Marketing 12th lamb hair medaniel

Marketing 12th lamb hair medaniel Marketing 12th lamb hair medaniel Marketing 12th lamb hair medaniel Marketing 12th lamb hair medaniel Marketing 12th lamb hair medaniel Marketing 12th lamb hair medaniel Marketing 12th lamb hair medaniel

Marketing Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it LAMB / HAIR / McDANIEL TWELFTH EDITION Marketing CH HARLES A RL E S W W LA AMB MB M J Neeley School of Business Texas Christian University JOOSEPH S E PH F F HA AIR I R, J R Department of Marketing Kennesaw State University CA ARL RL M C D A ANIEL N I EL Department of Marketing University of Texas at Arlington Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it This is an electronic version of the print textbook Due to electronic rights restrictions, some third party content may be suppressed Editorial review has deemed that any suppressed content does not materially affect the overall learning experience The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for materials in your areas of interest Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Marketing 12e Lamb, Hair, McDaniel Vice President of Editorial, Business: Jack W Calhoun Publisher: Erin Joyner Executive Editor: Mike Roche Developmental Editor: Laura Rush/B-Books © 2013, © 2011 South-Western, Cengage Learning ALL RIGHTS RESERVED No part of this work covered by the copyright herein may be reproduced, transmitted, stored, or used in any form or by any means graphic, electronic, or mechanical, including but not limited to photocopying, recording, scanning, digitizing, taping, web distribution, information networks, or information storage and retrieval systems, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the publisher Editorial Assistant: Megan Fischer Marketing Manager: Gretchen Swann Sr Content Project Manager: Tamborah Moore Media Editor: John Rich Manufacturing Planner: Ron Montgomery Sr, Marketing Communications Manager: Jim Overly For product information and technology assistance, contact us at Cengage Learning Customer & Sales Support, 1-800-354-9706 For permission to use material from this text or product, submit all requests online at www.cengage.com/permissions Further permissions questions can be emailed to permissionrequest@cengage.com Production Service: MPS Limited, a Macmillan Company ExamView® is a registered trademark of eInstruction Corp Windows is a registered trademark of the Microsoft Corporation used herein under license Macintosh and Power Macintosh are registered trademarks of Apple Computer, Inc used herein under license Sr Art Director: Stacy Shirley © 2013 Cengage Learning All Rights Reserved Marketing Coordinator: Leigh Smith Internal Designer: KeDesign, Mason, Ohio Cengage Learning WebTutor™ is a trademark of Cengage Learning Cover Designer: KeDesign, Mason, Ohio Cover Image: KeDesign/iStockphoto.com Rights Acquisitions Specialist, Text: Sam A Marshall Rights Acquisitions Specialist, Images: Deanna Ettinger Text permissions researcher: Katie Huha, PMG Photo researcher: Terri Miller/eVisuals Sr Inventory Analyst: Terina Bradley Library of Congress Control Number: 2011941854 ISBN-13: 978-1-111-82164-7 ISBN-10: 1-111-82164-X South-Western 5191 Natorp Boulevard Mason, OH 45040 USA Cengage Learning products are represented in Canada by Nelson Education, Ltd For your course and learning solutions, visit www.cengage.com Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com Printed in the United States of America 15 14 13 12 11 Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Brief Contents Preface xiv Acknowledgments The World of Marketing © Andrey Bayda/ Shutterstock.com © AP Images/PRNewsFoto/ The J.M Smucker Company © Dave & Les Jacobs/ Cultura/Newscom © Andresr/Shutterstock.com © Violetkaipa/Shutterstock com © AP Images/The Canadian Press, Pawel Dwulit © David Morgan/Alamy xx An Overview of Marketing Strategic Planning for Competitive Advantage 24 Ethics and Social Responsibility 54 The Marketing Environment 86 Developing a Global Vision 132 Analyzing Marketing Opportunities 183 Consumer Decision Making 184 Business Marketing 236 Segmenting and Targeting Markets 270 Decision Support Systems and Marketing Research 306 Product Decisions 355 10 Product Concepts 356 11 Developing and Managing Products 382 12 Services and Nonprofit Organization Marketing 414 Distribution Decisions 445 13 Marketing Channels 446 14 Supply Chain Management 15 Retailing 530 484 Promotion and Communication Strategies 575 16 Promotional Planning for Competitive Advantage 576 17 Advertising and Public Relations 608 18 Sales Promotion and Personal Selling 648 Pricing Decisions 687 19 Pricing Concepts 688 20 Setting the Right Price 726 Technology-Driven Marketing 769 21 Customer Relationship Management (CRM) 2 Social Media and Marketing 802 770 Appendix A-1 Glossary G-1 Indexes I-1 BRIEF CONTENTS Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it v Contents Preface xiv Competitive Advantage 34 Cost Competitive Advantage 34 Product/Service Differentiation Competitive Advantage Niche Competitive Advantage 35 Building Sustainable Competitive Advantage 36 Acknowledgments xx The World of Marketing Setting Marketing Plan Objectives Describing the Target Market Target Market Strategy An Overview of Marketing The Marketing Mix Marketing Management Philosophies Production Orientation Sales Orientation Market Orientation Societal Marketing Orientation 39 Effective Strategic Planning 45 Review and Applications 46 • Key Terms 49 • Exercises 49 • Case Study: Disney 51 • Company Clips: Method—Healthy Home 52 • Notes 53 Ethics and Social Responsibility Determinants of a Civil Society Why Study Marketing? 16 Marketing Plays an Important Role in Society 16 Marketing Is Important to Business 16 Marketing Offers Outstanding Career Opportunities Marketing Affects Your Life Every Day 17 The Concept of Ethical Behavior The Nature of Strategic Planning 25 Strategic Business Units 26 Strategic Alternatives 26 Ansoff ’s Opportunity Matrix 27 The Boston Consulting Group Model 28 The General Electric Model 30 The Marketing Plan 30 32 Conducting a Situation Analysis 33 54 55 57 Ethical Theories 58 16 Review and Applications 17 • Key Terms 18 • Exercises 19 • Case Study: Girl Scout Cookies 21 • Company Clips: Method—Live Clean 22 • Notes 23 Strategic Planning for Competitive Advantage 24 42 Implementation 42 Evaluation and Control 43 The Organization’s Focus The Firm’s Business 13 Those to Whom the Product Is Directed 14 The Firm’s Primary Goal 15 Tools the Organization Uses to Achieve Its Goals 15 A Word of Caution 15 vi 38 39 Following Up on the Marketing Plan Differences Between Sales and Market Orientations Defining the Business Mission 36 38 Product Strategies 39 Place (Distribution) Strategies Promotion Strategies 40 Pricing Strategies 40 What Is Marketing? 35 Ethical Behavior in Business 60 Morality and Business Ethics 61 Ethical Decision Making 62 Ethical Guidelines and Training 63 Cultural Differences in Ethics 65 Ethical Dilemmas Related to Developing Countries 67 Corporate Social Responsibility 69 Sustainability 69 Stakeholders and Social Responsibility 69 Arguments Against and for Corporate Social Responsibility 71 Arguments Against Corporate Social Responsibility Arguments for Social Responsibility 72 Growth of Social Responsibility 73 Green Marketing 75 Cause-Related Marketing 71 77 Cause-Related Marketing Controversy 78 Review and Applications 79 • Key Terms 81 • Exercises 81 • Case Study: (Product) Red 82 • Company Clips: Method—People Against Dirty 84 • Notes 84 CONTENTS Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it The Marketing Environment The External Marketing Environment Doing Business in China and India 145 Political Structure and Actions 146 Legal Considerations 146 Uruguay Round, the Failed Doha Round, and Bilateral Agreements 148 North American Free Trade Agreement 149 Central America Free Trade Agreement 150 European Union 150 The World Bank, the International Monetary Fund, and the G-20 153 Demographic Makeup 154 Natural Resources 154 87 Understanding the External Environment Environmental Management 89 Social Factors 86 88 90 American Values 90 Personality Traits Vary by Region 92 The Growth of Component Lifestyles 93 The Changing Role of Families and Working Women 93 There Is Never Enough Time 94 Global Marketing by the Individual Firm Demographic Factors 95 The Global Marketing Mix Growing Ethnic Markets Economic Factors 109 Consumers’ Incomes 109 Purchasing Power 110 Inflation 110 Recession 111 The Impact of the Internet 113 Research 113 Stimulating Innovation 113 Innovation Carries to the Bottom Line Political and Legal Factors 170 Review and Applications 173 • Key Terms 174 • Exercises 175 • Case Study: P&G, Unilever, Panasonic 176 • Company Clips: Method—Global Beginnings 177 • Notes 178 • Marketing Miscue 180 • Critical Thinking Case 181 115 115 Federal Legislation 116 State Laws 117 Regulatory Agencies 118 The Battle Over Consumer Privacy 120 Competitive Factors 162 Product and Promotion 163 One Product, One Message 163 Product Invention 164 Product Adaptation 165 Promotion Adaptation 166 Place (Distribution) 167 Pricing 169 Dumping 169 Countertrade 169 103 Marketing to Hispanic Americans 103 Marketing to African Americans 105 Marketing to Asian Americans 107 Technological Factors 155 Exporting 156 Licensing and Franchising 158 Contract Manufacturing 159 Joint Venture 161 Direct Investment 161 Population 95 Tweens 96 Teens 97 Generation Y 98 Generation X 100 Baby Boomers 101 121 Competition for Market Share and Profits 121 Global Competition 122 Review and Applications 123 • Key Terms 125 • Exercises 126 • Case Study: Daimler/BMW 127 • Company Clips: Method—Entering a Crowded Market 129 • Notes 129 Analyzing Marketing Opportunities 183 Consumer Decision Making Developing a Global Vision 132 Rewards of Global Marketing 133 Importance of Global Marketing to the United States The Fear of Trade and Globalization 135 Benefits of Globalization 136 Multinational Firms 134 Shaping Public Policy and Educating Consumers 186 186 Need Recognition 186 Information Search 188 Evaluation of Alternatives and Purchase 192 137 Culture 142 Economic Factors 144 The Global Economy 144 The Importance of Understanding Consumer Behavior 185 The Consumer Decision-Making Process Currency Fluctuations 140 Global Marketing Standardization 140 External Environment Facing Global Marketers 184 Postpurchase Behavior 142 194 Types of Consumer Buying Decisions and Consumer Involvement 195 Factors Determining the Level of Consumer Involvement 197 CONTENTS Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it vii Not All Involvement Is the Same 198 Marketing Implications of Involvement Types of Business Products 199 Factors Influencing Consumer Buying Decisions 200 Cultural Influences on Consumer Buying Decisions 200 Culture and Values 200 Understanding Cultural Differences Subculture 204 Social Class 206 204 Business Buying Behavior Social Influences on Consumer Buying Decisions 208 Reference Groups 209 Opinion Leaders 211 Family 212 Individual Influences on Consumer Buying Decisions 214 Gender 214 Age and Family Life-Cycle Stage 215 Personality, Self-Concept, and Lifestyle 216 Psychological Influences on Consumer Buying Decisions 218 Perception 219 Motivation 221 Learning 222 Beliefs and Attitudes 256 Buying Centers 257 Evaluative Criteria 258 Buying Situations 259 Business Ethics 260 Customer Service 260 Review and Applications 262 • Key Terms 264 • Exercises 265 • Case Study: Pantone 266 • Company Clips: ReadyMade —Making Business Relationships 267 • Notes 268 Segmenting and Targeting Markets 270 Market Segmentation 271 224 The Importance of Market Segmentation 272 Review and Applications 228 • Key Terms 230 • Exercises 230 • Case Study: eBay 231 • Company Clips: ReadyMade—Do-It-Yourself 233 • Notes 234 Business Marketing 236 What Is Business Marketing? 237 Measuring Online Success 240 Trends in B-To-B Internet Marketing 242 Geographic Segmentation 275 Demographic Segmentation 275 Psychographic Segmentation 281 Benefit Segmentation 282 Usage-Rate Segmentation 283 Major Categories of Business Customers 246 Producers 246 Resellers 246 Governments 246 Institutions 248 The North American Industry Classification System 248 Business versus Consumer Markets 250 284 Steps in Segmenting a Market 244 Demand 250 Purchase Volume 251 Number of Customers 251 Location of Buyers 251 Distribution Structure 251 Nature of Buying 252 Nature of Buying Influence 252 Type of Negotiations 252 Use of Reciprocity 252 Use of Leasing 252 Primary Promotional Method 253 Bases for Segmenting Consumer Markets 274 Company Characteristics Buying Processes 284 Relationship Marketing and Strategic Alliances 243 Strategic Alliances 244 Relationships in Other Cultures Criteria for Successful Segmentation 273 Bases for Segmenting Business Markets 284 Business Marketing on the Internet 238 viii 254 Major Equipment 254 Accessory Equipment 254 Raw Materials 254 Component Parts 255 Processed Materials 255 Supplies 255 Business Services 256 285 Strategies for Selecting Target Markets 286 Undifferentiated Targeting 288 Concentrated Targeting 289 Multisegment Targeting 290 One-to-One Marketing Positioning 292 295 Perceptual Mapping 296 Positioning Bases 296 Repositioning 297 Review and Applications 298 • Key Terms 300 • Exercises 300 • Case Study: Coke Zero 302 • Company Clips: ReadyMade—Focus and Segmentation 304 • Notes 304 Decision Support Systems and Marketing Research 306 Marketing Decision Support Systems The Role of Marketing Research 307 308 Management Uses of Marketing Research 309 Understanding the Ever-Changing Marketplace 312 CONTENTS Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Find more at www.downloadslide.com CHAPTER product, promotion, and pricing strategies In making these decisions, marketing managers must determine what factors will influence the choice of channel and what level of distribution intensity will be appropriate 13 MARKETING CHANNELS © iStockphoto.com/Juan Facundo Mora Soria FACTORS AFFECTING CHANNEL CHOICE Managers must answer many questions before choosing a marketing channel The final choice depends on the analysis of several factors, which often interact These factors can be grouped as market factors, product factors, and producer factors Market Factors Among the most important market factors affecting the choice of a distribution channel are target customer considerations Specifically, managers should answer the following questions: Who are the potential customers? What they buy? Where they buy? When they buy? How they buy? Additionally, the choice of channel depends on whether the producer is selling to consumers or to industrial customers Industrial customers’ buying habits are very different from those of consumers Industrial customers tend to buy in larger quantities and require more customer service For example, Toyota Industrial Equipment manufactures the leading lift truck used to move materials in and out of warehouses and other industrial facilities Its business customers buy large numbers of trucks at one time and require additional services such as data tracking on how the lift truck is used In contrast, consumers usually buy in very small quantities and sometimes not mind if they get little or no service, such as in a discount store like Walmart or Target The geographic location and size of the market are also important to channel selection As a rule, if the target market is concentrated in one or more specific areas, then direct selling through a sales force is appropriate When markets are more widely dispersed, intermediaries would be less expensive The size of the market also influences channel choice Generally, larger markets require more intermediaries For instance, Procter & Gamble has to reach millions of consumers with its many brands of household goods It needs many intermediaries, including wholesalers and retailers Product Factors Products that are more complex, customized, and expensive tend to benefit from shorter and more direct marketing channels These types of products sell better through a direct sales force Examples include pharmaceuticals, scientific instruments, airplanes, and mainframe computer systems On the other hand, the more standardized a product is, the longer its distribution channel can be and the greater the number of intermediaries that can be involved For example, with the exception of flavor and shape, the formula for chewing gum is about the same from producer to producer Chewing gum is also very inexpensive As a result, the distribution channel for gum tends to involve many wholesalers and retailers The product’s life cycle is also an important factor in choosing a marketing channel In fact, the choice of channel might change over the life of the product For example, when photocopiers were first available, they were typically sold by a direct sales force Now, however, photocopiers can be found in several places, including warehouse clubs, electronics superstores, and mail order catalogs As products become more common and less intimidating to potential users, producers tend to look for alternative channels Gatorade was originally sold to sports teams, gyms, and fitness clubs As the drink became more popular, mainstream supermarket channels were added, followed by convenience stores and drugstores Now Gatorade can be found in vending machines and even in some fast-food restaurants CHAPTER 13 MARKETING CHANNELS Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 459 Find more at www.downloadslide.com intensive distribution A form of distribution aimed at having a product available in every outlet where target customers might want to buy it Another factor is the delicacy of the product Perishable products such as vegetables and milk have a relatively short life span Fragile products such as china and crystal require a minimum amount of