CHAPTER 11

MARKETING CHANNELS

General Teaching Tips for this Chapter

The third P of marketing stands for place which, in marketing terms, means distribution. Not only
distribution of physical products via wholesalers and retailers (which is covered in chapter 12), but
also distribution in the sense of location of retail outlets. Ever notice how Outback restaurants are
only in the suburbs, while Boston Pizza restaurants can be found in more central city locations?
These are strategic place decisions made by marketers. The terms “marketing channels,” “channels
of distribution,” or simply “distribution,” can be used more or less interchangeably, but students
should come to understand, by the end of this chapter, that marketing channels have both a back end
(from the supplier to the marketer/manufacturer) and a front end (from the marketer/manufacturer
or point of origin of the finished product, through to the hands of the final customer).
A good way to introduce the subject is to ask students what a channel is. They might say the
English Channel or other body of water; and should also mention TV channels. Both these types of
channels are analogous to marketing channels—they are paths through which something flows.
 20 MIN explaining the nature of marketing channels and channel partners, and how
they can add value.
 20 MIN on channel strategy: direct, indirect or hybrid; intensive, selective, or
exclusive; and channel design.
 20 MIN discussing physical distribution: supply chains and logistics.
More teaching tips follow below, in conjunction with each content section of this chapter.

Ideas for Activities and Assignments based on Opening Story (Netflix)

This opening vignette illustrates how Netflix innovated to win in video streaming, and its
channel strategy to continue domination. In 2013, Netflix’s CEO stated the company’s goal
“is to become HBO faster than HBO can become us.”
Group discussion: While it’s a company almost all students will be familiar with, they might
not see the relevance of “place” for a digital company that distributes via the Internet, so
comparing Netflix’s original DVD-by-mail product and their streaming product might be helpful.
Netflix did not ship discs in Canada (it began Canadian streaming services in 2010), but
students might be familiar with Zip.ca, a successful Canadian DVD rental company based in
Ottawa. Zip.ca operated from 2004-2014 and had 47,000 subscribers at its peak. It had
partnership with Canada Post, and, as of 2010, Redbox-style kiosks. Even if students aren’t
familiar with Zip, you might ask them why they think Netflix never shipped physical DVDs in
Canada, and why Zip.ca didn’t make the leap to streaming, despite an attempt and partnership
with Samsung in 2011. From there, look at what else has changed in Netflix’s video
distribution strategy.

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In-class group/participation activity: Have each small group write a one paragraph description
of the Netflix brand, especially its brand personality. Then have each group read their description
aloud to the class. You should notice that their descriptions are very similar. What does this say
about the brand? (Just ask the question, and solicit students’ opinions.)

Ideas for Activities and Assignments based on M@W 11.1 (WestJet)

This story illustrates another complicated distribution scenario, this time in terms of delivering a
service. As the case states, “you may not think of a service like air travel as having distribution
channels—there’s no physical product to move. But airlines do have channel partners: aircraft
manufacturers, airports, and of course suppliers of everything from jet fuel to onboard food and
beverages, all of which help WestJet deliver its product to the market.” (The running case in the
fifth edition of this textbook was WestJet; you find some of the materials from the previous
edition useful.)
In-class group/participation activity: Working in small groups, write a brief answer to each of
the following questions and submit your work for participation points. Note: answers will require
research in addition to reading the WestJet case in the textbook.
1. What is WestJet’s product?
2. How is WestJet different from Air Canada? What are their respective mission
statements?
3. Who are WestJet’s partners?
4. Why can’t WestJet deliver their product without partners?
5. Where in the distribution channel might WestJet have to manage conflict? How might
they do it?

Ideas for Activities and Assignments based on M@W 11.2

(Greening the Supply Chain)
The point of this story is to illustrate how logistics affects the environment and a firm’s
environmental sustainability efforts, as well as their bottom line.
In-class group/participation activity: Working in small groups, write a brief answer to each
of the following questions. Present your work to the class Note: answers will require online
research.
1. Who are the members of the Sustainable Apparel Coalition? Are there any you’re
surprised to see on the list?
2. What is a “closed-loop manufacturing” or “closed-loop production”?
3. What is the “triple bottom line”?
4. Think of a brands do you feel is environmentally friendly and research their supply chain:
do their actions match their brand’s positioning? Do you think customers care (draw on
your knowledge from chapter 3)?

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LO1: Explain what channels are, and why marketers need channel partners.

