Marketing Channels & Going Global

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.3… 1/26

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.3… 2/26

Copyright Managerial Marke�ng

James Finch University of Wisconsin, La Crosse

Bridgepoint Educa�on, Inc.

VP of Learning Resources: Beth Aguiar

Editor-in-Chief/AVP: Steve Wainwright

Director of Editorial Technology: Peter Galuardi

Sponsoring Editor: Mireille Yanow

Development Editor: Carrie Brandt

Assistant Editor: Kristle Maglunob

Editorial Assistant: Nicole Sanchez-Sullivan

Editorial Intern: Lindsey Messner

Media Editor: Kim Purcell

Prin�ng Services: Bordeaux

Composi�on/Illustra�on: Lachina Publishing Services

Cover Image: Hemera/Thinkstock

ISBN-10: 1621780082

ISBN-13: 978-1-62178-008-3

Published by Bridgepoint Educa�on, Inc., 13500 Evening Creek Drive North, Suite 600, San Diego, CA 92128

Copyright © 2012, Bridgepoint Educa�on, Inc.

All rights reserved.

GRANT OF PERMISSION TO PRINT: Bridgepoint Educa�on, Inc., the copyright owner of this material, hereby grants the holder of this publica�on the right to print these materials for personal use. The holder of this material may print the materials herein for personal use only. Any print, reprint, reproduc�on, or distribu�on of these materials for commercial use without the express wri�en consent of Bridgepoint Educa�on, Inc. cons�tutes a viola�on of the Copyright Law of the United States of 1976 (P.L. 94-553).

www.bridgepointeduca�on.com (h�p://www.bridgepointeduca�on.com) | content.ashford.edu (h�ps://content.ashford.edu)

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.3… 3/26

Acknowledgments The Editorial team would like to thank the following reviewers for their feedback and guidance:

Christopher P. Blocker, Baylor University

Victoria L. Cri�enden, Boston College

Jacqueline Gilliard, Ashford University

Sharif Muhammad, Ashford University

M. Joseph Sirgy, Virginia Tech

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.3… 4/26

Chapter 12

Marketing Channels and Distribution Decisions

Paul Edmondson/Corbis

Learning Outcomes

By the end of this chapter, you should:

Be able to iden�fy the channel intermediaries, the func�ons involved in product distribu�on systems, and how the sor�ng process adds value by aligning the product mix with buyers' preferences. Recognize the advantages and costs associated with the use of indirect channels of distribu�on. Be able to iden�fy the basic channel structures common to the distribu�on systems for both consumer and industrial goods. Appreciate the significance of market coverage and distribu�on density objec�ves in the planning of distribu�on channels and the applica�on of push and pull strategies to promote the movement of brands through mul�level channels of distribu�on. Recognize the role of ver�cal marke�ng systems in channel coordina�on and control. Understand how channel power and conflict impact the nature of rela�onships between channel intermediaries.

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.3… 5/26

Ch. 12 Introduc�on Crea�ng and promo�ng the right product at the right price is of rela�vely li�le value to consumers if they are not able to get their hands on it. The distribu�on element of the marke�ng mix focuses on the crea�on of systems that enable customers to access and purchase products. To be economically jus�fied, the systems must be both effec�ve in facilita�ng product delivery and financially efficient. Distribu�on channels provide the paths through which products flow from sellers to ul�mate consumers. They can vary substan�ally in length and complexity. Many conven�onal channel strategies include several coopera�ng and interconnected intermediaries such as manufacturers' agents, wholesalers, and retailers. Each channel member receives the item at one price point and sells it to the next level at a higher price un�l it is sold to the final consumer. However, direct sales from producers to final consumers have become increasingly common in many markets due to the growth of online sales.

Marke�ng intermediaries within the channels of distribu�on exist to perform essen�al func�ons. The most basic func�on is simply to bring products from where they are created to where they are demanded. Consequently, the tendency is to think of distribu�on channels strictly in terms of the physical transporta�on of goods. However, many other types of nontransporta�on func�ons need to be performed to efficiently bridge the gap between buyers and sellers. These include ac�vi�es ranging from promo�ng, sor�ng, order processing, and inventory management to insurance and financing.

This chapter focuses primarily on marke�ng-related distribu�ons func�ons. The tasks performed by the different types of intermediaries are developed at the outset. Based on an understanding of the value added by the performance of channel func�ons, the advantages and costs associated with par�cipa�ng in alterna�ve distribu�on systems are examined. Issues cri�cal to determining the best channel design for product manufacturers are then considered. The concluding sec�on of this chapter examines channel dynamics. Of specific significance is how the interests of interdependent channel members are coordinated in the midst of power differen�als and conflic�ng objec�ves between members.

***

When teaching marke�ng principles to college freshmen, I o�en make analogies to familiar concepts to help students grasp the essen�als of the various topics: How building market share in compe��ve environments is comparable to a middle school football game. Why the development of a marke�ng plan and marke�ng mix is like baking and decora�ng a wedding cake. How market segmenta�on can be understood by using the characters from a familiar sitcom like Cheers. Why doing market research is like trying to solve a murder mystery. And so forth.

When introducing the topic of distribu�on systems, I some�mes explain that the basic opera�on of a distribu�on channel is comparable to the plumbing in your home. There are product flows that can be directed along various routes to meet customer needs. The kitchen sink, dishwasher, and shower each represent different points of interface with customers. These points of direct contact bring the otherwise hidden channel opera�ons to visible points of product use. The presence of parallel water lines to serve different sites and even the pressure levels within various parts of the system all have counterparts in channels of product distribu�on. Throughout this short introduc�on, the emphasis is always on the importance and economic value of a well-designed opera�onal system.

One frigid January evening when I returned from delivering this introductory lecture, I arrived at my apartment to find that a water supply line in the wall had frozen and burst. The resul�ng leak under pressure ruined a sec�on of drywall, created a short in an electrical outlet that destroyed my television set, and le� a terrible odor in the wet carpe�ng. It was an altogether unpleasant experience made worse over the next three days by the landlord and water u�lity. However, when I returned to class the following week I did have a couple of addi�onal remarks to make on the plumbing analogy that related to the effects of disrup�ons in product flow, the significance of system pressure levels, the consequences of stock-outs, and the results of failures in customer service.

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.3… 6/26

The choice and organiza�on of distribu�on channels in a fast-moving market is paramount, for it plays a part in the value chain. The costs and client benefits of the product add to the overall cost of the product. What does this mean for the company's customers?

Harvest and processing are only the beginning of bringing the finalized peanut bu�er product from its origin to the consumers.

Associated Press

12.1 Channels of Distribu�on A channel of distribu�on is "an organized network (system) of agencies and ins�tu�ons which, in combina�on, perform all the func�ons required to link producers with end customers to accomplish the marke�ng task" (American Marke�ng Associa�on, 2012). A distribu�on channel is created to provide the producers of goods and services with the means to move their products from where they are created to where they are demanded. That is, channel systems are typically developed in direct response to the needs and plans of sellers. However, specific systems or distribu�on channels can only be sustained if they are economically efficient. If the value of services they provide fails to exceed the cost of providing them, they will eventually fail. Similarly, if more cost-efficient alterna�ves become available, the exis�ng channel will become obsolete.

Tradi�onal channels of product distribu�on are sustained by the combina�on and collabora�on of intermediary ins�tu�ons through which products are moved from the seller to the ul�mate consumer. Although there is popular skep�cism about the need for "middlemen" in some situa�ons, channel intermediaries perform vital economic func�ons that add value to goods being sold. The economic jus�fica�on for each channel member lies in its ability to perform economic func�ons more efficiently and at lower cost than the producer opera�ng independently can.

