DISTRIBUTION

Firm, Brand, and Product Line Objectives Firm level objectives: It is not enough to simply state a firms goal as maximizing the present value of total profit since this does not differentiate it from other firms and says nothing about how this objective is to be achieved. Instead, a business and marketing plan should suggest how the firm can best put its uni ue resources to use to maximize stockholder value. ! number of resources come into play"e.g.,

Distinctive competencies"knowledge of how to manufacture, design, or market certain products or services effectively# Financial"possession of cash or the ability to raise it# Ability and willingness to take risk# $he image of the firms brand# People who can develop new products, services, or other offerings and run the needed supports# Running facilities %no amount of money is going to get a new microchip manufacturing plant started tomorrow&# and Contacts with suppliers and distributors and others who influence the success of the firm.

Market balance: It is essential that different firms in the same business not attempt to compete on exactly the same variables. If they do, competition will invariably degenerate into price"there is nothing else that would differentiate the firms. $hus, for example, in the retail food market, there are low price supermarkets such as 'ood ( )ess that provide few if any services, intermediate level markets like *alphs, and high+end markets such as ,ons -avillion that charge high prices and claim to carry superior merchandise and offer exceptional service Risk: In general, firms that attempt riskier ventures"and their stockholders" expect a higher rate of return. *isks can come in many forms, including immediate loss of profit due to lower sales and long term damage to the brand because of a poor product being released or because of distribution through a channel perceived to carry low uality merchandise. Brand level objectives: .ltimately, brand level profit centers are expected to contribute to the overall maximization of the firms profits. /owever, when a firm holds several different brands, different marketing and distribution plans may be re uired for each. 0everal variables come into play in maximizing value. -rofits can be maximized in the short run, or an investment can be made into future earnings. -roduct profit can be measured in several ways. If you sell a computer that cost 1234 to make for 15,444, you are making only a

36 gross profit. /owever, selling a product that cost 13 to make for 154 will result in a much higher percentage profit, but a much lower absolute margin. ! decision that is essential at the brand level is positioning. 7ptions here may range from a high uality, premium product to a lower priced value product. 8ote here that the same answer will not be appropriate for all firms in the same market since this will result in market imbalance"there should be some firms perceiving each strategy, with others being intermediate. 9istribution issues come into play heavily in deciding brand level strategy. In order to secure a more exclusive brand label, for example, it is usually necessary to sacrifice volume"it would do no good, for :ercedes+;enz to create a large number of low priced automobiles. 0ome firms can be very profitable going for uantity where economies of scale come into play and smaller margins on a large number of units add up"e.g., :c9onalds survives on much smaller margins than upscale restaurants, but may make larger profits because of volume. 0ome firms choose to engage in a niching strategy where they forsake most customers to focus on a small segment where less competition exists %e.g., clothing for very tall people&. In order to maintain ones brand image, it may be essential that retailers and other channel members provide certain services, such as warranty repairs, providing information to customers, and carrying a large assortment of accessories. 0ince not all retailers are willing to provide these services, insisting on them will likely reduce the intensity of distribution given to the product. Product line objectives: 'irms make money on the totality of products and services that they sell, and sometimes, profit can be maximized by settling for small margins on some, making up on others. 'or example, both manufacturers and retailers currently tend to sell inkjet printers at low prices, hoping to make up by selling high margin replacement cartridges. /ere again, it may be important for the manufacturer that the retailer carry as much of the product line as possible.

Distribution Objectives Interrelated objectives: ! firms distribution objectives will ultimately be highly related"some will enhance each other while others will compete. 'or example, as we have discussed, more exclusive and higher service distribution will generally entail less intensity and lesser reach. <ost has to be traded off against speed of delivery and intensity %it is much more expensive to have a product available in convenience stores than in supermarkets, for example&.

