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QUESTION 1 The correct option is 3.‘Logistics’ is defined as the management and control of the flow of goods from the point-of-origin to the point of consumption. Option 1 is incorrect, the delivery of value in relation to the customer’s belief that value has been delivered” is not the definition of logistics. Option 2 is incorrect, the process of providing ownership and convenience utility to customers, is not the definition of logistics however it can be regarded as end results of properly managing the logistics effort of the organisation, but the correct alternative speaks to the physical movement of the product after the distribution channel has been established. Option 4 is incorrect, the statement “It deals with how channel members are convinced to carry the manufacturer’s product” does not define logistics, it reflects on the establishment of the distribution channel and forms part of the activities of distribution management. Refer to page 88 in the prescribed book.QUESTION 2 The correct answer is option is 2.Ensuring that small products lots are not dispatched separately to customers in the same area is addressed by means of order consolidation. One of the biggest expenditure in logistics is transport, and one of the ways to lower the cost of transport is by shipment consolidation. Option 1 is incorrect, logistics responsiveness is when products are made available when customers want them. Ensuring that customers receive their products at the time that they need them. Option 3 is incorrect, warehousing management deals with the management of the storage and warehousing activities. Option 4 is incorrect, inventory reduction is lowering the cost of logistics, and one of the ways to do this is by controlling inventory levels. Study sec 5.4 in the prescribed book. QUESTION 3The correct option is 3. Costs incurred to determine whether the organisation can satisfy the unique needs of certain customers is NOT a transactional customer service cost, but rather a pre-transactional or post-transactional cost. Option 1 is incorrect, costs incurred to ensure that there is enough stock available even in high-demand periods is a transactional customer service cost, but rather a pre-transactional. Option 2 is incorrect, costs to improve the order cycle is a transactional, customer service cost, but rather a pre-transactional. Option 4 is incorrect, costs incurred to ensure that the ordering, transport and delivery information system is accurate is a transactional customer service cost, but rather a pre-transactional. Refer to section 5.6 in the prescribed book. QUESTION 4The correct answer is 1.If a company gets a request from a client to source an engine part for them in China it will be addressed order entry in the step of the order processing task. Order entry starts once the order is placed by the customer. Although can come from sales representative, by phone, mail or internet. Option 2 is incorrect, Order handling consists of a number of different activities. The first involves sending the order to the warehouse to determine if the product is available. This activity can consist of just sending an order through to a warehouse on the same premises or sending it internationally. Option 3 is incorrect, Order delivery, after the warehouse has prepared the order, the method of transport to send it customers will be established. This is determined by how the product will be delivered. Option 4 is incorrect, Stock management is not part of order processing and information systems as activities of logistics management. The relevant study material is sec 5.7 in the prescribed book.QUESTION 5The correct answer is option 2.Eliminate out-of-date stock is a strategy to reduce inventory. Many organisation hold stock that they no longer need. Out-of–date stock is kept by the organisation since they paid for it and do not want to get rid of it. Option 1 incorrect as increasing lead times is not the strategy to reduce inventory. Option 3 is incorrect, Prevent out-of-stock situations is not a strategy to reduce inventory. Option 4 is incorrect, rank inventory items in terms of their importance for buyers is not a strategy to reduce inventory. The relevant study material is sec 5.4.3 and sec 5.9 (buffering) in the prescribed book.QUESTION 6The correct option is 1 A company expects that the demand for their product is going to increase due to a very successful advertising campaign that was launched 3 months ago. In this case keeping more products in stock will be classified as anticipatory inventory. Option 2 is incorrect, safety inventory. This is the inventory kept in case of change in demand, delivery delays or no supplies. The reasons why organisations keep stock is to satisfy customers’ needs and avoid any out of stock situations that can affect sales and service. Option 3 is incorrect, work-in-progress inventory is the inventory that is in the process of being transformed from one state to another, and cannot be sold to a customer since it is still in the process of being finished. Option 4 is incorrect, replenishment inventory is not the type of inventory that is classified to assist in the process of managing inventory. The relevant study material in the prescribed book is section 5.9.3.QUESTION 7The correct answer is 4.Determine the size of the product is NOT an objective of packaging design and development. Packaging very seldom determines the size of the product. As a matter of fact the opposite is commonly the norm. Small and convenient package sizes are frequently influenced by the transport demands of logistics management. We, as marketers, are more interested in how the packaging of the product can contribute to enhancing the marketability of the product. More often than not, consumers’ buy products more on the quality and recognisability of the packaging that what is inside, as most competing products is quite similar in terms of their quality and features. Options 1 is incorrect, “contribution to the labelling of the product” is the objective of packaging design and development. Options 2 is incorrect, “assist the sales promotion effort of the organisation” is the objective of packaging design and development. Options 2 is incorrect 3, Contribute to the quest for a “greener” environment is the objective of packaging design and development. Refer to page 110 in the prescribed book. QUESTION 8The correct answer is 4. This is an example of a corporate vertical marketing system. A corporate VMS is a marketing system that combines various productions and distribution stages under one ownership. Option 1 is incorrect, Contractual vertical marketing system is the system in which different levels of production and distribution in independent organisation that has a formal agreement to partner for acquiring greater economies of scale or greater sales volume. Option 2 is in correct as administered VMS through the size and power of one of the parties achieves successive stages of production and distribution. Option 3 does not form part of the VMS. This is discussed in page 131 of the textbook. QUESTION 9The answer to this question is 2When a wine merchant decides to acquire a wine farm in order to sell its wines in his store he is performing channel design. Channel design refers to the decisions that are taken by the organisation to form a new distribution channel or change an existing one. It refers to the decisions associated with developing new marketing channels where none had existed before or to modify existing ones. Option 1 is incorrect, logistic management deals with the movement of goods from one place to another through a distribution channel within an organisation. Option 3 is incorrect. Vertical integration. A conventional marketing channel comprises an independent producer, wholesaler/s and retailer. Each is a separate business seeking to maximise its own profit, even if this goal reduces profit for the system as whole. No channel members has control over other members. Option 4 is incorrect, Inter-organisational channel refers to two or more organisations coming together to achieve a goal, perform a task and provide a service. Relationships is formed when members of two or more organisation are able to receive mutual benefits or gain from interacting. Study sec 4.2 and 4.3 in the prescribed book in this regard.QUESTION 10The correct answer is 1.The manufacturer allowing too many distributors in a particular sales area cause of conflict of 'oversaturation. Option 2 is incorrect, “The manufacturer decides to keep some of the higher volume retailers to sell directly to”, does not describe the cause of conflict of 'oversaturation. Option 3 is incorrect, “Manufacturers that force intermediaries to adhere to sales quotas”, does not describe the cause of conflict of 'oversaturation. Option 4 is incorrect, “The manufacturer promotes the product to its channel members and limiting the quantity of products available”, does not describe the cause of conflict of 'oversaturation. Altogether 18 causes of conflict are discussed in the prescribed book (sec 7.7).QUESTION 11The correct answer is 4. Facilitating activity perform the function of providing market information, marketing research and marketing information system in order to develop a distribution information system as part of the activities of channel members. Option 1 is incorrect as it deals storing, transporting sorting the products and Option 2 is incorrect as it focus on the buying from the sellers, promoting products and absorbing the risk of product ownership. Option 3 is incorrect as it covers the information and knowledge gap. This is discussed in page11 of the text book.QUESTION 12The correct answer is option 2 Truck jobbers are wholesalers are used by organisation that manufacture perishable goods which needs frequent replenishment and they can be used to service only and to distribute goods only within a particular region. Option 1 is incorrect as Truck jobbers are wholesalers who service a portion of a store, Option 3 they are wholesalers from whom the retailers buy for cash and then transport the product to their stores. Option 4 are wholesalers that sell products from catalogues that are distributed widely to retailers. This is discussed in page 4 of the text book. QUESTION 13The correct answer is option 4 Dibonaires Pizza is franchise. Franchise a “business marriage” between an existing and established business and the independent person. Option 1 is incorrect as wholesaler is a business that buys large quantities of products, store them and sell them to retailers. Option 2 is incorrect as retailer is a business that sells goods and services to the end users of the products or service. Retailers play an important role in the process of selling products and services as they provide the environment where the final exchange is made. Option 3 is incorrect as tuck-shop is a small retail operating from a residential or home in a formal and informal township or from a container. They sell basic grocery products in an informal setting and are often family run business. Refer to page 56 in the prescribed book.QUESTION 14The correct answer is option 3 It is necessary that one defines a particular field of study before you commence with your studies. In this case there are actually four concepts that need to be defined, namely a distribution channel, Distribution management, Supply chain management and Logistics management. A distribution channel refers to the “conduit” through which products flow from the manufacturer to the final customer and consists of a network of all the organisations that are directly or indirectly involved in delivering the final product to the customer- see p 2 and section 4.3.2 of the text book in this regard. QUESTION 15The correct answer is option 3 A Harley Davidson motorcycle is sold in dedicated Harley shops, the company manufactures and distributes its motor cycles through its selected dealerships distribution, its products is mostly follow a more selective distribution channel since they will only be made available only Harley Davidson dealerships. Option 1 is incorrect as intensive distribution is used by enterprises that manufacture fast –moving consumable goods. Option 3 and 4 do not form part of the distribution structure decisions. This is explained in page 19 of the study guide. QUESTION 16The correct answer is option 1A distribution channel refers to the “conduit” through which products flow from the manufacturer to the final customer and consists of a network of all the organisations that are directly or indirectly involved in delivering the final product to the customer. Option 2 is incorrect, intermediaries channel are firms that operate between the producers/manufacture and customers or industrial users. Option 3 is incorrect, Channel relations are relationships that manufacture create with channel members. Option 4 is incorrect. Sales channel are intermediaries who are contracted by the manufacturer to sell production output. Refer to section 4.3.2 of the text book. QUESTION 17The correct answer is option 3. When a retailer decides to provide a delivery service to his clients he is addressing spatial gap between his business and its customers. Spatial gap is used by manufacturer to bridge the transportation, material handling and delivery gap. Performing physical (logistical activities) fills the spatial gap between participants in the distribution channel and in the process affords the final customer with place utility. Option 1 is incorrect, Logistical refers to the efficient and cost-effective forward and reverse flow and storage of goods, services and related information into, through and out of the channel member companies. Option 2 is incorrect. Relationship gap is not part of the bridging gap between manufacturer/producer and customers. Option 4 is incorrect, delivery gap does not exist in isolation, it is part of the spatial gap. The gaps to be filled by the distribution activities in the marketplace are discussed in fig 1.1 and Table 1.2 in the prescribed book.QUESTION 18 The correct answer is option is 3 Supply chain management aims to establish closer relationships between internal and external channel parties is a characteristic (principle) of supply chain management. Option 1 is incorrect. Channel members aim to obtain maximum cost savings for themselves is not a characteristic (principle) of supply chain management. Option 2 is incorrect, supply chain management aims to integrate all the supply chain activities under one umbrella is not a characteristic (principle) of supply chain management. Option 4 is incorrect, an aim of supply chain management is to increase the number of intermediaries utilised by the manufacturer is not a characteristic (principle) of supply chain management. The most common areas of channel integration/alignment are discussed in sec 2.2.2 of the prescribed book.QUESTION 19 The correct answer is option 3.Technological development is considered a supporting activity within the value chain. Technological development deals with the all the equipment, be it hardware of software, that assists the organisation in transforming an input into an output. Technology advancement is one of the ways in which an organisation can get a competitive advantage over its rivals in the market. Option 1 is incorrect. Inbound logistics deals with the production that come from suppliers that are received, warehoused and moved around within the organisation as needed in the production or assembly line. Option 2 is incorrect, outbound logistics deals with the produced products that sent further in the supply chain. These products need to be collected, warehoused and distributed. Option 4 is incorrect. Marketing and sales are all the activities aimed at making consumers aware of the products and getting them to buy them. This is done by means of the marketing communication mix. Part of the activities is also facilitation of the buying process. Refer to page 37 in the study guide.QUESTION 20The correct answer is option 4Telemarketing is a type of intermediary that could be in the distribution channel, it is another form of direct marketing used by enterprises. Option 1 is therefore incorrect as correct type of intermediary is direct on-site, Options 2 are incorrect as correct type of intermediary is direct mailing. Options 3 is not part of the type of intermediary in the distribution channel. This is discussed in page 39 of the textbook. QUESTION 21The correct answer is option 4Product differentiation is the elements identified in Porter’s model which has a direct impact on the distribution channel. Option 1, 2 and 3 are incorrect as they are not elements of the Porter’s model that have direct impact on the distribution channel. This is discussed in page 45 of the textbook. QUESTION 22The correct answer option is 1 Whether new distribution channel are busy developing is not a variable/criterion to consider when evaluating a specific intermediary. Option 2, the characteristics of the customers they serve is a variable/criterion to consider when evaluating a specific intermediary. Option 3, whether they are prepared to take ownership of the product is a variable/criterion to consider when evaluating a specific intermediary. Option 4, the time they take to settle their accounts with suppliers is a variable/criterion to consider when evaluating a specific intermediary. This is discussed in page 71 of the textbook.QUESTION 23The correct answer option is 2 Contractual vertical marketing system is the system in which different levels of production and distribution in independent organisation that has a formal agreement to partner for acquiring greater economies of scale or greater sales volume. Option 1 is in correct as administered VMS through the size and power of one of the parties achieves successive stages of production and distribution. Option 2 that corporate VMS combines various production and distribution stages of under one ownership. Option 4 does not form part of the VMS. This is discussed in page 131 of the textbook. QUESTION 24The correct answer option is 3 A farmer that exhibits his products at morning markets and hawker stalls is not an example of an indirect marketing channel. An indirect channel is one where intermediaries are utilised to get the product to the final consumer, whereas a direct channel implies that the manufacturer sells the product directly to final consumers. Option 1 is incorrect, an importer that buys his products from China is an example of an indirect marketing channel. Option 2 is incorrect. A steel producer that sells his materials to bicycle manufacturers is an example of an indirect marketing channel. Option 4 is incorrect. Makro that sell its products to Spaza shops in rural areas is an example of an indirect marketing channel. Refer to page 39 in the prescribed book. QUESTION 25The correct answer option is 3 Shoe City store use intensive distribution and has wide market coverage and is found in every major cities. Option 1, is incorrect as direct distribution is the system that moves goods direct from the distributor to the consumer. Option 2 is incorrect is selective refers to the limited intermediaries who are willing to hold a company’s products. Option 3 is incorrect as is not part of the channel design strategies. This is discussed in page 128 of the textbook. QUESTION 26The correct answer is option 4.A supply chain consists of the manufacturers of the product, the intermediaries, that make the product available to retailers, the retailers themselves, the customers of the product and the parties responsible for the recycling of the product that has been consumed. Option 1 is incorrect, supply chain does not consists of all the parties that contribute to making the product available to retailers. Option 2 is incorrect. A supply chain does not consist of the parties that ensure that value is added to the “raw” product. It is wrong because value is not only added to the raw materials, but throughout the value chain. Logistics refer only the “physical” movement of the product through the channel to the final consumer and represents only one of many activities performed by distribution management. Option 3 is incorrect. A