? How and where would you warehouse the goods? Explain your
answers.
Ethics Exercise
As more and more firms do business globally, transporting goods from one part of the world to another,
there has been a surge in piracy— criminals making off with cargo shipments of all kinds. A tractor-trailer
loaded with electronics might be stolen from a truck stop; a warehouse with pallets of new clothing, video
games, or other goods is susceptible to theft. Large, sophisticated cargo theft gangs have been identified
by police in California, New Jersey, New York, and Texas. However, members of the supply chain can
work together to close the net around would-be thieves, developing stronger relationships with each other
and law enforcement.
1. What steps might manufacturers take to achieve the kind of channel cooperation that could reduce or
prevent cargo theft?
Answer: Student opinions will vary. Members of the supply chain should work together to close the net
around potential thieves, develop and stronger relationships with each other. Increased tracking using
2. How might transportation firms use security measures to build trust with customers and strengthen
their position in the marketplace?
Answer: Student opinions will vary. Transportation firms should use stringent security measures to
Internet Exercises
1. Channel conflicts. Garmin produces a wide range of GPS devices for a variety of applications.
Garmin uses several channels to sell its products, including its own Web store. Visit the Garmin USA
website. How does Garmin avoid channel conflict? Explain your answer.
http://www.garmin.com/us/
2. RFID developments. Go to the website of the RFID Journal. Review the material and prepare a report
outlining some of the more significant developments in RFID technology.
http://www.rfidjournal.com
3. Barge transportation statistics. Visit the website of the American Waterways Operators
(http://www.americanwaterways.com). Select “Media,” then “Industry Facts,” and answer the following
questions:
a. How many barges are in operation in the United States?
More than 33,000 barges are in operation in the U.S.
b. What commodities are typically shipped by barge in the U.S.?
The barge industry typically ships raw materials and finishes goods which include petroleum and
petroleum products, crude material, coal, food and farm products, chemicals, primary
manufactured goods and equipment, waste and scrap.
c. Compared to railroads and trucks, why are barges a more economical way to ship certain types of
commodities?
A typical barge has a capacity 1.5 times greater than one rail car and 60 times greater than one
semi-trailer truck. This makes barge transportation the most economical mode of transportation. It
takes advantage of one of the United States natural resources– the 25,000 mile waterway.
Case 14.1 Superstorm Sandy Disrupts Global Supply Chain —Questions for Critical Thinking
1. Consumers are often advised to stock up on necessities in advance of a major storm. Would this kind
of strategy work for businesses? Why or why not?
Answer: Student answers will vary. However, the responses should discuss how businesses need to look
at having back-up plans and extra supplies if they are in areas of the country where major storms or other
2. One writer suggests that disaster preparedness includes understanding the risks faced by your
supplier’s suppliers. Do you agree? Why or why not?
Answer: Student answers will vary. However, their responses should acknowledge that supplier’s
suppliers are an important part of any supply chain. Companies could safeguard their supply chains in
Video Case 14.2: Geoffrey B. Small Keeps Marketing Channels Tight—Questions for Critical
Thinking
1. Over the next ten years, do you think Geoffrey Small’s insistence on exclusivity will continue to benefit
his business or begin to be detrimental? Why?
Answer: The benefits of exclusivity could continue, as Small’s garments may begin to turn up in vintage
collections making them even more rare and valuable. If he is successful at developing a new organic
2. In your opinion, why does Geoffrey Small have such successful partnerships throughout his marketing
channels?
Answer: Small creates positive relationships with channel partners who share his commitment 1to
COLLABORATIVE LEARNING EXERCISES
Distribution Strategy
Purpose:
To demonstrate some key trade-offs in creating an effective distribution system
Background:
Unfortunately, most students seem to find distribution to be the least interesting of the marketing
426 Part 5 Distribution Decisions
it is designed to spark student interest in learning more about this crucial element of the marketing
mix.
Relationship to Text:
Channel Strategy Decisions
Estimated Class Time:
About 20 minutes
Preparation/Materials:
You’ll need to bring to class a large bag of well-wrapped candies that don’t get easily squished or
broken. Tootsie Rolls, lollipops, or mini candy bars are all good choices. You’ll also need a basket
or box of some kind, about the size of a small household wastebasket. Place the basket at the
front of the classroom—ideally on a desk or podium—and mark a spot in the back of the
classroom.
Exercise:
Divide your class into small groups and direct each group to choose a “factory owner.” Present
each team with 25 candies and the scenario outlined below. Their job is to plan a distribution
strategy that will maximize profits.
Questions for Reflection:
• How does the product itself affect distribution decisions (e.g. upscale furniture versus cheap
candy)?
Chapter 14 Marketing Channels and Supply Chain Management 427
• How do the characteristics of the target market affect distribution decisions?
Distribution Intensity
Purpose:
To highlight the options and trade-offs regarding distribution intensity
Background:
Distribution intensity within product categories varies more widely than many students expect.
This exercise is designed to illustrate the range by asking students to generate specific examples
of each intensity level within a number of categories.
Relationship to Text:
Determining Distribution Intensity
Estimated Class Time:
About 15 minutes
Preparation/Materials:
You might want to write each of the categories listed below on the board.
Exercise:
After you cover the section on distribution intensity, divide your students into pairs, and instruct
them to brainstorm examples of companies with intensive, selective, and exclusive distribution for
each of the following categories:
• Baked goods (cakes, cookies, donuts)
• Cars
• Clubs
Questions for Reflection:
• What factors should a company consider when determining distribution intensity? Why?
• When can distribution intensity spark horizontal channel conflict? Why? (Consider franchises
and sales territories.)
Channel Conflict
Purpose:
428 Part 5 Distribution Decisions
To vividly demonstrate the potential sources of vertical channel conflict
Background:
Teamwork and trust are essential for marketing channels to attain maximum efficiency. But since
channel members are often independent organizations, some level of conflict is inevitable. This
exercise is designed to illustrate the potential causes and consequences of vertical channel
conflict.
Relationship to Text:
Vertical Conflict
Estimated Class Time:
About 20 minutes
Preparation/Materials:
None needed
Exercise*:
Divide your class into three sections, and ask the students in each section to divide themselves
into smaller groups of four or five people). Then assign each section the role of retailer,
wholesaler, or producer. Instruct the groups to brainstorm two lists of potential gripes directed
toward each of the other two sections. For instance, the groups in the section with the producer
role should develop one list of potential complaints for wholesalers, one for retailers.
Questions for Reflection:
• What are some strategies to avoid unhealthy channel conflict?
• Can some level of channel conflict be productive? Even creative? What are some hypothetical
examples?
*This exercise was adapted from Fujimoto, Wanda H, “Who’s to Blame? A Channel Conflict Exercise,”
Great Ideas for Teaching Marketing, South-Western.
Transportation Modes
Purpose:
To explore various transportation modes
Background:
Choosing the best transportation mode is an important component of the supply chain. This
exercise is designed to examine transportation options for a range of products sold in a
supermarket.
Relationship to Text:
Major Transportation Modes
Chapter 14 Marketing Channels and Supply Chain Management 429
Estimated Class Time:
About 15 minutes
Preparation/Materials:
None needed
Exercise:
Divide your class into small groups. Ask each group to come up with a list of items that they would
find in a supermarket. Once they come up with a list, the group decides what mode of
transportation they would use in order to source their products. The group also lists out
circumstances which would require them to use more then one mode of transportation. Each
group presents its findings to the rest of the class.
Distribution Packaging
Purpose:
To give your students hands-on experience with packaging for shipment
Background:
Creating the best package for transporting products is distinctly unglamorous, but the right
package can make a significant difference to the bottom line. This exercise is designed to
demonstrate several of the key issues in developing effective, efficient packaging for shipment
(and to have some fun).
Relationship to Text:
Protective Packaging and Materials Handling
Estimated Class Time:
About 30 minutes
Preparation/Materials:
For each group of five to seven people, you’ll need a roll of masking tape, about 20 plastic
drinking straws, a stack of 8-1/2 X 11 inch paper, and two raw eggs. You’ll also need some
newspaper (or plastic tarp) to cover part of the floor, a chair, and a tape measure.
Exercise*:
430 Part 5 Distribution Decisions
Allow the groups to use as much of the materials as they need, but let them know that on their
final product you will calculate the cost of all of their materials:
• Tape: $20/inch
• Straws: $100/straw
• Paper: $5/sheet
Since each group has two eggs, they may test their package with one, and use the other for their
actual product demonstration.
Source: Adapted from Herrenkohl, Roy C. (2004). Becoming a Team, Mason, Ohio: South-Western, page
114.