Narrow vs. wide reac : $he extent to which a firm should seek narrow %exclusive& vs. wide %intense& distribution depends on a number of factors. 7ne issue is the consumers likelihood of switching and willingness to search. 'or example, most consumers will switch soft drink brands rather than walking from a vending machine to a convenience store several blocks away, so intensity of distribution is essential here. /owever, for sewing machines, consumers will expect to travel at least to a department or discount store, and premium brands may have more credibility if they are carried only in full service specialty stores. *etailers involved in a more exclusive distribution arrangement are likely to be more =loyal>"i.e., they will tend to

*ecommend the product to the customer and thus sell large uantities# <arry larger inventories and selections# -rovide more services

$hus, for example, <ompa in its early history instituted a policy that all computers must be purchased through a dealer. 7n the surface, <ompa passed up the opportunity to sell large numbers of computers directly to large firms without sharing the profits with dealers. 7n the other hand, dealers were more likely to recommend <ompa since they knew that consumers would be buying these from dealers. ?hen customers came in asking for I;:s, the dealers were more likely to indicate that if they really wanted those, they could have them"=;ut first, lets show you how you will get much better value with a <ompa .> Distribution o!!ortunities: 9istribution provides a number of opportunities for the marketer that may normally be associated with other elements of the marketing mix. 'or example, for a cost, the firm can promote its objective by such activities as in+store demonstrations@samples and special placement %for which the retailer is often paid&. -lacement is also an opportunity for promotion"e.g., airlines know that they, as =prestige accounts,> can get very good deals from soft drink makers who are eager to have their products offered on the airlines. 0imilarly, it may be useful to give away, or sell at low prices, certain premiums %e.g., $+shirts or cups with the corporate logo.& It may even be possible to have advertisements printed on the retailers bags %e.g., =Aot milkB>& 7ther opportunities involve =parallel> distribution %e.g., having products sold both through conventional channels and through the Internet or factory outlet stores&. -artnerships and joint promotions may involve distribution %e.g., ;urger Cing sells clearly branded /ershey pies&. Decidin" on a strate"#. In view of the need for markets to be balanced, the same distribution strategy is unlikely to be successful for each firm. $he

uestion, then, is exactly which strategy should one useB It may not be obvious whether higher margins in a selective distribution setting will compensate for smaller unit sales. /ere, various research tools are useful. In focus groups, it is possible to assess what consumers are looking for an which attributes are more important. 0canner data, indicating how fre uently various products are purchased and items whose sales correlate with each other may suggest the best placement strategies. It may also, to the extent ethically possible, be useful to observe consumers in the field using products and making purchase decisions. /ere, one can observe factors such as %5& how much time is devoted to selecting a product in a given category, %D& how many products are compared, %E& what different kinds of products are compared or are substitutes %e.g., frozen yogurt vs. cookies in a mall&, %(& what are =complementing> products that may cue the purchase of others if placed nearby. <hannel members"both wholesalers and retailers"may have valuable information, but their comments should be viewed with suspicion as they have their own agendas and may distort information.

Direct Marketin" ?e consider direct marketing early in the term as a =contrast> situation against which later channels can be compared. In general, you cannot save money by =eliminating the middleman> because intermediaries specialize in performing certain tasks that they can perform more cheaply than the manufacturer. :ost grocery products are most efficiently sold to the consumer through retail stores that take a modest mark+up"it would not make sense for manufacturers to ship their grocery products in small uantities directly to consumers. Intermediaries perform tasks such as

moving the goods efficiently %e.g., large uantities are moved from factories or warehouses to retail stores&# breaking bulk %manufacturers sell to a modest number of wholesalers in large uantities" uantities are then gradually broken down as they make their way toward the consumer&# consolidating goods %retail stores carry a wide assortment of goods from different manufacturers"e.g., supermarkets span from toilet paper to catsup&# and adding services %e.g., demonstrations and repairs&.

9irect marketers come in a variety of forms, but their categorization is somewhat arbitrary. $he main thing to consider here is each firms functions and intentions. 0ome firms sell directly to consumers with the express purpose of eliminating retailers that supposedly add cost %e.g., 9ell <omputer&. 7thers

are in the business not so much to save on costs, but rather to reach groups of consumes that are not easily reached through the stores. 7thers"e.g., online travel agents or check printers"provide heavily customized services where the user can perform much of the services. $elemarketers operate by making the promotion in integral part of the process"you are explained the benefits of the program in an advertisement or infomercial and you then order directly in response to the promotion. 'inally, some firms combine these roles"e.g., Aeico is a customizer, but also claims, in principle, to cut out intermediaries. $here are certain circumstances when direct marketing may be more useful" e.g., when absolute margins are very large %e.g., computers& or when a large inventory may be needed %e.g., computer <9s& or when the customer base is widely dispersed %e.g., bee keepers&. 9irect marketing offers exceptional opportunities for segmentation because marketers can buy lists of consumer names, addresses, and phone+numbers that indicate their specific interests. 'or example, if we want to target auto enthusiasts, we can buy lists of subscribers to auto magazines and people who have bought auto supplies through the mail. ?e can also buy lists of people who have particular auto makes registered. 8o one list will contain all the consumers we want, and in recent years technology has made it possible, through the =merge-purge> process, to combine lists. 'or example, to reach the above+mentioned auto+enthusiasts, we buy lists of subscribers to several different car magazines, lists of buyers from the /ot ?heels and ?iring catalog, and registrations of -orsche automobiles in several states. ?e then combine these lists %the merge part&. /owever, there will obviously be some overlap between the different lists" some people subscribe to more than one magazine, for example. $he purge process, in turn, identifies and takes out as many duplicates as possible. $his is not as simple task as it may sound up front. 'or example, the address =5DE :ain 0treet, !partment (3> can be written several ways"e.g., 5DE :ain 0t., F5DE, or 5DE+(3 :ain 0tr. 0imilarly, Gohn G. Gones could also be written as G. G. Gones, or it could be misspelled Gon G. Gonnes. 0oftware thus =standardizes> addresses %e.g., all street addresses would be converted into the format =5DE :ain 0t F(3> and even uses phonetic analysis to identify a likely alternative spelling of the same name. *esponse rates for =good> lists"lists that represent a logical reason why consumer would be interested in a product"are typically uite low, hovering around D+E6. 0imply picking a consumer out of the phone+book would yield even lower responses"much less than one percent. Ceep in mind that a relevant comparison here is to conventional advertising. $he response rate to an ad placed in the newspaper or on television is usually well below one percent %fre uently more like one+tenth of one percent&. %:ore than one percent of people who see an ad for <oca <ola on $, will buy the product, but

most of these people would have bought <oke anyway, so the marginal response is low&.

$lectronic %ommerce 7nline marketing can serve several purposes:

Actual sales of products"e.g., !mazon.com. Promotion advertising: <ustomers can be uite effectively target in many situations because of the context that they, themselves, have sought out. 'or example, when a consumer searches for a specific term in a search engine, a =banner> or link to a firm selling products in that area can be displayed. -rint and television advertisements can also feature the firms web address, thus inexpensively drawing in those who would like additional information. Customer service: $he site may contain information for those who no longer have their manuals handy and, for electronic products, provide updated drivers and software patches. !arket research: 9ata can be collected relatively inexpensively on the 8et. /owever, the response rates are likely to be very unrepresentative and recent research shows that it is very difficult to get consumers to read instructions. $his is one of the reasons why the uality of data collected online is often suspect.