Marketing and Distribution Channels

Students will probably not have previously considered the complicated nature of getting products
to consumers before, and the concepts of “supply chain” and “value delivery network” will most
likely be foreign. Figure 11.1 is excellent in showing how complex delivery networks could
become without intermediaries, and an early focus should be placed on this figure.
What is a Channel? A marketing channel or distribution channel is the general term for the
specific set of interdependent organizations that play a role in making a product or service
available for use or consumption by the consumer or business customer. Channel partners
actually move physical products through the channel, but that is not the only role they perform
(details about various roles are described in this section).
Enterprise story (p. 392): The point of the Enterprise story is to illustrate how a retailer’s
choice of location is a strategic one. Enterprise rental offices are located in residential
neighbourhoods, unlike their competitors, who only locate in or near airports.
How Channel Partners Add Value: Refer again to Figure 11.1 and discuss until students grasp
the general principle of direct contact vs. an exponential network of contacts. Ask them if they
can think of a specific example from their own experience (from a job they may have had, or
perhaps knowledge of where their parents work) of an intermediary, or a distribution system.
Next, refer to the list of functions channel partners perform (pp. 394-395) and ask students if
they can name a specific example of each. This will help them understand the concepts in a
concrete, rather than an abstract, way.
Caterpillar story (p. 395): The reason this example is so popular in textbooks is because
everyone knows what Caterpillar’s products look like, and how large they are. Discussing how
these very large products move from the place where they are manufactured to the place where
they are needed really reinforces the importance of intermediaries. An interesting question to ask
students is, “If Caterpillar didn’t have dealers all over the country, how else might they deliver
their products to their customers?”

LO2: List and describe the major types of channel partners.

Types of Channel Partners: See pp. 395-397.
Retailers: Important that students understand that retailers primarily sell to consumers, but that
businesses also buy supplies at retailers like Staples. Also remind them that “for personal use”
doesn’t mean you’re only a consumer if you, personally, use the item you buy. Buying
something as a gift or for your child is also “personal use.”
Wholesalers: It’s sometimes hard for students to understand what wholesalers do, because as
consumers we don’t “see” what they do. Discuss the example of Grainger and ask students to
think of other examples of products that businesses would buy from wholesalers.
Drop Shippers: Basically any kind of mail order is, in channel terminology, “drop shipped.”

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Rack Jobbers: Students have probably seen examples of rack displays in grocery stores or drug
stores. Ask them to think of a recent one.
Brokers: Think of insurance or stock brokers. They never take possession of the goods, they
only negotiate the transfer.
Agents: An agent is really a service provider. Discuss advertising agencies as a prelude to
chapter 13.

LO2: Assignments and Activities

In-class small group assignment: Have students read the Sun Life/Martin agency story on p.
402, then have them research the Martin agency. Who are their current clients? What other
services, besides producing ads, do advertising agencies perform?
Individual written assignment: Sketch a diagram similar to figure 11.1 that shows as many
possible channels for the Apple iPhone as you can think of. Use specific names of retailers and
other channel partners where possible. Use the Internet to research information.
In-class game show activity: Use to drill students on the terms retailer, wholesaler, drop
shipper, rack jobber, broker, and agent. If students simply memorize the definitions they’ll
remember them for the exam but they won’t really learn them. You can reward each correct
answer with participation points. To make it truly fun for the students, use sound clips like a
buzzer, or the music/sound effects from Jeopardy! where appropriate. Prepare a set of questions
ahead of time, or have each group of students prepare a set of questions and drill each other. The
answer to each question must be one of the six types of channel partners defined in this section.
To make it interesting, you can mix it up; either read the questions, or show pictures (of things
like a rack display at a Shoppers Drug Mart) on slides. Depending on the size of the class you
might want to divide them in half and make it a two-team competition. If you can prepare at least
20 questions, this activity will certainly make them remember these terms!

LO3: Describe the process of organizing and managing channels, and

explain how channel conflict can occur.

Direct versus Indirect Channels

A direct channel is one that has no intermediary; where the manufacturer sells directly to the
final customer. It’s difficult to even think of an example of this nowadays, other than small
businesses and cottage industries. Challenge students to think of an example of a marketer that
uses a direct channel. (Note: this is not the same thing as a direct marketer.) They will most
likely name something that isn’t really a direct channel, so no matter what they say, ask the rest
of the class, do you agree? Make them do the thinking, critiquing, and proving.

Vertical Marketing Systems

In general vertical marketing refers to a strategy whereby the producer of a product owns or
directly controls some or all of its channel partners. There are three kinds of VMSs: A corporate
VMS is a large organization, such as George Weston Limited, that owns many food producers

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and hundreds of food retailers; and Zara, which owns almost every stage of its distribution. An
administered VMS is a less formal organization where one large company can wield influence
simply due to its size and power—such as General Electric. Finally, a contractual VMS is
another name for a franchise operation.
There are three types of franchises: the manufacturer-sponsored retailer franchise system
(like Ford and its network of dealers); the manufacturer-sponsored wholesaler franchise
system (like Coca-Cola and its bottlers); and the service-firm sponsored franchise system
(like Boston Pizza).

Horizontal Marketing Systems

A horizontal marketing system is a system or organization of many companies, all of which
operate at the same level in the channel, such as the Star Alliance group of airlines that share
customers and share frequent flyer points.

Multichannel (Hybrid) Distribution Systems

Just what it sounds like, the manufacturer or producer uses a combination of direct channels and
indirect channels to reach its final customers (usually customers in different market segments) in
a number of different ways.

Managing and Motivating Channel Members

The company must sell not only through the intermediaries but also to and with them. Most
companies practice strong partner relationship management (PRM) to forge long-term
partnerships with channel members.

Channel Conflict
Every product marketer that distributes consumer products through a number of different
retailers, and/or through a number of different retailers and online, has to be careful to control
and minimize channel conflict. Discuss the Blackberry/Rogers/Bell/TELUS example on p. 403.
Ask students if they can think of similar examples.

Evaluating Channel Members

When selecting intermediaries, the company should determine what characteristics distinguish
the better ones. The company should recognize and reward intermediaries who are performing
well and adding good value for consumers. Those who are performing poorly should be assisted
or replaced. Companies need to be sensitive to their channel partners.

Disintermediation
This is something of a buzzword that was very popular during the early days of Internet
commerce, but is rarely heard anymore. Usually, it’s not so much that the intermediary ceased
to exist, but that they were replaced by a different kind of intermediary. Travelocity replaced
storefront travel agencies, and Netflix replaced Blockbuster. They perform the same functions,
just online instead of in a storefront. Ask students if they think this is really disintermediation.
If they think it’s not, ask them if they can think of a better example.

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LO3: Assignments and Activities

Quiz or game show activity questions and answers: This is hardest if you make each student
who volunteers to answer give ALL the answers, not just one part. It’s also more difficult if you
mix up the order of the questions:
1. List the five major types of channel organization.
Answer: Direct channel, indirect channel, vertical marketing system, horizontal
marketing system, and multichannel or hybrid marketing system.
2. List the three different types of vertical marketing systems, and give an example
of each. Answer: corporate VMS (e.g.: Zara and Luxottica), administered VMS
(e.g.: General Electric, P&G, Kraft); contractual VMS (e.g.: any franchise such as
a fast food chain).
3. A franchise is an example of which type of VMS?
Answer: contractual.
4. Name the three types of franchises.
Answer: manufacturer-sponsored retailer, manufacturer-sponsored wholesaler, and
service-firm sponsored.
5. Give an example of a manufacturer-sponsored wholesale franchise.
Answer: Any car company that sells through dealers. The dealer’s storefront is a
franchise.
6. What are two common problems that can arise in managing channels?
Answer:: channel conflict and disintermediation.
7. Fashion retailer Zara is an example of (a) a franchise; (b) a vertical marketer;
(c) a corporate VMS or (d) a retailer?
Answer: All except (a).
8. The fact that electronics brands are distributed through a number of different and
competing retailers can result in what type of channel management problem?
Answer: Channel conflict.
9. Online-only companies like Hotels.com and Travelocity have put the old fashioned
storefront travel agency out of business. This is an example of what type of channel
management problem?
Answer: Disintermediation.
10. What type of channel partners are Hotels.com and Travelocity?
Answer: agents or brokers.
11. List the three types of distribution strategies, and briefly describe each.
Answer: intensive distribution means the product is distributed in as many places as
possible; selective distribution means the product is available in only a few, carefully
selected locations in each region; exclusive distribution means only one retailer is
allowed to carry a brand.
In-class small group participation activity: Debate whether or not the Internet will result in
disintermediation of the following types of retail stores: (1) video rental stores, (2) music stores,
(3) grocery stores, (4) book stores, and (3) clothing stores. This can also be done as a full class
discussion. It should be an interesting debate. Many students probably already obtain most of
their music online—either legally or illegally. Video downloading still takes a long time but the
next generation of televisions will stream video from the Internet. Most likely, students will

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agree that the Internet, although a viable source for clothing purchases, will not replace
traditional retail clothing stores because most consumers want to touch and try clothing
on before purchasing it. Clothing is not standardized like the other digital products.

LO4: Explain the strategy behind intensive, selective, and exclusive

distribution

Three types of Distribution Strategies

It’s important to make the point here that whenever we, as consumers, see a particular product
available for sale to us at a particular location, that it didn’t get there by accident. Marketers
choose their retail partners carefully and strategically. Intensive distribution is the convenience
store strategy, used for convenience products like soft drinks and toilet paper. The idea is to be
everywhere, because consumers won’t search and compare for inexpensive convenience items.
Selective distribution, on the other hand, means only a few, carefully selected, retailers or
outlets are chosen to carry the product. And exclusive distribution is to purposely limit the
number of intermediaries handling the product. The producer gives only a limited number of
dealers the exclusive right to distribute its products in their territories.

LO5: List and describe the major channel design decisions marketers
must make.

Analyzing Consumer Needs

As noted previously, marketing channels are part of the overall customer-value delivery network.
The company must balance consumer needs not only against the feasibility and costs of meeting
these needs but also against customer price preferences.

Setting Channel Objectives

Companies should state their marketing channel objectives in terms of targeted levels of
customer service. The company should decide which segments to serve and the best channels
to use in each case. The company’s channel objectives are influenced by the nature of the
company, its products, its marketing intermediaries, its competitors, and the environment.
Environmental factors such as economic conditions and legal constraints may affect channel
objectives and design.
Types and Responsibilities of Channel Members
A firm should identify the types, number, and responsibilities of channel members available
to carry out its channel work. The producer and intermediaries need to agree on the terms
and responsibilities of each channel member. They should agree on price policies, conditions
of sale, territorial rights, and specific services to be performed by each party.
Using economic criteria, a company compares the likely sales, costs, and profitability of
different channel alternatives. Using control issues means giving them some control over the
marketing of the product, and some intermediaries take more control than others. Using adaptive
criteria means the company wants to keep the channel flexible so that it can adapt to
environmental changes.

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International Distribution Channels

In some markets, the distribution system is complex and hard to penetrate, consisting of many
layers and large numbers of intermediaries. At the other extreme, distribution systems in
developing countries may be scattered, inefficient, or altogether lacking. Sometimes local
customs can greatly restrict how a company distributes products in global markets.

LO6: Explain the role of supply chain management and logistics

management, and why companies often choose third parties to handle
these tasks.

Supply Chain Management and Logistics

Supply chain management refers to the “upstream” movement of goods that supply the
manufacturer or marketer with what they need to operate their facility. Every business, of course,
need supplies but for large operations, such as a car manufacturing plant, managing the supply
chain means managing the process by which the car parts get to the facility. It’s a very complex
task, and is really only peripherally related to marketing.
Logistics management is a similar task, but it can refer to more than just managing the logistics
of the supply chain. Think of a trucking company, for example, whose entire business is just to
move things around—that’s the true meaning of logistics.
Just-in-time is an adjective phrase that can be applied to manufacturing, purchasing, and
logistics. It means managing things so that the parts or supplies you need arrive just in time
to be used in the manufacturing process.

The nature and Importance of Logistics Management in the Marketing System

Marketing logistics—also called physical distribution—involves planning, implementing,
and controlling the physical flow of goods, services, and related information from points of
origin to points of consumption to meet customer requirements at a profit.

Marketing logistics involves outbound distribution (moving products from the factory to
resellers and ultimately to customers), inbound distribution (moving products and materials
from suppliers to the factory) and reverse distribution (moving broken, unwanted, or excess
products returned by consumers or resellers).

Environmental Impact of Logistics

Logistics affects the environment and a firm’s environmental sustainability efforts (the
development of a green supply chain). Students are usually interested in environmental issues, so
a discussion about the environmental effects of logistics—that is, a consideration of the pollution
and waste generated by the constant movement of trucks, planes, and ships—will likely spark
their interest in the subject.
Goals of the Logistics System
The goal of marketing logistics should be to provide a targeted level of customer service at the
least cost.

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Warehousing and Distribution Centres

A warehouse is a large building where items are stored. Warehouses may (or may not) also
function as a distribution centre, which is also a large building where items are stored. The
difference is, in a distribution centre nothing is stored for very long; it’s just a point for
shipments to come in, then be re-distributed (say, to local retailers) and go out.

