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
Strategy Decision Areas in Place
Place objectives
Customer
service
level desired
Type of
channel
Direct
Degree of market
exposure desired
Indirect
Type of
physical distribution
facilities needed
Middlemen/
facilitators needed
How to manage
channels
Exhibit 11-1
11-3
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
11-4
Quicker Response or
Change in Marketing Mix
Suitable Middlemen Not
Available
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill
Advantages of Indirect Channels
Much lower investment costs
Target may prefer to shop for certain
products at specific places. Can fit existing
buying patterns
Channel may provide credit (more
important to weaker or smaller firms)
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill
Disadvantages of Indirect Channels
You are one of many. Hard to obtain
special marketing effort.
You lose direct customer contact
You lose control
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill
Regrouping Activities
Accumulating
Sorting
11-5
BulkBreaking
Assorting
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill
Vertical Marketing Systems
Type of channel
Characteristics
Vertical marketing systems
Traditional
Administered
Contractual
Corporate
Little or
none
Some to
good
Fairly good
to good
Complete
Control maintained
by
None
Economic
power and
leadership
Contracts
One
company
ownership
Examples
Typical
“independents”
General
Electric
McDonald’s
Florsheim
Amount of
cooperation
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
Exclusive
11-8
Selective
= number of
outlets
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill
Internet Distribution
Internet Makes Direct Distribution
Somewhat Easier
Especially true for niche products with
limited demand that are not profitable
through regular channels
But, consumer must be aware of & use web
site
Delivered price must be competitive with
other channels
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill
Internet Distribution Works Best When:
Product can be downloaded
Product is intangible & proof of purchase
can be downloaded (airline tickets)
Product is not easily damaged & can be sent
inexpensively through the regular mail
(books)
Product lacking standardization to the
degree that there are few direct channels
(used items)
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill
Value to Weight Ratio
Definition = sales price / product weight
Ex. High value to weight is computer chips
Ex. Low value to weight is dog food
The lower the value to weight ratio the less
likely that direct distribution can be
successful (including internet distribution).
Consider the cost to ship a bunch to one
location to shipping individually to each
customer
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill