127) How do channel members add value to a marketing system?
Answer: Intermediaries reduce the amount of work that must be done by both producers and consumers. They transform the assortment of products made by producers into the assortment wanted by consumers. They buy large quantities from many producers and break them down into the smaller quantities and broader assortments wanted by consumers. Intermediaries help to match supply and demand. Channel members add value by bridging the major time, place, and possession gaps that separate goods and services from those who would use them. Diff: 2 Page Ref: 339 AACSB: Analytic Skills Skill: Application Objective: 12-1
128) What are the eight key functions that members of the marketing channel perform? Answer: Some help to complete transactions by gathering and distributing information,
developing and spreading promotions, contacting prospective buyers, matching and shaping the offer to the buyer's needs, and negotiating price and other terms. Others help to fulfill the completed transactions through physical distribution, financing, and risk taking. Diff: 2 Page Ref: 340 AACSB: Analytic Skills Skill: Application Objective: 12-1
129) Compare and contrast a conventional distribution channel with a vertical marketing system (VMS).
Answer: A conventional distribution channel consists of one or more independent producers, wholesalers, and retailers. Each is a separate business seeking to maximize its own profits, even at the expense of the system as a whole. No channel member has much control over the other members, and no formal means exists for assigning roles and resolving channel conflict. On the other hand, a vertical marketing system is a unified system made up of producers, wholesalers, and retailers. While members of a conventional distribution channel seek to maximize their own
profits, members of a vertical marketing system all cooperate because either one member owns the others, one has contracts with the others, or one wields a more power than the others. Diff: 3 Page Ref: 344 AACSB: Analytic Skills Skill: Application Objective: 12-2
130) Why are multichannel distribution systems gaining popularity today?
Answer: Multichannel distribution systems exist when a single firm sets up two or more
marketing channels to reach one or more customer segments. Such a system offers advantages to firms facing large and complex markets. It allows the firms to expand sales and market coverage. It allows firms to tailor their products and services to the specific needs of diverse customer segments. Larger bottom-line profits may occur. Diff: 2 Page Ref: 346 AACSB: Analytic Skills Skill: Application Objective: 12-2
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131) How have changes in technology and the growth of online marketing affected the design of marketing channels?
Answer: Changes in technology and the growth of online marketing have increased
disintermediation, which is the cutting out of marketing channel intermediaries by product or service producers, or the displacement of traditional intermediaries with radically new types. In many industries, traditional intermediaries are dropping by the wayside. For example, many airlines now sell directly to final buyers, cutting retailers and sales agents from their marketing channels. Online marketers take business from traditional brick-and-mortar retailers. Diff: 2 Page Ref: 347 AACSB: Use of IT Skill: Application Objective: 12-2
132) Distinguish between the three distribution strategies.
Answer: Producers of convenience products and common raw materials typically seek intensive distribution as a strategy to stock their products in as many outlets as possible. The goods are available where and when consumers want them, such as chewing gum. Selective distribution is used when selling to more than one but fewer than all of the intermediaries who are willing to carry a company's products in a given market. Examples are name-brand blue jeans and computers. Exclusive distribution is used when the producer wants to stock its products with only one or a few dealers in an area. Examples are expensive cars and prestige clothing. Diff: 1 Page Ref: 351 AACSB: Analytic Skills Skill: Application Objective: 12-3
133) Explain how companies select, motivate, and evaluate channel members.
Answer: When selecting intermediaries, the company should evaluate each channel member's qualifications and select those who best fit its channel objectives. The company should use
economic criteria, control issues, and adaptive criteria to analyze each possible channel member. Once selected, channel members must be continuously motivated to do their best. The company must sell not only through the intermediaries but also to and with them. It should work to forge long-term partnerships with channel partners to create a marketing system that meets the needs of both the manufacturer and the partners. The company must also regularly check channel member performance against established performance standards, rewarding intermediaries who are performing well and assisting or replacing weaker ones. Diff: 2 Page Ref: 352 AACSB: Analytic Skills Skill: Application Objective: 12-4
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134) Discuss how public policy affects distribution decisions.
Answer: For the most part, companies are legally free to develop whatever channel arrangement suits them, as long as they do not substantially lessen competition or tend to create a monopoly, and as long as both parties enter into the agreement voluntarily. Exclusive territorial agreements in which a producer attempts to keep a dealer from selling outside of a designated territory have become a major legal issue. Producers are free to select their dealers, but they must have legitimate cause to terminate a relationship with a dealer. Diff: 3 Page Ref: 355-356 AACSB: Ethical Reasoning Skill: Application Objective: 12-4
135) Why are more and more companies turning to third-party logistics providers (3PLs)?
