Brief Contents

Preface XIX

PART 1: INTRODUCTION 1

Chapter 1 Marketing Channels: Structure and Functions 1

PART11: CHANNEL DESIGN: DEMAND, SUPPLY,

AND CHANNEL EFFICIENCY 40

Chapter 2 Segmentation for Marketing Channel Design:Service üutputs 40

Chapter 3 Supply Side Channel Analysis: Channel Flowsand Efficiency Analysis 72

Chapter 4 Supply-Side Channel Analysis: Channel Structureand Intensity 112

Chapter 5 Gap Analysis 154

PART 111: CHANNEL IMPLEMENTATION 196

Chapter 6 Channel Power: Getting It, Using It, Keeping It 196

Chapter 7 Managing Conflict to IncreaseChannel Coordination 243

Chapter 8 Strategic Alliances in Distribution 289

Chapter 9 Vertical Integration in Distribution 330

Chapter 10 Legal Constraints on Marketing Channel Policies 377

PARTIV: CHANNEL INSTITUTIONS

Chapter 11 Retailing 425

Chapter 12 Wholesaling 484

Chapter 13 Franchising 518

Chapter 14 Logistics and Supply Chain Management 560

Company Index 577Name Index 583

Subject Index 589

vii

Contents

PREFACE xix

PART1: INTRODUCTION 1

CHAPTER 1 Marketing ChanneIs: Structure and Functions 1

What Is a Marketing Channel? 2

Why Do Marketing Channels Exist and Change? 5Demand-SideFactars 6

Supply-SideFactars 7

What Is the Work of the Marketing Channel? 10

Who Belongs to a Marketing Channel? 14Manufacturers 14lntermediams 15End-Users 16

Channel Formatsas Combinationsof Channel Members 16

A Framework for Channel Analysis 17Channel Design:Segmentation 17Channel Design: Channel StructureDecisions 19Channel Design:Splitting the WarkÚJad 21Channel Design:Degreeof Commitment 22Channel Design: GapAnalysis 22Channellmplementation: ldentifying PowerSources 24Channellmplementation: ldentifying Channel Conflicts 24Channellmplementation: The Goalof Channel Coardination 25Channel Design and lmplementation:lnsights far SPecificChannellnstitutions 25

Organization of the Text 27

Summary 27

Discussion Questions 29

Endnotes 30

Appendix lA: Alternate Channel Formats 33

PART11: CHANNEL DESIGN: DEMAND, SUPPLY,

AND CHANNEL EFFICIENCY 40

CHAPTER 2 Segmentation for Marketing Channel Design:Service Outputs 40

End-User Channel Preferences 41

Service Outputs 43

ix

X Contents

Segrnenting the Market by Service Output Demands 55

Meeting Service Output Demands 59

The Role of Service Output Demand Analysis inMarketing Channel Design 61

Discussion Questions 64Endnotes 65

Appendix 2A: The Service Output Demands Template 68

CHAPTER 3 Supply Side Channel Analysis: Channel Flowsand Efficiency Analysis 72

Channel Flows Defined 73EightGenericChannelFlows 73CustomizingtheListofFlowsfor aParticularChannel 91WhoDoesWhichChannelFlows" 92

Describing the Current Channel with the Efficiency Template 92

Using Channel Flow Concepts to Design a Zero-Based Channel 98

Matching Normative and Actual Profit Shares:The Equity Principie 100

Summary: Channel Flow Analysis as Part of theOverall Channel Audit Process 101

Discussion Questions 103Endnotes 104

Appendix 3A: The Efficiency Template 106

CHAPTER 4 Supply-Side Channel Analysis: Channel Structureand Intensity 112

Introduction 113

Coverage versus Assortment: Framing the Decisions of Upstream andDownstream Channel Members 114

WhyMoreCoverageIs Betterfor ManufacturersofConvenienceGoods 114WhyDownstreamChannelMembersDislikeIntensiveDistribution 115CantheManufacturerSustainIntensiveDistribution? 119Degreeof CategoryExclusivity:TheDownstreamChannelMember'sDecision 120