Inventory Management
Today’s logistics managers are highly specialized professionals, some with a master’s degree in
the subject. Because logistics management is so complex a task, it is critical to always employ
the latest in technology, because efficiency is everything. Slow movement of goods always costs
the company money. So do missing or re-directed goods, lost goods, and goods that spend too
much time sitting in one place (i.e. not moving toward their destination).
RFID tags are something students may be familiar with. Ask them if they’ve ever purchased or
used anything that had such a tag, or perhaps worked with them in a job.
Transportation
 Trucks have increased their share of transportation steadily and now account for 40% of
total cargo ton-miles. 80% of American communities depend solely on trucks for their
goods and commodities. Trucks are highly flexible in their routing and time schedules,
and they can usually offer faster service than railroads. They are efficient for short hauls
of high-value merchandise.
 Railroads account for 40% of total cargo ton-miles moved. They are one of the most
cost-effective modes for shipping large amounts of bulk products—coal, sand, minerals,
and farm and forest products—over long distances.
 Water carriers account for less than 5% of cargo ton-miles and transport large amounts
of goods by ships and barges on U.S. coastal and inland waterways. Although the cost of
water transportation is very low for shipping bulky, low-value, nonperishable products, it
is the slowest mode and may be affected by the weather.
 Pipelines account for less than 1% of cargo ton-miles and are a specialized means of
shipping petroleum, natural gas, and chemicals from sources to markets.
 Air carriers transport less than 1 percent of the nation’s goods. Airfreight rates are much
higher than rail or truck rates.
 The Internet carries digital products from producer to customer via satellite, cable, or
phone wire.

Multimodal transportation: Combining two or more modes of transportation.

 Piggyback: Rail and trucks;
 Fishyback: Water and trucks;
 Trainship: Water and rail;
 Airtruck: Air and trucks.

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Third-Party Logistics
As mentioned, logistics management is a very complex job done by highly specialized
professionals called logistics managers. Sometimes these managers work for the company
that manufactures/markets/retails the goods, but other times they may work for a third party
company. These third party logistics managers work for a logistics company, and act as a
service provider to the marketer.

LO5: Assignments and Activities

In-class small group assignment: Research the organization Seas at Risk and write a brief
report about what they do, and how it affects logistics management. (Note to instructor: Collect
and grade as pass/fail for participation points. If they made any effort at all, they learned
something, and that should count as a pass.)
Video example and discussion: Find online the IBM RFID TV commercial/video called “The
Future Market.” Start by asking students to explain the story shown in the video. Next, ask them
to state the message of the ad (Advertising messages should be stated in one meaningful sentence,
using the name of the product as the subject.) What impact will RFID tags have on each of the
major logistical functions? What are the biggest current obstacles to adopting this technology?
Some answers to look for: RFID tags impact the channel of distribution in many ways:
Warehousing – Products could be more easily identified when coming into the warehouse and their
location within the warehouse could be easily ascertained; Inventory – RFID could help reduce
stockouts, theft, error, and vendor fraud; Transportation – Better tracking from ocean liner, rail,
and trucking will help ensure on-time delivery; Information management – Supply chain members
could easily share data and locate freight within minutes. Probably the biggest obstacle to adopting
this technology is price. The price is still high—for the chips, the hardware, and the software. In
addition, some companies are not ready for the level of data that will be produced and the start-up
costs of hiring and training IT professionals and logistic managers. Another obstacle is privacy
concerns, with some likening the use of this technology to George Orwell’s 1984.

Farmers Edge Comprehensive Case

1. What are some of the pricing constraints facing Farmers Edge?

Answer: No matter how you attempt to define price, it will always be a reflection of
value in the mind of the consumer. Logic would dictate that the higher the value, the
more willing consumers are to purchase, providing, at least that it is proportionally
consistent with price.

2. The value equation is a ration between benefits and price per product. Without
knowing Farmers Edge pricing strategies, what are some of the benefits you can
name?
Answer: Answers will vary somewhat but a couple could be: The service is customized,
the salespeople make the customers feel like they are their number one priority.

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3. What would price discounts to Farmers Edge products do to their customers’

perception of value?

Answer: Based on the case the implication would be that it would negatively impact the
valuation of the service, potentially reducing sales.

