Chapter 11:

Place and Development of Channel Systems

For use only with Perreault and McCarthy texts. The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill

Chapter 11 Objectives
When you finish this chapter, you should
1. Understand what product classes suggest about Place objectives. 2. Understand why some firms use direct channel systems while others rely on intermediaries and indirect systems. 3. Understand how and why marketing specialists develop to make channel systems more effective. 4. Understand how to develop cooperative relationships and avoid conflictsin channel systems.
11-2

5. Know how channel members in vertical marketing systems shift and share functionsto meet customer needs. 6. Understand the differences between intensive, selective, and exclusive distribution.

7. Understand the important new terms.

For use only with Perreault and McCarthy texts. The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill

Strategy Decision Areas in Place

Place objectives

Type of channel

Customer service level desired

Direct

Indirect

Type of physical distribution facilities needed

Degree of market exposure desired

Exhibit 11-1
11-3

Middlemen/ facilitators needed

How to manage channels

For use only with Perreault and McCarthy texts. The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill

Why a Firm May Want to Use Direct Channels

Greater Control
Lower Cost

Value added subsequent to production process

Direct contact with Customer Needs

Some Reasons for Choosing Direct Channels

Quicker Response or Change in Marketing Mix

Suitable Middlemen Not Available

11-4

For use only with Perreault and McCarthy texts. The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill

Regrouping Activities
BulkBreaking

Accumulating

Sorting

Assorting

11-5

For use only with Perreault and McCarthy texts. The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill

Managing Channel Relationships

Choosing the Type of Relationship Whole-Channel ProductMarket Commitment Key Issues in Channel Management Conflict Handling

Common Objectives

Role of Channel Captain

11-6
For use only with Perreault and McCarthy texts. The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill

Vertical Marketing Systems

Type of channel Characteristics
Traditional
Administered Contractual Corporate

Vertical marketing systems

Amount of cooperation Control maintained by

Little or none None

Some to good Economic power and leadership General Electric

Fairly good to good Contracts

Complete One company ownership

Examples

Typical independents

McDonalds

Florsheim

Exhibit 11-3
11-7
For use only with Perreault and McCarthy texts. The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill

Market Exposure

Intensive

What Market Exposure Fits the Marketing Objectives

Selective

Exclusive

= number of outlets
For use only with Perreault and McCarthy texts. The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill

11-8

Key Terms
Place Channel of Distribution Direct Marketing Discrepancy of Quantity Discrepancy of Assortment Regrouping Activities Accumulating Bulk-Breaking Sorting Assorting Traditional Channel Systems Channel Captain Vertical Marketing Systems Corporate Systems Vertical Integration Administered Systems Contractual Systems Ideal Market Exposure Intensive Distribution Selective Distribution Exclusive Distribution Dual Distribution Reverse Channels

For use only with Perreault and McCarthy texts. The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill