CHANNEL IT 3 07 3 08

CHANNEL IT 3. 07 – 3. 08 – 3. 09

CHANNEL BASICS Have you ever had to travel a considerable distance to purchase a product you wanted? Perhaps you found the perfect used car—it was the make and model you wanted, had low mileage, and was listed at an affordable price. The only trouble was that you had to drive 200 miles to pick it up.

CHANNEL BASICS In this case, your time and effort was probably worth it since you only needed to deal with the hassle one time. But what if this circumstance applied to all your needs? You would soon find that the goods and services you consume would be limited to those produced in your own area.

CHANNELS OF DISTRIBUTION Fortunately, there are channels of distribution. Because of these channels and their participants, products from many different locations are available right where you live.

GETTING THE GOODS Channels of distribution are the paths/routes goods/services take from the producer to the ultimate consumer or industrial user. These paths aren’t physical, however. Although goods do travel to their destinations along highways/railroads, the term “channels of distribution” doesn’t refer to those types of routes.

GETTING THE GOODS Instead, it refers to businesses or people who perform a variety of functions to enable products to be in the right places at the right times A channel of distribution begins with a producer and ends with an ultimate consumer or industrial user.

Channels of Distribution Channel of Distribution Think of an apple you recently ate. What route did it take to get to you? It started out in an orchard owned by an apple farmer. The farmer sold the apples to an apple buyer. Apple buyer buys apples from all the farmers in the area. Apple Farmer Apple Buyer Apple buyer then sells apples to your local grocery store. You then go to the grocery store and buy the apple. Buyer Grocery Store

Channels of Distribution You could have bought the apple directly from the farmer but you live far away from any apple farms. Producer = farmer Wholesaler = Apple Buyer Retailer = Grocery Store Consumer = You = person who eats apple

Channels of Distribution How do channel members add value to the product? By being experts at what they do. The apple farmer is expert at producing bushels of apples. The grocery store is expert at selling produce.

Channels of Distribution Moving the product smoothly through the channel benefits all members. Channels are not meant to make products more costly or more difficult for consumers to find. Channels work best and deliver valueadded products when members work together toward common goals.

PRODUCERS A producer makes/provides goods and services. Examples of producers include Whirlpool, a manufacturer of household appliances, and Pfizer, a company that makes pharmaceuticals. Farmers are producers as well—they grow a variety of crops such as apples, wheat, and rice. Producers of services include: actors and entertainers, teachers, and health-care professionals

ULTIMATE CONSUMER An ultimate consumer is anyone who personally uses a good/service to satisfy her/his own wants. We are all ultimate consumers of many different goods and services. If you’ve used one of its dishwashers, you are one of Whirlpool’s ultimate consumers. If you’ve eaten corn on the cob, you are one of a farmer’s ultimate consumers.

INDUSTRIAL CONSUMER If you’ve gotten your teeth cleaned, you are one of a dentist’s ultimate consumers. Think of three goods or services that you’ve consumed already today? An industrial user is a business that buys materials, services, or goods that will be used to make other goods or used in the operation of the company.

INDUSTRIAL CONSUMER A construction company, for instance, must buy lumber, steel, and other materials needed to build homes and offices. An accounting firm will purchase computers, printers, and other office equipment necessary for its employees to perform their jobs.

INTERMEDIARIES Many products take paths that include channel members in addition to the producer and the ultimate consumer or industrial user. These channel members are known as intermediaries or middlemen. They operate between the producer and the consumer/user to help in the movement of goods and services.

RETAILERS Let’s take a look at the different types of intermediaries: Businesses that buy consumer goods and sell them to ultimate consumers are retailers. Retailers perform functions such as buying, selling, promoting, storing, and pricing goods. They may also provide customer services such as credit, installation, and repair. Mc. Donald’s, Macy’s, and your neighborhood gas station are all examples of retailers.

WHOLESALERS Businesses that buy goods from producers/ agents and sell them to retailers are called wholesalers. Wholesalers buy a variety of goods from many producers and sell groups of related products to retailers. For instance, a wholesaler might purchase baseball bats from one producer, mitts from another, and baseballs from still another. A retailer would then be able to purchase all the baseball equipment from one source, rather than having to contact each producer.