Answer: A third-party logistics provider is an independent company that performs any or all of the functions required to get a producer's product to market, helping clients to tighten up sluggish, overstuffed supply chains, slash inventories, and get products to customers more quickly and reliably. Companies use third-party logistics providers because getting the product to market is the main focus of 3PLs, so they can often do it more efficiently and at a lower cost. Second, outsourcing logistics frees a company to focus more intensely on its core business. Finally, integrated logistics companies understand increasingly complex logistics environments. For example, third-party logistics partners can be especially helpful to companies attempting to expand their global market coverage. Diff: 3 Page Ref: 362 AACSB: Analytic Skills Skill: Application Objective: 12-5
136) What is the role of marketing intermediaries?
Answer: The role of marketing intermediaries is to transform the assortments of products made by producers into the assortments wanted by consumers. Diff: 1 Page Ref: 340 AACSB: Analytic Skills Skill: Application Objective: 12-1
137) Give an example of horizontal conflict.
Answer: This type of conflict occurs among firms at the same level of the channel; an example would be two Chevrolet dealers in the St. Louis area that complain that each is being undercut by the other. Diff: 1 Page Ref: 342 AACSB: Reflective Thinking Skill: Application Objective: 12-2
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138) Give an example of vertical conflict.
Answer: This type of conflict occurs between different levels of the same channel; an example would be conflict created by a manufacturer toward its dealers when deciding to open an online operation. Diff: 1 Page Ref: 342 AACSB: Reflective Thinking Skill: Application Objective: 12-2
139) Explain channel power in a conventional distribution channel.
Answer: No channel member has much control over the other members, and no formal means exists for assigning roles and resolving channel conflict. Diff: 2 Page Ref: 344 AACSB: Analytic Skills Skill: Application Objective: 12-2
140) Explain channel power in a vertical marketing system.
Answer: One channel member owns the others, has contracts with them, or wields so much power that they must all cooperate. Diff: 2 Page Ref: 344 AACSB: Analytic Skills Skill: Application Objective: 12-2
141) How can a firm benefit from involvement in a contractual VMS?
Answer: A contractual VMS consists of independent firms at different levels of production and distribution that join together through contracts to obtain more economies or sales impact than each could achieve alone. Diff: 3 Page Ref: 345 AACSB: Analytic Skills Skill: Application Objective: 12-2
142) How can a firm benefit from participating in a horizontal marketing system?
Answer: Two or more companies at one level join together to follow a new marketing opportunity; by working together, companies can combine their financial, production, or marketing resources to accomplish more than any one company could alone. Diff: 3 Page Ref: 345 AACSB: Analytic Skills Skill: Application Objective: 12-2
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143) Give two examples of multichannel distribution systems.
Answer: Students' answers will vary. Examples will include J. C. Penney's catalog distribution option and the retail store locations as well as Avon's door-to-door distribution and over-the-counter distribution options. Diff: 2 Page Ref: 346 AACSB: Reflective Thinking Skill: Application Objective: 12-2
144) What types of products are intensively distributed?
Answer: These products must be available where and when consumers want them; examples include chewing gum, soft drinks, toothpaste, and candy. Diff: 1 Page Ref: 351 AACSB: Analytic Skills Skill: Application Objective: 12-3
145) What types of products are exclusively distributed?
Answer: Exclusive distribution is often used for expensive automobiles and prestige clothing. These products are geographically dispersed. Diff: 1 Page Ref: 351 AACSB: Analytic Skills Skill: Application Objective: 12-3
146) What types of products are selectively distributed?
Answer: With this type of distribution, more than one, but fewer than all, of the intermediaries who are willing to carry a company's products are used. Products include appliances and some name-brand clothing. Diff: 1 Page Ref: 351 AACSB: Analytic Skills Skill: Application Objective: 12-3
147) What are two considerations when selecting intermediaries?
Answer: A company may want to evaluate each channel member's years in business, other lines carried, growth and profit records, cooperativeness, and reputation. Diff: 3 Page Ref: 353 AACSB: Analytic Skills Skill: Application Objective: 12-4
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148) When would an exclusive dealing contract be legally problematic?
Answer: An exclusive dealing contract may be illegal if one party has not voluntarily agreed to the contract, or if the arrangement substantially lessens competition or tends to create a monopoly. Diff: 3 Page Ref: 356 AACSB: Ethical Reasoning Skill: Application Objective: 12-4
149) How can a company benefit through a just-in-time logistics system?
Answer: With such systems, producers and retailers carry only small inventories of parts or merchandise, often only enough for a few days of operations. This creates substantial savings in inventory-carrying and handling costs. Diff: 2 Page Ref: 359 AACSB: Analytic Skills Skill: Application Objective: 12-5
150) Explain why a firm's suppliers tap into the firm's inventory levels with a vendor-managed inventory system (VMI).
Answer: Some suppliers might actually be asked to generate orders and arrange deliveries for their customers, based on the customers' inventory levels; in these cases, the suppliers must know their customers' inventory levels. Diff: 3 Page Ref: 361 AACSB: Analytic Skills Skill: Application Objective: 12-5
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