Diaper War: Kimberly-Clark vs. Procter & Gamble

What is your channel strategy for your target market? (You can review the noted exhibits in your textbook by Mullins and Walker to help you with this question)

Target Market	Functions Performed by Channel Members	Type of Channel Member? (see textbook exhibit 12.3)	Level Exhibit(see textbook exhibits 12.5 & 12.6)	Intensity or Coverage	Relationship with Manufacturer (see textbook exhibit 12.10)	Examples?

SECTION THREE Exhibit 12,10 ERTICAL MARKETING SYSTEMS Administered VMS Relational VMS Corporate VMS (e.g., General (e.g., 3M and (e.g, Sherwin- Contractual VMS Electric Walmart) Williams Appliances) Paints) Retailer- Wholesaler- sponsored sponsored Franchise voluntary cooperatives systems chains (e.g., Associated (e.g., IGA) Grocers) Manufacturer- Manufacturer- Wholesaler- Service sponsor- retailer franchise wholesaler retailer retailer system franchise franchise franchise e.g., Toyota, system system system Chrysler) (e.g., Coca-cola) (e.g., Rexall) (e.g., Holiday Inns) and duties of each party. The intent is to obtain greater economies and market impact than they could achieve alone. Contractual VMSs have had the greatest growth of any channel system in recent years. There are many kinds of contractual systems, but the three basic types are wholesaler-sponsored voluntary chains, retailer cooperatives, and franchise systems. Wholesaler-sponsored voluntary chains are formed by getting independent retailers to sign contracts in which they agree to standardize their selling practices and to purchase a certain portion of their inventories from the wholesaler. The Independent Grocers Alliance (IGA). Western Auto, and Ben Franklin are among the best-known wholesaler-sponsored voluntaries. Retailer cooperatives are groups of independent retailers who form their own co-operative chain organizations. Typically, they agree to concentrate their purchases by forming their own wholesale operations. In many cases they also engage in joint advertising, promotion, and merchandising programs. Profits are passed back to the member retailers in proportion to their purchases. Such cooperatives are particularly common in the grocery field, where Associated Grocers and Certified Grocers are examples. In franchise systems" a channel member can coordinate two successive stages in the distribution channel by offering franchise contracts that give others the right to participate in the business provided they accept the agreement terms and pay a fee. Such contracts usually specify a variety of operational details-including which members of the system will perform specific functions and how-as well as mechanisms to evaluate members' performance and to terminate members who fail to perform adequately. Franchising has great versatility, Such systems operate in almost every business area and cover a wide variety of goods and services, There are four major types of franchise systems. 1. Manufacturer-retailer franchise systems account for the largest number of franchisees and the largest volume of sales and are common in the automotive (Chrysler and Ford) and petro- leum industries (Exxon, Shell, and BP).CHAPTER TWELVE DISTRIBUTION CHANNEL DECISIONS Designing Distribution Channels: What Kinds of Institutions Might Be Included? There are four broad categories of institutions that a manager might decide to include in the distribution channel: merchant wholesalers, agent middlemen, retailers, and facilitating agencies. Each of these categories is defined in Exhibit 12.3 and discussed below. Merchant Wholesalers Some types of merchant wholesalers engage in a full range of wholesaling functions while others specialize in only limited services. But both buy goods from various suppliers (that is, they take title) and then resell those goods to their commercial customers, either industrial buyers or other resellers such as a retailer. They are compensated by the margin between the price they pay and the price they receive for the goods they carry. Approxi- mately 400,000 merchant wholesalers are operating in the United States, including sales branches maintained by manufacturing firms. Agent Middlemen The primary role of agent middlemen is to represent other organizations in the sale or purchase of goods or services. Agents do not take title to, or physical possession of, the goods they deal in. Instead, they specialize in either the buying or selling function. There are about 45,000 agent middlemen in the United States, of which manufacturer's agents and sales agents are the two major types used by producers.' Manufacturer's Agents or Manufacturer's Reps These usually work for sev eral manufacturers, carry noncompetitive, complementary merchandise in an exclusive territory, and concentrate only on the selling function. They are important where a manu- facturer's sales are not sufficient to support a company salesperson in a particular terri- tory. Manufacturer's reps are common in the industrial equipment, automotive supply, footwear, and toy industries. Exhibit 12.3 INSTITUTIONS FOUND IN MARKETING CHANNELS institution Definition Merchant wholesalers Take title to the goods they handle; sell primarily to other resellers (e.g., retailers), industrial and commercial customers rather than to individual consumers. Agent middlemen Include manufacturer's representatives and brokers. Also sell to other resellers, industrial or commercial customers, but do not take title to the goods. Usually specialize in the selling function and represent client manufacturers on a commission basis. Retailers Sell goods and services directly to ultimate consumers