Distribu�on

Channel Intermediaries

Consider the tasks required to bridge the gaps in �me and space that poten�ally separate school children from peanut bu�er. A�er farmers have harvested the peanuts, and the makers of Skippy, Jif, and Peter Pan have processed and packaged the final product, it has to go from the manufacturer's own warehouses to grocery wholesalers across the country. From there, these brands need to reach more than 95,500 grocery stores in the United States alone (United States Census Bureau, 2012).

The challenge confron�ng these companies is to move the product from its point of origin to where its customers are. It is a formidable challenge to accomplish this task in a cost-effec�ve manner that creates neither shortages nor excessively high levels of inventory at any point in the distribu�on process. One of the keys to accomplishing product distribu�on goals is the efficient use of specialists called channel intermediaries.

Channel intermediaries are businesses that specialize in providing services directly related to the process of moving goods from producers to consumers. Some�mes referred to as middlemen, they provide the links connec�ng buyers and sellers. Distribu�on channel intermediaries can be classified according to either the type of organiza�on or the func�ons they perform. The various types of marke�ng intermediaries are summarized in Table 12.1.

Table 12.1: Marke�ng intermediaries

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.3… 7/26

Without channel intermediaries, consumers of peanut bu�er would have to purchase the raw product directly from growers.

Fotosearch/Ge�y Images

Type Defini�on

Middleman An independent business that operates as a link between producers and ul�mate consumers or industrial users. There are two primary levels of middlemen: wholesalers and retailers.

Wholesaler A business operated for the purpose of buying, taking �tle to, storing, and physically handling goods in large quan��es, and subsequently reselling the goods in smaller quan��es to retailers or other customers.

Distributor A wholesaler that operates in industrial contexts.

Jobber A wholesaler that buys from manufacturers and sells exclusively to retailers.

Retailers A merchant engaged primarily in selling to ul�mate consumers.

Merchant Middleman A channel intermediary that buys goods outright and takes �tle to them.

Agent A person or organiza�on that represents another for the purpose of nego�a�ng sales but does not take legal �tle to the goods being sold.

Broker A middleman who acts as a go-between for buyers and sellers but does not serve as a permanent representa�ve for either.

Manufacturer's Agent An agent who operates on a contractual basis to sell the products of mul�ple producers, o�en within an exclusive territory for those brands. These sales representa�ves typically sell related lines of products but not brands that are directly compe��ve.

Facilita�ng Agent A firm that assists in the performance of distribu�on-related tasks other than buying, selling, and transferring �tle. This category includes banks, transporta�on companies, legal services, market research firms, and public warehouses.

Source: American Marke�ng Associa�on, 2012

Channel Func�ons

Transporta�on is the most readily evident func�on performed by the channel of distribu�on. However, this term refers to more than the physical movement of goods from one place to the next. Within the domain of marke�ng, transporta�on specifically refers to all of the intermediate steps involved in the process as well. Each of these intermediate steps adds value to the final delivered product by improving the fit between the preferences of buyers and the final assortment of goods made available to them.

The added value provided by channel intermediaries is evident in the extensive range of marke�ng func�ons they perform. The most basic are simply the process of buying and selling. That is, channel intermediaries purchase products for resale to other channel partners and end consumers. However, the value of these transac�ons is substan�ally enhanced for the final consumer by other types of func�ons that shape the characteris�cs and circumstances of the purchase to be�er suit the buyer's needs. Primary among these func�ons are those involved in the sor�ng process.

The sor�ng process refers to the set of channel ac�vi�es that align the mix of goods and services created by diverse producers with the variety or assortment demanded by consumers. Specifically, it is the "func�on performed by intermediaries in order to bridge the discrepancy between the assortment of goods and services generated by the producer and the assortment demanded by the consumer" (American Marke�ng Associa�on, 2012). On the most basic level, producers create large quan��es, and most consumers want smaller amounts. However, the discrepancy between the assortment created by manufacturers and the assortment preferred by consumers extends far beyond the quan��es involved.

Consider the peanut bu�er example we began earlier. In the absence of the sor�ng process provided by channel intermediaries, consumers would have to travel to where the peanuts are grown; buy in large, standardized quan��es; and then produce their own peanut bu�er. To arrive at the point of being able to choose from among several brands, package sizes, and product varie�es on a store shelf, several intermediate ac�vi�es must take place between the processing facility and the grocery store. The tasks required to bring the product mix into alignment with customer demand include four specific processes: sor�ng out, accumula�on, alloca�on, and assor�ng.

Sor�ng out is the ini�al phase of the sor�ng process that breaks down and reorganizes a mixed or heterogeneous product supply into separate collec�ons or inventories that are rela�vely consistent with respect to kind, size, or quality. This is a step most o�en observed in the marke�ng of agricultural products such as peanuts, where produce from the fields needs to be separated by quality or graded prior to further processing.

Accumula�on is the process of assembling and pooling rela�vely small quan��es from diverse sources and suppliers to create a larger, homogeneous supply of comparable products. This can take place at several points in the product distribu�on process. Using the peanut bu�er example, the finished product is packed in rela�vely small jars of various sizes. Cases are created by combining a larger quan�ty (e.g., two dozen) of jars of the same size and variety. Larger cases, crates, and

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.3… 8/26

pallet loads of the same item are then created to prepare for shipping. This pooling process has the advantage of crea�ng larger outgoing shipments that can be transported at lower cost.

Alloca�on is the dimension of the sor�ng process that breaks down the accumulated homogeneous product supply or product inventory into smaller lots. Wholesalers typically buy at lower per-unit costs by purchasing truckload or carload lots and then break these down for sale to channel customers. In this way, wholesalers are able to realize a profit while performing the task of realloca�ng products according to market demand.

In contrast to alloca�on, which breaks inventory into smaller lots, assor�ng refers to the process of building a collec�on of products from mul�ple sources for use in rela�on to each other. Retailers create assortments at a single loca�on to match their customers' preferences. This assortment includes compe�ng brands within categories (Skippy, Jif, and Peter Pan), as well as items across an expansive range of product types. Retailers are most successful in providing value to their customers when they are able to match the assortment of products to the preferences of their target market.

It is also important to note that both number of channel levels and types of intermediaries in the distribu�on channel are influenced by the kinds of assortments that buyers require from retailers. This, in turn, directly impacts the availability of opportuni�es to improve channel efficiency and effec�veness.

The sor�ng process is an essen�al marke�ng and distribu�on func�on for most kinds of products. This includes physical goods, services, and electronic or digital goods. Although online sales significantly impact the nature of product distribu�on, online marke�ng managers s�ll need to provide for the same channel func�ons as offline marketers.

The monetary value associated with the services that channel members provide is determined based on end users' percep�ons and needs. If the costs associated with the services provided by intermediaries cannot be jus�fied by the value produced, market forces will eliminate the providers from the distribu�on system. Regardless of changes to the channel length and structure, however, the essen�al func�ons provided by the system cannot be eliminated. The next sec�on examines the general advantages associated with par�cipa�on in a distribu�on channel and alterna�ve channel structures and designs.

Think About It

It has been a fundamental axiom of product distribu�on for more than a century that the sor�ng process performed by distribu�on channels is essen�al to marke�ng manufactured products (Bartels, 1976). Although intermediate channel members can be eliminated and the component ac�vi�es of the sor�ng process can be shi�ed from one channel level to another, none of the cons�tuent processes themselves can be eliminated.

Is this basic principle being violated when online vendors sell music, movies, and so�ware directly to end users?

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.3… 9/26

Online retailers like Amazon facilitate the direct sale and distribu�on of digital products.

Bloomberg/Ge�y Images

12.2 Channel Advantages and Disadvantages The rapid development of online sales has tended to shorten the distribu�on channel for many products. Companies like Amazon.com, 1-800-Flowers.com, and Dell Computer have developed successful online business models that thrive without relying on any resellers between themselves and their final consumers. The physical transport of their products is usually assigned to independent parcel post shippers such as FedEx and UPS. For most companies compe�ng in B2C and B2B markets, however, the assistance provided by other types of channel intermediaries is essen�al.