handling Therefore, both require fairly short distribution channels Online retailers such as eBay facilitate the sale of unusual or difficult-to-find products that benefit from a direct channel Producer Factors Several factors pertaining to the producer itself are important to the selection of a marketing channel In general, producers with large financial, managerial, and marketing resources are better able to use more direct channels These producers have the ability to hire and train their own sales force, warehouse their own goods, and extend credit to their customers For example, variety store Dollar Tree distributes products through retail locations at low prices To increase cost-efficiency, Dollar Tree has a coast-to-coast logistics network of nine distribution centers to service its almost 3,000 stores.10 Smaller or weaker firms, on the other hand, must rely on intermediaries to provide these services for them Compared to producers with only one or two product lines, producers that sell several products in a related area are able to choose channels that are more direct Sales expenses then can be spread over more products A producer’s desire to control pricing, positioning, brand image, and customer support also tends to influence channel selection For instance, firms that sell products with exclusive brand images, such as designer perfumes and clothing, usually avoid channels in which discount retailers are present Manufacturers of upscale products, such as Gucci (handbags) and Godiva (chocolates), might sell their wares only in expensive stores in order to maintain an image of exclusivity Many producers have opted to risk their image, however, and test sales in discount channels Levi Strauss expanded its distribution to include JCPenney, Sears, and Walmart LEVELS OF DISTRIBUTION INTENSITY Organizations have three options for intensity of distribution: intensive distribution, selective distribution, or exclusive distribution (See Exhibit 13.5.) Intensive Distribution Intensive distribution is a form of distribution aimed at maximum market coverage The manufacturer tries to have the product available in every outlet where potential customers might want to buy it If buyers are unwilling to search for a product (as is true of convenience goods and operating Exhibit 13.5 Intensity of Distribution Levels Distribution Intensity Objective Intensive Achieve mass-market selling; popular with health and beauty aids and convenience goods that must be available everywhere Many Pepsi, Lay’s potato chips, Huggies diapers, Alpo dog food, Crayola crayons Selective Work closely with selected intermediaries who meet certain criteria; typically used for shopping goods and some specialty goods Several Donna Karan clothing, Hewlett-Packard printers, Burton snowboards, Aveda aromatherapy products Exclusive Work with a single intermediary for products that require special resources or positioning; typically used for specialty goods and major industrial equipment One BMW cars, Rolex watches 460 Examples PA R T D I S T R I B U T I O N D E C I S I O N S Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it © Cengage Learning 2013 Number of Intermediaries in Each Market Intensity Level CHAPTER supplies), the product must be very accessible to buyers A low-value product that is purchased frequently might require a lengthy channel For example, candy, chips, and other snack foods are found in almost every type of retail store imaginable These foods typically are sold to retailers in small quantities by food or candy wholesalers The Wrigley Company could not afford to sell its gum directly to every service station, drugstore, supermarket, and discount store The cost would be too high Sysco delivers food and related products to restaurants and other food service companies that prepare meals for customers dining out It is not economically feasible for restaurants to go to individual vendors for each product Therefore, Sysco serves as an intermediary by delivering all products necessary to fulfill restaurants’ needs.11 Most manufacturers pursuing an intensive distribution strategy sell to a large percentage of the wholesalers willing to stock their products Retailers’ willingness (or unwillingness) to handle items tends to control the manufacturer’s ability to achieve intensive distribution For example, a retailer already carrying ten brands of gum may show little enthusiasm for one more brand Intensive distribution is also susceptible to errors when intermediaries who are shipped products are expected to handle them in a pre-specified manner detailed in buyer-seller agreements For example, executives at 20th Century Fox were quite alarmed when a planned summer blockbuster, X-Men Origins: Wolverine, was released on the Internet a full month before its scheduled wide release As of now, 20th Century Fox is unclear on where the breakdown within the distribution channel occurred, and is reevaluating its buyer-supplier agreements.12 13 MARKETING CHANNELS © iStockphoto.com/Juan Facundo Mora Soria Find more at www.downloadslide.com Selective Distribution Selective distribution is achieved by screening dealers and retailers to eliminate all but a few in any single area Because only a few are chosen, the consumer must seek out the product For example, when Heelys, Inc launched Heelys, thick-soled sneakers with a wheel embedded in each heel, the company hired a group of 40 teens to perform exhibitions in targeted malls, skate parks, and college campuses across the country to create demand Then the company made the decision to avoid large stores such as Target and to distribute the shoes only through selected mall retailers and skate and surf shops in order to position the product as “cool and kind of irreverent.” Selective distribution strategies often hinge on a manufacturer’s desire to maintain a superior product image so as to be able to charge a premium price DKNY clothing, for instance, is sold only in select retail outlets, mainly full-price department stores Likewise, premium pet food brands such as Hill’s Pet Nutrition and Nestlé Purina’s Pro Plan are distributed chiefly through specialty pet food stores and veterinarians, rather than mass retailers like Walmart, so that a premium price can be charged Manufacturers sometimes expand selective distribution strategies, believing that doing so will enhance revenues without diminishing their product’s image For example, when Procter & Gamble purchased premium pet food brand Iams, it expanded the brand’s selective distribution strategy and began selling Iams food in mass retailer Target Even though the new strategy created channel conflict with breeders and veterinarians who had supported the product, sales increased.13 Similarly, Playboy Energy, a new energy drink manufactured and bottled by the media enterprise of the same name, uses selective distribution to position itself as a higher-end option versus more intensively distributed competitor Red Bull.14 The drink has been introduced in luxurious nightclubs and upscale bars only in Boston, Miami, Las Vegas, and Los Angeles in order to draw the attention of “elite” customers prior to its broader release in grocery and convenience stores in the future selective distribution A form of distribution achieved by screening dealers to eliminate all but a few in any single area CHAPTER 13 MARKETING CHANNELS Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 461 Find more at www.downloadslide.com exclusive distribution A form of distribution that establishes one or a few dealers within a given area Recently, a high-tech form of selective distribution has emerged whereby products are pushed through to the membership of exclusive virtual social networks Scion Speak was developed as a social network Internet portal where Toyota Scion owners could design and share their own unique graffiti-type artwork, which then could be airbrushed onto the body of their cars Members of the network, which is managed by the cool and quirky marketing firm called StrawberryFrog, have the exclusive rights to the car customization services, as well as to some available custom designs made by a professional artist contracted by the company This type of service is among the first to leverage the power of social network Web sites as a product distribution medium.15 Exclusive Distribution The most restrictive form of market coverage is Actress and recording artist Vanessa Hudgens appears in Candie’s spring 2011 multi-media marketing campaign Candie’s brand is sold exclusively at Kohl’s, and typically uses big stars to drive customers to Kohl’s stores 462 © AP Images/PRNewsFoto/Iconix Brand Group, Inc exclusive distribution, which entails only one or a few dealers within a given area Because buyers might have to search or travel extensively to buy the product, exclusive distribution is usually confined to consumer specialty goods, a few shopping goods, and major industrial equipment Products such as Rolls-Royce