Discussion Questions
These questions can be used as the basis for in-class discussions, or can be turned into formal
individual written assignments, group projects, or in-class group activities (research, then present
findings). However you choose to use these questions, make sure to do at least a cursory check
first to make sure that the products, brands, and websites mentioned in the questions still exist.
Also, note that each question is designed to force the students to investigate and research a real
marketing situation, and to either make a decision about what they would do in that situation, or
to analyze why a given decision was made. Their answers will vary, but for every answer they
give, follow up by making them give reasons for their decisions and opinions.
1. Describe the marketing channel, and all the intermediaries, that would be involved
in moving apples produced in British Columbia’s Okanagan Valley to a grocery
store in Kingston, Ontario, and for moving T-shirts manufactured in Montreal,
Quebec, to an independent clothing retailer in Saskatoon, Saskatchewan.
Answer: The students won’t know the names of trucking companies or other specific
intermediaries; look for more general answers like for the apples: Workers pick the
apples; apples are loaded onto trucks; probably taken to some sort of processing facility;
must be sorted and packed into crates or something, then perhaps onto flats, then onto
trucks; then either shipped by truck to Kingston, or perhaps taken by trucks to the train
station and shipped by train to Kingston. Once in Kingston they would have to be
unloaded from the train and back onto a truck; then perhaps to a distribution centre (for
one of the major grocery chains), from which managers of individual stores can order
them. Smaller trucks would move the apples from the distribution centre to the store. OR
have students draw a sketch to show the movement (this is probably easier to figure out).
2. Which distribution strategy—intensive, selective, or exclusive—is used for the
following products and why? (a) Piaget watches, (b) Acura automobiles, and (c)
Snickers chocolate bars.
Answer: Piaget watches: Selective, because it is an upscale brand and would only be
made available to upscale retailers; Acura: exclusive, because all car manufacturers only
allow their authorized dealers to sell their brands; and Snickers: intensive, because
chocolate bars are a convenience item.
3. Why do you think a company would choose to use an intermediary to distribute its
products rather than handling the distribution itself? What are the benefits and
risks of using a channel partner for this function?

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Answer: The students should refer to Figure 11.1 in their answer—the

networking/exponential reach factor. If they don’t seem to really understand that, ask
them to imagine going grocery shopping and instead of having a grocery retailer, having
to go to a butcher, a farmer, and each producer of any packaged good product you wanted
to buy.
4. Coca-Cola markets an astonishing 2800 different beverages. Not all these beverages
are available for sale in all areas, and certainly there is no retailer that offers all
2800. What marketing decisions does the retailer need to make when deciding which
of those 2800 to stock on its shelves? How can the distributor (the bottler) help the
retailer with this decision?
Answer: Some things the student might mention are, the retailer should consider the
ethnic makeup of its area; if it’s a national chain it needs to consider brand image;
language/product name; and of course what is available to that retailer. The distributor
will certainly narrow down the choices; not every distributor would have access to all
2800 products.

Critical Thinking Exercises

1. What is disintermediation? Think of an example (other than those given

in the chapter) of a company that has been disintermediated and one that has
disintermediated another type of company. Do you think that bricks-and-mortar
retailers will ever be completely disintermediated?
Answer: The definition is given in the text; what you’re looking for here is that they
understand what they’re saying. Whatever example they give, challenge first that student
to explain his or her answer, then challenge the rest of the class with either agreeing or
disagreeing. The concept of disintermediation is not black vs. white; there are even some
people who say there is no such thing, really, as disintermediation.
2. The most common type of contractual vertical marketing system is the franchise
organization. Visit the International Franchise Association at www.franchise.org/
and find a franchise that interests you. Write a report describing the franchise.
Identify what type of franchise it represents and research the market opportunities
for that product or service in Canada. (AACSB: Written and oral communication;
Information technology; Reflective thinking)

Answer: Students’ responses will vary. The three types of franchises are manufacturer-
sponsored retailer franchise systems, manufacturer-sponsored wholesaler franchise
systems, and service-firm-sponsored retailer franchise systems. Most of the franchises
selected by students will likely be the latter. There is considerable information from the
suggested Web site, and students should be able to obtain market information for their
selected franchise opportunity from several sources on the Internet

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3. In a small group, research the distribution challenges faced by a company that has
expanded into emerging international markets such as China, Africa, or India.
Develop a multimedia presentation on how one company overcame these challenges.
(AACSB: Written and oral communication; Reflective thinking; Information technology)

Answer: While emerging markets such as India and China have populations exceeding a
billion people, much of the population in such countries is logistically challenging to
reach. Several examples of how companies are overcoming the distribution challenges in
emerging markets are given below. Most of these initiatives involve small,
entrepreneurial efforts to get products in difficult to access rural areas.
 Coca-Cola’s Right Execution Daily (RED) strategy in India:
www.thehindubusinessline.com/todays-paper/how-cokes-growth-got-a-red-
boost/article983678.ece
 Coca-Cola’s Micro-Distribution Center (MDC) in Africa:
www.businesscalltoaction.org/wp-
content/files_mf/1286826974CocaColaCaseStudyFORWeb.pdf
 Unilever’s Shakti model in India: www.hul.co.in/sustainable-
living/casestudies/Casecategory/Project-Shakti.aspx

4. List all the services you can think of that can be delivered from the producer to the
customer via the Internet (that is, with no physical distribution required). Can you
think of any other levels of the marketing channel that could be conducted online or
electronically, rather than physically?
Answer: Software purchases, banking services, some college/university courses…
students will be able to think of more. The second part of the question is more
challenging, and works best as a group discussion.

