Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e

11. Place and Development
    of Channel Systems

Text © The McGraw−Hill

Companies, 2002

Place and Development of Channel Systems 319

An appliance producer may develop an informal arrangement with the

independent wholesalers in its administered channel system. It agrees to keep pro-

duction and inventory levels in the system balanced—using sales data from the

wholesalers. Every week, its managers do a thorough analysis of up to 130,000 major

appliances located in the many warehouses operated by its 87 wholesalers. Because

of this analysis, both the producer and the wholesalers can be sure that they have

enough inventory but not the expense of too much. And the producer has better

information to plan its manufacturing and marketing efforts.

Middlemen in many industries—like groceries, drugs, hardware, and books—

develop and coordinate similar systems. Computerized checkout systems track sales.

The information is sent to the wholesaler’s computer, which enters orders auto-

matically when needed. Shipping cartons with computer-readable bar codes track

the status of shipments and reduce errors. This reduces buying and selling costs,

inventory investment, and customer frustration with out-of-stock items throughout

the channel.

Smoothly operating channel systems are more efficient and successful. In the con-

sumer products field, corporate chains that are at least partially vertically integrated

account for about 25 percent of total retail sales. Other vertical systems account for

an additional 37.5 percent. Thus, vertical systems in the consumer products area

have a healthy majority of retail sales and should continue to increase their share

in the future. Vertical marketing systems are becoming the major competitive units

in the U.S. distribution system—and they are growing rapidly in other parts of the

world as well.^18

Firms that cooperate to build vertical marketing systems typically share a longer-

term commitment. Sometimes, however, what a firm wants is a short-term

collaboration to help it be more efficient in accomplishing a specific objective. This

may lead to an alliance, a partnership (usually informal) among firms in which they

agree to work together to achieve an objective. An alliance often involves two firms,

but sometimes it involves a whole network of firms, who spin a web to catch more

customers. The firms may be at the same level in the channel or at different lev-

els. For example, a number of firms in the computer business have formed alliances

to promote a market for the Linux operating system. Some of these firms produce

hardware and some produce software, some focus on distribution, and some are even

competitors (at least in some of their product-markets). Nevertheless, by forming a

temporary alliance they increase their chances of reaching potential customers at

the end of the channel. Without the alliance, it would be difficult for any one of

these firms to compete with Microsoft or Intel.^19

Vertical marketing

systems_new wave in

the marketplace

The Best Channel System Should Achieve Ideal Market Exposure

You may think that all marketing managers want their products to have maxi-

mum exposure to potential customers. This isn’t true. Some product classes require

much less market exposure than others. Ideal market exposuremakes a product

available widely enough to satisfy target customers’ needs but not exceed them. Too

much exposure only increases the total cost of marketing.

Intensive distributionis selling a product through all responsible and suitable whole-

salers or retailers who will stock and/or sell the product. Selective distributionis selling

through only those middlemen who will give the product special attention. Exclusive

distributionis selling through only one middleman in a particular geographic area. As

Ideal exposure may be

intensive, selective, or

exclusive

Short-term alliances

are also popular