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Marketing Channels Quiz 2
UNL Marketing Channels Chapters 4,6
50
Marketing
Undergraduate 4
10/17/2013

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Term
Causes of Conflict
Definition
Role/ goal incongruity
resource scarcity
perceptual difference
communication difficulties
Term
Agency relationship
Definition
Any exchange/ transaction arrangement
Term
Agency
Definition
an exchange relationship which results whenever one party (principal) depends on another (agent) to undertake some actions on its behalf.
Term
Marketers(Manufacturers)
Definition
depend on intermediaries (dealers) to sell goods; they are managing agency relationships.
Term
Pre-contractual
Definition
Problem is to observe and verify
the hidden qualities
(abilities/ motivations) of the
prospective partner (agent)
Term
Post-contractual
Definition
Problem is to ensure that the
chosen partner uses his abilities
to achieve your (principal’s) goals
Term
Market Geography
Definition
geographical size, distance
Term
Market Size
Definition
Number of customers in market
Term
Market Density
Definition
Number of buying units (consumers or industrial firms) per unit of land area
Term
Market Behavior
Definition
Who buys, & how, when, and where
Term
Financial Capacity
Definition
The greater the capital, lower the dependence on intermediaries.
Term
Managerial Expertise
Definition
Intermediaries are necessary if experience is lacking.
Term
Qualitative Judgment Approach
Definition
Channel Design factors are chosen based on management judgment. Various channel alternatives are compared based on these factors.
Term
Weighted Factor Score
Definition
Attach weights to the channel design factors
Term
Social Man
Definition
Ruled by customs, tradition,
honor, feelings, relations

*Works for the group/ relationship,
not for individual self.

*Dealer who will always
cooperate unquestioningly
Term
Economic Man
Definition
Ruled by perfect reason to
maximize own payoffs

* Infinite computational
power in the brain to write
comprehensive contracts

* Simple self-interest seeking
(maximizes personal payoffs in a
“gentlemanly” way).


*Advance own interest, but will not
violate contracts or oaths/ promises
Term
Boundedly rational man
Definition
Mind is a scare resource; Intendedly rational, but limitedly so

*Cannot write comprehensive contracts!
Term
Transaction Cost Approach
Definition
TCA clarifies what happens inside the firm (hierarchy) and compares it to what happens outside (markets).

TCA explains when the firm is a better choice than the market to perform channel tasks.
Term
Opportunistic Man
Definition
*Self interest seeking with guile: blatant form of self-seeking

*NOT everyone is opportunistic, but we do not know ex ante who is.
Term
Transaction Specific Investments
Definition
Some of these investments are general-purpose, but other are specialized or idiosyncratic to the focal relationship (i.e., have negligible value outside the focal relationship
Term
hidden action problems
Definition
Even agents who are known to possess high ability and motivation (before entering the relationship) may deliberately fail to act in the principal’s interests ex post (after entering the relationship).
Term
Outcome Based Contracts
Definition
E.g., car makers reward dealers on tangible performance outcomes such as sales volume, number of servicing complaints, customer satisfaction scores etc.
Term
Behavior Based Contracts
Definition
When output is too complex to easily specify, you measure broader behaviors designed to accomplish those outputs.
Term
Ways to deal with channel conflict
Definition
Third Party surveys (e.g., Magazine)
Channel Audits
Advisory Councils (Channel Committees
Arbitration
Term
Power:
Definition
Power of R over M is its ability to influence R (to get things done).
Term
Dependence
Definition
M is dependent on R if it aspires to goals or interests (resources) whose achievement is facilitated by R.
Term
Five Types of Power
Definition
Expert Power

Referent Power (identification with values/ reference group).

Legitimate Power (power due to a formal role, contract etc).

Reward Power

Coercive Power
Term
Channel Design Paradigm
Definition
Recognize the need for
channel design decision

Set & coordinate
distribution objectives

Specify
distribution tasks

Develop alternative
channel structures

Evaluate
relevant variables

Choose the “best”
channel structure

Select
channel members
Term
Tasks for B2C channel
Definition
-Promote on national T.V.
-Educate buyer on product features.
Term
Tasks for B2B channel
Definition
-Promote face to face
-Learn about buyer’s technical needs.
Term
Distribution Intensity
Definition
-Intensive
-Selective
-Exclusive
Term
Number of Levels
Definition
usually 2-5
Term
Intensive:
Definition
Brand available at many outlets in a given area (in saturation, every possible outlet).
Term
Exclusive:
Definition
Brand available from only one outlet in a given area; vendor has “local monopoly”.
Term
Selective
Definition
Somewhere in between the two extremes, and more common.
Term
Retailers resent intensive coverage
Definition
It reduces their ability to differentiate themselves with unique brands


Buyers will “free ride” on salesperson effort at one outlet and buy from a nearby cheaper outlet
Term
Product Variables
Definition
Bulk & Weight
Perishability
Unit Value
Degree of Standardization
Technical versus Nontechnical
Newness
Term
Markets
Definition
are really good at innovation (or at lowering production costs) because of high powered incentives

Innovation and cost-effective
Production, but your TSIs at risk
Term
Hierarchy
Definition
low in risk of opportunism (i.e. transaction costs are lower than in market) due to low-powered incentives and fiat.

Your TSIs protected, but
you lose innovation.
Term
Credible Commitments
Definition
Bilateral (reciprocal) exchange of specific assets can make commitments credible in business relationships. They “tie the hands” of both the partners in a relationship – the partners cannot act opportunistically each other even if they want, because by doing so they risk losing their valuable specific investments.
Term
Briefly describe adverse selection problems in agency theory. Illustrate with an example (3-4 sentences).
Definition
Problems that arise before parties get into a relationship. Resolved through screening and selection.
Term
Power of a firm over its partner and its dependence over that partner are inversely related
Definition
True– If I am more powerful relative to you, I am less dependent on you. But this also implies that you are more dependent on me).
Term
Conflict
Definition
can be dysfunctional/ beneficial/ tolerable
Term
Power that comes from specialized competencies
Definition
Expert
Term
Describe the concept of high-powered incentives according to transaction cost theory
Definition
Simply means that in a market relationship, a firm’s outcomes are entirely dependent on their efforts. If a firm works hard, it stands to keep all incremental profits that accrue through its actions. This is unlike in hierarchy.
Term
According to agency theory
Definition
Contracts / incentives is one solution to resolve moral hazard problems.
Term
Describe the idea of ‘bounded rationality’ as articulated in transaction cost theory
Definition
Bounded rationality implies that firms (managers) have limited comprehension/ cognition, and as a result, they can be rational only within limits. Its main implication is that with bounded rationality, you cannot write perfectly foolproof contracts as you cannot perfectly imagine all future scenarios. So, your contracts will always have loopholes
Term
A marketing channel audit is the best method for conflict detection
Definition
False- it is one method to detect conflict but not necessarily the best one.
Term
List a set of 5-6 steps (n your won words) that you would follow to design a new channel for a firm
Definition
1. Recognize need for channel design 2. Decide distribution objectives
3. Specify distribution tasks
4. Develop alternative channel structures
5. Evaluate relevant variables, choose the best channel configuration and so on.
Term
Explain the distribution costing approach. Illustrate using a numerical example
Definition
Paying a distributor to help sell your product.

Ex: Giving them margin and support, paying less to sales people but selling less.
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