Online, Mobile, and Social Media Marketing

1. What types of channel conflict are present in this channel of distribution? Explain.
(AACSB: Written and oral communication; Reflective thinking)

Answer: There are two types of channel conflict: horizontal and vertical. Horizontal
conflict occurs among firms at the same level of the channel. Since Comcast has entered
into the video streaming business, this could be considered horizontal conflict because
Comcast is now at the same level as other online video providers such as Netflix and
Hulu. Vertical conflict is conflict between different levels of the same channel. Because
Comcast is also the Internet service provider and is slowing or blocking the distribution
of Netflix’s product to consumers, vertical conflict is also present.

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212 Instructor’s Resource Manual for Marketing: An Introduction, Updated Sixth Canadian Edition

2. What do you think will happen in the next few years that will change the way video
is distributed? Some experts are predicting that cable and satellite television will
become obsolete. Do you think that will happen?

Answer: As most students probably don’t have cable or satellite television (unless they
live at home with their parents, who pay for it), most will likely concur with the experts.
Challenge them to consider who will create the products that cable and satellite
companies have in the past, and who will actually deliver the product (since most people
stream Netflix through a cable company that is also their internet service provider.)

Think Like a Marketing Manager

This is arguably an example of disintermediation. Pepsi cut bottlers out of the distribution channel
for Gatorade, so Coca-Cola followed suit by cutting their bottlers out of the distribution channel
for Powerade.
1. Not all retailers have warehouses. Convenience stores and smaller independent
grocery stores don’t have them. Assuming that the Coca-Cola bottlers deliver to
these stores as well as Walmart, why were they so upset about the possibility of
losing just one customer?
Answer: Because Walmart is a very large, very powerful customer.
2. Walmart makes more profit on each bottle of Gatorade that it sells than on a bottle
of Powerade. List all the things a Walmart store manager could do to encourage
consumers to choose Gatorade over Powerade.
Answer: The answer requires creative thinking, but everyone’s been in a Walmart store
so it shouldn’t be too hard to think of ideas, for example, place the Gatorade on shelves at
eye level, and the Powerade at the bottom. They could put it in several locations around
the store, for example in the refrigerators, but also unrefrigerated on shelves, and possibly
even a display in with the sporting goods. If they have any flexibility in final pricing, they
could price the Gatorade slightly lower than Powerade.
3. If it wants to be more competitive with Pepsi, why doesn’t Coca-Cola simply
increase Walmart’s margin on Powerade?
Answer: This is one of those things that sounds simple and obvious, but there are many
considerations that we as consumers wouldn’t be aware of. Perhaps Coca-Cola has a
corporate mandate to achieve certain levels of profitability, and increasing Walmart’s
margin would cut into that. There is no “right” answer because we can’t know, unless we
work for Coca-Cola, what the reasons are, but encourage students to speculate and give
reasons behind their thinking.
4. If Pepsi has been shipping direct to Walmart’s warehouse all along, why aren’t its
bottlers upset?
Answer: This is another question that we can’t possibly know the answer to, but
encourage students to speculate and give reasons behind their thinking.

Copyright © 2018 Pearson Canada Inc., Toronto, Ontario.

 CHAPTER 11: Marketing Channels 213

Marketing Ethics—Questions and Answers

The topic of this ethical discussion is who should bear the risk of changing fashion tastes, the
retailer or the supplier/manufacturer? Is “chasing” ethical? In other words, is it fair for retailers
to expect suppliers to refill orders quickly, when they (the retailers) are not willing to commit to
large orders upfront?
1. Discuss the concerns of suppliers and retailers in the apparel channel of
distribution. Is it fair that retailers should expect suppliers to respond so quickly? Is
it fair that suppliers should demand long lead times?
Answer: Basically everyone involved is worried about having unsold inventory. In a
perfect world, the supplier would sell all its merchandise at full price to willing retailers,
and the retailer would sell it at full price to willing consumers. But fashion tastes change
quickly, and today’s consumers are increasingly price sensitive, so retailers don’t want to
have too much inventory, and have to reduce prices or have “sales” in order to move it.
The rest of the discussion is a matter of what students believe is fair or ethical, and should
lead to a lively in class discussion.