AGENTS Important functions of wholesalers include packaging, transporting and storing, extending credit to retailers, and providing promotional and consulting services. Businesses/individuals who assist in the sale and/or promotion of goods/services but do not buy them from the producer are known as agents.

AGENTS They do not take title to the products; in other words, they never actually own them. Instead, their job is to sell and promote a producer’s goods/services. Agents usually handle a limited # of noncompeting products.

CHANNEL MEMBERS Middlemen are classified on the basis of whether or not they take ownership of goods. Merchant middlemen take title. Ex. Comp. USA is middleman for Nikon Cameras. Consumers buy from Comp. USA Agent middlemen (agents) do not take title but work on commission. Agents get buyers and sellers together.

The Gray Zone Although channels allow consumers and industrial users access to products from all over the world, they do not guarantee consumers will be able to purchase anything they want, any time they want. Certain products may only be available in limited supplies. Because of supply & demand, channel members may be able to charge higher prices for coveted products. This may be fine for a designer handbag, but what if the product is more basic, like fresh water or medical supplies?

The Gray Zone Or, let’s say there is a hurricane or tornado in a certain part of the country, and many people need to repair their homes and roofs. Is it OK for channel members to mark up hardware products during this time to make a bigger profit?

IMPORTANCE OF INTERMEDIARIES The primary objective of producers in distributing goods and services is to get them to consumers in the most effective and efficient manner possible. To do that, they must have products in the right places, at the right times, and at the least cost. It is important for the business to monitor channel activities to ensure the products are moving in a timely manner. In some cases, the most effective, efficient manner of distribution will be to sell directly to ultimate consumers or industrial users.

IMPORTANCE OF INTERMEDIARIES In other cases, producers will use intermediaries to assist in getting products to consumers. Regardless of the methods used, the functions involved will remain the same. These include buying, selling, pricing, financing, etc. . When a producer chooses to sell goods/services directly to consumers, the producer must perform all the necessary functions and will incur all the costs of distribution. At the same time, however, the producer earns any and all income the products bring in.

IMPORTANCE OF INTERMEDIARIES When producers use intermediaries to assist in distributing goods/services, costs can be passed on to other channel members. Producers’ profits could decrease since income also has to be shared with intermediaries; however, producers’ income might be higher if the intermediaries are able to sell more than the producers can sell on their own.

IMPORTANCE OF INTERMEDIARIES It is frequently not realistic for producers and consumers /industrial users to deal with each other directly. Likewise, it would not be practical for retailers to deal directly with producers all the time. Through the use of agents and wholesalers, retailers are able to reduce the number of contacts that they must make with producers. Through the use of intermediaries, producers are able to match their production to the wants of consumers or industrial users.

BUY BIG AND SELL SMALL Intermediaries buy large quantities of goods from producers and sell smaller quantities to other intermediaries or consumers. For example, an intermediary might purchase 10, 000 two-liter bottles of soda from a producer and sell 100– 200 at a time to a small retailer. By placing large orders with producers, intermediaries are able to reduce their per-unit cost for goods, allowing them to make a profit and/or pass some of the savings along to consumers.

DEVELOP AN ASSORTMENT OF GOODS Since most producers are able to produce more than any consumer will purchase at one time, intermediaries collect goods from a variety of producers and divide them into quantities/ assortments consumers will want. Consumers are then able to obtain the desired amounts/types of goods/services. A makeup boutique will develop an assortment of products for its customers—lipsticks, blush, mascaras, eye shadow, etc. — in many different sizes and colors from several different producers.

COMMUNICATION Effective communication is extremely important to make sure that a customer's order is processed correctly and on time. However, communication is a two-way street. Customer service needs to communicate with customers, and customers need to communicate their needs to customer service. By maintaining an open line of communication, customer service will be able to facilitate order processing.

COMMUNICATION Customer service IS NOT RESPONSIBLE for overseeing assembly or monitoring inventory. It is NOT APPROPRIATE to negotiate aggressively because this might have a negative impact on relationships with customers.