$here are many obstacles to the growth of e+commerce:

*each" !lthough the majority of ..0. households now have computers connected to the Internet, a very large minority does not, and penetration rates are considerably lower in some countries. In foreign countries, even those households that have computers may be reluctant to spend time online due to the per minute charges, which discourage the more leisurely =browsing> !merican style. Concerns about privacy: ! number of consumers are concerned about giving up information to marketers that can easily be collected electronically. 8aturally, few consumers would like information about their medical status widely collected by firms, but many consumers are even reluctant to have marketers know the ages of their children and past book purchase records. R eputational issues: !lthough not as much as a problem before, firms operating online or through direct mail have often been viewed with suspicion since consumers may uestion whether they will be around if they do not deliver satisfactorily. #ransshipments: !lthough the Internet should facilitate commerce across boarders, customers

paperwork and ambiguities in duty liability make shipments across countries burdensome. Costs. 9uring the =boom,> Internet firms were not expected to be efficient and thus developed bad habits. !lthough shipping and handling charges can help cover costs of shipping and administration, these often take away the attractiveness of Internet shopping. $he most successful e+commerce firms turn out to be the ones that have been successful doing other kinds of direct marketing %e.g., catalog sales& before and have developed the discipline and efficiency re uired there. 'or products that have relatively high absolute margins"e.g., computers" there is more money to cover administrative costs. $anguage. 0ince the Internet reaches around the world, it is often difficult to match viewers with their preferred languages. ;ecause ..0. firms and individuals tended to predominate among those first to occupy the ?eb, most sites are in ..0. Hnglish. ;ritish speakers of Hnglish generally do not perceive !merican Hnglish as !merican"they tend to perceive spelling such as =color> rather than their =colour> as misspellings. 'rench consumers do not like to have to click to get from an Hnglish language to a 'rench language site. It is estimated that by the year D44I, the majority of web surfers will not be comfortable in Hnglish and will want sites in their own languages. %overnment regulations: In the ..0., the government has tried to keep its hands off the 8et as much as possible to foster its growth as a trade area, and a recently expired moratorium on new sales taxes was even instituted. /owever, governments in many other countries are more forceful in their regulations. In countries such as <hina, where sites can be used to spread =subversive> ideas, there is a great deal of government scrutiny and suspicion. Cultural obstacles are often severe. $he whole purpose of the web is to make information readily available. In countries where information is closely guarded, that is a frightening idea. $here is often also a desire for personal interaction, which may be re uired to establish the trust needed to secure a deal. Payment issues. ..0. consumers exposed to credit card fraud have very limited liabilities, but these protections do not exist to the same extent in Hurope or !sia. In <hina, much of the purpose of the Internet is defeated with some J46 of transactions being completed off+line, usually with funding instruments other than credit cards.

$here are a number of problems in running and developing web sites. 'irst of all, the desired domain name may not be available"e.g., !merican !irlines could not get =!merican.com> and had to settle for =!merican!ir.com.> $here is also a uestion having your site identified to potential users. *esearch has found that most search engines have a great deal of =false hits> %sites irrelevant that are identified in a search"e.g., information about computer languages when the user searches for foreign language instruction& and

=misses> %sites that would have been relevant but are not identified&. It is crucial for a firm to have its site indexed favorably in major search engines such as Kahoo, !7)'ind, and Aoogle. /owever, there is often a constant struggle between web site operators and the search engines to outguess each other, with the web promoters trying to =spam> the search engines with repeated usage of terms and =meta tags.> $he fact that many computer users employ different web browsers raises uestions about compatibility. ! major problem is that many of the more recent, fancier web sites rely on =java script> to provide animation and various other impressive features. $hese animations have proven very unreliable. 0ites may =crash> on the user or prove unreliable, and many consumers have found themselves unable to complete their transactions. Le"al issues. $here are a number of legal issues associated with the Internet:

Reach across boarders. ?eb sites transcend country lines and thus, a firm may be subjected to legal standards of different countries. It may be difficult to create advertising that simultaneously complies with rules for each country. #a&ation: $here is a great deal of ambiguity as to which state and local governments may collect taxes on merchandise sold on the Internet. $here is also a uestion as to who has the responsibility for making the payment"the seller or the buyerB Privacy issues. :any foreign governments prohibit the collection of personal information of consumers %as !mazon.com does&, which greatly reduces the customization opportunities online.