2. Write a brief report on the Bangladesh Accord on Fire and Building Safety
proposed by IndustriALL. Which retailers signed the agreement, and why have
some retailers refused to sign the pact?
Answer: Students will be able to find articles online about this safety proposal. For the
actual proposal, see
www.workersrights.org/linkeddocs/Accord%20on%20Fire%20and%20Building%20Safe
ty%20in%20Bangladesh%205.12.2013.pdf. Key elements of the pact include retailers
being responsible for paying for safety upgrades in Bangladesh garment factories. Many
U.S retailers, such as Walmart, Target, JCPenney, and Gap refused to sign the safety
initiative because of legal issues (for example, see
www.washingtonpost.com/blogs/wonkblog/wp/2013/05/16/u-s-retailers-arent-signing-a-
new-safety-accord-for-bangladesh-heres-why/). The key concern for U.S. retailers is that
they are afraid the accord would allow labor groups to sue them in U.S. courts.

Marketing by the Numbers—Questions and Answers

1. A consumer purchases a flat iron to straighten her hair for $150 from a salon at
which she gets her hair cut. If the salon’s markup is 40 percent and the wholesaler’s
markup is 15 percent, both based on their selling prices, for what price does the
manufacturer sell the product to the wholesaler?

Answer:
See p. 566 for the formula for calculating markup price:
markup percentage on price = (price – cost)/price

So, cost at each level = price − (price × mark-up%)

The retailer’s cost = $150 − ($150 × 0.4) = $90

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214 Instructor’s Resource Manual for Marketing: An Introduction, Updated Sixth Canadian Edition

(retailer’s cost = wholesaler’s price)

The wholesaler’s cost = $90 − ($90 × 0.15) = $76.50
(wholesaler’s cost = manufacturer’s price)
Another way to compute this is:
retail price: $150.00
minus retail margin (40%): −$60.00
= retailer’s cost/wholesaler’s price: $ 90.00
minus wholesaler’s margin (15%): −$ 13.50
= wholesaler’s cost/manufacturer’s price $ 76.50
2. If the unit variable costs for each flat iron are $40 and the manufacturer has fixed
costs totalling $200,000, how many flat irons must this manufacturer sell to break
even? How many must it sell to realize a profit of $800,000?
Answer:
To determine the sales necessary to break even on this price reduction, begin by
calculating the level of sales that must be attained at the new contribution margin
(which we just calculated in Q1) to achieve the original total contribution of $18 million:
breakeven volume = fixed cost / (price – variable cost)

Therefore:
breakeven volume for flat irons = $200,000 / ($76.50 - $40) = 5480

End-of-Chapter Case: UPS

All questions are discussion questions, so students’ answers will vary based on their opinion.
To keep the discussion going, always ask a follow-up question; ask the student to explain their
thinking; then ask the other students if the agree or disagree. Before beginning the discussion,
you might have students do online research to find out what’s happening with the company today.

Questions for Discussion

1. Visit the UPS website and make a list of all the third-party supply chain and logistics
services UPS offers, and briefly describe each service.
2. Why are companies like K2, TicketPrinting.com, and Haydel’s willing to pay UPS to
manage their shipments rather than doing it themselves?
3. Why doesn’t K2 use a UPS package car, as Haydel’s does?
4. UPS recently purchased a company called Coyote Logistics for $1.8 billion. Research
the acquisition and explain why one logistics company would buy another—in other
words, what did UPS get out of the deal?

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 CHAPTER 11: Marketing Channels 215

More Ideas for In-class Activities and Assignments Based on Chapter 11

Individual Writing Assignments

Visit a large chain grocery store, the kind that has other services like a dry cleaner in the same
building. List each type of business being conducted in the store, and sketch a distribution
channel for each product and service being sold.

In-Class Game
The BeerGame is a logistics game that was originally developed by MIT in the 60s and has since
been played all over the world by people at all levels, from students to presidents of big
multinational groups. It can be found in a variety of places online, and locations may change
from time to time, but try this link on the website of a Scandinavian company called MA-system.

Small Group Assignments

1. Visit the website inboundlogistics.com and write a report (or create a PP slide set and
give a short presentation) that addresses the following questions: Who
writes/publishes the information on this website, and for what purpose? What kind of
people are interested in reading the news on this website? Read three articles in the
news section and in 1 short paragraph summarize what happened and how logistics
were involved. Read one case study and summarize it in 3 paragraphs.
2. Consider Pandora, the Internet radio “station.” In the new digital world, the way
people listen to music continues to change dramatically. It seems likely that Pandora
will either lead the changes or fall victim to them. Examine Pandora’s online service
and website, and research and read recent articles about Pandora, then answer the
following questions: Draw the value chain for Pandora, from production of content to
the consumer (i.e. listener). How do horizontal and vertical conflict impact Pandora?
How does Pandora add value for customers through its intermediaries and distribution
channels? Do you think Pandora will be a disintermediator, or will it be
disintermediated?

Copyright © 2018 Pearson Canada Inc., Toronto, Ontario.