COMMUNICATION Back orders are requests (orders) for goods that are out of stock and will be shipped when the items are available. A business that runs out of stock on a regular basis is not providing adequate customer service. When customers cannot get the products they want, when they want them, they often go to other businesses to obtain the items.

COMMUNICATION Therefore, it is important for a business to evaluate its distribution patterns and monitor its channel members to make sure that everything is operating efficiently. Being flexible and responsive are ways in which a business can provide good customer service.

DISTRIBUTION INTENSITY Marketers determine distribution intensity so they can achieve ideal market exposure—they want to make their product available to each and every customer who might buy it, but they don't want to over-distribute the product and waste money. Ideal market exposure often does NOT cover an entire market.

INTENSIVE DISTRIBUTION Intensive distribution aims to provide saturation coverage of the market by using all available outlets. For example, it involves selling a product (e. g. , candy bars) through every available wholesaler and retailer in a geographic area where consumers might look for the product. Examples: Wal-Mart, Convenience Store, Sam’s Club, Kohl’s, Walgreens, etc.

SELECTIVE DISTRIBUTION When a business wants to deal with intermediaries who will do the best job to promote and sell their products, it would use selective distribution. - - involves a producer using a limited number of outlets in a geographical area to sell products. Advantage of this approach is the producer can choose the most appropriate or best-performing outlets and focus effort (e. g. training) on them. Selective distribution works best when consumers are prepared to "shop around" - they have a preference for a particular brand or price and will search out the stores/outlets that supply. High end perfume will probably not be sold at Wal-Mart, but at Belk, Macy’s, etc.

EXCLUSIVE DISTRIBUTION Best to use exclusive pattern of distribution when you need to maintain tight control over a product. Exclusive distribution is often preferred for specialty, highly complex, and technical products, or products that require special handling or training, such as airplanes or large machinery.

EXCLUSIVE DISTRIBUTION Exclusive distribution is a strategy that forbids dealers from carrying the competitors' products. This strategy is usually considered illegal because it restricts competition. However, it is legal in certain situations, such as a franchisor requiring a franchisee to sell only the franchisor's products. One of the characteristics of a franchise agreement is the franchisee buys the right to sell the products of the franchisor.

EXCLUSIVE DISTRIBUTION The franchisor is protecting the image of its product by preventing the franchisee from carrying competing brands. A manufacturer assigning an exclusive territory to restrict competition is usually considered illegal.

GRAY MARKETS Gray markets occur when imported goods are sold by businesses other than authorized intermediaries. In most cases, the goods are sold to customers for a great deal less than if purchased through authorized distribution channels. Products from electronics to clothing are sold through gray markets. A pharmacy might sell brand medications to customers in foreign countries for a lower price than domestic prices. In some cases, the authorized dealers choose to abandon a brand because they cannot compete with the gray market.

GRAY MARKETS A franchisee who obtains a license from the franchisor is conducting a legal means to distribute through a product trade-name franchise agreement. A company that sells its own products on an Internet web site to foreign customers is NOT conducting activities through a gray market. A business that has obtained exclusive distribution rights from a manufacturer is NOT participating in gray-market activities.

Channels of Distribution Why pick one type of distribution over another? Marketer needs to choose distribution that “fits” his product – result – you will get ideal market exposure. A business that wants to bypass middlemen (intermediaries) would choose a directdistribution strategy.

Technology in Distribution Channels o Technology (Software) aims to integrate all departments and functions across channels Each channel typically has its own software/computer system o Channel member employees have to enter info. into the system in a TIMELY manner. o Processes must be integrated end-to-end and demand the right mix of technology, infrastructure and labor to make them work to provide CUSTOMER SATISFACTION.

Technology in Distribution Channels Satellite tracking is the use of satellites and technological systems that allow for the transmission of information between two parties. Satellite tracking would help a business locate a package while it is en route in order to provide an estimated arrival time to the package recipient. Computer systems that perform warehouse functions that are usually executed by humans are called artificial intelligence systems. A computer software program would be used to create routing plans for transportation companies, not a satellite tracking system.

Technology in Distribution Channels Some businesses have the capacity to distribute most or all of their products through the Internet. Some businesses provide pure services that do not require the use of intermediaries. For example, it is possible for business consultants or freelance copyrighters to deliver their services directly to the end users through their web sites. Many financial-services, such as bank loans and stock trades, can be completed online without the use of intermediaries.

Technology in Distribution Channels Because some businesses are bypassing intermediaries and selling products directly to the end users through their web sites, vertical conflict among channel members continues to be a problem. When businesses decide to sell directly to consumers, the #of intermediaries is reduced. In many ways, technological advancements make the distribution process more efficient. For example, Extranets make it easier for channel leaders to monitor channel activities and for channel members to communicate with one another.

DISTRIBUTION CHANNELS FOR CONSUMER PRODUCTS Most common is Producer to Retailer to Consumer Used most often for products that become out-of-date quickly such as clothing and automobiles. When producer does not want responsibility for selling, the channel is Producer to AGENT to Retailer to Consumer.

DUAL DISTRIBUTION When a manufacturer uses more than one channel to reach consumers, it is known as dual distribution. Dual distribution is legal as long as it promotes competition. NOT DUAL DISTRIBUTION: When a supplier requires an intermediary to purchase other products in its line, as well as the initial purchase, it is known as a tying agreement.

DUAL DISTRIBUTION NOT DUAL DISTRIBUTION Exclusive dealing occurs when a manufacturer forbids an intermediary from carrying a competitor's product. Restricted sales territories prohibit intermediaries from selling products outside a designated area.

UNETHICAL BEHAVIOR Coercion usually involves the use of force and is generally considered to be unethical. If a large business threatens a supplier, that is an example of coercion. The business may demand the supplier sell at extremely low prices or pick up other types of expenses in order to be a supplier. The message is the supplier will no longer be used if the business does not receive the requested concessions.

INFORMATIONAL MESSAGES Informational messages are written every day in business in order to send routine information to others. Sending a customer a message confirming the date and time of the next appointment is an example of a topic that would be addressed in an informational message. The topic concerns routine information and deals with common business situations. Requesting payment on a past-due account, a charity appealing for a donation, or inviting someone to speak at a conference are examples of topics that would be addressed in persuasive messages, not informational.

INFORMATIONAL MESSAGES Informational messages often contain a variety of information that has different levels of importance. When writing the message, it is important to present the information in the order of importance. Depending on the message, the information might be arranged in order of its importance to the reader. For example, it is more important to readers to learn they will receive discounts on certain purchases than to learn the bill will be mailed on a different date.

INFORMATIONAL MESSAGES Information should be presented so readers will clearly understand. It should be explained thoroughly, which may not be the shortest way possible. Presenting information in a conversational way is NOT always the most effective because a conversational tone is casual and may not present all the important information.

INFORMATIONAL MESSAGES The function of a letter of inquiry usually is to make a request. Businesspeople often write letters of inquiry to request an appointment with a current customer or a potential customer, particularly if that customer is located out of town. For example, a businessperson might write several letters requesting appointments with various customers before arranging a sales trip. An acknowledgement letter would be written to acknowledge the receipt of an order. A claim letter would be written to complain about a problem with a product. A transmittal letter would be written to accompany a document being sent by mail.

REVIEW REVIEW

17. (2) How do channel members add value to a product? A. By performing certain channel activities expertly B. C. D. By making the product more costly By making the product available in all locations By pursuing individual goals

18. (2) What do marketers want to achieve by determining distribution intensity? A. Ideal market exposure B. Perfect market balance C. Complete market coverage D. Total market saturation

19. (2) When is it best for a business to use an exclusive distribution pattern? A. It prefers to have its intermediaries promote the product. B. It needs to maintain tight control over a product. C. It chooses to eliminate intermediaries. D. It wants the product to be available in all possible locations.

