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					Chapter                          15
        Distributing Products
        Quickly and Efficiently


Chapter
  Contents

Brief Chapter Outline                                                                 15.3
Other Teaching Resources                                                              15.5
What’s New in this Edition                                                            15.8
Lecture Outline and Lecture Notes                                                     15.10
PowerPoint Slide Show                                                                 15.48
Transparency Acetate Notes                                                            15.52
Casing the Web                                                                        15.57
     Multilevel Marketing
Answers to Video Case Questions                                                       15.60
     Bricks & Clicks – Mall of America & Amazon
Lecture Links                                                                         15.61
     Lecture Link 15-1: What Ever Happened to Do-to-Door Delivery                     15.61
     Lecture Link 15-2: What Opportunity Does Scrambled Merchandising Create?         15.61
     Lecture Link 15-3: What Intermediaries to Use                                    15.62
     Lecture Link 15-4: From Mom and Pop Stores to Systems                            15.63
     Lecture Link 15-5: Electronic Data Interchange and Efficient Consumer Response   15.63


                                            15.1
       Lecture Link 15-6: Opening New Channels for Consumers                                 15.64
Supplemental Internet Exercise                                                               15.65
       Internet Auctions: Bypassing the Retailer                                             15.65
Critical Thinking Exercises                                                                  15.66
       Critical Thinking Exercise 15-1: Distribution Channels                                15.66
       Critical Thinking Exercise 15-2: Shop til You Drop                                    15.67
Supplemental Cases                                                                           15.68
       Supplemental Case 15-1: The Megamalls Are Here                                        15.68
       Supplemental Case 15-2: Bringing Services Home for Pets                               15.71
       Supplemental Case 15-3: United Stationers: Office-Supply Intermediary                 15.74




15.2                                           UNDERSTANDING BUSINESS: Instructor’s Resource Manual
Brief
  Chapter Outline

CHAPTER 15
  DISTRIBUTING PRODUCTS QUICKLY AND EFFICIENTLY
GETTING TO KNOW GUS PAGONIS OF SEARS

I.      THE EMERGENCE OF MARKETING INTERMEDIARIES.
        A.       Why Marketing Needs Intermediaries.
        B.       How Intermediaries Create Exchange Efficiency.
        C.       The Value versus the Cost of Intermediaries.

II.     THE UTILITIES CREATED BY INTERMEDIARIES.
        A.       Form Utility.
        B.       Time Utility.
        C.       Place Utility.
        D.       Possession Utility.
        E.       Information Utility.
        F.       Service Utility.

III.    WHOLESALE INTERMEDIARIES.
        A.       Merchant Wholesalers.
        B.       Agent and Brokers.

IV.     RETAIL INTERMEDIARIES.
        A.       How Retailers Compete.
                 1.       Price Competition.
                 2.       Service Competition.
                 3.       Location Competition.
                 4.       Selection Competition.
                 5.       Entertainment Compeition.
        B.       Retail Distribution Strategy.

V.      NONSTORE RETAILING.
        A.       Electronic Retailing.
        B.       Telemarketing.
        C.       Vending Machines, Kiosks, and Carts.
        D.       Direct Selling.



Chapter 15: Distributing Products Quickly and Efficiently         15.3
        E.   Multilevel Marketing.
        F.   Direct Marketing.

VI.     BUILDING COOPERATION IN CHANNEL SYSTEMS.
        A.   Corporate Distribution Systems.
        B.   Contract Distribution Systems.
        C.   Administered Distribution Systems.
        D.   Supply Chains.

VII.    THE EMERGENCE OF LOGISTICS.

VIII.   GETTING GOODS FROM PRODUCER TO CONSUMER EFFICIENTLY.
        A.   Choosing the Right Transportation Mode.
             1.     Trains Are Great for Large Shipments.
             2.     Trucks Are Good for Small Shipments to Remote Locations.
             3.     Water Transportation Is Inexpensive but Slow.
             4.     Pipelines Are Fast and Efficient.
             5.     Air Transportation Is Really Fast but Expensive.
             6.     Intermodal Shipping.
        B.   The Storage Function.

IX.     WHAT ALL THIS MEANS TO YOU.

X.      SUMMARY.




15.4                                       UNDERSTANDING BUSINESS: Instructor’s Resource Manual
Other
  Teaching Resources

PowerPoint Slides
        See this PowerPoint slide show beginning on page 15.48.
                 PPT 15-1       Understanding Business Title
                 PPT 15-2       Chapter Title
                 PPT 15-3       Channel of Distribution
                 PPT 15-4       Utility
                 PPT 15-5       Wholesale Intermediaries
                 PPT 15-6       Percent of B2B Commerce from Internet
                 PPT 15-7       They All Started in 1962
                 PPT 15-8       Wal-Mart‘s Top Selling Products
                 PPT 15-9       Identify a Retailer in Your Area
                 PPT 15-10 Is It Becoming a Wal-Mart World?
                 PPT 15-11 The Wheel of Retailing
                 PPT 15-12 Retail Store Distribution
                 PPT 15-13 Non-Store Distribution
                 PPT 15-14 Top Internet Shopping Sites
                 PPT 15-15 Why Buy Gifts Online?
                 PPT 15-16 Why People Don‘t Shop Online
                 PPT 15-17 Necessary Website Features
                 PPT 15-18 Channel Cooperation
                 PPT 15-19 The Supply Chain
                 PPT 15-20 Logistics
                 PPT 15-21 Transportation and Storage Modes

Transparency Acetates
        Selected PowerPoints are also available as Transparency Acetates:
                 TA 15-1        They All Started in 1962
                 TA 15-2        Wal-Mart‘s Top Selling Products
                 TA 15-3        Identify a Retailer in Your Area
                 TA 15-4        Is it Becoming a Wal-Mart World?
                 TA 15-5        The Wheel of Retailing
                 TA 15-6        Top Internet Shopping Sites
                 TA 15-7        Why Buy Gifts Online?



Chapter 15: Distributing Products Quickly and Efficiently                   15.5
               TA 15-8       Why People Don‘t Shop Online
               TA 15-9       Necessary Website Features
               TA 15-10      The Supply Chain
               PowerPoint Slides and Transparency Acetates are available on CD and on the Presenta-
       tion CD-ROM. These resources are also referenced in the expanded lecture outline beginning on
       page 15.48 of this chapter.

Video Case
       Video Case: Bricks & Clicks – Mall of America & Amazon
               The Media Resource Guide contains a summary of the Video and suggested discussion
       questions.

Additional Resources for Instructors:
       Understanding Business Home Page – UB7E Online Learning Center at
             http:/www.mhhe.com/ub7e contains chapter outlines, instructor‘s bulletin board,
             links to professional resources, a stock-market project, Internet exercises, sample syllabi,
             and other instructor support tools. Also contains special e-commerce coverage.
       Instructors’ Presentation CD-ROM – Contains an extensive collection of PowerPoint slides
              that contain information from both within and outside the text, video clips, and every
              available print supplement. This tool allows you to customize your lecture presentations.
       PageOut – Templates allow you to quickly and easily create a professional-looking personalized
            course Website.

Additional Resources for Students:
       Student Assessment and Learning Guide – This Guide contains matching key term and
             definition questions, write-in retention questions, write-in critical thinking questions, and
             practice test of multiple choice and true/false questions.
       Understanding Business Home Page – UB7E Online Learning Center at
             http:/www.mhhe.com/ub7e contains a stock market project, links to professional re-
             sources, Internet exercises, glossary, career resources, crossword puzzles, and support
             tools. Also contains special e-commerce coverage.
       Business Mentor 2004 – The New Business Mentor 2004 (business planning CD) is available
             with the text, and a manual is included with the software. This new manual includes ex-
             ercises for students based on the modules in the software, as well as a semester-long
             project. Instructors are given teaching notes for these exercises/assignments on the Online
             Learning Center. The New Business Mentor leads students through the sections of the
             feasibility and business plans.
       Concept Mastery Toolkit CD-ROM – Chapter practice quizzes in both concept and testing
            modes (all questions include very detailed rationales for the correct and incorrect an-
            swers), English-Spanish, English-Chinese, and English-Russian glossaries, learning as-
            sessments from Making the Grade CD, and a brief stock-market project ‗manual‘ to ac-
            company the stock market project on the Online Learning Center




15.6                                            UNDERSTANDING BUSINESS: Instructor’s Resource Manual
        PowerWeb – Current articles from the most trusted news sources are linked to the appropriate
             chapters in the text. Articles are updated daily. Questions are provided to test student
             comprehension of the materials.
        Business Week Online Access with the Business Week edition.
        Audio CDs – Audio CDs contain all chapters of the text plus profile and boxes.




Chapter 15: Distributing Products Quickly and Efficiently                                          15.7
What’s New in
 This Edition

Additions to the 7th edition:
              Getting to Know Gus Pagonis of Sears.
              Subsection ―Agents and Brokers.
              Section ―The Emergence of Logistics.
              Figure 15.5 Types of Retail Stores.
              Making Ethical Decisions: Look One Place, Buy Another.
              Dealing with Change: How Technology Helped Change the Way Intermediaries Create
               Utility.
              Reaching Beyond Our Borders: What You Want When You Want It.


Revisions to the 7th edition:
       Statistical data and examples throughout the chapter were updated to reflect current information.
       In addition:
              The discussion of freight forwarder was moved to the section ―Getting Goods from Pro-
               ducers to Consumers Efficiently.‖
              Section ―Supply-Chain Management‖ was condensed and moved to subsection ―Supply
               Chains.‖
              Section ―Choosing the Right Distribution Mode and Storage Unit‖ was re-organized into
               Section ―Getting Goods from Producers to Consumers Efficiently.‖

Deletions from the 6th edition:
              Profile of Randall Larimore.
              Subsection ―Business-to-Business (B2B) Wholesaling.
              Figure How Intermediaries Share Your Food Dollar.
              Boxes From the Pages of BusinessWeek, Making Ethical Decisions, Reaching Beyond
               Our Borders, and Spotlight on Small Business.




15.8                                            UNDERSTANDING BUSINESS: Instructor’s Resource Manual
Chapter 15: Distributing Products Quickly and Efficiently   15.9
15.10   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                            Lecture
                                                             Notes
                          PPT 15-1
        Understanding Business Title




                             PPT 15-2
                           Chapter Title




                           PPT 15-3
               Channel of Distribution




Chapter 15: Distributing Products Quickly and Efficiently             15.11
15.12   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                                                Lecture
                                                                                 Notes



                    Text Figure 15.1 This text figure shows selected channels of distribution for
   Selected Channels of Distribution both consumer and industrial (or B2B) goods
 for Industrial and Consumer Goods
                        and Services
                     (Text page 461)




    Critical Thinking Exercise 15-1 This exercise asks students to identify the channels of distribu-
               Distribution Channels tion of manufacturers in their areas. (See complete exercise on
                                     page 15.66 of this manual.)




                    Text Figure 15.2 This text figure shows that adding a wholesaler to the channel
           How Intermediaries Create of distribution cuts the number of contacts from 25 to 10—an
                 Exchange Efficiency example of the efficiency of distribution.
                     (Text page 462)




Chapter 15: Distributing Products Quickly and Efficiently                                       15.13
15.14   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                                                Lecture
                                                                                 Notes




                     Text Figure 15.3 This text figure breaks down who gets part of your food dol-
   Distribution’s Effect on Your Food lar.
                                Dollar
                      (Text page 463)


               Lecture Link 15-1 There are many new developments that have made to old
   What Ever Happened to Door-to- door-to-door person obsolete. (See the complete lecture link
                  Door Delivery? on page 15.61 in this manual.)


                                       Imagine that we have eliminated intermediaries and you have
                                       to go shopping for groceries and shoes. How would you find
                                       out where the shoes and groceries were? How far would you
                     Critical Thinking
                                       have to travel to get them? How much money do you think
                      (Text page 463)
                                       you‘d save for your time and effort? Which intermediary do
                                       you think is most important and why? (These are questions
                                       from the text.)



                               PPT 15-4
                                  Utility




Chapter 15: Distributing Products Quickly and Efficiently                                       15.15
15.16   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                                                    Lecture
                                                                                     Notes




                                      Look One Place, Buy Another
                              Making
                                      Is it ethical to use a retail store to shop for a sofa then buy the
                    Ethical Decisions
                                      same sofa direct from the manufacturer, saving the retail mar-
                      (Text page 465)
                                      kup?




                                       How Technology Helped Change the Way Interme-
                         Dealing With
                                       diaries Create Utility
                               Change
                                       Technology such as the Internet has changed the way interme-
                       (Text page 466)
                                       diaries create utility.




Chapter 15: Distributing Products Quickly and Efficiently                                            15.17
15.18   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                                                      Lecture
                                                                                       Notes

                                             Students can assess their progress by answering the following
                                             questions:
                                              What is a channel of distribution, and what intermedia-
                                                 ries are involved?
                             Progress            Why do we need intermediaries? Can you illustrate how
                         Assessment               intermediaries create exchange efficiency? How would
                       (Text page 465)            you defend intermediaries to someone who said that get-
                                                  ting rid of them would save millions of dollars?
                                                Can you give examples of the utilities created by inter-
                                                 mediaries and how intermediaries perform them?
                                             (These are questions from the text.)



                           PPT 15-5
            Wholesale Intermediaries




                     Text Figure 15.4 This text figure shows the functions performed by a full-
            A Full-Service Wholesaler service wholesaler.
                      (Text page 469)




Chapter 15: Distributing Products Quickly and Efficiently                                              15.19
15.20   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                            Lecture
                                                             Notes

                       PPT 15-6
 Percent of B2B Commerce from In-
                            ternet




Chapter 15: Distributing Products Quickly and Efficiently             15.21
15.22   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                                                     Lecture
                                                                                      Notes


                 PPT 15-7 (TA 15-1)
              They All Started in 1962




                                             (See complete transparency acetate notes on page 15.52.)

                    Text Figure 15.5 This text figure lists, describes, and gives examples of various
                Types of Retail Stores kinds of retailers.
                     (Text page 469)




    Critical Thinking Exercise 15-2 This exercise asks students to identify the types of stores
                  Shop Til You Drop found in a shopping mall and to compare these types to those
                                    found in a downtown area. (See complete exercise on page
                                    15.67 of this manual.)

                PPT 15-8 (TA 15-2)
    Wal-Mart’s Top Selling Products




                                             (See complete transparency acetate notes on page 15.53.)



                  PPT 15-9 (TA 15-3)
      Identify a Retailer in Your Area




                                             (See complete transparency acetate notes on page 15.53.)




Chapter 15: Distributing Products Quickly and Efficiently                                               15.23
15.24   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                                                     Lecture
                                                                                      Notes




                PPT 15-10 (TA 15-4)
   Is It Becoming a Wal-Mart World?




                                             (See complete transparency acetate notes on page 15.54.)




Chapter 15: Distributing Products Quickly and Efficiently                                               15.25
15.26   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                                                        Lecture
                                                                                         Notes


            Supplemental Case 15-1 This case focuses on the phenomena of the ―megamall,‖ huge
             The Megamalls Are Here shopping centers that combine shopping and entertainment.
                                    (See the complete case, discussion questions, and suggested
                                    answers beginning on page 15.68 of this manual.)


                Lecture Link 15-2 Over time, food stores began to use scrambled merchandising,
 What Opportunity Does Scrambled selling a variety of goods not directly related to the type of
          Merchandising Create? store it is. (See the complete lecture link on page 15.61 of this
                                  manual.)



                PPT 15-11 (TA 15-5)
               The Wheel of Retailing




                                             (See complete transparency acetate notes on page 15.54.)

                           PPT 15-12
              Retail Store Distribution




                                             Students can assess their progress by answering the following
                                             questions:
                                              Describe the activities of rack jobbers and drop shippers.
                             Progress
                                                 What are some of the ways in which retailers compete?
                         Assessment
                                                  Give examples.
                       (Text page 472)
                                                What kinds of products would call for each of the differ-
                                                 ent distribution strategies: intensive, selective, exclusive?
                                             (These are questions from the text.)




Chapter 15: Distributing Products Quickly and Efficiently                                                 15.27
15.28   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                                                     Lecture
                                                                                      Notes

                          PPT 15-13
                Non-Store Distribution




                PPT 15-14 (TA 15-6)
         Top Internet Shopping Sites




                                             (See complete transparency acetate notes on page 15.54.)

                PPT 15-15 (TA 15-7)
               Why Buy Gifts Online?




                                             (See complete transparency acetate notes on page 15.55.)

              PPT 15-16 (TA 15-8)
      Why People Don’t Shop Online




                                             (See complete transparency acetate notes on page 15.55.)



              PPT 15-17 (TA 15-9)
        Necessary Website Features




                                             (See complete transparency acetate notes on page 15.55.)


Chapter 15: Distributing Products Quickly and Efficiently                                               15.29
15.30   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                                               Lecture
                                                                                Notes

                  Lecture Link 15-3 What intermediaries are needed to reach the international cus-
          What Intermediaries to Use tomer? (See the complete lecture link on page 15.62 of this
                                     manual.)




Chapter 15: Distributing Products Quickly and Efficiently                                     15.31
15.32   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                                                 Lecture
                                                                                  Notes




   Supplemental Internet Exercise This exercise directs students to the Internet auction site eBay
    Internet Auctions: Bypassing the to explore how such sites are changing the channel of distribu-
                            Retailer tion for consumer goods. (See the complete exercise on page
                                     15.65 of this manual.)




           Supplemental Case 15-2 This case discusses a growing trend: vets who come to their
    Bringing Services Home for Pets patients. (See the complete case, discussion questions, and
                                    suggested answers beginning on page 15.71 of this manual.)




                          PPT 15-18
                 Channel Cooperation




                    Reaching Beyond
                                      What You Want, When You Want It
                         our Borders
                                      Zara‘s has one of the best supply-chain systems in the world.
                      (Text page 473)




Chapter 15: Distributing Products Quickly and Efficiently                                       15.33
15.34   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                                          Lecture
                                                                           Notes




               Lecture Link 15-4 Mom and Pop stores couldn‘t compete against chain stores or
       From Mom and Pop Stores to against supermarkets. They have been able to compete by
                        Systems forming systems of their own—cooperatives. (See the com-
                                  plete lecture link on page 15.63 of this manual.)




Chapter 15: Distributing Products Quickly and Efficiently                                15.35
15.36   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                                                     Lecture
                                                                                      Notes
                      Text Figure 15.6 This text figure shows the process of managing the movement
                     The Supply Chain of raw materials, parts, work in progress, finished goods, and
                       (Text page 477) related information through all the organizations involved in
                                       the supply chain.

                PPT 15-19 (TA 15-10)
                   The Supply Chain




                                             (See complete transparency acetate notes on page 15.55.)




          Supplemental Case 15.3 This case focuses on Randall Larrimore of United Stationers
    United Stationers: Office-Supply and how he modified the company‘s distribution strategy to
                        Intermediary compete with office supply giants such as Office Deport and
                                     Staples. (See the complete case, discussion questions, and
                                     suggested answers beginning on page 15.74 of this manual.)




                  Lecture Link 15-5 Electronic data interchange (EDI) makes it possible for a re-
    Electronic Data Interchange and tailer to be directly linked with a supplier electronically. (See
      Efficient Consumer Response the complete lecture link on page 15.63 of this manual.)



                 Lecture Link 15-6 When customers who had moved out of the area still wanted
          Opening New Channels for to buy Ouidad‘s salon products, the company opened a new
                       Consumers channel of distribution. (See the complete lecture link on page
                                   15.64 of this manual.)




Chapter 15: Distributing Products Quickly and Efficiently                                               15.37
15.38   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                            Lecture
                                                             Notes

                             PPT 15-20
                              Logistics




Chapter 15: Distributing Products Quickly and Efficiently             15.39
15.40   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                                                 Lecture
                                                                                  Notes


                                       Students can assess their progress by answering the following
                                       questions:
                                        What are the four systems that have evolved to tie to-
                             Progress      gether members of the channel of distribution?
                         Assessment
                                        How does logistics differ from distribution?
                       (Text page 479)
                                        What are inbound logistics, outbound logistics, and re-
                                           verse logistics?
                                       (These are questions from the text.)




                        PPT 15-21
 Transportation and Storage Modes




                 Text Figure 15.7 This text figure compares the various transportation modes on
   Comparing Transportation Modes seven criteria: cost, volume, speed, dependability, flexibility,
                  (Text page 480) frequency, and reach.




Chapter 15: Distributing Products Quickly and Efficiently                                       15.41
15.42   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                            Lecture
                                                             Notes




Chapter 15: Distributing Products Quickly and Efficiently             15.43
15.44   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                            Lecture
                                                             Notes




Chapter 15: Distributing Products Quickly and Efficiently             15.45
15.46   UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                                                  Lecture
                                                                                   Notes




                                       One of the major scarcities in the future will be water. If you
                                       could think of an inexpensive way to get water from places of
                                       abundance to places where it is needed for drinking, farming,
                                       and other uses, you could become very, very rich. Pipelines
                                       are an alternative, but you could also freeze the water and
                     Critical Thinking ship it by train or truck. You could put the water into huge
                      (Text page 482) rubber or plastic containers and roll the containers on railroad
                                       tracks. You could tie a rope or chain onto icebergs and tow
                                       them to warmer climes. Future wealth is awaiting those who
                                       develop the most practical and efficient (read inexpensive)
                                       way to move water. Do you have any good ideas? (These are
                                       questions from the text.)




Chapter 15: Distributing Products Quickly and Efficiently                                         15.47
PowerPoint
  Slide Show

        The following images are available as a PowerPoint slide show on CD and on the Instructors‘
Presentation CD-ROM.


   PPT 15-1                                             PPT 15-2
   Understanding Business Title                         Chapter Title




   PPT 15-3                                             PPT 15-4
   Channel of Distribution                              Utility




15.48                                          UNDERSTANDING BUSINESS: Instructor’s Resource Manual
    PPT 15-5                                                PPT 15-6
    Wholesale Intermediaries                                Percent of B2B Commerce from Internet




    PPT 15-7                                                PPT 15-8
    They All Started in 1962 (also presented as             Wal-Mart’s Top Selling Products (also pre-
    TA 15-1)                                                sented as TA 15-2)




    PPT 15-9                                                PPT 15-10
    Identify a Retailer in Your Area (also pre-             Is It Becoming a Wal-Mart World? (also
    sented as TA 15-3)                                      presented as TA 15-4)




Chapter 15: Distributing Products Quickly and Efficiently                                            15.49
   PPT 15-11                                           PPT 15-12
   The Wheel of Retailing (also presented as           Retail Store Distribution
   TA 15-5)




   PPT 15-13                                           PPT 15-14
   Non-Store Distribution                              Top Internet Shopping Sites (also presented
                                                       as TA 15-6)




   PPT 15-15                                           PPT 15-16
   Why Buy Gifts Online (also presented as TA          Why People Don’t Shop Online (also pre-
   15-7)                                               sented as TA 15-8)




15.50                                          UNDERSTANDING BUSINESS: Instructor’s Resource Manual
    PPT 15-17                                               PPT 15-18
    Necessary Website Features (also pre-                   Channel Cooperation
    sented as TA 15-9)




    PPT 15-19                                               PPT 15-20
    The Supply Chain (also presented as TA 15-              Logistics
    10)




    PPT 15-21
    Transportation and Storage Modes




Chapter 15: Distributing Products Quickly and Efficiently                         15.51
Transparency Acetate
  Notes

TA 15-1                    1.   This acetate identifies when each of these retailers was started and
They All Started in 1962        the strategic objective that motivated their openings.
                           2.   Share with the class some interesting facts about Wal-Mart:
                                     Operates approximately 4,773 stores, with 1,305 international
                                      stores as of 2003.
                                     Employs more than 962,000 associates in the U.S. and
                                      282,000 internationally.
                                     The number one retailer with over $250 billion in sales
                                     Over 100 million people visit Wal-Mart on a weekly basis.
                           3.   Target Stores is a growth company focused exclusively on general
                                merchandise retailing. Target has successfully positioned the com-
                                pany as a high value retailer with the following interesting notes to
                                share with the students:
                                     Target‘s 2002 revenues exceeded $43 billion, profits were
                                      $1.7 billion.
                                     Target operates over 1,107 stores in 47 states.
                                     A typical Target store is approximately 126,000 square feet in
                                      size.
                                     Target employs over 192,000.
                           4.   Kmart Corporation was also founded in Garden City, MI in 1962. It
                                is a mass merchandising company that services the U.S., Puerto Ri-
                                co, and the Virgin Islands. Share with the class Kmart Store Facts:
                                     There are 1,512 Kmart and Kmart Super Center retail outlets
                                      in 49 states.
                                     There are approximately 170,000 Kmart Associates, includ-
                                      ing 2,360 associates at Kmart‘s headquarters in Troy, Michi-
                                      gan.
                                     The average Kmart is approximately 84,000-120,000 sq. ft. in
                                      size and employs nearly 120 associates.
                                     The average Kmart carries nearly 100,000 stock-keeping
                                      units (SKUs).
                                     Kmart successfully emerged from bankruptcy in 2003.




15.52                                       UNDERSTANDING BUSINESS: Instructor’s Resource Manual
TA 15-2                         1.    This acetate illustrates the top selling products sold in Wal-Mart
Wal-Mart’s Top Selling                stores.
Products                        2.    You may want to do an in-class exercise by asking each student
                                      where they shop to purchase the products listed on the acetate.
                                      Record the number for each category and calculate the percentage
                                      of those who shop at Wal-Mart.
                                3.    Wal-Mart Stores, represent the largest retailing company in the
                                      world. They have over 100 million visitors a week who shop at
                                      their stores. It would be an interesting assignment to have the stu-
                                      dents find out the leader for each of the products sold. (My guess is
                                      Wal-Mart would probably sell more of everything listed on this ace-
                                      tate than any other store.)

TA 15-3                         1.    This acetate illustrates the different types of retail stores competing
Identify a Retailer in                for consumer dollars.
Your Area                       2.    Share with the class some interesting facts about the categories
                                      listed on this acetate:
                                            The top five supermarkets in the U.S. are: Wal-Mart, Krog-
                                             er, Ahold, Albertson‘s and Costco. Note: Wal-Mart and Cost-
                                             co are super centers now competing in the grocery industry.
                                            Quik trip and 7-Eleven represent the largest convenience
                                             stores.
                                            Wal-Mart, with over $250 billion in sales, is the largest dis-
                                             count store in the world.
                                            In the category killer segment, Home Depot, the world‘s
                                             largest had 2002 sales of $58.2 billion; while Lowes, the 2nd
                                             largest had sales of $26.5 billion in 2002.
                                            Specialty stores had sales of $5.7 billion in 2002, and leased
                                             approximately 1.8 million square feet of space. Specialty
                                             stores carry women‘s wear, men‘s fashions, jewelry, electron-
                                             ics, and cellular phones.
                                            Factory outlets represent the fastest growing segment of re-
                                             tail with over $13 billion in sales in 2001.
                                            Catalog showrooms have experienced significant growth
                                             from 1998-2003. Sales have increased 9.24%, while em-
                                             ployment has risen 3.7%. Sales revenues are expected to ex-
                                             ceed $147.2 billion by 2005.
                                3.    The Department store segment has experienced troubled times
                                      since the advent of so many different retail segments. The discount
                                      store segment has placed significant pressure on department stores
                                      like Federated and May Company. Share with the class some inter-
                                      esting facts about department stores:
                                            Department stores are located in either strip centers (95%), or
                                             enclosed malls (1,182 mall locations in the U.S.).



Chapter 15: Distributing Products Quickly and Efficiently                                                  15.53
                                   In 2002, $53.1 billion in state taxes was collected from shop-
                                    ping center sales.
                                   There are 46,336 Shopping Centers in the U.S.
                                   In 2002, 201 million adults visited shopping centers.

TA 15-4                  1.   This acetate asks whether the retail industry is fast becoming Wal-
Is it Becoming a Wal-         Mart‘s world. Ask the students to study the facts listed below and
Mart World?                   make their own determination.
                         2.   Wal-Mart has over 3,000 U.S. stores that employ 962,000 people.
                              They operate 1,100 international stores in nine countries that em-
                              ploy 282,000 people. The company operates Sam‘s Club stores and
                              a new concept introduced in 1998, the Neighborhood Sam‘s Store.
                              This new format competes directly with grocery stores and carry
                              approximately 28,000 items.
                         3.   Wal-Mart‘s 2003 sales are expected to reach upwards of $250 bil-
                              lion. Projected sales for 2006 is $310 billion. They are presently the
                              largest retail company in the world!


TA 15-5                  1.   This acetate illustrates the concept of the wheel of retailing.
The Wheel of Retailing   2.   It helps to go through the information stage-by-stage of the life
                              cycle and point out to students how retailing, like all products, goes
                              through a specific life span.
                         3.   Discuss with the students the changes Wal-Mart has experienced.
                              Opened in 1962 as a small general merchandise store in a rural
                              America, Wal-Mart has grown to be the largest retailer in the world.
                              As recently as 1998, the company began opening Sam‘s Neighbor-
                              hood Stores in locations they previous abandoned. These neighbor-
                              hood stores are approximately 42,000-52,000 square feet in size,
                              and compete with grocery stores by offering 28,000 items including
                              banking and pharmacies.

TA 15-6                  1.   This acetate illustrates the number of hits each web site receives on
Top Internet Shopping         a weekly basis. EBay gets the most with 12 million, 328% more
Sites                         than Wal-Mart.
                         2.   There are over 3,500 North American mail order catalogs and
                              www. shopping sites on the Internet. (Source: Yahoo.com).
                         3.   Ask the class why they think Internet Shopping Sites are growing so
                              fast.
                                   The Internet is the most powerful force for the distribution of
                                    information on demand.
                                   An Internet presence is an absolute requirement for most
                                    types of business.
                                   Margins are higher. Stores or catalogs need as much as a 25%
                                    margin to link customers with products and stores; a well-
                                    managed shopping engine can work on two to five percentage


15.54                                     UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                             points.

TA 15-7                         1.    This acetate illustrates the reasons why people buy items online
Why Buy Gifts Online?                 which accounts for the tremendous growth of online shopping.
                                2.    The number one reason for buying online is saving time (75%); fol-
                                      lowed by avoiding crowds (69%); after-hours shopping (68%); and
                                      better pricing (61%).
                                3.    The fact that saving time is the number one reason should not sur-
                                      prise the class. A typical shoppers in the U.S. are women, aged 18-
                                      55, who have children and work outside the home. Lack of time is
                                      their enemy, so online shopping offers them an opportunity to pur-
                                      chase products in the most convenient way.

TA 15-8                         1.    This acetate gives a contrast of why people do not shop online.
Why People Don’t Shop           2.    Market Research.com reported that 74% of the online users do not
Online                                make purchase transactions online, and 46% do not even browse.
                                3.    As indicated on this acetate, the number one reason for not purchas-
                                      ing online is the lack of perceived security and privacy.
                                4.    You could poll the class to identify the percentage of students who
                                      do not shop online. Compare their responses with those given on
                                      the acetate and reported by Market Research.com



TA 15-9                         1.    This acetate identifies the features necessary for an online shopper
Necessary Website                     to purchase from their website.
Features                        2.    The highest ranking reason given is low price identified by 72% of
                                      the respondents.
                                3.    Ask the class why they think security and privacy are not listed as
                                      necessary features on a website.




TA 15-10                        1.    Supply chain management is a key to effective distribution in the
The Supply Chain                      21st century. This acetate illustrates to students how supply chains
                                      are structured and implemented in the market.
                                2.    Everyday companies in the U.S. lose billions of dollars in unrea-
                                      lized savings due to poor channel management. Companies should
                                      carefully analyze the following areas of their supply chain to im-
                                      prove service and reduce costs:
                                            Procurement
                                            Demand forecasting
                                            Planning and optimization



Chapter 15: Distributing Products Quickly and Efficiently                                                15.55
                  Transportation
                  Material handling—barcodes, radio-wave technology
                  Warehouse management
        3.   To improve chain efficiency and improve supply chain flow, CIO
             magazine recommends the following steps:
                  Know your costs.
                  Serve your partners.
                  Organize for flexibility.
                  Create sharing cultures for information.
                  Do not overestimate IT.
                  Let IT configure for you.




15.56                    UNDERSTANDING BUSINESS: Instructor’s Resource Manual
Casing the
  Web
(This case is also available online at http:/www.mhhe.com/ub7e.)

MULTILEVEL MARKETING

        Multilevel marketing often doesn‘t get the respect it deserves in marketing literature. When multi-
level marketing companies succeed, their growth is often unbelievable. At least six multilevel marketing
companies have reached the $500 million level in sales.
         Multilevel marketing companies work like this: The founders begin by recruiting a few good
people to go out and find managers to sell their products and to recruit other supervisors. These supervi-
sors then recruit additional salespeople. That is, 20 people recruit 6 people each. That means 120 sales-
people. Those people then recruit 6 people each, and you have 720 salespeople. If in turn those people all
recruit 6 people, you then have almost 5,000 salespeople. All supervisors earn commissions on what they
sell as well as on what everyone under them sells. When you get thousands of salespeople selling for you,
commissions can be quite large. One company promotes the fact that 1 percent from 100 salespeople is as
good as 100 percent from one successful salesperson. Companies often add new products or expand to
other countries to keep a continuous growth pattern.
         Distribution under multilevel marketing is relatively easy. Often the salespeople will carry inven-
tory in their own homes and deliver products as ordered. Many companies also offer direct shipping to
customers using UPS or other delivery firms.
        Marketers cannot ignore the success of this sales and distribution strategy. Nu Skin (a seller of
health and beauty products) alone will soon have $1 billion in sales. Looking for more growth, the com-
pany started a new division, Interior Design Nutrition, to make and sell vitamins and weight-control
products. Amway, perhaps one of the most well-known multilevel marketers, has chosen the international
route for growth; recently, its sales of home and personal care products increased by over $1 billion in
one year.




Chapter 15: Distributing Products Quickly and Efficiently                                              15.57
THINKING IT OVER: DISCUSSION QUESTIONS FOR CASING THE WEB


1.      Amway and others have been successful in Japan. To what other countries could you lead such
        companies so that you could become a top earner?


2.      What will happen as multilevel marketing distributors begin selling and recruiting others using
        the latest in technology such as the Internet?


3.      Why do you suppose multilevel marketing hasn‘t received the same acceptance as other retail
        innovations such as catalog sales? What could the companies do to improve their image?


4.      If multilevel marketing works so well for beauty and health care products, why not use the same
        concept to sell other products?




15.58                                           UNDERSTANDING BUSINESS: Instructor’s Resource Manual
ANSWERS TO CASING THE WEB QUESTIONS


1.      Amway and others have been successful in Japan. To what other countries could you lead such
        companies so that you could become a top earner?
         Many developing countries would have the consumer purchasing power for network marketing to
be successful. Central and Southern American countries come to mind, as do the Eastern European coun-
tries formerly a part of the Soviet Union.

2.      What will happen as multilevel marketing distributors begin selling and recruiting others using
        the latest in technology such as the Internet?
         It will be interesting to see what answers your students come up with. So much of network mar-
keting is dependent on personal sales that impersonal Internet selling does not seem feasible. Many net-
work marketers use telemarketing rather than in-home visits. There may be other possibilities.

3.      Why do you suppose multilevel marketing hasn’t received the same acceptance as other retail
        innovations such as catalog sales? What could the companies do to improve their image?
        Unfortunately, many multilevel marketing schemes have been little more than fraud. The term
―pyramid sales‖ still evokes the image of unscrupulous marketers and risky investments. In order to make
multilevel marketing more acceptable, salespeople will need to convince customers of the value of their
product. One easy way to start would be to offer a money back guarantee in writing.

4.      If multilevel marketing works so well for beauty and health care products, why not use the same
        concept to sell other products?
       Any product with a high profit margin is a possible candidate for multilevel marketing. There are
some products that people would rather buy in the store (for example, feminine hygiene products) and
don‘t want to face a human. Others have a high time utility, and the distribution lag would be a problem.
Americans, however, are very creative in their approach to competition, so anything is possible.




Chapter 15: Distributing Products Quickly and Efficiently                                            15.59
Answers to
  Video Case

BRICKS & CLICKS – MALL OF AMERICA & AMAZON

1.      What role does entertainment play in the success of Mall of America?
         Entertainment makes Mall of America a destination for more than shopping. People can take their
children and drop them off at an amusement center while shopping. It makes the whole area a major at-
traction since there are few other diversions in the area. It makes shopping fun and an all-day adventure.

2.      How do Amazon’s logistics and supply-chain management activities help create value for cus-
        tomers?
        One of the fears of shopping Online is that the goods won't get there on time. When Amazon ge-
nerates a record of on-time deliveries, trust grows and so does value. Customers also get value from not
having to get in their cars to go shopping. Time saved is value.

3.      Where do you think the future growth in retailing lies – in bricks (i.e. Mall of America) or clicks
        (i.e. Amazon)? Why?
        The future of America lies in both malls and online sales. In fact, retailers will offer both options.
Since Online sales are fewer, the growth is likely to be faster in that area. But people will continue to shop
in malls. They will likely supplement such shopping Online.




15.60                                             UNDERSTANDING BUSINESS: Instructor’s Resource Manual
Lecture
  Links

LECTURE LINK 15-1
WHAT EVER HAPPENED TO DOOR-TO-DOOR DELIVERY?
         Not too long ago in America, there were vendors who delivered goods door-to-door. One person
brought milk and left it on the porch. Another person brought ice for the ―ice box.‖ They are now called
refrigerators and have their own ice makers. Still other people brought bread or coffee. Now, most of
those people are out of business. But is the idea a bad one? Maybe we can learn from the ―good old days.‖
          There are many new developments that have made the old door-to-door delivery person obsolete.
A major change has been the emergence of neighborhood 7-Eleven stores and other ―convenience‖ stores
that have made it possible to quickly obtain milk and bread and eggs and other items: candy, soft drinks,
and ice cream. But another trend has emerged that has greatly increased the potential for door-to-door
delivery. The percentage of people over 65 has skyrocketed in the last few years and will continue to
grow very rapidly. Many of these people live in high-rise communities and have limited means for getting
around. Many have difficulty walking and some can‘t drive. Imagine, if you will, a mobile 7-Eleven store.
It would come to each community at the same time every day with staples such as milk, bread, eggs, soft
drinks, butter, cheese, and the like. Over time, the vendor would listen to customers and learn of special
needs, like medicine from the local pharmacy. Soon the mobile 7-Eleven would be like a custom-made
retailer to the people served. You could call or e-mail the night before and place your order for special
items not normally carried on the truck.
        It would be more expensive to buy such goods because there are added costs, but the convenience
may far exceed the additional costs. And the vendor could make a LOT of money. Do you see how such
marketing intermediaries emerge?


LECTURE LINK 15-2
WHAT OPPORTUNITY DOES SCRAMBLED MERCHANDISING CREATE?

         There was a time in the United States when ―drug stores‖ sold mostly pharmaceuticals. There was
often a soda fountain and a newsstand as well, but the main business had to do with health-care items. It
may surprise you to learn that baby food was sold in drug stores because it was considered a health food.
         Similarly, food stores carried mostly food items. Over time, food stores began to compete with
―drug stores‖ by opening pharmacies and offering most of the goods available at drug stores. This in-
cluded things like Band Ads and foot powder. The selling of a variety of goods not directly related to the
type of store it is (that is, selling drug items in a food store) is known as scrambled merchandising. You
have seen how far this trend has gone. At Costco and other superstores, you can buy TV sets, plants, eye
glasses, clothes, food, medical supplies, and a host of other goods and services, including photo develop-
ment. That‘s taking scrambled merchandising to the limit.
         Now that you understand the concept, think of how you could use the concept to add new prod-
ucts to traditional retail outlets. Here are some more samples to get your thinking going. There are now
food stores attached to many gas stations. Why not a fast-food place? You can buy beer and wine and gas
at Wal-Mart. You can find a flower shop, a bank, a fish market, and a cheese vendor inside some super-




Chapter 15: Distributing Products Quickly and Efficiently                                             15.61
markets. What else could be added? Income tax preparation in season? A copy center? You can find com-
puter terminals in coffee shops. What else might coffee shops add?
         Some laundries now sell beer: suds and duds. What else might be available in a laundry? You can
create your own combinations of goods and services that might be really attractive to the public. What
might you put in the town library? There are coffee shops inside Borders Books. Why not coffee inside
the library? Why not food? Why not videos for sale? Where does it all end? It ends when the imagination
of humans ends. In short, there is no end to scrambled merchandising and the opportunities it provides for
creative entrepreneurs. Real estate firms should be linked to appraisal firms that are linked to savings and
loan companies and so on. What new places could you put video games? Where else could you sell do-
nuts? Coffee? Sandwiches? Pizza? It‘s enough to scramble your mind.
         Can you imagine such a vendor linking his or her route with the local dry cleaner, the local phar-
macy, and the local restaurants? Everything delivered door-to-door. Would such a service appeal to the
students in your dorm? Are the elderly the only market for such a service? What other groups might be
attracted to a vendor that brought sandwiches, coffee, and desserts along with all the needed staples? Can
you see the entrepreneurial opportunity? That‘s how marketing intermediaries emerge. They see an op-
portunity and fill it. You can see them on the road: refrigerated trucks, trucks that serve hot crabs on the
side of the highway, vending carts at ball games, and kiosks in shopping centers. All of these are marke-
ters who see needs and with those needs come opportunities. Wouldn‘t it be nice if the video store had a
delivery service? What else might you like to have delivered to your home?


LECTURE LINK 15-3
WHAT INTERMEDIARIES TO USE
         It‘s one thing to decide to sell a product internationally; it‘s something else again to try to imple-
ment such a program. How are you going to reach the consumer? You could, of course, send sales repre-
sentatives to contact people directly, but that would be costly and risky. How can you get your product
into foreign markets at a minimum cost and still have wide distribution?
       Use brokers. As explained in the chapter text, a broker is an intermediary who keeps no invento-
        ry and takes no risk. A broker can find distributors for you. Brokers sell for you and make a
        commission on the sale. This is the least expensive way to enter foreign markets, but you still as-
        sume the risks of transportation.
       Use importers and exporters. Importers and exporters take all the risks of business and sell your
        products to international markets. Their commission is much higher than that of brokers, but they
        do much more for you. They may find you distributors or do the selling to ultimate consumers
        themselves.
       Call on distributors directly. You can bypass exporters and brokers and call on distributors
        yourself. In that case, you actually become your own exporter and deliver directly to distributors,
        but again you assume the risks of transportation.
       Sell direct. The most costly and risky way to sell internationally is to set up your own distribution
        system of wholesalers and retailers. On the other hand, this maximizes potential profits in the
        long run. Many firms start out selling through importers and exporters and end up setting up their
        own distribution system as sales increase.
       Use third-party logistics (3PL) providers. This new kind of company will distribute goods
        worldwide for you. The U.S. market leader is Ryder Integrated Logistics. Ryder designs, imple-
        ments, and manages the whole system for delivering goods in the United States and overseas.



15.62                                              UNDERSTANDING BUSINESS: Instructor’s Resource Manual
LECTURE LINK 15-4
FROM MOM AND POP STORES TO SYSTEMS
         Before the 1920s, most food was sold in small, neighborhood food stores. Marketers called them
―Mom and Pop‖ stores because they were usually run by a couple (often immigrants). During the 1920s,
chain stores, with names like Kroger, appeared. There were literally thousands of such stores and they had
such a huge buying power that they were driving Mom and Pop stores out of business. The government,
in order to protect smaller stores, passed a ―chain-store tax‖ on the larger chains. Nonetheless, chain
stores (Kroger, A&P) dominated food retailing.
         In the 1930‘s, the economy collapsed (it was the era of the Great Depression). People could bare-
ly afford basic necessities, including food. It was at that time that a few entrepreneurs decided that people
would buy food in a different way from usual. The old chain stores looked much like today‘s delis. They
were rather small and they had pickles in a pickle barrel. Most items had no prices on them and the mar-
kup was about the same for all items. The new entrepreneurs believed that people would buy staples such
as milk, bread, and eggs if they were priced less expensively. They opened stores that we now call super-
markets. Staples like bread, milk, and eggs were priced at cost, and items that were bought less frequent-
ly, like pepper and mustard, had a much larger markup. People flocked to those stores to get their staples
and stayed to buy other foodstuff. Supermarkets soon replaced almost all the chain stores. Kroger and
A&P closed their chain stores and opened their own, larger supermarkets.
         So, what happened to Mom and Pop stores? They couldn‘t compete with chain stores. How could
they compete with supermarkets? The answer was to form systems of their own. They joined together to
form retail cooperatives like IGA. They also started something called a franchise (e.g., McDonald‘s,
Burger King). You can read about various systems in the chapter. The most advanced systems today are
supply chains or value chains. What has happened is that producers have linked with intermediaries, such
as wholesalers and retailers, to form united systems of food distribution that are much more efficient than
the old systems were. The benchmark company was Wal-Mart. When Wal-Mart went into the food busi-
ness, supermarkets had to respond with distribution systems as efficient as the one Wal-Mart had. Thus
the development of food marketing went from neighborhood Mom and Pop stores to chain stores to su-
permarkets to today‘s superstores where you can buy food and many nonfood items, including pharma-
ceuticals, clothes, and household items like bleach, and detergent, and shoe polish.


LECTURE LINK 15-5
ELECTRONIC DATA INTERCHANGE AND EFFICIENT CONSUMER RE-
SPONSE
         Electronic data interchange (EDI) enables producers‘, wholesalers‘, and retailers‘ computers to
―talk‖ with each other. EDI makes it possible for a retailer to be directly linked with a supplier electroni-
cally. As a result, the supplier knows that new goods must be shipped as soon as the retail sale is made.
EDI thus becomes a critical part of an effective supply chain management system. Target and Ace Hard-
ware were two of the first retailers to use EDI on a global basis. Many retailers are now following suit and
are tracking shipments from Asia and other countries minute by minute so that the transportation time is
minimized. The next step is to integrate information about where products are directly into order entry
and credit and collections. Thus, shippers are assisting their customers by providing helpful information
as well as moving goods efficiently.
        Companies, such as Procter & Gamble, Xerox, 3M, Nabisco, and Black & Decker, have cut in-
ventory and improved service using supply chain management. These companies implement the system



Chapter 15: Distributing Products Quickly and Efficiently                                               15.63
by working together on functions including forecasting, distribution, and marketing. Data are shared
among firms so the whole system can be operated as a unit and so globally competitive products can be
sent through the system in the fastest time. New EDI computer software makes all this possible. Such
high-quality service and management are demanded in the highly competitive global economy. The high-
er the level of trust becomes among the companies involved, the more efficient the system becomes.
         Efficient consumer response (ECR) is the term used in the grocery industry to describe the link-
ing of firms to provide more efficient response to consumer needs. Total cost reductions using supply
chain management have been 30 percent or more. Similar reductions in inventory have also been
achieved. Bergin Brunswig, a major distributor of pharmaceuticals and health care products, has cut the
time between order placement and its delivery to just 12 hours. A supermarket can carry much less inven-
tory and still never be out of a product with such quick response time. The effect of such systems has
been to eliminate some intermediaries because the manufacturer is now performing those functions (e.g.,
distribution).


LECTURE LINK 15-6
OPENING NEW CHANNELS FOR CONSUMERS
         Ouidad is a hair salon in New York City. The owners noticed that some customers who moved
out of the area still wanted to buy the products that the owners had developed for the salon. The solution
was to open a new channel of distribution for the salon: Ouidad Products Division. The new channel
enabled customers to order hair care products by phone, fax, mail, or on the Internet.
        Small businesses that already have facilities and established customers have an advantage over
new firms trying to sell by catalog or over the Internet. They have an established customer list, and they
know what their customers want. Since they are familiar with the store and the people who work there,
they feel comfortable calling by phone or fax to order things.
         Ouidad has learned that it is important to make it easy for customers to order. That means offer-
ing 24-hour ordering. It also means contracting with an independent order-taking service and using a
toll-free number. Small businesses know that it is important to listen to their customers. Ouidad was run-
ning monthly specials, and customers told them that such promotions were too closely spaced. They
didn‘t need new products every month. So the company timed its promotions to the patterns its customers
established.
        It‘s also good to study what direct marketers have learned over time. That includes maintaining a
history of customer transactions in a database, keeping a proper inventory level, and getting products to
customers quickly.

(Source: www.Ouidad.com/main/default.asp)




15.64                                             UNDERSTANDING BUSINESS: Instructor’s Resource Manual
Supplemental
  Internet Exercise

INTERNET AUCTIONS: BYPASSING THE RETAILER

Purpose:
        To explore how online auction sites are changing the channel of distribution for consumer goods.

Exercise:
         The traditional method for consumers to purchase goods is through a retail outlet. Even electronic
retailing involves an intermediary, the online retail store. But small sellers are now finding a new chain of
distribution—direct to consumers through online auction sites such as eBay and Amazon.com. Go to the
website for eBay (www.eBay.com.) Search the site for fax machines offered for sale. (Be sure to in-
clude the exact URL of the Web site where you found the answer to these questions—you can find the
URL in the address box of your browser.)
1.      Open two listings for fax machines: the least expensive offered and the most expensive. Choose
        items that have about 24 hours before expiration. Write down the description and current price
        bid. Why do you think sellers of the lower priced item are asking such a low price?




2.      Check the eBay web site after 8 to 24 hours. How have the bids changed?




3.      What type of payment is accepted for each of these items? How do these payment types differ
        from payment options at brick and mortar stores? Why?



4.      What type of business would be able to use an online auction site effectively to sell its products?



5.      eBay also offers an option for businesses to establish non-auction ―EBay stores‖ to sell products
        through the web site. What would be the advantages to a small business of establishing such a
        store rather than a brick and mortar stores? Would there be any disadvantages? Explain.




Chapter 15: Distributing Products Quickly and Efficiently                                               15.65
Critical
  Thinking Exercises

                                                          Name: ___________________________

                                                          Date: ___________________________


CRITICAL THINKING EXERCISE 15-1
DISTRIBUTION CHANNELS

         Let‘s find out about the kinds of distributions channels manufacturers in your area use. Call or
visit five manufacturers in your area and ask them the following questions. Record your answers on the
chart below.

1.      What is your main product?

2.      How do you distribute your product to consumers? Do you use a direct channel (straight from you
        to consumers) or an indirect channel (through intermediaries)?

3.      If you use wholesalers, what kind?

                              MAIN             DISTRIBUTION CHANNEL
 MANUFACTURER               PRODUCT             DIRECT OR INDIRECT                  WHOLESALERS




15.66                                            UNDERSTANDING BUSINESS: Instructor’s Resource Manual
                                                            Name: ___________________________

                                                            Date: ___________________________


CRITICAL THINKING EXERCISE 15-2
SHOP TIL YOU DROP

        Go to the shopping mall (not a bad assignment so far, huh?) Use the chart below to list and cate-
gorize the types of stores you find there. Other students in the class may wish to go downtown instead.
That would be great because then you could compare any differences you find in the two locations. If you
do find differences, what reasons can you give for them?


TYPE STORE                      SHOPPING MALL STORES                   DOWNTOWN STORES


Department store


Discount store


Supermarket


Warehouse club


Convenience store


Category killer


Outlet store


Specialty store


Supercenter




Chapter 15: Distributing Products Quickly and Efficiently                                           15.67
Supplemental
  Cases

SUPPLEMENTAL CASE 15-1
THE MEGAMALLS ARE HERE

         It all started in Canada at the West Edmonton Mall, a 5.2-million-square-foot extravaganza that
must be seen to be believed. Who can picture a mall with a Ferris wheel, a huge aquarium, or a church?
There are 825 stores, two auto dealerships, 32 movie theaters (!), an ice-skating rink, an underground
lake, an 18-hole miniature golf course, and 132 restaurants. Imagine Disneyland combined with the larg-
est mall you have ever seen and you have some idea of what the West Edmonton Mall looks like. The
mall has been a tourist attraction for years.
        Now a similar mall is in Bloomington, Minnesota. The mall is the size of 78 football fields. The
theme park takes up two floors in the center of the mall. The seven-acre park includes 16 of the most
popular rides at Knott‘s Berry Farm in California. There are about 800 stores, a health club, 100 restau-
rants and night clubs, an ice rink, 18 theaters, and, of course, miniature golf.
         Another one of the largest malls in the United States is Del Amo Fashion Plaza in Torrance, Cali-
fornia. It has 2.65 million square feet of gross leasable area. Number two, the South Coast Plaza in Costa
Mesa, California, has 300 stores and covers about 2.6 million square feet. (The Bloomington mall is 4.2
million square feet.)
        It is no mistake that malls are called shopping centers by many people. The key to malls was de-
veloped by a man named Victor Gruen about 30 years ago. His goal was to change ―destination shoppers‖
into ―impulse shoppers.‖ Here‘s how it works. You run to the mall to buy a pair of shoes. You go into a
shoe store to get what you want, but cannot find it. You then proceed to walk through the mall to another
shoe store. During that walk, you may stop for an ice cream cone, drop in to a bookstore for a paperback
novel, and window-shop at several clothing stores. You went to the mall for shoes (a destination shopper)
and ended up buying ice cream, books, and maybe a sweater (an impulse shopper).
        Malls are ingeniously designed to foster impulse shopping. Shoe stores are usually widely sepa-
rated so you have to travel the length of the mall to shop for shoes. Most malls are ―anchored‖ by a couple
of major department stores (e.g., Sears) that are at opposite ends, like anchors holding the mall together.
Notice how the malls have spread the distance between clothing stores and other places to shop.
         Countering the trend for huge malls like the West Edmonton Mall are smaller, more product-
specific malls. Across the street from a megamall, for example, is a strip mall (stores all in a row) with
seven furniture stores. This lets consumers shop for furniture conveniently, but does not lead to much im-
pulse buying. Other shopping centers may feature several automobile dealers. Lately, a major attraction is
―outlet‖ malls or ―off-price‖ malls that contain many discount stores. On the other extreme are malls ca-
tering to the rich, anchored by stores such as Neiman-Marcus and filled with exclusive jewelry shops and
high-fashion clothing stores.




15.68                                            UNDERSTANDING BUSINESS: Instructor’s Resource Manual
DISCUSSION QUESTIONS FOR SUPPLEMENTAL CASE 15-1:


1.      How does a mall like the Bloomington mall affect all the other stores in the area? What is the
        effect on traffic and congestion? Discuss all the other effects such a huge mall can have on an
        area. Be sure to include employment, pollution, tourist trade, and taxes.


2.      Imagine such a mall coming to your town. Would you enjoy going to the mall every time you
        wanted to go to the movies or a restaurant? Compare such a mall to the shopping centers you now
        have in your town. Which do you prefer? Why?


3.      The people who are building this mall have plans to build others. Do you see such malls as the
        future for retailing? Are malls to become the entertainment centers of America? What would be
        the advantages and disadvantages?


4.      Shopping malls were meant to be places where you could window-shop and buy impulse items.
        Megamalls are now so large that such shopping would take all day. Do you think that will cut
        back on frequent mall visits and result in less business per store? What will be the future of strip
        malls if megamalls keep spreading?




Chapter 15: Distributing Products Quickly and Efficiently                                               15.69
ANSWERS TO DISCUSSION QUESTIONS FOR SUPPLEMENTAL CASE 15-1:


1.      How does a mall like the Bloomington mall affect all the other stores in the area? What is the
        effect on traffic and congestion? Discuss all the other effects such a huge mall can have on an
        area. Be sure to include employment, pollution, tourist trade, and taxes.
         Such a mall can force competing stores out of business creating downtown blight in place of
prosperous businesses. That is not a reason not to build such malls, but a real consideration. Traffic in the
area of the mall can become horrendous as can litter and potential crime. On the other hand, the tax base
of the area can be greatly increased as can revenues from motels and other businesses catering to tourists.
Pollution must be controlled or it can get out of hand. Such malls offer an increase in employment as
well.

2.      Imagine such a mall coming to your town. Would you enjoy going to the mall every time you
        wanted to go to the movies or a restaurant? Compare such a mall to the shopping centers you
        now have in your town. Which do you prefer? Why?
       Such malls are huge, and it is often difficult to get from one end to another. The malls may also
be crowded and noisy. Discuss the benefits and drawbacks of a huge mall versus your hometown malls.

3.      The people who are building this mall have plans to build others. Do you see such malls as the
        future for retailing? Are malls to become the entertainment centers of America? What would be
        the advantages and disadvantages?
        Such malls can destroy the peace of suburban living. They create traffic congestion and pollution.
Hopefully such malls will not be commonplace but will be scattered throughout the country. The rest of
the country is probably better served with a few entertainment centers such as Disney World and smaller
malls. Does your class agree?

4.      Shopping malls were meant to be places where you could window-shop and buy impulse items.
        Megamalls are now so large that such shopping would take all day. Do you think that will cut
        back on frequent mall visits and result in less business per store? What will be the future of strip
        malls if megamalls keep spreading?
        Megamalls can drive smaller businesses out of the market. This can by unfortunate in many ways
because small businesses often offer better service and a better community orientation. There are some
benefits to large malls, but there are also many benefits to local community stores.




15.70                                             UNDERSTANDING BUSINESS: Instructor’s Resource Manual
SUPPLEMENTAL CASE 15-2
BRINGING SERVICES HOME FOR PETS

         Taking Kitty or Spot to the vet to get their annual vaccinations and checkups can be an unnerving
experience for both the pet and the pet owner. So what better way to remedy the stress that for the vet to
come to you? A growing number of veterinarians are offering house calls or opening mobile services.
Membership in the American Association of Housecall Veterinarians (AAHV) has increased 150 percent
in the past decade.
        House-call and mobile vets offer distinct services. House-call vets come to your home and per-
form their tasks there. They are required by law to have an agreement with a clinic for services they can‘t
perform on site, such as spaying or neutering. Mobile vets have vans for treating animals. They often can
do lab work and perform surgeries. Such medical professionals are reviving the philosophy of times
past—that the sick should stay put and the care should come to them. These vets place an emphasis on
personalized care. The average facility veterinarian sees one animal every 15 to 20 minutes, or about 30
animals a day. House-call and mobile vets see eight to ten. Mobile vets charge a house-call fee ranging
from $20 to $60, usually based on the distance traveled.
         Clients range from busy families that don‘t have time to herd their pets in to a car to the elderly
and disabled who can‘t easily transport their animals. House-call and mobile vets are also able to view
their patients in their usual environment. Things like seeing where the food and litter boxes are placed can
help diagnose and understand the needs of animals. Pet owners and pets alike appreciate the higher quali-
ty of care and personalized service.

(Source: Heather Won Tesoriero, ―Why Let The Dogs Out? These Vets Come to You,‖ Time, December
23, 2002, p. 77)




Chapter 15: Distributing Products Quickly and Efficiently                                              15.71
DISCUSSION QUESTIONS FOR SUPPLEMENTAL CASE 15-2:


1.      What do you see as the advantages and disadvantages to a mobile pet clinic?


2.      Do you see these same advantages and disadvantages for a mobile clinic for people?


3.      What other services might a mobile clinic offer to increase profits?




15.72                                            UNDERSTANDING BUSINESS: Instructor’s Resource Manual
ANSWERS TO DISCUSSION QUESTIONS FOR SUPPLEMENTAL CASE 15-2:


1.      What do you see as the advantages and disadvantages to a mobile pet clinic?
        The advantages are clear. The pet owner can stay home, the pet doesn‘t get stresses as much,
much time is saved, and so forth. The disadvantages are less clear. If an emergency develops, the mobile
unit may not have what is needed. There is an added cost. Students may enjoy talking about the idea of a
mobile clinic for pets. You could lead them into a discussion of other mobile services, such as a van for
exercising, oil changes, car wash and wax, and income tax preparation. This is a chance to think like an
entrepreneur and find a need to fill.

2.      Do you see these same advantages and disadvantages for a mobile clinic for people?
        The same advantages and disadvantages that apply to pets pretty much apply equally to humans.
There could be great profit in a mobile health unit to give shots and check-ups and more. Students may
enjoy envisioning what could be done at home versus in the clinic. How much more would they be will-
ing to pay for an in-home service, if anything? How much would they save by not driving to the clinic, by
not spending the time on the road, etc?

3.      What other services might a mobile clinic offer to increase profits?
         By making the mobile unit larger, or by attaching a trailer, you could pretty much go into the pet
supply business. Customers could call ahead and order pet food and pet supplies of all kinds. It is fun to
brainstorm everything that could be done to help a person take care of a pet, including providing walking
services, housing services, and more. Who would have thought that there could be a lucrative market for
pet clothes, pet furniture, pet insurance, and more?




Chapter 15: Distributing Products Quickly and Efficiently                                              15.73
SUPPLEMENTAL CASE 15-3
UNITED STATIONERS: OFFICE-SUPPLY INTERMEDIARY

         The Internet has created rapid change in the sale and distribution of most goods. Perhaps nowhere
is such change more apparent than in the office supply market. By the early 1990s, half of the smaller sta-
tioners in the United States had gone out of business—about 6,000 stores. Staples, Office Depot, and oth-
er large retailers, many of them with online services, rapidly replaced them. So, what happened to compa-
nies like United Stationers that supplied those small stationers with the products they sold?
       In 1994 United Stationers wasn‘t doing too well. It was then that Randall Larrimore became the
company‘s chief executive. Larrimore was determined to reverse United Stationers‘ fortunes. He moder-
nized United Stationers by using the latest supply-chain concepts.
         Come with us to Ketchum, Idaho, to visit a stationer called Business as Usual. It‘s a small store;
only 1,500 square feet. Despite its size, its prices are competitive with those of not only the office supers-
tores in nearby Twin Falls but also online sellers. The reason Business as Usual remains competitive is
that United Stationers can readily provide it with some 35,000 items from more than 500 manufacturers at
prices lower than those it could get by ordering directly from the manufactures. United Stationers can
purchase the products from the manufacturers more cheaply than small stores because it orders in such
large volumes. It can then pass part of the savings on to its customers.
        If Business as Usual places an order to United Stationers by 4 p.m., the store gets the supplies by
the next day. Even better, Business as Usual can have United Stationers send the supplies directly to its
customers. By providing a large inventory and speedy delivery low prices, United Stationers has made it
possible for small companies to survive. It was Randall Larrimore who helped make all this possible.
         Staples and Office Depot also use the services of United Stationers. These superstores order in
such large volumes that they buy most of their products directly from manufacturers. However, there are
many products that are not very popular but that superstores must carry in order to become one-stop
shopping centers for office supplies. Since ordering these products directly from the manufacturer is not
efficient, the superstores turn to United Stationers. Untied Stationers also supplies many of the office
products that get sold online by Dell Computer and 125 other companies.
         In the United States there are hundreds of thousands of suppliers like United Stationers, providing
similar services to retailers like United Stationers, providing similar services to retailers of products rang-
ing from automobile suppliers to zoo shop souvenirs.
        The whole system for distributing goods has changed over the last decade or so. The advent of
online retailers has altered the way customers buy and the way manufacturers sell. The Internet has also
changed the way goods are distributed.

(Sources: Ashlea Eblin, ―Paper Tiger,‖ Forbes, February 21, 2000, pp. 71-74; ―ebuyxpress.com, Leading
B2B MRO Procurement Web Site, Cuts Cost of Goods 20% by Eliminating Distribution Layer and Ag-
gregating Millions in Buying Power,‖ Business Wire, May 2, 2000; and Marshall L. Fisher, Ananth Ra-
man, and Anna Sheen McClelland, ―Rocket Science Retailing Is Almost Here: Are You Ready?‖ Harvard
Business Review, July-August 2000, pp. 115-24.)




15.74                                              UNDERSTANDING BUSINESS: Instructor’s Resource Manual
DISCUSSION QUESTIONS FOR SUPPLEMENTAL CASE 15-3:


1.      What does this case teach you about the need for constant change in marketing?


2.      Does this case indicate that intermediaries are becoming less or more important to marketers?


3.      What do you see as the future of online marketing in general and B2B online marketing in partic-
        ular?




Chapter 15: Distributing Products Quickly and Efficiently                                           15.75
ANSWERS TO DISCUSSION QUESTIONS FOR SUPPLEMENTAL CASE 15-3:


1.      What does this case teach you about the need for constant change in marketing?
         If United Stationers had not changed the way it functioned, it would be out of business, just like
the thousands of small stationery stores it serviced. Business is constantly changing, and the Internet is
only making such changes come more rapidly. There are many disruptions caused in the channel of dis-
tribution, but just as many opportunities are created.

2.      Does this case indicate that intermediaries are becoming less or more important to marketers?
         Intermediaries will always be needed as long as they can provide a service faster or cheaper or
better than a company could do it by itself. There will always be a need for FedEx and UPS and other in-
termediaries. There will always be a need for retailers, but their character may change dramatically. Re-
tailing has always been in a state of flux, and will continue to be. Intermediaries are not any less or more
important; they are equally important. They just have different tasks to perform.

3.      What do you see as the future of online marketing in general and B2B online marketing in partic-
        ular?
        Online marketing can only continue to grow. Just watch the growth of eBay for example. The
same will be true for B2B sales. The failures of the past are no indication of the future. Growth simply
came too fast, and there was not enough planning. People learn from mistakes, however, and the future of
online marketing looks bright indeed.




15.76                                             UNDERSTANDING BUSINESS: Instructor’s Resource Manual

				
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