Striking a Deal: How Much Selectivity to Trade Away 122TheThreatof Complacency 122TheNatureoftheProductCategory 122BrandStrategy:QualityPositioningandPremiumPricing 124BrandStrategy:TargetMarket 127

Bargaining for Influence over Channel Members 127DesiredCoordination 128Manufacturer-SPecificInvestmentsbyDownstreamChannelMembers 129DependenceBalancing: Trading TerritoryExclusivity

for CategoryExclusivity 131Reassurance:UsingSelectivitytoStabilizeFragileRelationships 134ThePriceof theConcession:Factoringin DpportunityCost 135

Contents xi

Back to the Basics: Cutting Costs and Raising Sales 137SavingMoneybyLimitingtheNumberof TradingPartners 137DoMoreTradingPartnersReallyMeanMoreRevenue? 138A Cautionon thelssueofLimitingtheNumberof TradingPartners 139

Simulating the Benefits of Selectivity While MaintainingIntensive Coverage 140

Going to Market via Multiple Types ofChannels 141

Dual Distribution: Going to Market viaIndependent Channels and Self-Owned Channels 144

lnherentRivalry 144TheDemonstrationArgument 144

Carrier-Rider Relationships 145

Summary 146

Discussion Questions 149Endnotes 150

CHAPTER 5 Gap Analysis 154

Sources and Types of Channel Gaps 155SourcesofGaps 155Typesof Gaps:Demand-SideGaps 168Typesof Gaps:Supply-SideGaps 174CombinedChannelGaps 176

Closing Channel Gaps 180ClosingDemand-SideGaps 180ClosingSupply-SideGaps 183ChallengingGapsProducedbyEnvironmentalorManagerialBounds 184

Pulling It Together: The Gap Analysis Template 185

Discussion Questions 192Endnotes 192

PARTIII: CHANNEL IMPLEMENTATION 196

CHAPTER 6 Channel Power: Getting It, Using It, Keeping It 196The Nature of Power 196

PowerDejined 197ls PowerGoodorBad? 198

'WhyMarketing ChannelsRequirePower 199

Power as the Mirror Image of Dependence 200SpecifyingDependence 200Measuring DependenceDirectly 201Measuring Dependencevia Proxylndicators 203

The Greatest Source: Reward Power 204

Four More Sources ofPower 209CoercivePower 209

ExpertPower 210

xii Contents

LegitimatePower 214ReferentPower 216Separating theFivePowerSources 216Putting lt Together:What ls Powerand How Do Youlndex lt?

The Balance ofPower 219Net Dependence 2191mbalancedDependence:ls Exploitation Inevitable? 2201mbalancedDependence:Countermeasuresfor the WeakerPartyTolerating1mbalancedDependence:The Most CommonSeenario

Exercising Power: Influence Strategies 226Six lnfluence Strategies 227The ConsequencesofEach StrategyHow to Framean lnfluence Attempt

Summary 230Discussion QuestionsEndnotes 238

218

222224

228229

238

CHAPTER 7 Managing Conflict to IncreaseChannel Coordination 243

Assessing the Degree and Nature of Channel Conflict 244What ls Channel Conflicl? 244Measuring Conflict 246

The Consequences ofConflict 247When Conflictls Desirable 247How lntense ConflictDamagesChannel Performance

and Coordination 249

Major Sources of Conflict in Marketing Channels 251CompetingGoals 251DifferingPerceptionsof Reality 252

Clash of Market Domains 256

lntrachannel Competition 256Multiple Channels:No Longer Unusual 257ls lt Really a Problem? 259What SuppliersCan Do 262Unwanted Channels:GrayMarkets 263

Fueling Conflict 266ConflictBegetsMore Conflict 266Threats 266

Conflict Resolution Strategies: How They Drive Conflict and ShapeChannel Performance 271

Resolving Conflict:lnstitutionalized MechanismsDesignedto Contain ConflictEarly 271

Stylesof ConflictResolution:How Channel MembersHandle Disputesand NegotiatetoAchieve Their Goals 275

Resolving Conflictand Achieving Coordinationvia lncentives 277

Summary 281

Discussion Questions 284Endnotes 285

Contents xiü

CHAPTER 8 Strategic Alliances in Distribution 289

Strategic Alliances: Their Nature and the Motivesfor Creating Them 290

What ls a StrategicDistributionAlliance? 290WhyForgea StrategicDistributionAlliance? UpstreamMotivesWhyForcea StrategicDistributionAlliance?DownstreamMotivesDo Alliances OutperformOrdinary Channels? 297

Building Commitment by Creating Mutual VulnerabilityThe Minimum &quirement: Expectationsof Continuity 299Why Commitmentls Ni! Unlesslt ls Mutual 300How the OtherSide Gauges YourCommitment 302Actions That Bind Distributorsto Suppliers 305Actions That Bind Suppliersto Distributors 306CreatingAlliancesvia Ties That Bind 306

Building Commitment by the Managementof Daily Interactions 308

How Can Channel MembersManufacture Trust?TheFundamental Role of EconomicSatisfactionNoneconomicSatisfactionAlso Matters 312Picking thePartner and theSetting 314

Decision Structures That Enhance Trust 316

How Do YouManufacture Trust in a Channel? 317

Moving a Transaction Through Stages of Developmentto Reach Alliance Status 317

FromCradleto Grave:The Life of a Marketing Channel PartnershiPManaging theStages 320Managing Troubled&lationshiPs 321The Virtuesof a Porifolioof &lationshiPs 321

Putting It AlI Together: What Does lt Take and When DoesIt Pay to Create a Marketing Channel Alliance? 323

Discussion Questions 326

Endnotes 327

292295

299

311311

317

CHAPTER 9 Vertical Integration in Distribution 330Introduction 330

FivePuzzles 331

Make orBuy: A CriticalDeterminant of CompanyCompetencies 332ChapterOrganization 332

The Costs and Benefits ofVertical Integrationin Marketing Channels 333

DegreesofVertical lntegration 333Costsand Benefitsofthe Choiceto Make 335The Choiceto Buy Distribution: Termsof Payment to Third Parties 337

Deciding When to Vertically Integrate Forward:An Economic Framework 339

&turn on lnvestment: The Usual Criterion 339

Outsourcingas the Starting Point 340Six &asons to OutsourceDistribution 341

xiv Contents

Vertical Integration Forward When Competiúon Is LowCompany-SPecijicCapabilities 346Six Typesof Company-SpecijicCapabilitiesin Distribution 350Rnrity versusSpecijicity:The Effectsof Thin Markets 358Turning theLens Around: Should the Channel MemberIntegrateBackward?

Verúcal Integration to Cope with Environmental Uncertainty

Vertical Integration to Reduce Performance Ambiguity 363The BaselineProblem 363Results Indicators That Are Inaccurate,Late, or Nonexistent

Summary of the Decision Framework 365

Vertical Integraúon as an Observatory on the Market or as an Opúon:Economic Rationality or Rationalization? 367

Summary 370

Discussion QuesúonsEndnotes 374

346

358

360

364

373

CHAPTER lO Legal Constraints on Marketing Channel Policies 377

Market Coverage Policies 378

Customer Coverage Policies 383

Pricing Policies 384PriceMaintenance 385PriceDiscrimination 388

Product Line Policies 399ExclusiveDealing 399Tying 403Full-LineForcing 405DesignatedProductPolicies 407

Selecúon and Termination Policies 408

Ownership Policies 411VerticalIntegrationbyMerger 412VerticalIntegrationbyInternalExpansion 413DualDistribution 413

Summary and Conclusions 414

Discussion Quesúons 418Endnotes 418

PART IV: CHANNEL INSTITUTIONS

CHAPTER 11 Retailing 425

Retailing Defined 425

Choosing a Retail Positioning Strategy 426Financial and Cost-SidePositioning:Margin and

Inventory TurnoverGoals 435Demand-SidePositioning 442Implicationsfor a Taxonomyof Retail Types 449

Contents xv

Strategic Issues in Retailing 451ManagingtheMultichannelShoppingExperience 451Recognizingand Responding to the Continued StrongPowerPosition

ofMajorRetailers 463TheContinuedGlobalizationofRetailing 470

Summary and Conclusions 472

Discussion Questions 474Endnotes 475

Appendix 11A:A Glossary of Pricing andBuying Terms Commonly Used by Retailers

Appendix 11B: Merchandise Planning and Control

479

481

CHAPTER 12 Wholesaling 484

Introduction 484

An Overview of the Wholesaling Sector 485Wholesaler-Distributors 485

TheWholesaler-Distributor'sRolein theSupplyChain 486The ImportanceofWholesaler-Distributors 487

What the Independent Wholesale Sector Offers:The Essential Tasks 488

ThreeCreat ChallengesofWholesaling: 200 YearsofPharmaceuticals 489Wholesalingin an EmergingEconomy 490Surprising Waysfor WholesalerstoAdd Value 492MasterDistributors 493

Federations ofWholesalers 495Wholesaler-LedInitiatives 496

IntegratedSupply 496Manufacturer-LedInitiatives 496The Requirementsfor Innovative WholesaleService 497

Voluntary and Cooperative Groups 498WholesalerVoluntaryGroups 498Alternative FederationsofDownstreamChannel Members 499

Consolidation 502

ConsolidationPressuresin Wholesaling 502The Manufacturer's Responseto WholesaleConsolidation 504

Export Distribution Channels 505

The Future ofWholesaler-Distributors 506

International Expansion 506ElectronicCommerce 507

B2B E-OnlineExchanges 508Online ReverseAuctions 509

Capturing ValueAfter CreatingValue:WholesalerProfitability 509

A Sketch ofVertical Integration and of Agents in Wholesaling 510VerticalIntegrationForwardinto WholesalingbyManufacturers 510Set thePriceand SeetheBuyer:Agents, Brokers,and CommissionAgents 511

xvi Contents

Summary 513

Discussion Questions 515Endnotes 515

CHAPTER 13 Franchising 518

What Is Franchising? 518

Why Become a Franchisee? 520The Start-UpPackage 523Ongoing Benefits 523Why Ask a FranchisartoProvide TheseServices? 524

Why Become a Franchisor? 525Rnising Financial and Managerial CaPitalto GrowFast 525Hamessing theEntrepreneurialSpirit 527When Is FranchisingInappropriate? 530

The HistoricaI Roots of Franchising 531The A uthorizedFranchiseSystem:Moving theProduct 531The Dividing Line: WhenDoesFranchisingStop? 535

The Franchise Contract 536

Giving and Taking Hostages, Or Why YouShouldn't Leave It to Lawyers 536The Payment System 537Who WiUBe the Landlard? 539Termination 539

Why ContractsDo Not Varywithin a System 540SafeguardsOutside the Contract 540WhenDoFranchisarsEnfarceTheir Contracts? 541

Why Franchise Systems Include Company Outlets 543Variation in Situatí~s 543

TempararyFranchisesand TempararyCompanyStares 544The Plural Farm:Exploiting theSynergyof Having Both Company

and FranchiseeOutlets 544

Exploiting Franchisees:&direction of OwnershiP 546

Ongoing Challenges Facing the Franchisor 547Survival 547

Gaining and Keeping a CooperativeAtmosphere 548Inherent Goal Conflict 549Multiunit Franchising:Handicap arAdvantage? 550OtherWaysto Cain Cooperation 552

Summary 552

Discussion Questions 555

Endnotes 556

CHAPTER 14 Logistics and SuppIy Chain Management

The Impact of Logistics and SuppIy Chain Management

Responding Efficiently 561Efficient Consumer&sponse 563Obstaclesto Efficient Consumer&sponse 564

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Contents xvii

Responding Rapidly 565

Putting It AlI Together: What Is the Right Supply Chain? 566PhysicalEfficiencyversusMarket Responsiveness 566Supply Chain Management: Why Only Now? 571

Surnrnary 572

Discussion Questions 573Endnotes 574

COMPANY INDEX 577

NAME INDEX 583

SUBJECT INDEX 589