Chapter 14—Designing and Managing Value Networks
and Marketing Channels
True/False Questions
1. Marketing channels are sets of interdependent organizations involved in the process of making a
product or service available for use or consumption. True (easy) p. 267
2. Consumer payments flow backward in a channel. True (moderate) p. 270
3. The term supply chain suggests a “sense-and respond” view of the market. False (moderate) p. 267
4. Intermediaries may perform the functions of promotion, ordering, and possession, but never take title
to the goods they are facilitating. False (moderate) p. 268
5. A two-level channel consists of a manufacturer selling directly to the final customer through Internet
selling, door-to-door sales, home parties, mail order, telemarketing, TV selling, and manufacturerowned stores. False (moderate) pp. 270-271
6. Backward channels recycle trash and old or obsolete products no longer used by customers. True
(easy) p. 271
7. A zero-level channel involves the producer selling to the retailer. This is the baseline of channels.
False (moderate) p. 270
8. Forward channels refer to situations where one channel level acquires a level forward in the channel,
such as Texaco owning its service stations. False (moderate) p. 271
9. The first step in designing a marketing channel is analyzing consumer needs for service outputs. True
(moderate) p. 272
10. The service output that refers to the degree to which the marketing channel makes it easy for
customers to purchase the product is called spatial convenience. True (moderate) p. 272
11. Agent intermediaries, such as brokers, manufacturers reps, and sales agents, seek out customers and
negotiate on the producer’s behalf, but do not take title to the goods they are selling. True
(moderate) p. 273
12. Exclusive distribution means severely limiting the number of intermediaries. True (moderate) p. 273
13. Coca-Cola is most likely to use exclusive distribution for its multi-packs. False (easy) p. 273
14. Producers of specialty products, such as Ferrari automobiles, will typically seek selective distribution.
False (difficult) p. 273
15. Moving from exclusive to selective to intensive distribution could hurt long-term performance of a
product that differentiated itself on the basis of its high quality construction. True (moderate) p. 273
16. Franchise operations, such as Krispy Kreme Donuts, Papa John’s Pizza, and H&R Block, are
examples of contractual VMSs. True (difficult) p. 279
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17. Once the difficult process of setting up a successful channel is complete, marketing management does
not need to revisit the channel issue again. False (moderate) p. 278
18. Single-channel occurs when a single firm uses two or more marketing channels to reach one or more
customer segments. False (moderate) pp. 279-280
19. When 50 independent hardware stores cooperated to form HWI as their own wholesale network, this
was an example of a wholesaler-sponsored voluntary chain. False (difficult) p. 279
20. A strategy in which the seller allows only certain outlets to carry its products is called full-line
forcing. False (difficult) p. 282
Multiple Choice Questions
21. _______________ are sets of interdependent organizations involved in the process of making a
product or service available for use or consumption.
a.) Marketing channels (easy) p. 267
b.) Retailer chains
c.) Wholesalers
d.) Distributors
e.) Consumers
22. Which of the following is not true about marketing channels?
a.) They normally take years to build.
b.) They are not easily changed.
c.) Some of their functions can be eliminated. (difficult) p. 268
d.) They represent a significant organizational commitment.
e.) They rank in importance on a level with engineering and manufacturing.
23. Which of the following may flow backward in a channel?
a.) payment for the product (moderate) pp. 267-268
b.) physical possession of a product
c.) title to a product
d.) advertising communications
e.) consumer promotions
24. Which of the following is not a key function of marketing channel members?
a.) They gather information about potential customers.
b.) They disseminate persuasive communications to stimulate purchases.
c.) They “dig out” the channel to make it more efficient. (moderate) p. 269
d.) They assume risks.
e.) They oversee transfer of ownership.
25. A zero-level channel _______________.
a.) may also be called a backward channel
b.) is the same as a direct marketing channel (difficult) p. 270
c.) has only one intermediary between producer and consumer
d.) has three members
e.) refers to intensive distribution channels where there are an indeterminate number of channel
members
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26. Penguin sells books through Amazon.com’s online store, this is an example of using a
a.) zero-level channel
b.) one-level channel (moderate) p. 270
c.) two-level channel
d.) three-level channel
e.) reverse-flow channel
27. Which of the following types of channels recycle trash and old or obsolete products no longer used by
customers?
a.) zero-level channel
b.) one-level channel
c.) two-level channel
d.) three-level channel
e.) reverse-flow channel (moderate) p. 271
28. Which of the following is an example of a reverse-flow channel?
a.) Rhet buys a used suit at a thrift shop.
b.) Cody trades 15 large pepperoni pizzas for three 30-second commercials on KLZY.
c.) Goran uses hair he swept up from a beauty salon as a mulch.
d.) Bethanie cleans out moldy food containers from her fridge.
e.) Garn buys scrap copper he can melt down and resell. (moderate) p. 271
29. The goal of channels in the service sector is to make the service _______________.
a.) available and accessible (moderate) p. 271
b.) affordable, differentiated, and easy to find
c.) risk free, readily available, and differentiated
d.) differentiated, targeted, and affordable
e.) affordable and accessible
30. A marketing channel intermediary knows its customers want to be able to buy in large quantity, so it
needs to be especially concerned about the _______________ it provides to customers.
a.) spatial convenience
b.) service backup
c.) lot size (difficult) p. 272
d.) waiting time
e.) product variety
31. The service output that refers to the degree to which the marketing channel makes it easy for
customers to purchase the product is called _______________.
a.) spatial convenience (moderate) p. 272
b.) service backup
c.) lot size
d.) waiting time
e.) product variety
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32. Home Depot carries an extensive line of tools, including many brands, quality levels, and price
ranges. This is an example of a marketing channel providing _______________.
a.) spatial convenience
b.) waiting time
c.) lot size
d.) service backup
e.) product variety (moderate) p. 272
33. If a manufacturer is concerned with the breadth of the assortment its distributor can provide
customers, the manufacturer is expressing a concern about the _______________ the distributor
provides.
a.) spatial convenience
b.) waiting time
c.) lot size
d.) service backup (moderate) p. 272
e.) product variety
34. A company that is developing a national chain of dealerships to sell used recreational vehicles at
fixed prices needs to be concerned about providing its customers with which of the following services
desired by customers?
a.) a high level of spatial convenience (difficult) p. 272
b.) product differentiation
c.) market aggregation
d.) form utility
e.) a narrow assortment breadth
35. Which of the following strategies of distribution means severely limiting the number of
intermediaries?
a.) exclusive distribution (moderate) p. 273
b.) selective distribution
c.) intensive distribution
d.) fragmented distribution
e.) mass distribution
36. A firm might choose __________ when it wants to maintain control over the service level and service
outputs offered by the resellers.
a.) exclusive distribution (moderate) p. 273
b.) mass distribution
c.) intense distribution
d.) mini-distribution
e.) full-line forcing
37. For which of the following products is its manufacturer most likely to use exclusive distribution?
a.) blue jeans
b.) hand tools
c.) bed sheets
d.) branded furniture (moderate) p. 273
e.) Spider-Man merchandise
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38. The distribution strategy that involves the use of more than a few but less than all of the
intermediaries who are willing to carry a particular product is called _______________.
a.) exclusive distribution
b.) selective distribution (moderate) p. 273
c.) intensive distribution
d.) fragmented distribution
e.) mass distribution
39. Schmaedick Corporation has developed an MP3 player - the UltraGigaMega 5000 - that will allow
the user to listen to up to 24 hours of different music without needing additional batteries or drive
space. The user can categorize the music in up to 50 categories if he or she chooses. Obviously, this
product would sell best with better than average selling effort. However, since the players have been
around a little while and the product has clear relative advantages, aggressive selling is not needed.
The best form of distribution would be _______________ distribution.
a.) selective (moderate) p. 273
b.) intensive
c.) inclusive
d.) exclusive
e.) restrictive
40. For which of the following would a manufacturer be most likely to use selective distribution?
a.) M&Ms
b.) USA Today
c.) souvenir tee-shirts
d.) FUBU jeans (moderate) p. 273
e.) Budweiser beer
41. _______________ distribution consists of the manufacturer placing the goods or services in as many
outlets as possible.
a.) Selective
b.) Intensive (easy) p. 273
c.) Inclusive
d.) Exclusive
e.) Restrictive
42. Producers of convenience goods typically seek _______________ distribution.
a.) selective
b.) intensive (easy) p. 273
c.) inclusive
d.) exclusive
e.) restrictive
43. For which of the following products would a manufacturer be most likely to use intensive
distribution?
a.) men’s cologne that sells for $30 a bottle
b.) combination fax/printers
c.) Dr. Martin’s shoes
d.) kitchen sinks
e.) dish soap (easy) p. 273
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44. McDonald’s franchisees get a small discount when they pay their bills for supplies within the first
seven days (when the due date is 30 days after delivery). This is an example of ________ within
channel relations.
a.) price policies
b.) conditions of sale (moderate) p. 274
c.) sharing the risks
d.) territorial rights
e.) services agreed upon
45. A distributor’s concern over where and how a producer will enfranchise another distributor is
addressed under _______________ as set out in the terms and responsibilities of channel members.
a.) price policies
b.) conditions of sale
c.) territorial rights (moderate) p. 274
d.) channel member parity
e.) specific services to be performed by each party
46. Stuffwithastory.com is trying to decide on whether to use a company employee or a sales agent to
help it expand to the UK market. Establishing a sales office would cost $100,000. The sales
employee would be paid $30,000 plus a 7.5 percent commission. An agents would charge a flat 11
percent commission on all sales. Stuffwithastory.com is using _______________ criteria to evaluate
their major channel alternatives.
a.) economic (moderate) p. 274
b.) qualitative
c.) territorial
d.) adaptive
e.) control
47. Bodyshop produces a line of all-natural lotions and soaps, and is trying to choose between using its
own sales force or hiring manufacturers’ representatives to sell its products to non-Bodyshop
distributors. Bodyshop has come to the realization that it can more easily direct its sales force’s
efforts, the products emphasized, and how accounts are managed if it sets up its own sales force. This
company is evaluating its choice on the basis of _______________ criteria.
a.) economic
b.) quantitative
c.) territorial
d.) adaptive
e.) control (moderate) p. 275
48. A vertical marketing system is comprised of _______________.
a.) an independent producer, independent wholesaler(s), and independent retailer(s)
b.) two or more producers joining resources or programs to exploit opportunities
c.) channel members all acting as equal members of a unit
d.) the producer, wholesaler(s), and retailer(s) acting as a unit (difficult) p. 278
e.) a single producer using two or more marketing channels to reach different market segments
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49. The _______________ combines successive stages of production and distribution under single
ownership.
a.) horizontal marketing system
b.) conventional marketing system
c.) corporate vertical marketing system (moderate) p. 279
d.) multichannel marketing system
e.) contractual vertical marketing system
50. Because of Coca-Cola’s size and power in the marketplace, they tend to dominate some members in
the channel. This allows them to require strong cooperation from resellers who carry Coke products.
This is an example of a(n) _______________.
a.) administered vertical marketing system (difficult) p. 279
b.) horizontal marketing system
c.) corporate vertical marketing system
d.) contractual vertical marketing system
e.) multichannel marketing system
51. Franchise operations, such as Krispy Kreme, Papa John’s Pizza, and H&R Block, are examples of
_______________.
a.) administered VMSs
b.) horizontal marketing systems
c.) contractual VMSs (moderate) p. 279
d.) corporate VMSs
e.) conventional marketing systems
52. _______________ organize groups of independent retailers to better compete with large chain
organizations.
a.) Wholesaler-sponsored voluntary chains (moderate) p. 279
b.) Retailer cooperatives
c.) Franchise organizations
d.) Catalog showrooms
e.) Linked divisions
53. When 50 independent hardware stores formed a new business entity to provide them with the services
of the wholesaler, this was an example of _______________.
a.) wholesaler-sponsored voluntary chains
b.) retailer cooperatives (moderate) p. 279
c.) franchise organizations
d.) catalog showrooms
e.) linked divisions
54. _______________ are created when a channel member called a franchisor links several successive
stages in the production-distribution process.
a.) Wholesaler-sponsored voluntary chains
b.) Retailer cooperatives
c.) Franchise organizations (easy) p. 279
d.) Catalog showrooms
e.) Linked divisions
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55. In a(n) _______________, two or more unrelated companies put together resources or programs to
exploit an emerging marketing opportunity.
a.) administered VMS
b.) horizontal marketing system (moderate) p. 279
c.) contractual VMS
d.) multichannel marketing system
e.) corporate VMS
56. GEICO Insurance agreed to include H&R Block advertising materials as a part of all their
communications with their customer base, and H&R Block, in turn, will arrange for their customers
to get information on auto insurance as a part of the tax preparation process. This is an example of
a(n) _____________.
a.) administered VMS
b.) horizontal marketing system (moderate) p. 279
c.) contractual VMS
d.) multichannel marketing system
e.) corporate VMS
57. A single manufacturer produces high-end tools for three different customer segments and sells the
identical tools under different brand names through three different retailers – Sears Craftsman tools
for the home fix-it crowd, NAPA Quality tools for the shade-tree mechanic, and Snap-On tools to
professional mechanics. This is an example of what type of system?
a.) single channel marketing
b.) multichannel marketing (moderate) pp. 279-280
c.) maxi-channel marketing
d.) mini-channel marketing
e.) direct channel marketing
58. When a producer has a conflict with its wholesalers, the producer is experiencing _______________
conflict.
a.) horizontal channel
b.) multichannel
c.) direct channel
d.) vertical channel (moderate) p. 280
e.) single channel
59. _______________ conflict involves conflict between members at the same level within the channel.
a.) Horizontal channel (moderate) p. 280
b.) Direct channel
c.) Multichannel
d.) Vertical channel
e.) Single channel
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60. Joe Montes hand-makes guitars and sells them to retailers and also recently began to sell them to the
final customer at montesguitars.com. The retailers aren’t happy about the Internet sales because they
claim the direct marketing sales are adversely affecting their in-store sales. This is an example of
_______________ conflict.
a.) horizontal channel
b.) direct channel
c.) multichannel (moderate) p. 280
d.) vertical channel
e.) single channel
61. When Subway franchisers complained that their interests were not being served by the parent
company, Subway Corporation allowed three of the company’s board seats to be occupied by store
owners who were elected by all franchises based on a one-vote-per-store system. This is an example
of using ________ to manage channel conflict.
a.) adoption of superordinate goals
b.) exchange persons between channel levels
c.) cooptation (moderate) p. 281
d.) diplomacy, mediation, arbitration for chronic or acute conflict
e.) competition
62. Which of the following describes an effort by one organization to win the support of the leaders of
another organization by including them in advisory councils, boards of directors, and trade
associations?
a.) cooptation (moderate) p. 281
b.) competition
c.) goal subordination
d.) arbitration
e.) mediation
63. _______________ takes place when each side sends a person or group to meet with its counterpart to
resolve the conflict.
a.) Diplomacy (moderate) p. 281
b.) Cooptation
c.) Goal subordination
d.) Arbitration
e.) Mediation
64. Which of the following is not a method of managing channel conflict listed in the text?
a.) diplomacy
b.) cooptation
c.) goal subordination
d.) confrontation (moderate) p. 281
e.) mediation
65. _______________ means having a skilled, neutral third party reconcile the two parties’ interests.
a.) Diplomacy
b.) Cooptation
c.) Goal subordination
d.) Arbitration
e.) Mediation (moderate) p. 281
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66. Which of the following is not included in the text’s list of recommended characteristics to evaluate
when choosing a channel member?
a.) number of years in the business
b.) number of employees (moderate) p. 275
c.) growth and profit record
d.) solvency
e.) cooperativeness
67. Which of the following is not one of the performance standards for intermediaries suggested in the
text?
a.) production lead times (moderate) p. 276
b.) average inventory levels
c.) customer delivery time
d.) treatment of damaged and lost goods
e.) cooperation in promotional and training programs
68. When an intermediary is underperforming, the first intervention step should probably be _______ the
intermediary.
a.) counseling (moderate) p. 276
b.) retraining
c.) remotivating
d.) charging higher rates to
e.) terminating
69. Mossimo and B.U.M. clothing were once sold exclusively at upscale department stores like Dillards,
Proffits, Belk, and Dayton-Hudson. Now the brands play a prominent role in Target Stores’ fashion
line-up. This is an illustration of the fact that _______________.