automobiles, Chris-Craft powerboats, and Pettibone tower cranes are distributed under exclusive arrangements Sometimes exclusive territories are granted by new companies (such as franchisors) to obtain market coverage in a particular area Limited distribution can also serve to project an exclusive image for the product Retailers and wholesalers might be unwilling to commit the time and money necessary to promote and service a product unless the manufacturer guarantees PA R T D I S T R I B U T I O N D E C I S I O N S Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 13 © Cengage Learning 2013 MARKETING CHANNELS them an exclusive territory This arrangement shields the dealer from direct competition and enables it to be the main Review Discuss the issues that beneficiary of the manufacturer’s promotion efforts in that influence channel strategy geographic area With exclusive distribution, channels of communication are usually well established because the manufacturer works with a limited number of dealers rather than Factors Distri Dis t but tri bution ion many accounts Exclusive distribution also takes place within a retailer’s Market Intensive store rather than a geographic area—for example, when a Product Selective retailer agrees not to sell a manufacturer’s competing brands Produ Pr oducer cer Exclusive Mossimo, traditionally an apparel wholesaler, developed an agreement with Target to design clothing and related items sold exclusively at Target stores Other exclusive distributors involved in this successful model include Thomas O’Brien domestics, Sonia Kashuk makeup, Isaac Mizrahi domestics and apparel, and Todd Oldham home furnishings for college students There may be times when a retailer or manufacturer will seek to change their distribution channel For example, the music industry had to change distribution channels from CDs and tapes to online music in order to keep up with the changing needs and increased technology sophistication of the customer The adaption of the music industry coincided with the introduction of the iPod from Apple, which, while offering music companies alternative distribution channels, brought a level of sophistication to audio products and placed pressure on the entertainment industry as a whole to think about different types of distribution.16 CHAPTER © iStockphoto.com/Juan Facundo Mora Soria Find more at www.downloadslide.com Types of Channel Relationships A marketing channel is more than a set of institutions linked by economic ties Social relationships play an important role in building unity among channel members A critical aspect of channel management, therefore, is managing the social relationships among channel members to achieve synergy Marketing managers should carefully consider the types of relationships they choose to foster between their company and other companies, and in doing so pay close attention to the benefits and hazards associated with each relationship type CHANNEL RELATIONSHIP TYPES Channel members must create and manage multiple relationships with other members in order to create an efficient environment for exchange Relationships among channel members range from “loose” to “tight,” taking the form of a continuum stretching from single transactions to complex interdependent relationships such as partnerships or alliances The choice of relationship type is important for channel management because each relationship type carries with it different levels of time, financial, and resource investment Three basic types of relationships, organized by degree of closeness, are commonly considered: arm’s-length, integrated relationships, and cooperative CHAPTER 13 MARKETING CHANNELS Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 463 Find more at www.downloadslide.com arm’s-length relationships A relationship between companies that is loose, characterized by low relational investment and trust, and usually taking the form of a series of discrete transactions with no/low expectation of future interaction or service integrated relationships A relationship between companies that is tightly connected, with linked processes across and between firm boundaries, and high levels of trust and interfirm commitment Arm’s-Length Relationships At one end of the relationship continuum are relationships considered by channel members to be temporary or one-time-only These relationships are often referred to as “arm’s-length” relationships due to the companies’ unwillingness or lack of ability to develop a closer type of relationship In arm’s-length relationships, both parties retain their independence and pursue only their own interests while attempting to benefit from the goods or services provided by the other This type of relationship is often used when a company has a sudden and/or unique need for a product or service and does not anticipate this need will arise again in the near future For example, what might happen if Chevrolet were suddenly faced with an unusual situation where Bridgestone, its usual tire producer for the Chevy Tahoe, were unable to provide shipment of tires in reasonable time for a planned production run? One solution might be to engage in a temporary arm’s-length relationship with an alternate provider, such as Michelin, that might be able to supply substitute tires on a temporary basis and thus save Chevrolet the costs associated with delaying the production run This sort of channel arrangement, however, involves a number of downsides Because Chevrolet needs the tires on short notice, Michelin might decide to charge a somewhat higher price than usual and, furthermore, because the order placed was a one-time-only order and contained a fixed number of units, it is unlikely that Chevrolet would be able to take advantage of discounts available for customers buying in large quantities In addition, because the relationship between Chevrolet and Michelin is new, there is no history or friendship to draw on in cases where disagreements or conflicts arise related to the terms of the agreement In closer relationships, channel members might easily resolve their differences through communication, future promises, or bargaining But in arm’s-length relationships it is sometimes necessary to resolve arm’s-length disputes through more formal and costly means such as arbitration or lawsuits For all of these reasons, companies often find it appealing to develop more concrete, long-term relationships with other channel members Another major weakness to arm’s-length relationships is opportunism Opportunistic behavior might occur within arm’s-length relationships because there is not a common goal or formal relationship between the two parties Another factor that might yield opportunism within a relationship is when one company is more dependent on the other Companies can also behave opportunistically when there is uncertainty within the relationship and the market To protect themselves, companies might behave opportunistically at the expense of the arm’s-length relationship partner For example a new supplier to Walmart would have to be concerned with opportunism on the part of the world’s largest retailer Walmart would hold considerable power within any established relationship and does not have historic ties with the new supplier to moderate how their actions might impact the relationship Therefore, for protection purposes, the new supplier could attempt to charge higher prices and/or find alternate retail channels to ensure their interests were protected Integrated Relationships At the opposite end of the relationship continuum from arm’s-length relationships is a situation where one company (vertical integration) or several companies acting as one (a supply chain, see Chapter 14) perform all channel functions These closely bonded types of relationships are collectively referred to as integrated relationships Integrated relationships are characterized by formal arrangements that explicitly define the relationships to the involved channel members For example, with vertical integration, all of the related channel members are collectively owned by a single legal entity (which could be one of the channel members or a third party), with ownership established through formal legal titles 464 PA R T D I S T R I B U T I O N D E C I S I O N S Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it cooperative relationships A relationship between companies that takes the form of informal partnership with moderate levels of trust and information sharing as needed to further each company’s goals 13 MARKETING CHANNELS and/or agreements This sort of relational arrangement has often been employed by McDonald’s Corporation, whose subsidiary companies have owned dairy and potato farms, and processing plants that grow and process components of the products served by the chain’s fast-food restaurants A supply chain, which is discussed in greater depth in Chapter 14, consists of several companies acting together in a highly organized and efficient manner, while employing the same or similar techniques as a single vertically integrated company More recently, Coca-Cola and PepsiCo have both announced and negotiated deals to take over their respective bottling company suppliers The desire of these two companies is to have more flexibility and control of their products and bottling plants in order to serve customers better.17 Based on these descriptions, it seems that integrated relationships would be the preferred relationship type in almost all company-to-company channel settings However, highly integrated relationships also come with some significant costs and/ or hazards For example, the single-owner model is somewhat risky because a large amount of capital assets must be purchased or leased (requiring a potentially huge initial cash outlay), and the failure of any portion of the business might result in not only the economic loss of that portion, but might also reduce the value of the other business units (or render them totally worthless) Because these trade-offs are sometimes hard to justify, companies often look for a sort of “happy medium” between arm’s-length and integrated relationships that enables them to maximize the advantages of both relationship types while limiting their potential risks CHAPTER COOPERATIVE RELATIONSHIPS Cooperative relationships, which exist between arm’slength and integrated relationships in terms of their connectedness, take many different forms Cooperative relationships include non-equity agreements such as franchising and licensing, as well as equity-based joint ventures and strategic alliances (See Chapter for a review.) In general, cooperative relationships are administered using some sort of formal contract This is in contrast to arm’s-length relationships, which are enforced through legal action (or the implied threat thereof), and integrated relationships that rely on informal social enforcement to secure the agreement based on trust, commitment, and loyalty Cooperative relationships thus tend to be more flexible than integrated relationships, but are also structured with greater detail and depth than arm’s-length relationships They tend to be used when a company wants less ambiguity in the channel relationship than the arm’s-length relationship can provide, but without the long-term and/or capital investment required to achieve full integration Review Discuss the different channel relationship types and their unique costs and benefits Arm’ m’s-L ’s eng engtth Relationship Cooperative Relationship Integrated Relationship © Cengage Learning 2013 © iStockphoto.com/Juan Facundo Mora Soria Find more at www.downloadslide.com Managing Channel Relationships In addition to considering the multiple different types of channel relationships and their costs and benefits, managers must also be aware of the social dimensions that are constantly affecting their relationships The basic social dimensions of channels are power, control, leadership, conflict, and partnering CHAPTER 13 MARKETING CHANNELS Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 465 Find more at www.downloadslide.com channel power The capacity of a particular marketing channel member to control or influence the behavior of other channel members channel control A situation that occurs when one marketing channel member intentionally affects another member’s behavior channel leader (channel captain) A member of a marketing channel that exercises authority and power over the activities of other channel members channel conflict A clash of goals and methods between distribution channel members CHANNEL POWER, CONTROL, AND LEADERSHIP Channel power is a channel member’s ability to control or influence the behavior of other channel members Channel control occurs when one channel member’s power affects another member’s behavior To achieve control, a channel member assumes channel leadership and exercises authority and power This member is termed the channel leader, or channel captain In one marketing channel, a manufacturer could be the leader because it controls new-product designs and product availability In another, a retailer could be the channel leader because it wields power and control over the retail price, inventory levels, and post-sale service The exercise of channel power is a routine element of many business activities in which the outcome is often greater control over a company’s brands For example, the Sheraton Hotel chain operates hundreds of hotels across North America and worldwide, most of which are owned by franchisees As with many franchises, it is in the best interest of the parent company to closely monitor and control operations to prevent the brand name from being devalued However, when the chain asked its franchisees to invest nearly $4 billion of their own money to make improvements (such as redesigned lobbies and bathrooms) to keep the brand name from weakening, many owners balked and a power struggle ensued Eventually, the parent company and ownership group came to an agreement detailing the hotel features Sheraton would control, such as lobby design, room layout, and even which coffee brand would be provided in the rooms, and which would be controlled by the owners (including the number of sheets provided on each bed).18 CHANNEL CONFLICT © Susan Van Etten Inequitable channel relationships often lead to channel conflict, which is a clash of goals and methods among the members of a distribution channel In a broad context, conflict might not be bad Often it arises because staid, traditional channel members refuse to keep pace with the times Removing an outdated intermediary can result in reduced costs for the entire channel The Internet has forced many intermediaries to offer services such as merchandise tracking and inventory availability online Conflicts among channel members can be due to many different situations and factors Oftentimes, conflict arises because channel members have conflicting goals For instance, athletic footwear retailers want to sell as many shoes as possible in order to maximize profits, regardless of whether the shoe is manufactured by Nike, Adidas, or Saucony, but the Nike manufacturer wants a certain sales volume and market share in each market Conflict can also arise when channel members fail to fulfill expectations of other channel members—for example, when a franchisee does not follow the rules set down by the franchisor, or when communications channels break down between channel members As another example, if a manufacturer shortens the period of warranty coverage and fails to inform dealers of this change, conflict can occur when dealers make repairs expecting they will be reimbursed by the manufacturer Further, ideological differences and different perceptions of reality can also cause conflict among channel members For instance, retailers might believe “the customer is always right” and offer a very liberal return policy Wholesalers and manufacturers might feel that people “try to get something for nothing” or don’t follow product 466 PA R T D I S T R I B U T I O N D E C I S I O N S Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 13 MARKETING CHANNELS instructions carefully Their differing views of allowable returns will undoubtedly conflict with those of retailers At other times, conflict arises because stakeholders for one or more organizations in the channel pressure their firm into behaving in ways that are best for their particular firm, but not for the channel as a whole A marketing channel is generally set up as a network of organizations that work together to deliver the product to customers When one member of the channel is pressured by its ownership group, customers, or employees to act in ways that channel partners see as too self-serving, then channel conflict is perhaps the inevitable result Conflict within a channel can be either horizontal or vertical Horizontal conflict occurs among channel members on the same level, such as two or more different wholesalers or two or more different retailers that handle the same manufacturer’s brands This type of channel conflict is found most often when manufacturers practice dual or multiple distribution strategies When Apple changed its distribution strategy and began opening its own stores, it angered Apple’s traditional retail partners, some of whom ultimately filed lawsuits against the company The primary allegation was that Apple stores were competing unfairly with them and that Apple favored its own stores when allocating desirable inventory (such as iPods) Horizontal conflict can also occur when some channel members feel that other members on the same level are being treated differently by the manufacturer For example, the American Booksellers Association, a group representing small independent booksellers, filed a lawsuit against bookstore giant Barnes & Noble claiming it had violated antitrust laws by using its buying power to demand “illegal and secret” discounts from publishers These deals, the association contended, put independent booksellers at a serious competitive disadvantage Many marketers and customers regard horizontal conflict as healthy competition Much more serious is vertical conflict, which occurs between different levels in a marketing channel, most typically between the manufacturer and wholesaler or the manufacturer and retailer Producer-versus-wholesaler conflict occurs when the producer chooses to bypass the wholesaler and deal directly with the consumer or retailer Dual distribution strategies can also cause vertical conflict in the channel For example, high-end fashion designers traditionally sold their products through luxury retailers such as Neiman Marcus and Saks Fifth Avenue Interested in increasing sales and gaining additional control over presentation, many designers such as Giorgio Armani, Donna Karan, and Louis Vuitton opened their own boutiques in the same shopping centers anchored by the luxury retailers As a result, the retailers lost substantial revenues on the designers’ items Similarly, manufacturers experimenting with selling to customers directly over the Internet create conflict with their traditional retailing intermediaries For example, by mid-2010, the iTunes Music store had sold about ten billion songs and 200 million videos since its introduction in 2003, most all of which once were sold as traditional cassette tapes, CDs, albums, or DVDs When television networks, record companies, and artists realized the power of this online model, they became concerned that it was eroding their traditional revenue format In fact, NBC Universal decided not to renew its contract with Apple for the 2007–2008 television year without changes in the structure of the contract to allow flexible pricing and packaging of shows in order to recoup losses they were experiencing because of this new distribution channel Apple refused and the 2007–2008 NBC seasons never appeared on iTunes.19 In another famous case, Hollywood Studios petitioned federal regulators to allow them to release first-run movies over special cable and satellite channels in order to reduce the negative effects of movie piracy Though the government has not yet ruled whether Hollywood’s strategy will be allowed, CHAPTER © iStockphoto.com/Juan Facundo Mora Soria Find more at www.downloadslide.com horizontal conflict A channel conflict that occurs among channel members on the same level vertical conflict A channel conflict that occurs between different levels in a marketing channel, most typically between the manufacturer and wholesaler or between the manufacturer and retailer CHAPTER 13 MARKETING CHANNELS Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 467 Find more at www.downloadslide.com procedural justice Perceptions of fairness within channel interactions based on equal/just treatment by others during business processes that seek to resolve disputes or allocate resources distributive justice Perceptions of fairness within channel interactions based on how resources are actually allocated among competing interests interactional justice Perceptions of fairness within channel interactions based on treatment in everyday interactions channel partnering (channel cooperation) The joint effort of all channel members to create a channel that serves customers and creates a competitive advantage the measure is being strongly opposed by DVD rental companies currently holding agreements with Hollywood, who would likely experience major sales losses if such first-run movies could be broadcast directly into homes rather than rented from their retail outlets.20 Producers and retailers might also disagree over the terms of the sale or other aspects of the business relationship When Procter & Gamble introduced “everyday low pricing” to its retail channel members, a strategy designed to standardize wholesale prices and eliminate most trade promotions, many retailers retaliated Some cut the variety of P&G sizes they carried or eliminated marginal brands Others moved P&G brands from prime shelf space to less visible shelves Fundamentally, channel members wish to be treated fairly when dealing with their trading partners during the quest to serve customers This fairness has come to be known as justice, and takes any of three different forms Procedural justice implies that each firm treats the others equitably according to predefined terms or processes; when two companies within the channel have an agreement, procedural justice reflects the extent to which each is willing to abide by both its written rules and intended spirit On the other hand, distributive justice reflects the extent to which outcomes and rewards shared by both parties are distributed fairly For example, if one company in the channel feels as though its partner is accruing an unfair share of credit, reputation, or profit as the result of a cooperative action, a “breach” in distributive justice might be perceived Companies in the channel are also concerned with interactional justice—the extent to which each treats the other in socially acceptable or desirable ways, such as showing up on time to meetings, providing clear and useful information, or boosting the other’s reputation when the occasion arises The three forms of justice serve as the basis for all ongoing channel relationships, and managers are wise to ensure that each is attended to in all interactions with customer or suppliers in the channel in order to avoid channel conflict In the event that one or more types of justice are breached within a channel relationship, companies may enact conflict response behaviors In some cases, especially where the degree and frequency of the justice breach are small or rare, the offended company might prefer to nothing at all, in effect giving the partner a “free pass.” However, as conflict increases in frequency or scope due to repeated justice breaches or violations of trust, greater measures must be taken These include the writing and enforcement of more formalized agreements that can be relied on in case of disputes, economic sanctions such as price increases or lessfavorable shipments, and in extreme cases, termination of the relationship CHANNEL PARTNERING Regardless of the locus of power, channel members rely heavily on one another Even the most powerful manufacturers depend on dealers to sell their products; even the most powerful retailers require the products provided by suppliers In sharp contrast to the adversarial relationships of the past between buyers and sellers, contemporary management thought emphasizes the development of close working partnerships among channel members Channel partnering, or channel cooperation, is the joint effort of all channel members to create a channel that serves customers and creates a competitive advantage Channel partnering is vital if each member is to gain something from other members By cooperating, retailers, wholesalers, manufacturers, and suppliers can speed up inventory replenishment, improve customer service, and reduce the total costs of the marketing channel Channel alliances and partnerships help managers create the parallel flow of materials and information required to leverage the channel’s intellectual material 468 PA R T D I S T R I B U T I O N D E C I S I O N S Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Find more at www.downloadslide.com CHAPTER © iS iiStockphoto.com/Juan Sto toc ttock ock cckkpph hhooottoo.c o.co ccoom m/Ju m/J m/ /Ju //J J an an FFacundo acun aacu ac cun ccu uunndo M Mora oraa So or ora Sori SSor Soria ori oor ria F or many years, and for various reasons, companies have found that many customers prefer to purchase goods manufactured in their home nations In the United States, market-based patriotism is certainly not new, and for many years, several large U.S retailers promoted themselves based on their “buy American” policy Often, consumers buy American goods because they like to believe that they are doing their part in stimulating the U.S economy In other situations, customers buy domestic goods and services for cost advantages stemming from savings on transportation; if nearly half of the sale price of a good or service is represented by the costs of moving it (or its components) from the location of manufacturing/ supply to the location of consumption, many customers can get a price break by shopping locally Regardless of the reason, recent customer data indicates that many customers prefer to buy domestic when such a choice is available and the quality is sufficient However, as markets have globalized, so have manufacturing processes that provide goods for sale In some cases, it is becoming difficult to determine where a good was actually made For example, for many years, Italian clothiers have been importing fabrics and accessories for use in shirts, pants, and jackets from Asian nations such as Malaysia and China, where labor is cheap and