supply chain does not consist of the logistical companies that are responsible for the movement of the product through the distribution channel. It involves all parties from the manufacturer, wholesalers, retailers, brokers that is available to make the products available to the customers. Refer to page 20 in the prescribed book. QUESTION 27The correct answer is anisations that collects products from manufacturers, keep them in stock, break up the bulk quantities into smaller packages and transport them to where consumers come to buy them are known as wholesalers. Although some wholesalers focus on transporting products to retailers and to final customers (truck jobbers) they do not perform the tasks that are mentioned in the question header. Option 1 is incorrect, retailers are businesses that sells goods or services. Retailers play an important role in the process of selling products and services as they provide the environment where the final exchange is made. Option 2 is incorrect. Agents do not take title of the products, and offer their customers a very limited number of services. Option 3 is incorrect. Transport intermediaries are organisations that render transportation service to manufacturer/producer without taking ownership of the goods or services. Refer to page 4 in the prescribed book. QUESTION 28The correct answer is option 3The criteria that Amalgamated Appliances Holdings will use to choose the one-level distribution channel option to distribute its product to retail outlets such as DionWired will be the financial position of the intermediary. Option 1 is incorrect as the attractiveness of the intermediary is not the correct criteria used to evaluate the the one-level distribution channel option to distribute its product to retail outlets. Option 2 is incorrect as the store design layout of the intermediary is not the correct criteria used to evaluate the one-level distribution channel option. Option 4 is incorrect as the order processing cost of the intermediary is not the correct criteria used to evaluate the one-level distribution channel option. Refer to page 41 in the study guide.QUESTION 29The correct answer is option 4Forward vertical integration is the system whereby a manufacturer and wholesalers either acquire or take over the functions of an intermediary. Option 1 is incorrect as the attractiveness of the intermediary is not the system whereby a manufacturer and wholesalers either acquire or take over the functions of an intermediary. Option 2 is incorrect as forward horizontal integration is not the system whereby a manufacturer and wholesalers either acquire or take over the functions of an intermediary. Option 3 is incorrect as backward horizontal integration is not the system whereby a manufacturer and wholesalers either acquire or take over the functions of an intermediary. Refer to page 66 in the study guide.QUESTION 30The correct answer is option 3Productivity is the correct option regarding the approach to applying performance criteria in order to effectively audit channel members’ performance, it is important to start with the standards for measuring the achievement of a distribution channel. Option 1 is incorrect as suitability is not the correct option regarding the approach to applying performance criteria in order to effectively audit channel members’ performance. Option 2 is incorrect as accessibility is not the correct option regarding the approach to applying performance criteria in order to effectively audit channel members’ performance. Option 4 is incorrect as affordability is not the correct option regarding the approach to applying performance criteria in order to effectively audit channel members’ performance. Refer to page 69 in the study guide. SECTION BQUESTION 11.1One of the most important decisions that Melody Food Distributors will have to make is what role it should play in the distribution channel. Many types of wholesalers and agents operate in distribution channels. Explain to the company the different types of wholesalers and agents that it should consider when deciding on the form the business should take in the distribution channel (7 marks), and indicate which type of intermediary you believe its business should become (3 marks). ANSWERWholesalersPlay an important (value adding) role in collecting, storage facilities (i.e. perishables), bulk breaking, providing assortment, financial risk (changes in demand, price changes and spoilage) and marketing (sometimes) taking key role due to SAs small manufacturing sector and few small retailers. “True” wholesalers do not trade directly with the public – only a few such as Makro and Trade Centre (cash-and-carry wholesalers).For example, distribute Melody Food Distributors its product through sub-contractor of manufacturing companies. An established KZN based operation with two freezer trucks in operation. sub-contractor provides storage facilities, bulk breaking of ice creams. Cash-and-carry wholesales These are wholesalers from whom retailers buy cash and then transport the product to their store. Rack-jobbersMost distributors take ownership of the manufactured goods. Rack-jobbers lease part of a retailer’s store/shelve (i.e. one-stop shops), restocks and receive payment for the products when they are sold. Bring products in from other wholesalers or use their own products. For example, Melody Food Distributors use rack-jobbers to lease part of a retailer’s store/shelve (i.e. one-stop shops) and keep ownership of the ice cream.Truck-jobberOrganisation that manufacture perishable goods which need frequent replenishment frequently use truck jobbers because they distribute goods only within specified geographic area in order to preserve the products’ freshness. In most cases trucks jobbers are chosen as the best wholesaling technique because they present a quick and regular delivery. Melody Food Distributors to reach the market, provides preferential manufacturing costs and distribution, and essentially brings the brand Melody Food Distributors into a bigger fold. Use truck jobbers because they distribute goods only within specified geographic area in order to preserve the products’ freshness.Agents/BrokersLink other parties in channel (facilitator) to add value for them, but do not take ownership or custody of the product (except “stockist agent”) → less capital tied up.Main type of intermediary is an agent. Sells for many manufacturers (salesperson) in confined area and remunerated by means of a commission. Assist in negotiating price, delivery and commission terms. Focus more on international and agricultural markets. Benefits: have technical and market (customer) information, cheaper than own sales force (sometimes). Disadvantages: Difficult to train, control and motivate by wholesaler/manufacturer. Focus more on larger accounts due to higher commissions. Do not follow up on sales. Do not carry parts or do repairs.Four types of agents: Manufacturer agents are independent agents who normally represents two or more manufacturer that produce complementary products. They normally represents the manufacturer/producer with whom they have entered into a contract. Selling agents are intermediaries who are contracted by the manufacturer to sell the entire production output. This type of agent is taken on by organisation that are incapable of employing their own fulltime sales force. Purchasing agent – acquire products on behalf of customers. Commission agents – buy products from manufacturers and sell them at the best price. These agents are able the best to get the best prices for products, and they also provide a consultancy missioner agents are intermediaries who purchase goods from the producer/manufacturer and then sell them in the market for the best possible price.QUESTION 1.2Conflict between channel members is quite common. It prevents the distribution channel from functioning optimally. Explain to Melody Food Distributors three causes of conflict that may take place between channel members (7 marks), and suggest actions that the company can take to prevent these conflicts from happening (3 marks). ANSWERCauses of channel conflict Role incongruities: Each member in the channel has certain roles to fulfil. Moving outside these roles or not perform the expected roles = conflict.Resource scarcities: One example provided = using the same retailers by wholesalers and manufacturers. (Direct vs indirect distribution).Perceptual difference of different channel members of environmental factors. Manufacturer provides sales support material not correctly utilised by retailer.Expectation differences: related to role incongruities. Members expect different aims and behaviour from channel partners which are not adhered to.Decision domain differences related to one above and first one. Members believe that some responsibilities/decisions are theirs but agreement does not exist. How manufacturers and wholesalers expect the retailer to price the product.Goal incompatibilities: Related to the above. If member does not achieve the set goals that is stipulated in the agreement = munication difficulties: different communication demands between members– breakdown = conflict.Oversaturation: Manufacturers or wholesales supplying too many retailers in an area or franchisors allowing too many franchise holders in an area.Stocking levels: manufacturer or wholesales expect retailer to prevent out-of- stock situations, but stock and stock keeping costs money.Direct vs indirect selling: related to role incongruities – manufacturer selling direct to final customers and to retailers.Regional vs national distribution: Same as one above, but manufacturer allows for a national and regional wholesaler = conflict.Sales quotas: Manufacturer/wholesaler setting too high sales targets to next member. I can’t sell/ you should sell = conflict.New market development: who is responsible for the groundwork in exploring new channels or areas of business?Training: how much should be done.New product launches: manufacturer expects channel members to work hard to make it a success = conflict.Overselling: manufacturer launches a new product and marketing campaign, but wholesales/retailers are understocked – leads to losing sales = conflict.Pricing issues: important cause of conflict. Manufacturer and retailer have different environment impacts in which the product must be priced. Nor the same = conflict.Profit margin/compensation of channel members. Important source of conflict.Prevention of conflictA channel-wide committee can be established for periodic evaluations of rising problems that relate to conflict. Such a committee can function as a crisis manager that provide different meetings for the channel members who have different points of view. Join goal setting can be done by the committee (or some other vehicle), which takes into consideration the different goals and abilities of the various channel members, the needs of consumers and environmental restraints that would all help to lessen the conflict. A distribution executive position can be created for each major firm in the channel. The individual that fill this position would be responsible for uncovering the organisation’s distribution-related problems. There are mechanisms available that organisation can use in order to prevent any conflict from growing:Information-intensive mechanism- These consist of combined groups to deal with conflict, exchange of persons, in other words, manufacturer’s representatives working with representatives of the middleman and top management meeting with channel partners on a continuous basis.Third-party mechanism – These involve independent parties as conciliations or mediations in order to resolve conflict.Building relational norms – Norms are the expectations of the channel members’ behaviour. A channel with strong relational norm refrains from protecting its own interest at the cost of other channels. QUESTION 2.1 The management of Melody Food Distributors realises that they have to consider a number of environmental factors before they redesign the existing distribution channels to their customers. The most important of these environmental factors are customer characteristics and buying behaviour, product characteristics, channel characteristics, and general environmental influences. Explain how you believe these factors would impact on Melody Food Distributors choice of a new distribution channel for its products. Discuss the environmental factors (3 marks will be allocated for each factor and 1 mark for the application thereof). ANSWER 1.IntroductionDeciding on the type of distribution channel to use, selecting the right intermediaries to carry and sell the product, developing a physical channel through which the product is moved and managing these activities in a cost effective way are becoming a very important challenge for the management of most organisations. In order to make sound decisions in this regard all the internal and external factors impacting on these activities need to be carefully analysed. In this assignment the most important factors impacting on the selecting and managing of a distribution channel will be highlighted.Internal factors impacting on distribution channel decisionsThree sets of factors from within the organisation have a particularly strong bearing on making sound distribution decisions, namely the features of the organisation’s product(s), the strengths and weaknesses of the firm and the business and marketing strategies that they are pursuing. In this section we will consider the product characteristics of Melody Food Distributors and the life-cycle strategy that they should pursue. Market considerationA good and realistic point to start when considering a distribution channel is the target market; in other words their needs, structures and buying behaviour. The following must be taken into considerations:Type of marketDifferent distribution channels are used in order to reach different types of markets due to fact that the characteristics of consumers are totally different from those of business users directly while they are approaching consumers indirectly through retailers. Number of potential customers Producers/manufacturers that have limited potential may use their own sales force to sell directly to ultimate consumers. For example, Melody Food Distributors has a very big market for its shoes business and therefore is making use of a number of different middleman to market its products.Geographic concentration of the marketWhen the majority of organisational customers are located in the same geographic area, direct sales are a very practical way of distribution.Order sizeDirect distribution is economical the moment that the size or the total volume of an organisation is large, therefore, a large food manufacturer will sell directly to grocery stores, for example, Koo or Gold. The most important aspect in any marketing-related investigation is to ask the question: “What does the consumer want?” Where customers expect the products to be available is probably the most deciding factor in selecting specific intermediaries. Analysing customers’ buying and consumption behaviour will, inter alia, look at the size of the market, the geographic concentration of the target market, their existing brand preferences and their expectations in terms of after sales service. 1.2Product consideration A number of characteristics of the organisations products need to be considered before a decision can be made about the distribution channel to be used. Because Melody Food Distributors may make use of agents/wholesalers that can do the negotiation for them and also ensure that the infrastructure is in place for the shoes to be delivered on time and in the quantities required by the retailers. Although the final consumer requires limited advice from the retailer’s sales staff, they still need to be available. It is not a product that can be sold on a purely self-service basis.The life cycle phase the product should be considered both from a narrow and a broad perspective. Obviously the shoes product category is in its maturity phase, which is characterised by stringent competition and frequent product improvements being introduced by these competitors. The choice of retailers will therefore require that they contribute to the successful launch of the Melody Food Distributors product line into this well-established market.The product is the second when developing a distribution channel, the most important aspects of which are listed below.Unit value The price that is attached to each product unit has an influence on the amount of funds available for distribution. The narrow perspective shows that Melody Food Distributors products are in the introductory phase of their life cycle, which dictates that they require sales support from their retail partners so as to introduce the products to customers and that a pricing strategy of these retailers are in line with Melody Food Distributors market penetration or market skimming objective. A broad perspective to life cycle management looks at the whole product category to determine what Melody Food Distributors strategy should be.PerishabilityThe most important of these factors are the perishability of the product, its unit value, the physical features of the product, and the phase of the life-cycle the product is in (from a broad and narrow perspective). In terms of the physical features of the product its size, durability and relative complexity will determine whether a longer distribution channel is required than the one that is currently being used. At least a wholesaler or transport company will be needed to get the product to where customers expect to buy it. Some products have a very short shelf life, such as milk and fresh flowers, and therefore need to be sold through short distribution channels.Technical nature of the productBusiness products that are highly technical are usually distributed directly. The producer/manufacture sales force must provide significant pre and post- sale service. The reason for this is to limit the work load of after-sales service for the sales force due to the fact that the store personnel have the ability to handle customer queries.The narrow perspective may reflect Melody Food Distributors products being in the introductory phase of their life cycle, which may require sales support from their retail partners so as to introduce the products to customers and that a pricing strategy of these retailers are in line with Melody Food Distributors market penetration or market skimming objective. A broad perspective to life cycle management looks at the whole product category to determine what Melody Food Distributors strategy should be. Obviously the shoes product category is in its maturity phase, which is characterised by stringent competition and frequent product improvements being introduced by these competitors. The choice of retailers will therefore require that they contribute to the successful launch of the Melody Food Distributors product line. 1.3Middlemen considerations It is important to consider middlemen due to the following reasons:Service provided by the middlemenIt is important that producers/manufacturers choose middlemen that offer specific marketing services which they themselves can either not provide or economically perform. For example, when a firm wants to enter South African market, it will usually utilise industrial distributors due to the fact that they provide specific needed capabilities such as market coverage, sale contracts and storage of inventory. Availability of desired middlemenThe middlemen that are perceived by the producer/manufacturer may not be available. They may be involved in competing products and therefore not want to add another line. For example, if Pick ‘n Pay is already selling the Apple iPad is already, may not want to add another prepared to sell the Samsung Galaxy as well due to the high competition between the two brands.Attitude of middlemen towards producer’s policiesIt can sometimes happen that middlemen are not willing to join a channel due to the fact they perceive the policies of a manufacturer to be unacceptable. In such a case there will be fewer channel option for the manufacturer. The first important consideration in this regard is how the existing channels look like that are commonly used for this type of product. Looking at the channels that competitors are using will also be an indication of what will work in the marketing of refrigerators aimed at private households. A second area is the availability of intermediaries that will be able/willing to perform the activities that expects of them, and vice versa. This point reflects on the principle of channel power, which in simple terms asks the question: “Who is in charge of the channel?” In the case of refrigerators the “channel captain” will most probably be the large retailers. They will dictate the terms for carrying Melody Food Distributors. Furthermore, the service provided by the retailers to their clients will have a deciding effect on how successful Melody Food Distributors will be with their new product launch.1.4Company considerationsIt is critical for an organisation to consider their own situation by doing SWOT analysis of their resources before they select a distribution channel for their products.Desire or channel controlSome producers/manufacturer establish direct channels due to the fact that they want to control the distribution of their products, even though a direct channel may be more costly than an indirect one. By controlling the channel, producer/manufacturer can achieve more aggressive promotion and full use of the marketing mix.Service provided by sellerSome producers/manufacturer can make decisions about their channels based on the distribution function that is desired by the middlemen. For example, producers/manufacturer with high advertising campaigns such as Pepsi or Coke will make use of indirect distribution channels, because retailers who are satisfied with the services of such producers/manufactures will be eager and ready to stock their products. Ability of management The marketing experiences and managerial capabilities of a producer/manufacturer will influence the decisions about the type of channel to use. Many organisations that are lacking marketing know-how will turn the distribution job over to the middlemen.Over and above the features of Melody Food Distributors products, aspects such as their financial strength, existing marketing strategy (in terms of aspects such as pricing, marketing communication and existing distribution channel relationships) and general strength and weaknesses need to be considered. In terms of their channel relationships they need to consider whether to keep their existing partners, and if some of them could also be utilised in carrying their new products.Melody Food Distributors is planning to budget quite a large sum of money to market the new product line, in order to “pull” the products through the channel and are therefore adamant that they enjoy the full support of the retailers that decide to carry their products. They, therefore, aim to exert reward power on the other channel participants. Whether this strategy will be successful, only time will tell.1.5Financial resourcesAny organisations with sufficient resources can establish its own sales force, award credit to its customers, or warehouse its own products, while a financially weak middlemen for the same. For example, has established its own “No name” brand and is performing all the distribution activities. After a company has taken the above aspects into consideration, it will be able to select the best possible distribution channels for its products so that they will reach the end users in the shortest possible period of time. Management should keep in mind that the best distribution channel should be the one that provides the best performance in terms of effectiveness at the lowest possible cost. There are four additional steps that organisation (manufacturer) can follow to ensure that they select the best possible distribution channels. These are as follows: Step 1 – Identify the most important decision factors by means of developing objectives that will enable management to choose the best distribution.Step 2 – Assign a weight of importance (in percentage) to each factor that was identified.Step 3 – Rank each channel alternative against the decision factors on a scale of 1-10.Step 4 – Multiply the factor weights with the factor score and add the totals up. For example, let us assume that Melody Food Distributors must make a decision between two distribution channel designs. The first option is make use of a national retailer to sell shoes to the end customers, and the second option is to make use of a wholesaler and a number of retailers. The management of Melody Food Distributors must decide on the following important factors and weights that will influence the distribution decision:Effectiveness in reaching the target market (30%)Amount of net profit if the channel operates effectively (40%)Amount of capital needed by the company (20%) Amount of channel control that wants (10%)The weight allocation implies that the main consideration of the manufacturer are profit and reaching the target market. The amount of capital needed is not that important, the channel control is of lesser importance. QUESTION 2.2Intermediaries are introduced into a distribution channel structure when their specific skills facilitate the overall exchange process and bridge certain gaps. Discuss the gaps that can be found in the distribution channel. Theory counts 8 marks and practical application counts 2 marks. ANSWER Gaps found in the distribution channel 10 marks must be awarded only if 8 marks for theory and 2 marks for practical application = 10 marks.Section 1.4 in the prescribed textbookSupply sources are geographical disposed throughout the country, and basic need for physical transportation is created. The wine industry is predominantly located in the Western Cape, but certain raw materials and equipment are manufactured in other provinces and overseas. Goods are manufactured in large quantities but retailers order smaller product product quantities thus creating a timing discrepancy. Emphasis is subsequently placed on the best timing of a product flow through distribution channels via production scheduling, just in time ordering systems and inventory control procedures.In agricultural production and multi-manufacturing, goods are produced or grown at substantially different times than are demanded. The consumer wants the manufacturer’s product immediately rather than whenever the manufacturer can supply it, thus there is a temporal discrepancy that a channel of distribution can solve by stocking the product.A discrepancy of quantity and assortment exists because manufacturer produce large quantities of products whereas consumers purchase in single units as part of an assortment.Transfer of ownership of the goods from the manufacture to the customer emerges. These discrepancies of possession, knowledge and /or ownership require that the intermediary provide information about the items, and perhaps some temporary credit, guarantee or adjustments in order to complete the sale to the consumer. QUESTION 3.1Before Melody can make a final decision about which distribution channel to use, she could work through the steps in designing a distribution channel. Explain to Melody Food Distributors the steps involved in designing a distribution channel (6 marks) and briefly apply them to Melody’s business (4 marks).ANSWERSteps involved in designing a distribution channel (theory = 7 practical = 3 marks)Step 1: Specifying the role of the distribution channel Study guides step 4 says: Evaluate the factors that may affect the selection of the distribution channel: market, product, intermediary and organisation factors. May be discussed here. Text book: Three aspects: - Identify customer segmentsTheir needs and purchasing behaviour will determine the distribution channel to be used. Establish channel functionsThe channel should address the following requirements: Product information requirements of customer, product quality assurances, lot size demands, assortment demands, availability demands, after-sales-service requirements and logistical requirements. Establish channel objectivesIn line with marketing objectives and strategy. Defensive channel = same as competitors’, Offensive = try to gain a competitive advantage. Channel objectives set in terms of sales volume to be realised, profitability aims, market share aims, outlets to be serviced, geographic area to be covered and customer service levels to be reached.Step 2: Selecting the type/structure of channel Study guide says identify channel activities first. Then decide if middlemen are needed to perform these activities – direct vs indirect distribution channel. How many levels? There are actually three options: direct distribution systems, indirect distribution systems and multi-channel/hybrid distribution system.Step 3: Determine the intensity of distribution required/market coverage Three levels of market coverage/intensity: Intensive, selective and exclusive. This decision will also influence the decision on the structure of the channel – many middlemen at different levels, few middlemen and direct marketing. May also discuss speciality, convenience and shopping goods as they apply to market coverage.Step 4: Choose specific channel members Step 2 identified the levels. Here specific intermediaries are chosen at each level. Students may discuss the types of middlemen here, but is not required. They should refer to their answer to Question 2 (a).Step 5: Evaluate channel performance (performance audit) Determine: - Existing customers’ loyalty to the existing distribution channel and the channel’s ability to attract new (switching) customers.Channel members’ performance in terms of sales quotas (sales per product and income per product), average inventory levels, delivery time, treatment of damaged, lost goods and out-of-stock situations, promptness of payments, attitudes (cooperation, conflict and aggressiveness of sales effort), selling capabilities, feedback of market information, shelf space afforded, promotional activities, training programmes to employees and customers, customer service rendered (ia complaints from customers), competition in the channel and growth prospects of intermediaries.Corrective action: Develop process for determine the needs and problems of intermediaries and how to address these problems.Important: Study guide uses the following process:Determine channel objectiveSpecify the distribution activitiesDevelop possible distribution channel alternativesEvaluate the factors that affect selection of distribution channelSelect the best distribution channelSelect the specific intermediariesQUESTION 3.2Channel power implies that one or more members of a distribution channel are recognised by the other members as having some sort of decision-making power. Describe the five types of channel power that may be applicable to Melody Food Distributors’ distribution channels. Theory counts 5 marks and practical application counts 5 marks. ANSWERChannel PowerReward powerAs the name implies, organisations provide incentives to the channel partners to perform extra tasks at the specific points in time. This type of power is the most persuasive but it cannot be used if it may become a habit or get taken for granted. Motivation through the use of money cannot be used every time for every new task the intermediary is expected to perform. An example of reward power is when a new product is being launched and the distributor is paid an incentive if it is able to achieve the placement of the new product in 100 per cent of the outlets it covers within 4 weeks of the launch.Coercive powerThis is the power of a ‘threat’ used by the organisation in order to put a non-paying channel partner back on track. The threat can be to take away some support or even to discontinue the channel partnership if the partner does not do something which the organisation wants it to do as part of the requirement to sell more of the products. An example is a consumer product company which may have an order from a major customer who wants a credit period of 15 days. The company has to persuade the distributor to extend this credit to the customer, and may use coercive tactics to do so. 3Reference powerThis power originates from the well-known position that the company holds in the industry. It generates immediate recognition and respect, and any intermediary that is associated with this kind of organisation will automatically get a positive image. 4Legitimate power This is enforcing any task that is expected of the intermediary as negotiated in the contract. The organisation has the right and the power to get this work from the channel partner, and the intermediary has the responsibility to deliver this expectation. 5Expert powerThis implies that the organisation has some type of special knowledge and skills that add value to the channel partner. The support can take on any form of specialised knowledge in developing new businesses in which the organisation can train the sales personnel of the distributors. Without this training support, the intermediary would not be able to perform well. This disadvantage of this kind of power is that it has limited usefulness unless the organisation keeps developing valuable knowledge which can add value to the intermediary. Organisations such as LG and Samsung have developed this kind of expertise power which is recognised by the industry in which they operate. ................
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