a.) retailers have a definite product life cycle
b.) no marketing channel remains effective over the entire product life cycle (moderate) p. 276
c.) intermediaries usually the channel leader
d.) customer preferences matter less than retailer support
e.) dropping a channel member is easier than adding one
70. A two-level marketing channel is comprised of _______________.
a.) a channel captain and several channel lieutenants
b.) several producers and several final consumers
c.) a franchise organization
d.) an independent producer, wholesaler, and retailer (moderate) p. 271
e.) all the players in the value chain
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Essay Questions
71. If a marketer chooses to use a vertical marketing system, she has three versions from which to choose.
In a short essay, describe the three types of VMSs.
Answer:
A corporate VMS combines successive stages of production and distribution under single ownership.
An administered VMS coordinates successive stages of production and distribution through the size
and power of one of the members. Manufacturers of a dominant brand are able to secure strong trade
cooperation and support from resellers. A contractual VMS consists of independent firms at different
levels of production and distribution integrating their programs on a contractual basis to obtain more
economies or sales impact than they could achieve alone. Wholesaler-sponsored voluntary chains,
retailer cooperatives, and franchises are all examples of contractual VMSs.
(moderate) pp. 278-279
72. Automotive Exchange de Mexico rebuilds starters, generators, and alternators for popular U.S.
automobiles, and the firm sells its goods through a 2-level channel. Discuss how AE would benefit
from the addition of another level to its channel of distribution.
Answer:
By adding more channels, the manufacturer can gain three important benefits. The first is increased
market coverage—the manufacturer can add another channel to reach a customer segment its current
channel can’t reach. The second is lower channel cost—the manufacturer can add a new channel to
lower the cost of selling to an existing customer group. Maybe, it could sell through a catalog instead
of using a sales force to reach some of its customers. The third is more customized selling—the
manufacturer can add a channel that has a selling feature that fits its customer requirements better.
(moderate) p. 271
73. Through a problem with goal inconsistency, a manufacturer of cooking utensils is having a
disagreement with a retail chain that carries its product line. The disagreement is new and has not
reached the stage where it requires third-party intervention. What method(s) can be used to settle this
conflict? What method(s) are likely to work?
Answer:
One important mechanism for settling conflict is the adoption of a superordinate goal. The retail
chain and the manufacturer could agree on the fundamental goal they are jointly seeking, whether it is
survival, market share, high quality, or customer satisfaction. But this method is unlikely to work in
this case because it is more commonly used when the channel faces an outside threat. A useful
mechanism is to exchange employees between the retail chain and the manufacturer. That way each
could learn to appreciate the other’s point of view. This may work. Cooptation is an effort by one
organization to win the support of the leaders of another organization by including them in an
advisory council, boards of directors, and the like. As long as the initiating organization treats the
leaders seriously and listens to their opinions, this method has a good chance of working. Much can
be accomplished by encouraging joint membership in trade associations. Each gets to consider the
issues most strongly affecting the other. This method, too, would be useful in settling this conflict.
(difficult) pp. 280-281
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74. Moonstruck Chocolates of Portland, Oregon, started out in the inventor’s home as a unique chocolate
product containing delicious alcohol-enhanced fillings. Once the product was perfected, the owners
decided that they had no expertise in marketing the chocolates and looked to consultants to tell them
what marketing intermediaries could do for them. What did the consultants probably explain were the
key functions of marketing channel members?
Answer:
The key functions of the marketing channel members are:
a.) to gather information about potential and current customers, competitors, and other parts of the
marketing environment.
b.) to develop and disseminate persuasive communications to stimulate purchasing.
c.) to reach agreement on price and other terms so that transfer of ownership of possession take
place.
d.) they place orders with manufacturers.
e.) they acquire the funds to finance inventories at different levels in the marketing channel.
f.) they assume risks connected with carrying out channel work.
g.) they provide for the successive storage and movement of the physical products.
h.) they provide buyers’ payment of bills through banks or other financial arrangements.
i.) they oversee the actual transfer of ownership from one organization or person to another.
j.) All of these functions must be done by someone—you can eliminate the middleman, but you
cannot eliminate their functions.