skillful textile technicians plentiful The pieces of the garment would then be cut and final assembly completed in Italy, complete with a “Made in Italy” label sewn into the garment liner This practice is obviously advantageous for cost reasons, but has begun to raise a question in international clothing markets: when a clothing item has 13 multiple national origins, where is it actually “made” for the purposes of marketing to customers? Customers want to know where their clothing comes from, and the location stated on the tag carries with it connotations of quality and value Is it ethical to state on a label that a garment manufactured 75 percent in Asia is an Italian item? Surprisingly, the answer provided by the Italian government in recent years is a resounding “NO.” Following a recent legislative debate, the Italian parliament has passed a law that requires clothing manufacturers and other businesses to prove that their products were manufactured entirely or primarily within Italy in order for the “Made in” label to be attached, and if any part of the work was carried out elsewhere, that fact must also be stated on the labeling This practice is thought to be among the first attempts worldwide to provide customer protection in the form of “truth in origin labeling,” and competitors in the Italian fashion industry who were paying the higher costs of local labor greeted the law with much enthusiasm Still, in most other parts of the world, multi-sourcing issues are not at all addressed with respect to labeling One U.S manufacturer in the automotive industry was recently found to have classified one of its products as “American Made” for marketing purposes, even though over 90 percent of the work done to create the product was completed in Asia and Mexico What you think? Do the United States and other nations need “truth in origin” labeling for products, given the globalizing nature of modern marketing channels? Or is this an established and well-accepted business practice that affects European consumers to a much greater degree than Americans? MARKETING CHANNELS © iStockphoto.com/Juan Facundo Mora Soria; © iStockphoto.com/Juan Facundo Mora Soria; Made in the U.S.A.? and marketing resources The rapid growth in channel partnering is due to new enabling technology and the need to lower costs A comparison between companies that approach the marketplace unilaterally and those that engage in channel cooperation and form partnerships is detailed in Exhibit 13.6 on the next page Collaborating channel partners meet the needs of customers more effectively by ensuring the right products are available at the right time and for a lower cost, thus boosting sales and profits Forced to become more efficient, many companies are turning formerly adversarial relationships into partnerships For example, Kraft is the largest coffee purchaser in the world Kraft partners with coffee bean growers to help build customer demand and develop “sustainable” coffee production (growing coffee in a way that reduces the impact on the environment, providing higher-quality ingredients for manufacturers to meet consumer needs, and increasing value for the farmer) CHAPTER 13 MARKETING CHANNELS Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 469 Find more at www.downloadslide.com Exhibit 13.6 Transaction-Based versus Partnership-Based Firms Intensity Level Transaction-Based Partnership-Based Relationships between Manufacturer and Supplier • Short-term • Long-term • Adversarial • Cooperative • Independent • Dependent • Price more important • Value-added services more important Number of Suppliers Many Few Level of Information Sharing Minimal High Investment Required Minimal High Source: David Frederick Ross, Competing Through Supply Chain Management: Creating Market-Winning Strategies Through Supply Chain Partnerships (New York: Chapman & Hall, 1998), p 61 Reprinted with kind permission from Springer Science and Business Media Channels and Distribution Decisions for Global Markets Review With the spread of free-trade agreements and treaties in recent decades, such as the European Union and the North American Free Trade Agreement (NAFTA), global marketing channels and management of the channels have become increasingly important to U.S companies that export their products or manufacture abroad Explain channel leadership, conflict, and partnering DEVELOPING GLOBAL MARKETING CHANNELS Channel partne par t ring Channel powe er, control, leadership Channe n l relationship synergy Horizontal 470 Vertical © Cengage Learning 2013 Channel conflict Executives should recognize the unique cultural, economic, institutional, and legal aspects of each market before trying to design marketing channels in foreign countries Manufacturers introducing products in global markets face a tough decision: what type of channel structure to use Specifically, should the product be marketed directly, mostly by company salespeople, or through independent foreign intermediaries, such as agents and distributors? Using company salespeople generally provides more control and is less risky than using foreign intermediaries However, setting up a sales force in a foreign country also entails a greater commitment, both financially and organizationally Marketers should be aware that channel structures and types abroad may differ from those in the United States For instance, the more highly developed a nation is economically, the more specialized its channel types Therefore, a marketer wishing to sell in Germany or Japan will have several channel types to choose from Conversely, developing countries such as India, Ethiopia, and Venezuela have PA R T D I S T R I B U T I O N D E C I S I O N S Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it CHAPTER 13 MARKETING CHANNELS Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 471 13 © AP Images/Lionel Cironneau MARKETING CHANNELS limited channel types available—there are typically few mail-order channels, vending machines, or specialized retailers and wholesalers—most channels employ traditional small merchant retailers Some countries also enact economic policies that directly or indirectly regulate channel choices For example, due to its market size, many companies have an interest in operating in India India does not explicitly limit foreign retailers from entering its market; however, there are heavy taxes levied on foreign retailers to protect India’s domestic businesses In order to address this issue, many companies such as Mercedes-Benz, Toyota, and General Motors have entered joint ventures with native Indian companies Through the establishment of these joint ventures, foreign companies were able to compete effectively in India’s available distribution channels.21 Developing effective marketing channels in emerging nations is complicated due to different retail format preferences and differences in the ways locals shop In many emerging nations, consumers shun large-scale formats popularized in the United States and Western Europe such as supercenter and other big-box retailers, in favor of tiny, independently owned street-side retailers that may be no larger than a closet These small retailers (known at Procter & Gamble as “high frequency shops”) provide small-size packages of goods that are intended to fulfill customer needs for only a day or two Procter & Gamble estimates that over 620,000 such stores exist in Mexico alone and that 80 percent of emerging nation citizens shop high-frequency stores multiple times per week New channel strategies are currently being developed by firms like P&G in order to maximize sales and penetration into high frequency shops, including reliance on local sales agents who are paid to ensure that popular products are placed as close as possible to the street and/or cash register By undertaking this strategy, firms are attempting to minimize the cultural “psychic distance” between the channel member and the consumer In other words, they are seeking to adapt to the foreign market environment by changing their United States–based business practices to meet the needs of a Mexican consumer By embracing the practices that exist in Mexico, the cultural psychic distance is reduced through providing a familiar experience to Mexican customers.22 Marketers must also be aware that many countries have “gray” marketing channels in which products are distributed through unauthorized channel intermediaries It is estimated that sales of counterfeit luxury items such as Prada handbags and Big Bertha golf clubs have reached almost $2 billion a year The fakes are harder to detect and hit the market almost instantly For instance, a fake Christian Dior saddlebag was available just weeks after the original arrived on retailers’ shelves Similarly, Chinese companies are producing so many knockoffs of Yamaha, Honda, and Suzuki motorcycles that the Japanese companies are seeing a drop in sales What’s more, many companies are getting so good at design piracy