Benefits of Channel Arrangements

The decision to par�cipate in an exis�ng distribu�on system or implement an alterna�ve distribu�on path involves assessing all op�ons. Marke�ng managers must be cri�cal and selec�ve to be certain that the channel members chosen add value to the organiza�on's final product in excess of the associated costs. The added value that can be derived from par�cipa�on in an exis�ng distribu�on channel includes cost savings, �me savings, customer convenience, promo�onal support, and the facilita�on of transac�ons.

Cost Savings

Par�cipa�on in coopera�ve channel arrangements enables producers to save costs through the func�onal specializa�on of channel members. If each par�cipant in the distribu�on channel specializes in performing a specific task as efficiently as possible, the channel members should be able to complete those ac�vi�es at a lower cost than less specialized and narrowly focused companies. Although this applies to several types of distribu�on-related ac�vi�es (e.g., insurance, warehousing), the most cri�cal area of savings from specializa�on relates to the physical movement of products. Transporta�on companies should be able to ship at lower rates in most instances than companies that a�empt to deliver their goods using their own fleets.

Think About It

Driving along the Interstate Highway System, you will o�en see delivery trucks for both very large companies (e.g., Anderson Windows) and lots of smaller companies that you've never heard of.

What factors would lead small companies to decide that owning or leasing their own delivery trucks is more cost-effec�ve than contrac�ng with professional shipping or transport companies?

Does the concept of "capacity u�liza�on" mean something different for smaller companies than for large ones?

Time Savings

Relying on professional transport specialists can improve product delivery speeds as well as reduce costs. Time savings are directly related, of course, to saving money in many instances. However, the opportunity to deliver the product to the customer more quickly o�en pays benefits beyond reduced transport costs. In B2C product markets, the speed of delivery can impact the customer's level of sa�sfac�on. Though holiday-specific purchases are frequently cited when discussing the importance of �mely delivery, it is important to get the product into the hands of buyers as quickly as possible on other occasions as well. Consumers' enthusiasm for many purchases typically wanes if they have to wait longer than expected for delivery.

In B2B markets, the �mely delivery of products is o�en essen�al to the customer's ongoing opera�ons. Essen�al equipment, replacement parts, manufacturing inventories, and supplies of all kinds need to be delivered in advance of the buyers' requirements. As discussed in previous chapters, B2B buyers are par�cularly prone to considering all facets of reliability, customer service, �mely delivery, and product availability when evalua�ng alterna�ve vendors.

Customer Convenience

The opportunity to par�cipate in exis�ng distribu�on channels o�en provides buyers with greater convenience. Large retail chains such as Walmart, Sears, and Kroger can make the shopping experience much more convenient for customers. The ready availability of a large assortment of products within a single store creates valued convenience for shoppers. In terms of specific channel func�ons, these businesses perform both the accumula�ng and assortment func�ons. Consequently, shoppers need to visit fewer stores and spend less �me to find the products they want.

The same principle holds true in B2B markets. Automo�ve repair shops, for example, prefer to work with parts suppliers that carry a wide assortment or products from mul�ple manufacturers. Just as with the B2C market, selling into an exis�ng distribu�on network can create greater levels of

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.… 10/26

Large retail chains, like Kroger, offer convenience to shoppers by providing a greater variety of products under one roof.

Associated Press

convenience for final consumers and, consequently, offer a compe��ve advantage over brands that do not.

Resellers within the channel also provide a unique form of efficiency by selling to their customers in smaller quan��es than the people they buy from. Manufacturers prefer to ship in rela�vely large

quan��es. The distribu�on network progressively breaks the large lots into quan��es that customers prefer. Through this alloca�on process, mul�ple channel intermediaries are able to refit the order size to match the preferences of their customers while s�ll capturing a por�on of the price advantage and cost savings associated with buying in large volume. This considera�on o�en determines the number of levels that is most efficient for a given distribu�on system.

Think About It

To some extent, virtually every product category can be promoted and sold online without the services of channel intermediaries or middlemen. However, when you consider the online sales poten�al for any product rela�ve to the total sales for a category, there is a limit. For every category, online sales will be limited to less than 100 percent of total retail sales. Why? What are the barriers?

Why would there be a natural ceiling on how high online retail sales can rise as a percentage of all retail sales?

Do you think that Amazon's Kindle and other e-book brands could ever replace more than 50 percent of printed book sales?

Promo�onal Support

Manufacturers' par�cipa�on in an established distribu�on channel has the poten�al to promote sales at the reseller level. Since each succeeding level of the distribu�on network is dependent on reselling the product for their survival, they can be expected to ac�vely promote product sales through personal selling, adver�sing, and other promo�onal ini�a�ves. Resellers at all levels of the distribu�on chain gain nothing by holding inventory. Their profitability depends on selling the goods they have acquired from the previous level of the distribu�on channel.

Facilita�on of Transac�ons

To facilitate the sale of inventory, many resellers will offer financial incen�ves or provide financial assistance to enable their customers to purchase. This type of assistance may include extending short-term credit, reducing down payment requirements, providing low-interest loans, or accep�ng product trade-ins.

Channel intermediaries also facilitate product sales by providing product informa�on and follow-up service a�er the sale. Since many producers are heavily dependent on resellers' promo�on of their brands, manufacturers rou�nely provide sales training programs, incen�ve programs, and point-of-sale promo�onal materials to wholesalers and retailers. In some instances, producers will partner with other channel members by providing company data on customer purchasing behavior to assist them in refining their own marke�ng efforts.

Costs of Channel Arrangements

Selec�ng the best path to distribute a product requires a careful comparison of available alterna�ves. Channel intermediaries are product resellers, and the benefits related to collabora�ng with them are offset by three important cost-related disadvantages.

Tapping into the services provided by channel intermediaries will result in a direct loss of revenue from sales. Resellers need to be compensated for their efforts, and they typically extract their profits simply by charging their customers more than they paid to purchase the product. Consequently, the producer does not earn as much as he possibly could by selling direct to the end user. However, intermediaries do not profit at all if they do not resell what they have purchased.

In addi�on to giving up poten�al revenue from sales, marketers also give up a measure of control over how their brand will be promoted. The poten�ally adverse impact on brand image can, however, be mi�gated through adver�sing messages that are delivered directly to the intended target market. Nonetheless, at the point of resale, channel partners may opt to sacrifice the integrity of brand posi�oning for the sake of making a sale. Product benefits may be exaggerated. The brand may be sold for purposes the manufacturer did not intend.

The third channel cost to consider when selec�ng a distribu�on strategy is that resellers typically have many products to sell. Even if not directly compe��ve, the priority and importance assigned to selling one specific brand is necessarily less for resellers of mul�ple companies' products than it is for that product's manufacturer. Consequently, some brands will not receive the level of a�en�on from salespeople or customer service that others will. This is most o�en a greater concern for smaller brands than market leaders.

The preceding sec�ons provided a brief overview of the benefits and costs associated with distribu�on systems in a general sense. However, each alterna�ve channel structure has its own merits and weaknesses that are unique to the customer's situa�on. The sec�on that follows examines the most common channel systems for distribu�ng products to both B2C and B2B markets. In addi�on, the general considera�ons that should be taken into account when selec�ng a distribu�on channel are briefly examined.

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.… 11/26

This figure outlines the common direct and indirect channels for consumer goods.

Smaller firms, like a regional producer of specialty organic cheeses, o�en rely on a team of agents to help get their products to wholesale distributors and eventually to a retailer's shelf.

ZUMA Press/Corbis

12.3 Channel Structure There are four alterna�ve channel structures that are used to distribute consumer goods from the point of manufacture to end user. As illustrated in Figure 12.1, a direct channel moves the product from the point of origin to the final consumer without the use of any intermediary channel partners, or so-called middlemen. Direct systems of product distribu�on include most online sales as well as orders placed from catalogs. In these simple systems, no other organiza�ons take legal ownership of the product.

Figure 12.1: Common channel structures for consumer goods

Adapted from h�p://www.web-books.com/eLibrary/NC/B0/B64/051MB64.html (h�p://www.web- books.com/eLibrary/NC/B0/B64/051MB64.html)

The three most common forms of indirect channel structures rely on one or more intermediary organiza�ons to span the gap between the producer of the product and the ul�mate consumer. The intervening resellers may include agents, wholesalers, and retailers. Unlike agents, most wholesalers and retailers generally purchase the product for resale and take legal ownership of it. Most of the products that you encounter in retail stores such as Best Buy, Target, and Home Depot reach these des�na�ons via indirect channels of distribu�on.

Channel structures are some�mes characterized by their length and width. Channel length is simply the number of levels required to create a distribu�on system. Each type of independent intermediary (e.g., agent, wholesaler, retailer) represents a dis�nct channel level. Channel width, in turn, refers to the number of members or businesses opera�ng at a given level within the distribu�on system.

Consider the most likely model for a regional producer of specialty organic cheeses. The rela�vely small firm may rely on a team of agents rather than its own external sales force to reach an 11-state market. As many as 15 agents ac�ng on behalf of the company may sell through 60 wholesale food distributors to create market access via 860 retailers. In this instance, the length of the company's distribu�on channel is defined by its three levels. The width is greatest at the retail level where it serves 860 outlets and narrowest at the level closet to the point of produc�on where 15 independent agents represent the seller.

The common channel structure alterna�ves available in B2B markets are illustrated in Figure 12.2. The direct channel op�on is used much more widely in B2B than B2C markets. It is especially common for well-known manufacturers and market leaders. It is also favored when the products being distributed are rela�vely expensive, technologically complex, and built to buyers' specifica�ons. Most industrial products that are sold as a consequence of direct nego�a�ons with the buyers are distributed via direct channels.

Figure 12.2: Common channel structures for industrial goods

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.… 12/26

This figure outlines the common direct and indirect channels for industrial goods.

Adapted from h�p://www.web-books.com/eLibrary/NC/B0/B64/051MB64.html (h�p://www.web- books.com/eLibrary/NC/B0/B64/051MB64.html)

In indirect B2B channels, resellers that perform the func�ons usually associated with wholesalers are o�en called distributors. These intermediaries take �tle to the product being sold and provide the storage and handling capabili�es required to serve its customers. Distributors are most commonly used in the sale of standardized products that have a rela�vely large number of possible buyers. In contrast to products sold through direct B2B channels, the monetary values associated with each sale tend to be rela�vely small.

The crea�on or selec�on of a channel structure for any given product has profound consequences for almost every facet of the marke�ng plan. The distribu�on system must be compa�ble with the brand's adver�sing objec�ves, pricing strategy, sales force alloca�on plan, and even product design. It will directly impact product-related costs, sales poten�al, profitability, and customer service. Given the far-reaching implica�ons of this decision, the next sec�on of this chapter is devoted to an examina�on of the factors that should be considered when choosing a distribu�on channel design.

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.… 13/26

Selec�ve distribu�on allows a company to choose what retailers— and therefore what markets—it targets. For example, the clothing brand Merona selec�vely distributes through Target stores.

Associated Press

12.4 Channel Design Considera�ons Choosing one type of channel structure over another is a significant strategic commitment and investment for a firm. It is a decision that imposes substan�al consequences on the overall performance of the brand. Whether these are posi�ve or nega�ve depends on the congruence or fit of the channel design with the overall marke�ng plan for a given brand. The importance of this decision is magnified by the fact that any changes to a distribu�on channel typically result in significant costs and cannot be quickly implemented.

Selec�ng the best possible channel design for the distribu�on of a given product is con�ngent on several channel-dependent objec�ves and market-specific characteris�cs. The most relevant issues to be considered include distribu�on intensity, promo�onal support, customer service, and system cost effec�veness.

Distribu�on Intensity

Of the criteria that can be used to assess the effec�veness of any product distribu�on system, the most fundamental is product availability. Channels are created to facilitate the selling process and make products readily available for customers who wish to purchase. However, selling a product through every possible outlet is not necessarily efficient or compa�ble with most brand marke�ng plans. For a product to achieve its targeted level of availability, a marke�ng manager must determine the level of market coverage desired.

Market coverage is the percentage or propor�on of retail or wholesale outlets carrying a specific brand rela�ve to the total number of outlets that sell comparable products. Marke�ng managers can pursue different levels of coverage based on the capability of alterna�ve channel designs to reach the target market. There are three alterna�ves based on different levels of desired market coverage: intensive, selec�ve, or exclusive distribu�on.

Market coverage in indirect B2C channels is determined by the number of wholesalers and retailers commi�ed to the distribu�on of the product. Intensive distribu�on describes the level of market coverage in which a product is sold through all available wholesalers and retailers who sell that product type within in a given market. Achieving this maximum possible level of access to consumer markets is a common strategic goal for manufacturers of low involvement consumer goods. Convenience goods and products o�en purchased on impulse thrive on being everywhere and anywhere a poten�al customer may encounter them.

The advantage of this strategic op�on is that it maximizes the availability of products such as so� drinks and snack foods. This tends to promote brand recogni�on and reinforce top-of-mind awareness for market leaders. It may be even more cri�cal to brands that are striving to compete against larger, well-established convenience goods. However, retailers are o�en reluctant to fully support these rela�vely inexpensive brands or cooperate with the company's marke�ng programs since every retailer has the same brands and opportuni�es. Rela�vely low dollar sales volume and the lack of any exclusivity for the brand within a geographic market limit many retailers' enthusiasm for the product.

Think About It

Bo�led water is a convenience good that typically requires intensive distribu�on in many markets to be successful. Brands like Aquafina (from PepsiCo), Dasani (from Coca-Cola), and Poland Spring (from Nestlé Waters) have the means to secure distribu�on in most major retail venues. But every once in a while, a new brand emerges and takes its place on the shelf besides these giants.

How can a would-be market challenger in a convenience product category convince the distribu�on channel intermediaries to stock and distribute its brand?

Exclusive distribu�on describes a level of market coverage in which a product is distributed through only one retailer within a par�cular region. It is a viable channel strategy for high involvement specialty goods. It may be a par�cularly desirable path to follow if the posi�oning strategy is focused on differen�a�ng the brand on the basis of pres�ge, status, or excep�onally high quality. Fine jewelry, expensive home furnishings, and designer clothing o�en rely on exclusive distribu�on to reach their target markets.

One of the primary advantages to pursuing an exclusive distribu�on goal is control. It enables the marke�ng manager to match the posi�oning objec�ve for the brand being sold to the image and a�ributes of the exclusive retailer within a given market. Although this requires substan�al coopera�on between the producer and the retailer, it should be a complementary rela�onship if they share a common target market. The greatest risk posed by this op�on lies in the lack of diversifica�on. Relying en�rely on a single retailer makes the producer dependent on the performance of an exclusive dealer while the retailer, in turn, may sell a wide variety of products.

Selec�ve distribu�on refers to an intermediate level of market coverage in which a product is distributed through a limited number of intermediaries. It is a strategy o�en pursued by producers of infrequently purchased goods that typically involve comparison shopping by the buyer. Though a good strategy for a wide range of products, the challenge lies in providing retailers with sufficient support or incen�ves to carry and support a specific brand when the range of alterna�ves being stocked is limited.

Relying on this op�on enables a company to sell through only those retailers that best fit with the brand's objec�ves. These objec�ves include the image being conveyed and the market being targeted. Many of the most popular clothing brands sold by retailers such as Target and J.C. Penney

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.… 14/26

fit within this category. As an intermediate compromise between exclusive and intensive distribu�on op�ons, it can have some of the same strengths and weaknesses associated with each.

Sales Promo�ons in Channel Strategy

One of the common goals shared by all channel members is making sales, since intermediaries are product resellers. Promo�onal programs may be ini�ated and carried out at any level within the channel of distribu�on. Although manufacturers look to retailers especially to provide merchandising support, the ac�ve support of salespeople is essen�al at all levels within the channel. The rela�ve emphasis and a�en�on that a reseller's sales force provides to any given product is o�en a direct response to the incen�ves provided by the manufacturer. Inducements to buy and sell throughout the distribu�on channel typically focus on pricing strategies and the strategic use of sales promo�ons to either push or pull the product through the channel.

Marke�ng organiza�ons selling through indirect channels of distribu�on work to s�mulate sales to the final customer either directly using a pull strategy or indirectly using a push strategy.

The pull strategy consists of using promo�onal efforts targe�ng the final consumer of a product to build selec�ve brand demand. The brand is said to be pulled through the channel as a result of consumer response to adver�sing and sales promo�ons that drive retail-level demand. The demand at the retail level creates a corresponding pull or demand pressure at the wholesale level to stock and distribute the brand. In this way, adver�sing and sales promo�ons are used to build interest among retail prospects to draw the product through the distribu�on channel.

Channel intermediaries tend to respond quickly to the profit poten�al associated with high volume sales. Consequently, this strategy builds coopera�on within the channel to carry new or emerging brands when the manufacturer can demonstrate high levels of consumer interest. Market leaders have the best opportunity to successfully apply this strategy in the growth stage of the Product Life Cycle since the increase in category sales holds the greatest poten�al volume growth for them.

The push strategy is a manufacturer-driven strategy that offers incen�ves to channel intermediaries rather than the end consumer. The objec�ve is to encourage channel members to carry the manufacturer's product by offering trade allowances, quan�ty-driven price discounts, and other sales promo�ons. Once a product is pushed from the manufacturer to the wholesaler, for example, the wholesaler needs to find a means to push the product to retailers. O�en this requires the wholesaler to share the value of price discounts and other promo�onal incen�ves with the retailer. Retailers in turn may need to discount their in-store prices to final consumers to move higher volumes of the product. It is an effec�ve strategy that is fueled by the need at each level of the channel to resell the product to the next.

New and rela�vely small brands o�en rely on the push strategy to secure distribu�on for their products from exis�ng channels and intermediaries. The higher unit margins created by offering sales promo�ons to channel members help to offset the lower unit volume sales. This form of direct inducement targets resellers' profit mo�va�on as a means to gain access to a distribu�on network. Once access has been secured, other efforts to build rela�onships with channel partners and build brand preference with final consumers become possible.

Customer Service

Customer service has many possible meanings, depending on the context. Within the context of distribu�on channel design, it is most o�en used in reference to a system's capability to meet the needs of intermediaries so that they are be�er prepared to meet the needs of final customers. This perspec�ve is readily apparent in B2B selling contexts, where end users depend on the reliable delivery of parts, supplies, and finished goods to operate their own businesses.

Alternate configura�ons of distribu�on channels have the poten�al to deliver different levels of customer service. Direct channels, without any intermediaries, are o�en favored in B2B markets where customer service is a cri�cal factor in the way customers evaluate alterna�ve vendors. The reliance on very short channels eliminates many ordering errors and service lags due to poor communica�on with intermediaries. In this way it enables manufacturers to be more directly responsive to the immediate needs of customers. However, not relying on intermediary specialists to perform some tasks at lower costs will inevitably increase the costs directly a�ributable to delivering higher levels of dependable customer service.

System Cost Effec�veness

The cost associated with each alterna�ve distribu�on channel is an important considera�on in selec�ng the best design for a specific situa�on. Since this choice represents a cri�cal investment by the firm, it is reasonable that the evalua�on of all related costs should be a primary considera�on. The total cost concept is a principle in the evalua�on of physical distribu�on systems that requires marke�ng managers to explicitly consider all the costs related to each alterna�ve design for distribu�ng goods to customers. The primary costs to consider include the physical transporta�on of the product, warehousing, order processing, and distribu�on- related packaging.

The total cost concept also recognizes that minimizing costs and achieving the customer service objec�ves for a product represent conflic�ng goals. Any effort to truly minimize all channel-specific costs would result in slow delivery �mes, higher rates of damaged merchandise, and lost sales due to insufficient levels of inventory throughout the system. Over �me, lost sales from dissa�sfied customers at all levels of the channel would probably threaten the manufacturer's existence.

The concept of explicitly recognizing the total costs associated with the company's choice of distribu�on models must take into account that forgoing some marginal sales opportuni�es can lower total system costs. Consequently, the best design for any given situa�on will be one that strikes a balance between the need to contain costs and the need to preserve important sales opportuni�es and high levels of customer sa�sfac�on.

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.… 15/26

For many companies, the cri�cal factor will be deciding on the number of intersec�ons, or points of direct interface, between target market customers and the channel of distribu�on. As this number increases, inventory, warehousing, and order processing costs increase, but the general level of customer service increases as well. Limi�ng sales to one point of interface would reduce inventory and handling costs. However, it would inevitably reduce convenience and availability to customers.

The considera�ons addressed in this sec�on relate to iden�fying the best possible channel design for any given situa�on. The concluding sec�ons of this chapter focus on how to make the preferred channel model operate efficiently and effec�vely.

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.… 16/26

Starbucks is an example of a supplier opera�ng retail outlets in B2C markets.

age fotostock/SuperStock

12.5 Channel Coordina�on and Control The efficiency and effec�veness of direct channel structures are exclusively dependent on their inten�onal management by the manufacturer since there are no intermediaries. However, ge�ng the best possible performance from indirect channel structures requires coordina�on and coopera�on among the channel partners. Beginning in the 1990s, manufacturers developed ver�cal marke�ng systems as a strategy to improve channel performance.

Ver�cal Marke�ng Systems

Ver�cal marke�ng systems (VMS) are distribu�on channel systems "consis�ng of horizontally coordinated and ver�cally aligned establishments that are professionally managed and centrally coordinated to achieve op�mum opera�ng economies and maximum market impact" (American Marke�ng Associa�on, 2012). Horizontal coordina�on refers specifically to coopera�ve agreements reached by organiza�ons at the same channel level (e.g., grocery wholesalers). Ver�cally aligned establishments are those that span or cross over channel levels (e.g., agents, wholesalers, and retailers).

Both horizontal and ver�cal coordina�on arrangements result in a higher degree of interdependence between firms. Dependence on each other, in turn, promotes coopera�on. Under these arrangements, channel partners are less able to independently make changes to the way that products are distributed. Although there are many highly specialized varia�ons, the three basic types of ver�cal marke�ng systems are corporate, contractual, and administered.

Corporate VMS

Under a corporate VMS structure, one organiza�on owns either all channel members in the distribu�on chain or the firms opera�ng at an adjoining level. The most common model is for producers to own and operate a wholly private distribu�on system. In some instances, this is the consequence of a forward integra�on strategy in which wholesale and retail func�ons are created or acquired by a manufacturer. Though less common, a backward integra�on strategy is an alterna�ve that enables intermediaries to acquire control of distribu�on partners that precede them in the channel. A wholesaler, for example, may acquire a manufacturer to ensure con�nued supply of scarce products. The mo�va�on to acquire channel partners may include the acquisi�on of physical facili�es such as warehouses or securing control over other resources such as a highly trained sales force or prized contractual linkages to suppliers of raw materials.

The primary strength associated with corporate VMS structures is that they provide direct control over the sales, distribu�on, and customer service ac�vi�es within the channel. This may be cri�cal to the success of custom-designed products in B2B markets where accurate and reliable communica�ons between channel levels is essen�al to customer sa�sfac�on. For complex products based on proprietary technologies, this design also facilitates the protec�on of closely held company informa�on.

Though more common in B2B markets, there are many examples of suppliers opera�ng retail outlets in B2C markets. The Starbucks Corpora�on, for example, began as a retail cafe in the early 1970s to sell specialty coffee in Sea�le, Washington. Within a year the company moved from buying its raw coffee beans from outside suppliers to sourcing and purchasing directly from growers. The company now operates more than 17,000 stores in 55 countries while con�nuing to purchase its raw coffee beans directly from growers throughout the world (Starbucks Corpora�on, 2012).

Contractual VMS

Contractual VMS is a distribu�on system that coordinates the produc�on and distribu�on of products through legal contracts that specify the rights and responsibili�es of channel par�cipants. These agreements set both goals and limits for the ac�vi�es that each intermediary is permi�ed to perform. By formally agreeing to explicitly defined terms of performance, the system is able to realize greater economies of scale and more efficient opera�ons through improved coordina�on and execu�on of essen�al func�ons.

The contractual VMS format includes several types of arrangements among channel partners. Wholesaler-sponsored contractual VMS channels are ini�ated when a wholesaler organizes and manages independent retailers to operate under a common brand. Ben Franklin cra� stores and Western Auto automo�ve parts stores are organized in this way. A retailer-sponsored contractual VMS channel also organizes retail sellers, but the organiza�on is managed at the retail level rather than the wholesale level.

Franchise systems are a special instance of contractual VMS where a central organiza�on at one level controls almost all of the opera�ons of its members. Many fast-food restaurant chains such as McDonald's, Subway, and KFC are organized according to the franchise system. However this type of channel structure is compa�ble with a wide variety of categories, including tax preparers, employment services, travel agencies, convenience stores, and car rental companies.

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.… 17/26

ZUMA Press/Corbis

Franchise models, like the one used by Subway, allow the central organiza�on to control most of its members' daily opera�ons.

Associated Press

Consumer Coopera�ves: The Other Contractual VMS

The contractual VMS is o�en thought of as a rela�vely recent and innova�ve form of business organiza�on designed to concentrate the buying power and channel power of its member retailers. However, consumer coopera�ves began more than 150 years ago as retail consumers banded together to pool their collec�ve purchasing power and meaningfully assert their influence in the marketplace. They have survived over the years because the root concept is so fundamental and universally appealing: private individuals working together to form an independent business en�ty to serve the collec�ve needs of the membership.

Recrea�onal Equipment Incorporated (REI) has been a trusted retailer of outdoor gear since 1938 and is now the na�on's largest consumer coopera�ve. What began as a group of 23 mountain climbing buddies now boasts more than 3.5 million ac�ve members and more than 110 retail stores na�onwide. In addi�on to leveraging its purchasing power for the benefit of its members, the company provides shoppers with the knowledge and confidence to explore and discover new adventures through frequent educa�onal clinics and expert advice from REI staff members. The focus of the organiza�on is to provide a pleasant and convenient shopping experience for its members. However, it is not only the members who benefit. REI has remained on FORTUNE magazine's list of the "100 Best Companies to Work For" since the list was first published in 1998.

REI differs from many for-profit organiza�ons in its deep commitment to its customers' shared values and personal well- being. The organiza�on's stated purpose is to inspire, educate, and ou�it people for outdoor adventure and stewardship. At its core is a commitment to ge�ng people outside and leading healthy ac�ve lives, caring for the planet by protec�ng shared natural spaces, and engaging others in making a difference. Members share this commitment and, in return for their loyalty to REI, receive an annual dividend. In 2008, through a 10 percent dividend on purchases, REI returned $94 million to members, retaining $30.2 million in net income to reinvest in the company while suppor�ng the great outdoors with $4.3 million in community grants. While REI realizes that the company must be successful and profitable, its leadership also defines success by the value added to the lives of members, their communi�es, and society overall (Recrea�onal Equipment Incorporated, 2012).

Administered VMS

Administered VMS is a product distribu�on model in which a single dominant channel member or channel captain coordinates the distribu�on-related decisions of the intermediaries. In most cases, this leadership role is not formally recognized by wri�en agreements. It tends to occur when the market power of one channel member is sufficient to compel the voluntary coopera�on of others. For manufacturers, this market power is most o�en a consequence of dominant market share within a product category (e.g., Kra� Foods). For retailers, it typically stems from opera�ng a very large number of stores and maintaining high levels of market coverage in the regions it serves (e.g., Walmart).

At the retail level of distribu�on, channel leaders typically try to create merchandising plans and policies that they wish to enforce on all channel members. Nabisco, for example, might propose a shelf-space organiza�on and alloca�on plan to its retailers to organize cookie and cracker in-store displays. Not surprisingly, the merchandising sugges�ons promoted by channel captains are usually of greatest direct benefit to themselves. The channel leaders' ability to secure the voluntary coopera�on of other channel members relies primarily on their level of channel power. The means by which companies exercise their influence or power throughout the channel of distribu�on are discussed in the following sec�on.

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.… 18/26

High levels of brand loyalty among consumers have created significant channel power for Heinz Ketchup.

Associated Press

12.6 Channel Dynamics: Power and Conflict Every distribu�on channel design or systema�c arrangement of intermediaries encounters problems when its individual members pursue divergent strategies in the quest to achieve profitability and build market share. The poten�al for unproduc�ve conflict within the channel is increased due to power differen�als between par�cipants and the inherent short-term inflexibility of channel designs. This sec�on examines how the dynamics of channel power and conflict impact product marke�ng and the efficient opera�on of indirect distribu�on channels.

Channel Power

Channel power is defined as "the ability of a par�cular channel member to control or influence the decision making and behavior of another channel member, or one channel member's poten�al for influence with another channel member" (American Marke�ng Associa�on, 2012). In distribu�on systems composed of mul�ple intermediaries, each adds value to the product being delivered to final consumers, but they all differ in their ability to exert pressure on others' decisions. Among the most common examples are demands for more favorable prices from sellers and pressuring others to take over the performance of some channel func�ons (e.g., customer service requirements).

Channel intermediaries' power to influence brand managers' decisions o�en arises from one or two sources. If a large propor�on of a producer's total sales volume is handled by one channel, the manufacturer's dependence on the performance of those resellers gives them leverage. In other instances, a producer's poorly differen�ated product will empower resellers to readily wield the threat of brand switching or shi�ing a large percentage of their sales efforts to compe��ve brands.

In each situa�on, the channel power that accrues to the intermediaries enables them to bargain with producers for volume-based discounts, lower list prices, and higher levels of merchandising support. In short, any terms of sale subject to nego�a�on represent opportuni�es to exert channel power against other channel members. Terms of delivery, for example, are o�en the subject of nego�a�on, since reducing the �me between placing an order and making delivery enables the buyer to carry lower levels of inventory and reduce its related carrying costs.

Channel power can reside with manufacturers, wholesalers, or retailers. All that is required for power to grow is an imbalance in the rela�ve dependence of one channel partner on another. When producers are able to create high levels of selec�ve demand for the brands they sell, they are capable of exer�ng product power. In these instances, other channel members recognize the need to carry the popular brand or risk losing sales. In the grocery industry, brands like Peter Pan peanut bu�er, Maxwell House coffee, Heinz ketchup, and Cheerios cereal have product power.

