ch 14 (unit 3)

Question 1

what is a path to market for goods and services?

channel
market plan
pathway
segment

Answer 1

channel

Question 2

in most cases, a distribution channel is a(n) __ between the products a brand manufactures and the customers that buy the product

bottleneck
intersection
intermediary
none of the above

Answer 2

intermediary

Question 3

which of the following is a reason why direct channels are prevalent?

customers insist on it
sales process delivers value
customers are large
all of the above

Answer 3

all of the above

Question 4

true or false: your company manufactures and sells a complex solution where a lot of expertise and value is delivered through company sales reps. product margins are thing. for these reasons, you should use an indirect sales channel

Answer 4

false

Question 5

what factors encourage firms to opt for indirect distribution

market presence
order size
added value
all of these

Answer 5

all of these

Question 6

true or false: channels can create efficency for consumers and brands

Answer 6

true

Question 7

under what category does distribution through a single channel partner in a market fall on the spectrum?

selective
specific
exclusive
exhaustive

Answer 7

exclusive

Question 8

true or false: a team of sales representatives is an example of a channel

Answer 8

true

Question 9

true or false: customers purchasing patterns will always match a companies’ preferred channel for selling its products

Answer 9

false

Question 10

true or false: differentiation, access to new markets, economies of scale, efficiency and creating barriers to competition are all reasons why channels are needed.

Answer 10

true

Question 11

distribution defined

Answer 11

Distribution connects products to people

Question 12

distribution channel

Answer 12

A path to market for goods and services

By plane or train or car — distribution channels can influence how you are able to purchase or obtain items, and how companies or brands are able to sell them

Question 13

channel

Answer 13

A channel is a path to market for goods and services. A chain of retail stores is an example of a channel, as is an online store or a team of sales representatives. Amazon and Walmart serve as huge channels for the products of other brands.

Question 14

why are channels important

Answer 14

Channels are critically important to the success of many companies. In fact, many companies rely on channels to help answer two, strategic questions about how they distribute their products to the market:

1. How Do You Want To Sell Your Product?
2. For brands that make products, what method of distribution is best?
3. How Does the Customer Want To Buy Your Product?
4. Brands may wish to sell their products through certain types of distribution channels, but how do customers want to buy those products?

Question 15

channel benefits

Answer 15

Convenience for customers
Access for customers
Awareness of products to customers

In most cases, a distribution channel is an intermediary between the products a brand manufactures and the customers who buy those products.

Question 16

why channels are needed

Answer 16

Differentiation
The right channels can provide differentiation for the products distributed through those channels

Access to New Markets
A very common reason for a brand to enter a channel distribution relationship is to get its products into new markets. Quite often, these new markets are geographical, but not always

Economies of Scale
Many products cost more to distribute than they do to produce. When this is the case, it pays for the producer to find a channel partner with excellent logistical and supply chain capabilities

Efficiency
The right mix of channels can create efficiency or convenience for the customers, the suppliers, or both. Consider the situation of a small company that manufacturers its products and then sells them

Creating Barriers to Entry (Competition)
When a brand recruits a channel partner and the resulting relationship is mutually profitable, both sides see the advantages of preserving the alliance

Question 17

differentiation - channels

Answer 17

The right channels can provide differentiation for the products distributed through those channels.
Where an item is sold can cause a higher perceived value
Availability online, at a preferred store, or at a “high end” store may affect how a consumer views a product or it’s worth

Question 18

access to new markets - channels

Answer 18

Partnering with a distribution channel may allow a company to reach a new market
When marketing overseas new distribution channels are an important opportunity as these distributors will have access to customers there and understands local business customs and laws

Question 19

economies of scale - channels

Answer 19

Many products cost more to distribute than they do to produce
Finding a channel with an excellent grasp on distribution can reduce costs and connect consumer with producer

Question 20

efficiency - channels

Answer 20

The right mix of channels can create efficiency or convenience for the customers, the suppliers, or both

Question 21

creating barriers to entry - channels

Answer 21

In a strong channel-brand relationship, the channel exchanges loyalty for rewards from brands, such as higher margins
The strength of the relationship between the brand and its channel partners can create a barrier to the brand’s competitors

Question 22

two types of channels

Answer 22

direct or indirect

Question 23

direct channel

Answer 23

A channel owned by the manufacturer or supplier
A direct channel does not use a third party intermediary

A direct distribution channel is one that the manufacturer or supplier owns. There are no third-party intermediaries involved in selling or handling the brand’s products. No external distributor comes between the selling manufacturer and the buying customer. Brands that use direct channels own all the sales and delivery functions as well as the relationships the brand has with its customers.

Question 24

reasons for direct channels/prevalent when

Answer 24

Customers are large
When a business has customers that are large and well-defined, such as a large corporation, direct sales channels are common.

Customers insist on it
Some customers choose to only deal directly with the selling company. The reasons for this vary, and they are often trust or control-related.

The sales process is complex
When the buying journey for a solution involves extensive customer education, negotiations, solution customization, special terms and conditions, or concessions, these sales usually occur through a direct channel.

The sales process delivers value
It’s not uncommon for customers to receive a lot of value through the sales process in the form of advice, expertise, and consulting. When this happens, most brands prefer to maintain ownership of the sales process to ensure value is transmitted effectively through it.

Question 25

direct channel examples

Answer 25

Direct channel examples:
A company sales team
A company store (e.g. Apple stores are a direct channel for Apple)
A company’s online store
A company’s catalog

Question 26

when to go direct

Answer 26

Margin
As the next section will discuss in greater detail, distribution channels have a cost. Indirect channels are usually paid a percentage of the sales they make, or what’s commonly referred to as “margin.”