that they are beginning to launch their own new products The Internet has also proved to be a way for pirates to circumvent authorized distribution channels, especially in the case of popular prescription drugs In recent years, the U.S Customs Service has seized millions of dollars worth of prescription drugs, most of which were purchased from foreign Internet sites Some were seized because they had not been approved for use in The fashion industry works the United States, others because they did not comply with U.S labeling laws diligently to protect its Most sites offer just a handful of the most popular drugs, such as Viagra designers by running ads such Consumers can get the drugs after obtaining the approval of a doctor, affilias this one to deter people ated with the site, who never sees the patient from buying knock-offs in the In international contexts, channel governance is also somewhat differstreet ent from those found in the United States due to differing cultural dynamics CHAPTER © iStockphoto.com/Juan Facundo Mora Soria Find more at www.downloadslide.com Find more at www.downloadslide.com © Cengage Learning 2013 Review For example, in China, the concept of guanxi means that persons who are socially linked to others are able to “call in favors” whenever a deal is made This is similar to the notion of an “old boy” network in the United States, whereby members not in the social group are not granted favors at the same rate that group members are However, Guanxi represents a somewhat stronger force than in the similar U.S network In China, favoritism is an expectation that acts more like a social norm that cannot be violated (whereas in the United States, performance differences win out in many situations) Similar network traditions exist in Cuba, Italy, and Spain, among other places Such arrangements can upset the balance of channel power when a new or foreign company attempts to penetrate the market The existDiscuss channels and ing network can shun the new entrant, reduce its power by distribution decisions in banding together against it, or successfully lobby the governglobal markets ment to prevent entry altogether Due to these social arrangements, multinational companies have to exert more control Distribute directly or through foreig eign n partne p tners rs over their subsidiaries in some nations than in others Because Different f channel structures than in of political or social network-based favoritism in Brazil, Mcdomestic markets Donald’s exercises tight controls over how franchisees structure supplier deals and write contracts in order to avoid being Illegitimate “gray” marketing channels taken advantage of; in more egalitarian France, franchisees Legal and infrastructure differences f need less protection and therefore the corporation provides more leeway in dealing with channel partners Channels and Distribution Decisions for Services The fastest growing part of the U.S economy is the service sector Although distribution in the service sector is difficult to visualize, the same skills, techniques, and strategies used to manage inventory can also be used to manage service inventory— for instance, hospital beds, bank accounts, or airline seats The quality of the planning and execution of distribution can have a major impact on costs and customer satisfaction One thing that sets service distribution apart from traditional manufacturing distribution is that, in a service environment, production and consumption are simultaneous In manufacturing, a production setback can often be remedied by using safety stock or a faster mode of transportation Such substitution is not possible with a service The benefits of a service are also relatively intangible—meaning, a consumer normally can’t see the benefits of a service, such as a doctor’s physical exam, but normally can see the benefits provided by a product—for example, cold medicine relieving a stuffy nose Because service industries are so customer-oriented, customer service is a priority To manage customer relationships, many service providers, such as insurance carriers, physicians, hair salons, and financial services, use technology to schedule appointments, manage accounts, and disburse information Service distribution focuses on four main areas: a Minimizing wait times: Minimizing the amount of time customers wait in line to deposit a check, wait for their food at a restaurant, or wait in a doctor’s office for an appointment is a key factor in maintaining the quality of 472 PA R T D I S T R I B U T I O N D E C I S I O N S Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it Find more at www.downloadslide.com © iStockphoto.com/Juan Facundo Mora Soria © AP Images/PRNewsFoto/Vanguard Car Rental USA Inc Managing service capacity: For product manufac- 13 Car rental services such as Alamo have implemented self-checkout kiosks that allow customers to retrieve reservations and pay for their rental This eliminates wait time turers, inventory acts as a buffer, enabling them to provide the product during periods of peak demand without extraordinary efforts Service firms don’t have this luxury If they don’t have the capacity to meet demand, they must either turn down some prospective customers, let service levels slip, or expand capacity For instance, at tax time a tax preparation firm might have so many customers desiring its services that it has to either turn business away or add temporary offices or preparers Popular restaurants risk losing business when seating is unavailable or the wait is too long To manage their capacity, travel Web sites allow users to find last-minute deals to fill up empty airline seats and hotel rooms a Improving service delivery: Like manufacturers, service firms are now experi- menting with different distribution channels for their services Choosing the right distribution channel can increase the times that services are available (such as using the Internet to disseminate information and services 24-7) or add to customer convenience (such as pizza delivery, walk-in medical clinics, or a dry cleaner located in a supermarket) The airline industry has found that using the Internet for ticket sales both reduces distribution costs and raises the level of customer service by making it easier for customers to plan their own travel Cruise lines, on the other hand, have found that travel agents add value by helping customers sort through the abundance of information and complicated options available when booking a cruise In the real estate industry, realtors are placing kiosks in local malls that enable consumers to directly access listings a Establishing channel-wide network coherence: Because services are to some degree intangible, service firms also find it necessary to standardize their service offering quality across different geographic regions in order to maintain brand image Regardless of where a service is consumed, customers have expectations that must be met in order for the brand to flourish Having network coherence means that suppliers, service processes, and customer service have quality standards that are maintained regardless of CHAPTER 13 MARKETING CHANNELS Copyright 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s) Editorial review has deemed that any suppressed content does not materially affect the overall learning experience Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it 473 MARKETING CHANNELS a CHAPTER service People tend to overestimate the amount of time they spend waiting in line, researchers report, and unexplained waiting seems longer than explained waits To reduce anxiety among waiting customers, some restaurants give patrons pagers that allow them to roam around or go to the bar Banks sometimes install electronic boards displaying stock quotes or sports scores Car rental companies reward repeat customers by eliminating their waits altogether Airports have designed comfortable sitting areas with televisions and children’s play areas for those waiting to board planes Some service companies are using sophisticated technology to further ease their customers’ waiting time For example, many hotels and airlines are using electronic check-in kiosks Travelers can insert their credit cards to check in upon arrival, receive their room key, get directions, print maps to area restaurants and attractions, and print out their hotel bills ... University Hair also held the Phil B Hardin Chair of Marketing at the University of Mississippi He has taught graduate and undergraduate marketing, sales management, and marketing research courses Hair. .. Civil Society Why Study Marketing? 16 Marketing Plays an Important Role in Society 16 Marketing Is Important to Business 16 Marketing Offers Outstanding Career Opportunities Marketing Affects Your... recognize how much marketing principles play a role in your day-to-day lives With coverage of current marketing practices and exciting new features Lamb, Hair, and McDaniel’s Marketing will have