Middle power results from the ability of a single wholesaler to serve a large number of rela�vely small retailers. By sor�ng, accumula�ng, and alloca�ng products from a wide variety of manufacturers, the wholesaler holds a degree of power over small retailers by virtue of their dependence. The efficiencies created by the wholesaler in crea�ng assortment and the switching costs associated with finding other means to acquire the needed products give the wholesaler substan�al bargaining power over its immediate customers.

Front power resides with large retailers who can bargain for special considera�ons from either manufacturers or wholesalers based on their rela�ve size. When the market coverage established by a retail group accounts for a substan�al percentage of a product's total sales within a region, others in the channel grow in their rela�ve dependence on them.

Channel Conflict

Compe��on between channel partners to capture the greatest share of profitability from the final sale of distributed goods will inevitably create tension. Channel conflict is a general term used to refer to any form of discord or dispute between two or more channel par�cipants (see Figure 12.3). However, it is most likely to occur when manufacturers disintermediate or go around exis�ng channel partners by selling products directly to consumers or through new parallel channels of distribu�on. Other forms of channel conflict may arise between partners whenever there is a lack of consensus on the overall goals and opera�onal norms for the distribu�on channel. The systema�c study of how the division of channel power shapes the nature of conflict between intermediaries was first formalized by Stern and Reve (1980).

Figure 12.3: Poten�al sources of channel conflict

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.… 19/26

Channel conflict can occur when manufacturers side-step exis�ng channel partners and sell directly to the consumer.

h�p://www.growthpath.ca/specialized_exper�se (h�p://www.growthpath.ca/specialized_exper�se)

In many instances, channel conflict is both inevitable and essen�al to the health of the distribu�on channel. Finding ra�onal resolu�ons to disputes between channel members o�en creates more efficient opera�ons. In fact, the solu�on to disagreements is o�en the primary means by which channels adapt to changing market condi�ons and shi�s in the distribu�on of channel power. In most instances, the challenge for managers is to recognize and respond to the poten�al for channel conflicts before combatants' posi�ons become entrenched and las�ng damage is done.

Consider the poten�al problems that might arise if a producer decides to create a separate, parallel distribu�on channel to reach the final consumer. This is o�en the case when tradi�onal channels are suddenly faced with online compe��on from a manufacturer's direct sales ini�a�ves on the Internet. The exis�ng channel recognizes this as a threat to sales volume and profitability. However, the mo�va�on for the company is to grow sales, not damage rela�onships with the exis�ng channel intermediaries. If handled badly, the direct consequence could be a loss of sales if channel partners are alienated and reduce their support for the product.

In the situa�on above, the effec�ve resolu�on of the impending conflict needs to be in place even before rumors of the development of the direct sales online site reach channel intermediaries. The manufacturer needs to create both push and pull strategy op�ons that will substan�ally reduce the damage inflicted on the tradi�onal channel and establish a complementary rela�onship between the two, if possible. Sales incen�ves to middlemen could include a number of trade promo�ons that will improve the profit margin on each unit sold. Quan�ty discounts �ed to sales volume and cash payments or allowances to induce retailers to prominently stock the product on their shelves could be effec�ve. Promo�onal allowances could be paid to s�mulate adver�sing and in-store merchandising. Ideally, some post-sale customer service func�ons could be shi�ed from the retailer directly to the manufacturer as a consequence of providing customers with access to the website.

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.… 20/26

Ch. 12 Conclusion The design of distribu�on channels and administra�on of channel func�ons have tremendous consequences for marketers. They represent long-term investments in future sales and need to be carefully managed. Decisions related to channel structure, distribu�on intensity, customer service, and the effec�ve use of promo�onal strategy and sales promo�ons should all be derived from the comprehensive marke�ng plan for the brand. In the next chapter, we will examine the special challenges that confront marke�ng managers when execu�ng these decisions within the context of interna�onal markets.

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.… 21/26

Ch. 12 Learning Resources

Key Ideas

Cri�cal Thinking Ques�ons

1. How can a distribu�on channel system be a source of compe��ve advantage? How can the choice of one system create higher market shares for a manufacturer than another?

2. What specific factors need to be considered in selec�ng one channel system over another? 3. Imagine that a new company is planning to manufacture and sell a�ermarket windshield wipers for cars and lights in Buffalo, New York. What factors should they

consider when deciding on their channel strategy? 4. What kinds of costs and consequences would the company described above face if it abandoned its chosen channel of distribu�on a�er five years in favor of a

completely different arrangement? 5. How would you go about es�ma�ng the profit consequences of one channel system rela�ve to an alterna�ve while you're s�ll in the planning stages? 6. How might you determine whether a push or a pull strategy would be more effec�ve in crea�ng incremental sales for a brand? Can you imagine a circumstance in

which you would rely on a push strategy in one channel system and a pull strategy in the other? 7. In some parts of the world, you are likely to encounter people who regard channel intermediaries or middlemen as profiteers who exploit producers and

consumers. How would you respond to them? 8. Channel conflict between manufacturers and distributors is not uncommon. Some�mes it is caused by a conflict of interest between the two. What are the most

likely reasons for this situa�on to arise? 9. Imagine a situa�on where the manufacturer of medical record-keeping so�ware is having a problem with its exclusive distributor in the United States. A�er several

months of falling sales and discord between the partners, this disagreement comes to the a�en�on of the business media. The producer's public rela�ons officer goes on the record to quell rumors by dismissing the problem as simply poor performance by the distributor rather than any deficiencies in the product. What are the likely outcomes from this statement? What might the PR person have been a�emp�ng to accomplish?

10. A century ago, the stability of distribu�on linkages depended on the good faith coopera�on of the par�es involved and agreements sealed by handshakes rather than wri�en contracts. One advantage to this arrangement is that any of those involved could pursue alterna�ve channel partners at their discre�on. Why is it more important in today's business environment to have legally binding commitments that limit the flexibility of all par�es?

11. How do direct sales marke�ng channels in consumer markets differ from those in business-to-business markets? Be thorough in considering differences in products, selling strategy, pricing, and customer purchasing characteris�cs.

12. Based on your familiarity with a product of your choice, create a diagram or flowchart that illustrates a likely channel of distribu�on for your favorite brand. Once that is complete, provide a list of what the customer at one intermediate level of the channel wants from the process. This could include issues related to transporta�on, delivery scheduling, inventory management, and warehousing requirements. How important are reliable availability, speed of delivery, lot size, product variety, convenience, and customer service?

13. Under what circumstances is it advantageous for a business to use more than one marke�ng channel? 14. Imagine a small manufacturer of specialty baking ingredients. A�er reviewing its annual sales performance, the management team realizes that it is near the point

of exhaus�ng its sales poten�al from its reliance on a sole distribu�on channel. What issues need to be considered and what steps need to be taken before beginning work on the development of an alterna�ve channel? If the second channel poses a limited direct threat to sales from the first, how should the development of this alterna�ve channel be presented to the original distribu�on partners?

15. Consider the situa�on in the previous ques�on. It is almost certain that the total sales volume will be substan�ally larger in different marke�ng channels. How can we be rela�vely certain of this without knowing more informa�on? Iden�fy the primary reasons that drive differences in the sales levels of alternate channels.

16. It is common to see situa�ons where the prices charged between channel intermediaries are lower in one channel system than another, even if the retail prices charged in both are iden�cal. Why? Even if one of the alterna�ves is a direct marke�ng channel, the retail price is likely to be the same between the two levels. Why?

17. S�ll comparing alterna�ve channels, explain how one marke�ng channel with higher distribu�on-related sales expenses can be more profitable than the other.

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.… 22/26

18. Dell Computer established its posi�on in the industry as a successful pioneer in direct sales. What considera�ons would prompt the company to branch out to create alterna�ve indirect marke�ng channels, including sales through Walmart?

19. Mixed channel arrangements are said to exist when some target customers are accessed via more than one channel of distribu�on for the same brand. Under what circumstances would this be an inten�onal strategy? Iden�fy three companies that rely on mixed channel product distribu�on systems.

20. How might the inten�onal use of mul�ple channels impact the growth strategy of a business? Give an example. 21. Does selling a product online always help businesses serve customers at a lower cost? Does it help or hurt customer service? 22. Does a VMS have the poten�al to improve customer service and enhance the value of products for the final consumer?

Key Terms

Click on each key term to see the defini�on.

accumula�on (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The process of assembling and pooling rela�vely small quan��es from various suppliers to create a larger, more homogeneous supply of similar products.

administered VMS (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A distribu�on system in which a single dominant channel member coordinates the distribu�on-related decisions of the intermediaries in the absence of formal wri�en agreements.

agent (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A person or company that represents others for the purpose of nego�a�ng sales but does not take �tle to the product being sold. An agent that does not have a permanent rela�onship with the company he or she represents is a broker.

alloca�on (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The phase of the sor�ng process that breaks down the accumulated product supply into smaller lots.

assor�ng (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The process of crea�ng a collec�on or assortment of products from mul�ple sources for use in rela�on to each other.

backward integra�on strategy (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A strategy by which intermediaries acquire control of distribu�on partners that precede them in the channel to expand control over the supply and price of a product.

broker (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A middleman who acts as a go-between for buyers and sellers but does not serve as a permanent representa�ve for either.

channel captain (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The dominant channel member with an administered VMS.

channel conflict (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Any form of discord or dispute between two or more channel par�cipants. Occurs most o�en when manufacturers disintermediate or go around exis�ng channel partners by selling products direct to consumers or other parallel channels of distribu�on.

channel intermediaries (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Organiza�ons that specialize in services directly related to the process of moving goods from producers to consumers. Some�mes referred to as middlemen.

channel length (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The number of levels used to create a distribu�on system.

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.… 23/26

channel of distribu�on (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

An interlinked system of ins�tu�ons that work together to perform the func�ons necessary to move products from where they are created to where they are demanded.

channel power (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The capacity of channel members to influence the behavior of other channel members.

channel width (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The number of channel members opera�ng at a given level within a distribu�on system.

contractual VMS (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A distribu�on system that coordinates the crea�on and distribu�on of products through legal contracts specifying the rights and obliga�ons of channel par�cipants.

corporate VMS (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A channel structure in which one organiza�on owns either all channel members in the distribu�on chain or the firms opera�ng at an adjoining level of distribu�on.

direct channel (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A distribu�on path that moves the product from the producer to the final consumer without reliance on any intermediary channel members.

distributor (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

In indirect B2B channels a reseller that performs the tasks associated with wholesalers in B2C markets.

exclusive distribu�on (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The level of market coverage in which a product is distributed through only one retailer within a par�cular region.

facilita�ng agent (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A company that performs tasks related to the physical distribu�on of a product other than buying, selling, and transferring �tle. This category includes banks, transporta�on companies, legal services, market research firms, and public warehouses.

forward integra�on strategy (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A strategy in which wholesale and retail func�ons are created or acquired by a manufacturer to provide more direct control over the distribu�on of products.

front power (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Channel power exercised by a rela�vely large retailer.

indirect channel (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A distribu�on path that relies on one or more intermediary organiza�ons to move the product from the producer to the final consumer.

intensive distribu�on (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The level of market coverage in which a product is sold through all suitable wholesalers and retailers.

jobber (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A wholesaler that buys from manufacturers and sells exclusively to retailers.

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.… 24/26

manufacturer's agent (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

An agent who works on a contractual basis to sell the products of mul�ple producers.

market coverage (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The propor�on of retail or wholesale intermediaries selling a specific brand rela�ve to the total number of these outlets that sell comparable products.

merchant middleman (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Any channel intermediary who buys goods and takes legal �tle to them.

middle power (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Channel power in the possession of a wholesaler.

middleman (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

An independent business that provides connec�ons between buyers and sellers. Wholesalers and retailers are the primary types of middlemen.

product power (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Channel power residing with the product's manufacturer.

pull strategy (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Using promo�onal efforts to build selec�ve brand demand at the consumer level. The brand is drawn through the channel as a consequence of consumer response to adver�sing and sales promo�ons.

push strategy (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Using financial incen�ves to encourage channel members to carry and promote a product for resale to subsequent levels of the channel.

retailer (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A channel member that sells to the final consumer.

selec�ve distribu�on (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

An intermediate level of market coverage in which a product is distributed through a limited number of wholesalers and retailers.

sor�ng out (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The ini�al phase of the sor�ng process that reorganizes a mixed product supply into discrete inventories that are rela�vely consistent with respect to kind, size, or quality.

sor�ng process (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Channel ac�vi�es that create a mix of goods and services from diverse producers to match the preferences of consumers.

total cost concept (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The principle that requires managers to explicitly consider all the costs related to each alterna�ve design for distribu�ng goods to customers. These costs include transporta�on, warehousing, order processing, and distribu�on-related packaging. However, the concept also recognizes that minimizing these costs may be at odds with achieving high levels of customer service.

transporta�on (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A broad term that encompasses the physical movement of products from one place to another and all of the intermediate steps involved in the process as well.

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.… 25/26

ver�cal marke�ng systems (VMS) (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Coordinated channel systems made up of horizontally and ver�cally aligned par�cipants, managed to op�mize opera�ng economies and market impact.

wholesaler (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A channel par�cipant that buys and subsequently resells goods in smaller quan��es to retailers or other customers. O�en referred to as distributors in B2B markets. Wholesalers who buy from producers and sell only to retailers are called jobbers.

Web Resources

This website provides a comprehensive directory of logis�cs resources on the Internet. It includes recent ar�cles on a diverse range of topics related to the physical distribu�on of products. This includes supply chain management, transporta�on systems, and warehousing. h�p://www.logis�csworld.com (h�p://www.logis�csworld.com)

Home of the Transporta�on Research Board of the Na�onal Academies. This nonprofit organiza�on has a mission to promote prac�cal innova�on in transporta�on through research. The site provides free access to more than 50,000 papers, abstracts, ar�cles, and reports on topics related to all phases of transporta�on research. h�p://www.trb.org (h�p://www.trb.org)

This site provides access to an online text en�tled The Geography of Transport Systems. Formally known as Transport Geography on the Web, this is the site of a project that has been in development on the Internet for more than a decade. It is an excellent reference for the study of how geographical considera�ons impact the design and opera�on of transporta�on systems. h�p://www.people.hofstra.edu/geotrans/index.html (h�p://www.people.hofstra.edu/geotrans/index.html)

3/12/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=front_matter,copyright,acknowledgments,ch12,ch12introduction,sec12.1,sec12.2,sec12.… 26/26

Part VI: Managing Marketing in the New Economy

Parts IV and V of this text examined how the elements of the marke�ng mix combined to create, communicate, and distribute products of value to specific target markets. This concluding sec�on extends this theme to examine how the process of marke�ng management itself has been impacted by significant changes in the global economic environment. Chapter 13 inves�gates the implica�ons of how the development of a new economy has reshaped our understanding of several core marke�ng constructs. The rapid interna�onal expansion of the Internet and corresponding growth of e-commerce has produced profound changes in the way products are created, sold, and distributed on a global basis. Chapter 14 extends the study of this subject ma�er and concludes the text by exploring the process of marke�ng management within an interna�onal context. Cri�cal topics of interest within this chapter include market selec�on and alterna�ve market entry strategies.

Contents

Chapter 13: Marke�ng Challenges in the New Economy

Chapter 14: Managing Marke�ng in the Global Economy