(moderate) p. 269
75. Describe the five service outputs of a Toyota dealership.
Answer:
a.) Consumers typically buy cars in a lot size of one, though the dealer may do some fleet sales to
local businesses or governments, in which case, a larger lot size is required by the customer.
b.) Except in the case of a special order vehicle, most consumers would like to find the car they want
on the sales lot that day, so that waiting time is minimized.
c.) The dealership should ideally be in a convenient location, providing consumers with spatial
convenience.
d.) Because there are many consumer preferences for car styles, colors, and accessory levels, the
dealership will want to have plenty of product variety in inventory.
e.) Service backup will be a critical factor for many buyers. They expect that the dealership will be
able to take care of cars that need servicing, and that the dealership will provide warranty
coverage for the new cars purchased.
(moderate) p. 272
Mini-Cases
Mini-Case 14-1
In 1999, BellSouth Wireless Data introduced Palm VII, a palm-sized personal computer that has the
ability to connect to the Internet. The Palm VII signals can be uploaded and downloaded by the same
network used for BellSouth’s interactive paging service. Unfortunately, proper product usage requires
BellSouth to maintain a 24-hour customer support line to answer the numerous questions that arise as new
users familiarize themselves with the new system as well as make sure its distributors have a thorough
understanding of the Palm VII. The Palm VII has a $600 price tag. As BellSouth chooses distributors, it
is likely to be most concerned about its ability to control its distributors and the distributors’ ability to
respond quickly to strategic changes.
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76. Refer to Mini-Case 14-1. In analyzing its customer service requirement, BellSouth has determined
that _______________ requires the most input from its channel members.
a.) lot size
b.) waiting time
c.) spatial convenience
d.) service backup (moderate) p. 272
e.) product variety
77. Refer to Mini-Case 14-1. Which of the following methods for distribution is most appropriate for
BellSouth to use when marketing the new Palm VII?
a.) restrictive distribution
b.) direct marketing
c.) intensive distribution
d.) selective distribution
e.) exclusive distribution (moderate) p. 273
78. Refer to Mini-Case 14-1. If BellSouth chooses to sell the product through several competing wireless
plans, as well as through its own Web site, this would be an example of _______________.
a.) restrictive distribution
b.) horizontal marketing systems
c.) the push strategy
d.) multichannel marketing (moderate) pp. 279-280
e.) an administered VMS approach
Mini-Case 14-2
The Hanlon brothers of Minnesota decided to revive an extinct motorcycle brand, the once-proud
Excelsior-Henderson. They raised millions of dollars from stock sales and got the state to subsidize them
for millions more. They spent lots of the raised money announcing the future coming of the bike, creating
high awareness at rallies and race events. In 2000, after nearly 4 years of work, they introduced their first
model , the Big X, through test rides at the Black Hills Rally in Sturgis, South Dakota, and at the
Laughlin River Run in Laughlin, Nevada. Interested buyers were shown maps with a small network of
about 80 U.S. dealers who had agreed to stock the bikes, and the Hanlons promised more to come.
However, purchasers who had interest and the money to purchase hesitated about the quality and stability
of the proposed dealership network and the bike never sold enough units to keep the company alive. Thus,
within months the company went bankrupt, probably not due to a lack of good product, but rather due to a
lack of good distribution.
79. Refer to Mini-Case 14-2. Which of the following is a reason the Hanlons tried to build a network of
dealers rather than create their own dealerships?
a.) direct marketing is not feasible for motorcycles
b.) to be more efficient with consumers’ time and energy
c.) they lacked the financial resources to carry out direct marketing (moderate) p. 268
d.) ego
e.) the multichannel marketing approach seemed like the best idea at the time
80. Refer to Mini-Case 14-2. The number of intermediaries suggests what type of distribution?
a.) selective (moderate) p. 273
b.) intensive
c.) exclusive
d.) multichannel
e.) hybrid
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81. Refer to Mini-Case 14-2. The major problem with the Excelsior-Henderson dealership network
probably had to do with _________ problems, as perceived by potential buyers.
a.) lot size
b.) waiting time
c.) spatial convenience
d.) product variety
e.) service back-up (difficult) p. 272
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