Faster Supply Chain
When the speed of getting products into the hands of customers is a major part of the value AND when indirect channels slow down the supply chain, then brands will use direct channels.

Support and Expertise
When the solutions a brand sells require specific advice, support, or expertise that only the brand can provide, then sales must occur through direct channels.

Discounts
When big customers or major accounts demand discounts or special contract terms that don’t leave enough margin for an indirect channel partner to participate, then brands will use direct channels.

Adding Value
When there is no value that an indirect channel can provide more efficiently or less expensively than the brand can, it will use direct channels.

Question 27

indirect channel

Answer 27

Any third-party intermediary that is between the selling brand and the buying customer

Third-party intermediary: simply another business, separate from the brand whose products it carries

An indirect distribution channel is any third-party intermediary that is between the selling brand and the buying customer. A third-party intermediary is simply another business, one that is separate from the brand whose products it carries. There are several kinds of indirect channels, and a common type is a retailer. Some of the biggest ones are Amazon, Target, and Walmart, which sell many brands but don’t manufacture or produce the things they sell. They carry the brand products we buy and get a margin for what they sell. In the U.S., indirect distribution is how consumers purchase most goods, products, and many services.

Question 28

advantages/reasons of indirect distribution

Answer 28

ACCESS TO NEW MARKETS
Indirect distributors are often in markets that brands aren’t yet in, giving brands an almost instant presence in those markets.

ABILITY TO HANDLE SMALL PURCHASES
Brands often manufacture in bulk and don’t have the systems or infrastructure to handle single product sales to consumers.

ASSORTMENT THAT CONSUMERS VALUE
Many brands manufacture things that consumers don’t buy individually. Instead, a brand’s products often go into the shopping cart alongside many other brands’ products that consumers like to purchase collectively.

Question 29

types of indirect channels

Answer 29

There are many types of indirect channels, including wholesalers, retailers, agents, brokers, dealers, franchisees, and others. This diagram compares a direct channel to just some of the indirect channel paths for getting products from the manufacturer to the customer

Question 30

how do indirect channels make money?

Answer 30

Cost of Goods Sold (COGS): an accounting term for the exact cost of how much it costs to make and sell a product

COGS helps manufacturers decide what to pay indirect channels
To determine the selling price for a product, the manufacturer has to decide what profit margin is wanted
This calculation also needs to include the cost to pay indirect channels
Without considering indirect channels, the calculation to find the perfect profit margin may look like this:

COGS + Desired Profit = Retail selling price
EX: 50 + 49 = 99 (price)

Question 31

cost of goods sold

Answer 31

What goes into the COGS are:
the raw materials,
the production costs,
the packaging costs,
printing,
labeling,
handling,
packing,
shipping, and anything else the brand has to do to get its products ready to sell through indirect distribution.

Question 32

when to go indirect

Answer 32

ORDER SIZE
Indirect channels, particularly retailers, are well equipped to deal with lots of small orders. In other words, a retailer can easily sell 1,000 consumers one product, whereas a brand manufacturer isn’t setup to do business that way.

ASSORTMENT
There are many purchase that customers don’t buy individually but with an assortment of other products. The classic example of this occurs in a grocery store, where consumers fill their carts with a variety of brand products in one convenient place.

MARKET PRESENCE
Indirect channels are a good way for a brand to get its products into a market that the brand is not yet in, but the channel partner is.

CUSTOMER UNDERSTANDING
Many indirect channel distributors have extensive experience and the wisdom that comes from working with certain segments and types of customers

ADDED VALUE
It’s very common for a channel partner to distribute a brand’s products or solutions by integrating the brand’s solution with some additional features, functions, or services that the channel partner provides.

Question 33

what are the benefits when going indirect for the brand manufacturer vs. the consumer

Answer 33

brand manufacturer:
provides marketing coverage
sells products to customers
keeps inventory/products in stock
manages the sales
provides customer/market insights
supports customers

for the consumer:
ensures products are available
provides an assortment of products
fills orders for individual consumers
provides credit
provides services
provides support

Question 34

channel design

Answer 34

Designing the ideal channel structure for a brand is a very strategic marketing activity.

What role distribution needs to play in helping the brand achieve its objectives:
- Which types of channels are needed
- What intensity of distribution makes sense for the brand
- Which specific channel partners to use

The process of designing the ideal channel structure for a brand involves determining:
- What role distribution should play in achieving brand objectives
- Which types of channels are needed
- What intensity of distribution makes sense for the brand
- Which specific channel partners to use

Question 35

intensive distribution

Answer 35

Some brands, like Coca Cola, practice intensive distribution: you can buy a Coke at just about any restaurant, grocery or convenience store in the world. Brands like Coca Cola want a presence everywhere they can have one.

Question 36

selective distribution

Answer 36

Other brands practice selective distribution: choosing multiple but not all possible distributors for their products. Often the reason for this level of intensity is to maintain the brand image they have carefully built. Rolex is a brand that uses selective distribution

Question 37

exclusive distribution

Answer 37

Finally, there is exclusive distribution, which occurs when a brand chooses a single distribution partner or just one per market. When choosing a distribution intensity, brands must balance the desire to put their products in every possible channel against ensuring that those channels won’t have a negative effect on the brand’s image.

Question 38

conflict in the channel

Answer 38

• When a brand uses more than one channel, either direct or indirect, conflict will eventually occur
• Conflict occurs because channel members can interfere with each other’s objectives

Question 39

conflict categories

Answer 39

Loyalty: staying together despite the conflict

Voice: expressing the dissatisfaction and discussing how to resolve it

Neglect: ignoring the conflict and accepting the relationship consequences

Aggression: taking action to harm the other partner in the relationship

Exit: leaving the relationship