for their personal, nonbusiness use. Usually take title to goods they handle; are compensated by the margin between the price Facilitating agencies they pay for those goods and the price they receive from their customers, Include advertising agencies, marketing research firms, collection agencies, trucking firms. and railroads; specialize in one or more marketing functions, work on a fee.for-service basis to help clients perform those functions more effectively and efficiently. Note: Terms such as distributor and jobber refer to wholesalers, especially those handling Industrial goods. The term dealer may refer to either a wholesaler or retailer.3 PTER TWELVE DISTRIBUTION CHANNEL DECISIONS Alternative Consumer Goods Channels Five channel designs are commonly used to distribute consumer goods and services, as shown in Exhibit 12.5. Channel A involves direct distribution from the producer to the consumer. This is becoming a more popular channel, particularly for products targeted at two-wage-earner households where time is of the essence. As noted earlier, a number of technologies can be employed to achieve direct distribution, including direct mail cata- logs, telephone or door-to-door selling. interactive cable TV, and manufacturers' websites. Channel B in Exhibit 12.5 involves producers that sell directly to retailers, who in turn sell to consumers. Such channels are typically used when the retailers are large enough to perform their own wholesaling functions or to form efficient logistical alliances with the manufacturer, as is the case for chains like Walmart, Sears, and Marks & Spencer. This kind of channel is also appropriate for distributing specialty goods such as designer fashions, expensive watches, or even greeting cards through selected retail outlets like Hallmark Card shops. Of course, the retailers involved in such channels may be traditional bricks-and-mortar operations, internet start-ups, or some combination of the two. Channel C uses both a wholesaler and a retailer and is most common for low-cost, frequently purchased items extensively distributed through a large number of retailers. Because many of the retailers in such channels are small, the manufacturer's cost of deal- ing with them directly would be prohibitive. Thus, before it could distribute soft drinks through the many small retail shops and beverage kiosks in Kenya, Coca-cola had to first sponsor and train enough wholesale distributors to service them efficiently. This channel system is common for such products as packaged food items, liquor, and health and beauty aids. Channel D, where an agent sells to wholesalers who in turn sell to retailers, is used when the manufacturer is too small, or its product line too narrow, to justify a company salesforce. In some cases, particularly where a small producer sells to retail chains that are large enough to take care of their own wholesaling functions, an agent may be employed to sell directly to the retailers, as shown in Channel E. Exhibit 12.5 MARKETING CHANNELS FOR CONSUMER GOODS AND SERVICES D Producer Producer Producer Producer Producer Agent Agent Wholesaler Wholesaler Retailer Retailer Retailer Retailer Consumer Consumer Consumer Consumer ConsumerSECTION THREE DEVELOPING STRATEGIC MARKETING PROGRAM 320 Exhibit 12.6 MARKETING CHANNELS FOR INDUSTRIAL GOODS AND SERVICES C D B A Producer Producer Producer Producer Agent Agent Wholesaler Wholesaler Industrial buyer Industrial buyer Industrial buyer Industrial buyer Alternative Industrial Goods Channels Exhibit 12.6 illustrates four alternative channel designs for distributing industrial goods. Direct distribution (Channel A) is much more common for industrial goods and services than it is in the consumer sphere. It is particularly popular when buyers are large and well-known, the product or service is technically complex and of high unit value, and the selling function requires technical expertise or extended negotiation. For example, large computer systems, commercial aircraft, and consulting services are sold through direct distribution. Many industrial goods manufacturers distribute through wholesalers (industrial dis- tributors), as in Channel B. While a manufacturer loses some control over such activities as the negotiation of sales contracts, installation, and maintenance by using distributors, wholesalers can improve distribution efficiency by lowering costs for such functions as selling, storage, and transportation. This is particularly likely when the product is stan- dardized, there are many potential buyers with similar requirements, the average order value is relatively small, and the item is easy to handle and store. The two other industrial goods channels involve the use of agents or brokers, either to sell directly to customers, as in Channel C, or to wholesalers, as in Channel D. Manufac turers too small to support a company salesforce most frequently use agents. For example, Stake Fastener Company, a small producer of industrial fasteners, uses agents to call on its customers rather than employing a company salesforce. Larger firms also employ agents, particularly to call on smaller customers or to cover low-potential geographic areas. Which Alternative Is Best? It Depends on the Firm's Objectives and Resources As we pointed out earlier, there are trade-offs among the various objectives a company might try to accomplish with its distribution channel; it's generally impossible to design a channel that performs well on all of them. In addition, each of the alternative designs outlined above are better suited for attaining some objectives than others. Therefore, the