20. (2) Which of the following is an aspect of channel management that impacts customer service? A. Advertising B. Protectionism C. Taxes D. Timeliness

20. Which of the following is an aspect of channel management that impacts customer service? A. Advertising B. Protectionism C. Taxes D. Timeliness

21. (2) What is one action that customer service can take to facilitate order processing? A. B. C. D. Negotiate aggressively Communicate effectively Oversee assembly Monitor inventory

21. What is one action that customer service can take to facilitate order processing? A. B. C. D. Negotiate aggressively Communicate effectively Oversee assembly Monitor inventory

22. (2) Which situation hinders a business's ability to provide quality customer service? A. B. C. D. Supply channel has high flexibility levels. Post-sale support is responsive. Vendor consistently has back orders. Distribution patterns are operational.

23. ( 2) What is an advantage for producers in using the producer to wholesaler to retailer to consumer distribution channel? A. It enables them to control channel activities. B. Wholesalers do not take title to the goods. C. Wholesalers usually buy in large quantities. D. It enables them to reach large retailers directly.

23. ( 2) What is an advantage for producers in using the producer to wholesaler to retailer to consumer distribution channel? A. B. C. D. It enables them to control channel activities. Wholesalers do not take title to the goods. Wholesalers usually buy in large quantities. It enables them to reach large retailers directly.

24. (2) What indirect channel of distribution is used to reach large retailers when the producer does not want responsibility for the selling activities? A. Producer to wholesaler to retailer to consumer B. Producer to agent to retailer to consumer C. Producer to consumer D. Producer to retailer to consumer

25. (2) What example demonstrates the use of satellite tracking within a distribution channel? A. An inventory specialist enters product status information into a handheld electronic device. B. A computer system performs warehouse functions that are usually executed by humans. C. A technological system creates an efficient routing plan for transportation companies. D. A dispatcher has current knowledge of a delivery truck's location and destination.

26. (2) What statement is true about technology in relation to channel management? A. Some businesses have the capacity to distribute most or all of their products through the Internet. B. Because technology continues to evolve, vertical conflict among channel members is occurring less often. C. Technological advancements generally require businesses to increase the number of intermediaries they use. D. For most businesses, technology makes it more difficult to monitor the channel members' activities.

27. (2) What factor could determine legal ownership of goods in the distribution process? A. Country in which the product is produced B. Availability of the product C. Involvement of agents D. Physical characteristics of the product

28. (2) What legal example is represented by a manufacturer selling its products through a toll-free phone system, a company web site, and several retailers? A. Restricted sales territories B. Exclusive dealing C. Tying agreements D. Dual distribution.

28. (2) What legal example is represented by a manufacturer selling its products through a toll-free phone system, a company web site, and several retailers? A. B. C. D. Restricted sales territories Exclusive dealing Tying agreements Dual distribution.

29. (2) In which situation might exclusive distribution be considered a legal arrangement? A. A business prevents a competitor's product from entering the market. B. A franchisor requires a franchisee to sell only the franchisor's products. C. A distributor requires a customer to buy all of its products to obtain one product. D. A manufacturer assigns an exclusive territory to restrict competition.

30. (2) Which of the following is an example of distributing goods through a gray-market strategy? A. An Asian-based company establishes an Internet web site to sell its cleaning products directly to European consumers. B. A franchisee obtains a license to sell a well-recognized brand of tires through her/his dealership. C. A pharmacy sells brand medications to customers in foreign countries for a lower price than they can get domestically. D. A local jewelry store has exclusive distribution rights to sell expensive wristwatches for a Swiss manufacturer.

31 (2). What is an example of a large business using coercion in the distribution channel? A. Buying products from unauthorized intermediaries B. Requiring a specific type of packaging material C. Threatening to stop using a supplier unless given major concessions D. Returning shipments without proper authorization

32 (2). What is an example of a topic that would be addressed in an informational message? A. B. C. D. Request for payment on a past-due account Date and time of appointment with customer Charitable appeal for a corporate donation Invitation to speak at a national conference

33 (2). How should the information be presented when writing informational messages? A. In the order of importance B. In the shortest way possible C. In a conversational way D. In a nonspecific manner

34 (2). What is a reason why a businessperson might write a letter of inquiry? A. To forward a document B. To acknowledge an order C. To request an appointment D. To complain about a product