?eb site design: $he web designer must make various issues into consideration:

0peed vs. aesthetics: !s we saw, some of the fancier sites have serious problems functioning practically. <onsumers may be impressed by a fancy site, or may lack confidence in a firm that offers a simple one. Ket, fancier sites with extensive graphics take time to download" particularly for users dialing in with a modem as opposed to being =hard> wired"and may result in site crashes. Ceeping users on the site: ! large number of =baskets> are abandoned online as consumers fail to complete the =check+out> process for the products they have selected. 7ne problem here is that many consumers are drawn away from a site and then are unlikely to come back. ! large number of links may be desirable to consumers, but they tend to draw people away. $aking banner advertisers on your site from other sites may be profitable, but it may result in customers lost. Information collection: !n increasing number of consumers resist collection of information about them, and a number of consumers have

set up their browsers to disallow =cookies,> files that contain information about their computers and shopping habits. %#ber&consumer be avior: In principle, it is fairly easy to search and compare online, and it was feared that this might wipe out all margins online. :ore recent research suggests that consumers in fact do not tend to search very intently and that large price differences between sites persist. ?e saw above the problem of keeping consumers from prematurely departing from ones site.

Le"al Issues 9istribution issues raise significant legal uestions, many of which relate to antitrust law. $he main purpose of antitrust law is to enforce fair competition among firms. $here are two different kinds of competition that are relevant here. 'nterbrand competition refers to different brands that compete against each other"e.g., 8ike competes against *eebok. 7n the other hand, intrabrand competition refers to competition between different channels that sell the same branded goods"e.g., 'ootlocker competes against other retailers that sell 8ike products. 7ften, it may be necessary to sacrifice the one kind of competition to bolster the other. 'or example, by introducing exclusive territories given to some retailers who alone are given the right to sell in one geographic area, these retailers may have extra incentive to =push> the product. $he theory here, then, is that by reducing the intrabrand competition among retailers all carrying, say, Auess jeans, the retailer will be motivated to put up a strong competition against other retailers who carry )evis, thus enhancing interbrand competition. $here are a number of ways in which competition can be threatened:

Collusion: *etailers and@or manufacturers get together and agree to limit competition"e.g., the three laundromats in a small town all get together and agree that no one will charge less than one dollar per wash. !lthough blatantly illegal in the .nited 0tates, this kind of behavior is accepted in certain parts of the world, although Huropean countries are now beginning to be less tolerant. Discriminatory pricing: 0ome full service manufacturers may decide to give better deal to more powerful buyers"e.g., ?al+:art may negotiate better prices than Goes Arocery 0tore can. 0uch differences in prices paid by competing firms are generally legal only if they are justified by actual cost savings in selling to the two different firms"obviously, the average overhead per case of ;andaid will be much lower when selling to ?al+:art, which buys in huge uantities. Predatory pricing: 'irms may attempt to temporarily sell products below their costs so that competitors are driven out of business, after

which the predators will raise their own prices. $his is generally illegal in the ..0. #erritorial restrictions %as discussed above& and customer coverage restrictions %e.g., one firm is designated as the only firm that is allowed to sell to hospitals, while another one may be designed the sole authorized seller to gyms&. $hese may or may not be legal, depending on the courts interpretation of their impact on overall market competition. Price maintenance. :anufacturers may put pressure on retailers not to sell their products below or above a certain price. ?hile certain manufacturers are concerned that some distributors may take advantage of exclusive distribution deals and set maximum prices, the greatest concern is about minimum prices. /ere, manufacturers may be concerned that if price competition is too intense, services will suffer. ;y trying to ensure that no one sells below a designated floor price, full service retailers are guaranteed certain levels of profitability. Aenerally, it is explicitly illegal for retailers and manufacturers to agree not to sell below a certain price %in legal terms, that would be a =conspiracy in restraint of trade&. /owever, it fre uently is legal for the manufacturer to tell the retailer that if he or she sells below the price, the manufacturer will stop him or her. It would be illegal, however, for the manufacturer to promise another competitor to =cut off> the offending retailer. #ying: /ere, a customer may be re uired to buy two products even if he or she only wants one. 'irms may want to engage in this activity if they have a monopoly+like situation for one product but face competition for another %e.g., Intel dominates the market for the newest chips but has much more competition for the motherboards and modems that the firm also produces. $hus, the firm might like to buyers of their newest <-.s to also buy motherboards also. $ying is legal under some circumstances when it is deemed to be reasonable %the customer cannot expect to be able to buy a car without tires even if he or she can find cheaper alternatives elsewhere& but can be illegal if it is abusive and serves no legitimate purpose %as in the Intel case&.

!ntitrust law is often rather murky, and it may be hard to find a straight answer as to whether something is legal or not. In general, courts have classified various kinds of activities in categories of varying certainty of legality or illegality. Per se illegality includes practices that are definitely illegal if it can be proven that they have taken place %e.g., two retailers agreeing not to sell below certain prices&. .nder the modified rule of reason, certain practices are presumed to be illegal, but the courts will hear exculpatory evidence which may clear a firm %e.g., courts are likely to be suspicious if a supplier drops a discount retailer after receiving complaints from a full service retailer, but if the manufacturer can prove that it did not agree with the full service retailer to stop the supply and that the termination benefits interbrand

competition, the practice may be accepted&. .nder the rule of reason, the totality of circumstances are examined to assess impact on competition, and a decision is made"thus, the law is not as clear %e.g., whether tying"re uiring a consumer to buy two products even if he or she wishes to buy only one"is subject to significant review&. 'inally, certain practices are per se legal"i.e., they are accepted as legal and no legal action can be taken %e.g., since consumers do not compete against each other, it is legal to charge different airline passengers different fares based on advance purchase and 0aturday night stayovers&.

'ervice Out!uts !s we have discussed earlier, firms have to make tradeoffs between different considerations such as cost of distribution, intensity vs. exclusivity, and service provided. 0ome of the services ultimately desired by consumers include bulkbreaking %as previously discussed&, spatial convenience %being able to buy milk in the supermarket rather than having to drive out to a farmer to get it&, timing of availability %having someone"the retailer and other channel members"plan to have toothpaste available in the store when the consumer needs it&, and providing a breadth of assortment %the same store will carry different kinds of food and other merchandise from different suppliers. 0egmentation involves identifying groups of consumers who respond relatively similarly to different treatments. In general, we want to find segments that contain people who are as similar as possible to each other while, simultaneously, being as different as possible from members of other segments. $hus, for example, members of what we might term a price sensitive food segment are likely to seek out the lowest priced retailers even if they are not located conveniently, buy larger packages, switch brands depending on what is on sale, and cut coupons. $he =fussy> segment, in contrast, may shop either where the best uality is found or at the most convenient location, and may be brand loyal and not cut coupons. 8ote that not all members of each segment will be completely alike, and there is some tension between precision of description and cutting the segments into too small pieces. $he idea, here, then, is for different channels to serve different consumers %e.g., price sensitive individuals are targeted by 'ood ( )ess while more upscale stores target the price insensitives&.

% annel 'tructure and Members i! Issues Pat s to t e customer. 'or most products and situations, it is generally more efficient for a manufacturer to go through a distributor rather than selling

directly to the customer. $his is especially the case when consumers need to have variety and assortment %e.g., consumer would like to buy not just toothpaste but also other personal hygiene products, and even other grocery products at the same place&, when products are bought in small volumes or at low value %e.g., a candy bar sells for less than 15.44&, or even intermediaries have skills or resources that the manufacturer does not %a sales force, warehousing, and financing&. 8evertheless, there are situations when these conditions are not met"most typically in industrial settings. !s an extreme case, most airlines are perfectly happy only being able to buy aircraft and accessories from ;oeing and would prefer not to go through a retailer" particularly since the planes are often highly customized. :ore in the LgrayL area, it may or may not be appropriate to sell microcomputers directly to consumers rather than going through a distributor"the costs of providing those costs may be roughly comparable to the margin that a distributor would take. Potential c annel structures. <hannel structures can assume a variety of forms. In the extreme case of ;oeing aircraft or commercial satellites, the product is made by the manufacturer and sent directly to the customers preferred delivery site. $he manufacturer, may, however, involve a broker or agent who handles negotiations but does not take physical possession of the property. ?hen deals take on a smaller magnitude, however, it may be appropriate to involve retailer++but no other intermediary. 'or example, automobiles, small planes, and yachts are fre uently sold by the manufacturer to a dealer who then sends directly to the customer. It does not make sense to deliver these bulky products to a wholesaler only to move them again. 7n the other hand, it would not make sense for a <alifornia customer to fly to 9etroit, buy a car there, and then drive it home. !s the need for variety increases, a wholesaler may then be introduced. 'or example, an office supply store needs to sell more merchandise than any one manufacturer can produce. $herefore, a wholesaler will buy a very large uantity of binders, file folders, staplers, reams of paper, glue sticks, and similar products and sell this in smaller uantities"say D44 staplers at a time"to the office supply store, which, in turn, may go to another wholesaler who has ac uired telephones, typewriters, and photocopiers. 8ote that more than one wholesaler level may be involved"a local wholesaler serving the Inland Hmpire may buy from each of the two wholesalers listed above and then sell all, or most, of the products needed by local office supply stores. 'inally, even in longer channels, agents or brokers may be involved. $his, in particular, will happen when the owner of a small, entrepreneurial company has more experience with technology than with businesses negotiations. /ere, the manufacturer can be freed, in return for paying the agent, from such tasks, allowing him or her to focus on what he or she does well. %riteria in selectin" c annel members. $ypically, the most important consideration whether to include a potential channel member is the cost at which he or she can perform the re uired functions at the needed level of

service. 'or example, it will be much less expensive for a specialty foods manufacturer to have a wholesaler get its products to the retailer. 7n the other hand, it would not be cost effective for -rocter M Aamble and ?al+:art to involve a third party to move their merchandise"?al+:art has been able to develop, based on its information systems and huge demand volumes, a more efficient distribution system. Note t e im!ortant caveat t at cost alone is not t e onl# consideration"premium furniture must arrive in the store on time in perfect condition, so paying more for a more dependable distributor would be indicated. 'urther, channels for perishable products are often inefficiently short, but the additional cost is needed in order to ensure that the merchandise moves uickly. 8ote also that image is important"?al+:art could very efficiently carry *olex watches, but this would destroy value from the brand. (Pi""#&backin".( ! special opportunity to gain distribution that a manufacturer would otherwise lack involves Lpiggy+backing.L /ere, a manufacturer enlists another manufacturer that already has a channel to a desired customer base, to pick up products into an existing channel. 'or example, a manufacturer of rhinoserous and hippopotamus shampoo might be able to reach zoos by approaching a manufacturer of crocodile teeth cleaning supplies that already reaches this target. In the case of reciprocal piggy+backing, the shampoo manufacturer might then, in turn, bring the teeth cleaning supplies through its existing channel to exotic animal veterinarians. Parallel Distribution. :ost manufacturers find it useful to go through at least one wholesaler in order to reach the retailer, and it is simply not efficient for <olgate to sell directly to pathetic little Lmom and popL neighborhood stores. /owever, large retail chains such as C+:art and *alphs buy toothpaste and other <olgate products in such large volumes that it may be efficient to sell directly to those chains. $hus, we have a LparallelL distribution network whereby some retailers buy through a distributor and others do not. 8ote that we may also be tempted to add a direct channel"e.g., many clothing manufacturers have factory outlet stores. /owever, note that the full service retailers will likely object to being LundercutL in this manner and may decide to drop or give less emphasis to the brand. It may be possible to minimize this contract by precautions such as %5& having outlet stores located in vacation areas not within easy access of most people, %D& presenting the merchandise as being slightly irregular, and@or %E& emphasizing discontinued brands and merchandise not sold in regular stores. $valuatin" % annel Per)ormance . $he performance of channel members should be periodically monitored"a channel member may have looked attractive earlier but may not, in practice be able to live up to promises. %$his can be either because of complacency or because the channel member simply did not realize the skills and resources needed to perform to standards&. $hus, performance level %service outputs& and costs should be evaluated. 'urther,

