CHAPTER ELEVEN

Place and
Development of
Channel Systems

For use only with

Perreault and McCarthy
texts.
© 2005 McGraw-Hill
Companies, Inc.
McGraw-Hill/Irwin www.mhhe.com/fourps
When we finish this lecture you should

1. Understand what product classes suggest about Place

objectives.
2. Understand why some firms use direct channel
systems while others rely on intermediaries and
indirect systems.
3. Understand how and why marketing specialists
develop to make channel systems more effective.
4. Understand how to develop cooperative relationships
and avoid conflict in channel systems.
5. Know how channel members in vertical marketing
systems shift and share functions—to meet customer
needs.
6. Understand the differences between intensive,
selective, and exclusive distribution.

© 2005 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Exhibit 11-1
Place Decisions Are an Important Part of Marketing Strategy

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Key Elements of Distribution Strategy

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Place Decisions Are Guided by “Ideal” Place Objectives

Place
Place
Product
Product System
System
Classes
Classes Key
Key Is
Suggest Is Not
Not
Suggest Issues
Issues Automatic
Automatic
Objectives
Objectives

Decisions
Decisions
Have
Have
Long-run
Long-run Effects
Effects
© 2005 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Channel System May Be Direct or Indirect

Greater
Greater Control
Control

Lower
Lower Cost
Cost

Internet
Internet Makes
Makes Direct
Direct
Distribution
Distribution Easier
Easier
Direct
Direct Contact
Contact with
with
Customer
Customer Needs
Needs
Some
Reasons Quicker
Quicker Response
Response oror
For Choosing Change
Change in
in Marketing
Marketing Mix
Mix
Direct Channels Suitable
Suitable Middlemen
Middlemen
Not
Not Available
Available
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Direct Channels Are Common with Business
Customers and Services

+
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When Indirect Channels Are Best

+
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Middlemen May Invest in Inventory

+
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Channel Specialists May Reduce
Discrepancies and Separations

+
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A Discrepancy of Assortment

+
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Channel Specialists Adjust Discrepancies
with Regrouping Activities

Accumulating
Accumulating Bulk-Breaking
Bulk-Breaking

Assorting
Assorting Sorting
Sorting

© 2005 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Interactive Exercise: Channel Efficiency

© 2005 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Channel Relationship Must Be Managed

Choosing
Choosing the
the Type
Type of
of
Relationship
Relationship

Whole-Channel
Whole-Channel Product-
Product-
Market
Market Commitment
Commitment
Key
Key
Issues
Issues In
In Conflict
Conflict Handling
Handling
Channel
Channel
Management
Management
Common
Common Objectives
Objectives

Role
Role of
of Channel
Channel Captain
Captain

© 2005 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Exhibit 11-2
Producers or Middlemen May Be Channel Captains

© 2005 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Vertical Marketing Systems Focus
on Final Customers

Type of channel

Characteristics Vertical marketing systems

Traditional
Administered Contractual Corporate

Amount of Little or Some to Fairly good

Complete
cooperation none good to good

Economic One
Control maintained None power and Contracts company
by leadership ownership

Typical
General
Examples “inde- McDonald’s Florsheim
Electric
pendents”

© 2005 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

The Best Channel System Should Achieve
Ideal Market Exposure

Intensive Market
Market
Intensive
Exposure
Exposure
Strategies
Strategies
Selective
Selective

= number of
Exclusive
Exclusive outlets
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Intensive Distribution

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Interactive Exercise: Ideal Market Exposure

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 Limiting Market Exposure

Producer
Producer

Vertical
Arrangements
May Be Legal Wholesaler
Wholesaler

Retailer
Retailer Retailer
Retailer Retailer
Retailer

Horizontal Arrangements
Are Illegal
© 2005 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Exhibit 11-4
Channel Systems Can Be Complex

© 2005 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Key Terms

• Place • Assorting
• Channel of • Traditional channel
distribution systems
• Direct marketing • Channel captain
• Discrepancy of
• Vertical marketing
systems
quantity
• Corporate channel
• Discrepancy of systems
assortment • Vertical integration
• Regrouping activities • Administered channel
• Accumulating systems
• Bulk-breaking • Contractual channel
systems
• Sorting
© 2005 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Key Terms

• Ideal market exposure

• Intensive distribution
• Selective distribution
• Exclusive distribution
• Multichannel
distribution
• Reverse channels

© 2005 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin