Number of Intermediaries

In deciding how many intermediaries to use, successful companies use one of three strategies:

^ Exclusive distribution means severely limiting the number of intermediaries. Firms such as automakers use this approach when they want to maintain control over the service level and service outputs offered by the resellers. Often it involves exclusive dealing arrangements, in which the resellers agree not to carry competing brands.

^ Selective distribution involves the use of more than a few but less than all of the intermediaries who are willing to carry a particular product. In this way, the producer avoids dissipating its efforts over too many outlets, and it gains adequate market coverage with more control and less cost than intensive distribution. Nike, for example, sells its athletic shoes and apparel through seven types of outlets: (1) specialized sports stores, which carry a special line of athletic shoes; (2) general sporting goods stores, which carry a broad range of styles; (3) department stores, which carry only the newest styles; (4) mass-merchandise stores, which focus on discounted styles; (5) Niketown stores, which feature the complete line; (6) factory outlet stores, which stock mostly seconds and closeouts, and (7) the popular Fogdog Sports site (www.fogdog.com), its exclusive Web retailer.9

^ Intensive distribution consists of the manufacturer placing the goods or services in as many outlets as possible. This strategy is generally used for items such as tobacco products, soap, snack foods, and gum, products for which the consumer requires a great deal of location convenience.

Terms and Responsibilities of Channel Members

The producer must also determine the rights and responsibilities of participating members when considering channel alternatives. From an ethical perspective, each channel member must be treated respectfully and given the opportunity to be prof-itable.10 Other key rights and responsibilities include:

^ Price policy. The producer establishes a price list and a schedule of discounts and allowances that intermediaries see as equitable and sufficient.

^ Conditions of sale. The producer sets payment terms and guarantees for each sale. Most producers grant cash discounts to distributors for early payment; they may also offer guarantees against defective merchandise or price declines.

^ Territorial rights. The producer defines the distributors' territories and the terms under which it will enfranchise other distributors. Distributors normally expect to receive full credit for all sales in their territory, whether or not they did the selling.

^ Mutual services and responsibilities. The producer must carefully lay out each party's duties, especially in franchised and exclusive-agency channels. McDonald's provides franchisees with a building, promotional support, a record-keeping system, training, and technical assistance. In turn, its franchisees are expected to satisfy company standards regarding physical facilities, cooperate with new promotional programs, and buy supplies from specified vendors.

Continue reading here: Conflict Cooperation and Competition

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