changes in technology or in the market place may make it worthwhile to shift certain functions to another channel member %e.g., a distributor has expanded its coverage into another region or may have gained or lost access to certain retail chains&. 'inally, the extent to which compensation is awarded in proportion to performance should be reassessed"e.g., a distributor that ends up holding inventory longer or taking on more returns may need additional compensation. *a! +nal#sis Market De)iciencies. LAapL analysis involves analyzing current market offering to assess the extent to which they meet customer demands. Demand side gaps involve a market situation where consumers are not satisfied buying what is available"usually either because the level of service provided is not ade uate or because the offering is too expensive. (upply side gaps, in contrast, involve firms that provide services that are needed, but ones that can be met elsewhere at lower prices. Demand 'ide *a!s. <ustomer satisfaction abounds, and many consumers would like to replace their current suppliers. $his can happen either generally"there is a widespread dissatisfaction with banks among consumers, and many would switch if they found one that they thought to provide better service"or the gap can be with one segment that is not being well served. !s an example of the latter, consider parents who, if they had not had children, would have been perfectly satisfied with an ordinary Internet service provider but are now worried that their children can be exposed to inappropriate material online. $herefore, the -!N 8etwork, which features family+oriented television programming, stepped in to offer a service that claims to block out most objectionable sites. 'urther, one auto parts store owned by a woman ran an advertising campaign aimed at women, acknowledging that women were often being asked by their husbands and boyfriends to be Lparts runners.L $he ad then went on to talk about the cleanliness of the store and non+condescending attitudes of the sales people. 8ote that although a gap may exist in the sense that existing firms are not offering what consumers may ideally want, there is a limit to what buyers would be willing to pay for. 'or example, before starting their ice+cream business, ;en and Gerry considered going into business delivering the )ew *ork #imes to peoples doors on 0unday mornings along with fresh baked bagels. ! problem here, however, could have been the cost of this service. 0ometimes, a firm may be able to come in and fill a gap, but may need to compromise on exactly how far to go. $here are usually some struggles between what would be nice to have and what customers are wiling to pay for. 'or example, many computer buyers would like to have someone come and set up the computer, the peripherals, and the Internet connection, but might balk at paying 1534 for this service. :any consumers would like to have their dry cleaning picked up

and delivered, but when push comes to shove, they would not be willing to pay for the extra service. In the early 5224s, a firm owning several supermarket chains decided start $iangues, a chain aimed at /ispanic consumers in 0outhern <alifornia. Hmployees were screened to be fluent in both 0panish and Hnglish, and foods that would appeal especially to different /ispanic groups were emphasized. $he chain was very popular when it first opened, but it soon lost market share as it was found that with time, what mattered most to customers was low prices. , eel o) Retailin". !n interesting phenomenon that has been consistently observed in the retail world is the tendency of stores to progressively add to their services. :any stores have started out as discount facilities but have gradually added services that customers have desired. 'or example, the main purpose of shopping at establishments like <ostco and 0ams <lub is to get low prices. $hese stores have, however, adde