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Marketing Channels Exam 3
Chapters 11, 16, 18
56
Marketing
Undergraduate 4
12/04/2013

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Term
The difference between single-unit and multi-unit franchises is:
Definition
In multi-unit franchisees, franchisees receive permission from the franchisor to own and operate more than one unit at the outset of their relationship, whereas single-unit franchises initially only receive permission to operate a single unit at the outset.
Term
In product distribution franchising, the franchisor provides the franchisee substantial training for operating the business (T/F)?
Definition
Ans: False- training is offered more in business format rather than product distribution franchising (see franchising chapter).
Term
Write the full form of the acronym UFOC
Definition
Uniform Franchise Offering Circular
Term
How do gray markets and counterfeiting differ? Explain briefly.
Definition
Counterfeiters actually manufacture fake versions of your product,. Gray marketers take the product as it is (they do not manufacture it), and sell it to/through unauthorized distribution channels
Term
Define Power Distance
Definition
According to Hofstede, Power distance is the willingness of members in a society to accept unequal distribution of power among themselves. More the power distance, more hierarchical the society. Eastern cultures in general tolerate more power distance than the West.
Term
An example of direct exporting
Definition
Foreign distributor/ foreign agent
Term
Differing price elasticities of consumers and channel members make it difficult for firms to garner channel support for price promotions. (T/F)
Definition
True-see pricing chapter. Customers might get excited at the prospect of a small price cut, but retailers who have to execute/ administer these price cuts might not be as excited, esp. if they do not see themselves making a profit at that miniscule price cut.
Term
Describe how/ why pricing decisions can create conflict between direct and indirect channels. List two ways to resolve such conflicts.
Definition
Mostly, it is a pricing conflict.
This conflict can be resolved by keeping accounts for direct vs. indirect channels separate; selling different configurations of products through these channels etc
Term
A manufacturer sells a product to wholesaler for $30. If the cost of manufacturing the good is $20, what is the manufacturer’s profit percentage?
Definition
Manufacturer’s profit =$30-$20. As a percentage of initial cost to manufacturer ($20), this is (10/20)*100= 50%.
Term
Profit Margins
Definition
Each reseller must obtain profit margins (gross margin and net profits) in excess of operating costs.
Term
Gross Profit (margins)=
Definition
Revenue - Cost of goods sold [COGS]
Term
Net Profit
Definition
= Gross Profit - Operating expenses
Term
Theory
Definition
Set channel margin in ratio to functions performed.
Term
Practice:
Definition
Manufacturers lack 1) power and 2) cost accounting data to do this.
Term
Rival Brands
Definition
Margins on your product should be competitive with rival brands at various levels of the vertical channel.
Term
Strong brands
Definition
(e.g., Apple) and those that offer strong channel to channel (e.g. promotions) can do with lower margins (because retailer has to exert less effort sell).
Term
Weak brands
Definition
(e.g., Magnavox) must pay larger margins for retailer efforts to sell their brand.
Term
Special Pricing Deals
Definition
Rebates, price-discounts, free goods, quantity discounts etc.

Special price are short term incentives to motivate dealers and stimulate sales.
Term
What are some trade-offs in deploying such discounts?
Definition
-Channel takes such discounts for granted, and might not later exert effort if discounts are missing.

- Might dilute brand image.
- Psychological resistance to increasing prices later.
Term
Conventional Norms in margins.
Definition
Retailers will resent if conventional margins are not allowed, unless they are explained the rationale for otherwise.
Term
Margin Variation on Models
Definition
♠ Lower margins OK for “traffic builders”; can “trade up” consumers to higher priced models from these.
♠ Retailers must “buy in” into such the promotional values
Term
Manufacturers and channel members each seek to control pricing. Manufacturers want control to:
Definition
-Reduce risk of brand dilution
-Minimize risk of price war
Term
Gray Markets:
Definition
Sales through unintended or unauthorized outlets
Term
Costs of Gray Markets
Definition
Damaged Relationship with authorized channel

Brand dilution

Authorized dealers skimp on services etc

Legal Liability
Term
Gray Markets: Potential Solutions
Definition
Selective distribution; eliminate channel who sell to unauthorized outlets.

Change buyer preferences (e.g., for more services).

Tighter control of channel;
Term
Inter-Channel (or Inter-Dealer) Free-riding
Definition
E.g. Do product research in Best Buy, but purchase on Amazon;
Term
Franchise:
Definition
Legal agreement between independent firms, where one firm grants to another a license to sell a trademarked (branded) product for certain fee.
Term
Capital Advantage (through fees etc)
Definition
Does not dilute business ownership, unlike debt.
Capital (franchise fee) can be used for training, promotion etc purposes, without restrictions.
Term
Reduced Distribution Costs
Definition
No overhead or fixed costs (like store front); franchisees also pay fee and royalty.
Term
Motivation
Definition
Franchisees more driven than employees (who are risk-averse) due to capital commitment.
Term
Benefits For Franchisee
Definition
Proven business model; less risky.
Well –known franchise brand has already garnered consumer acceptance.
If franchisee wanted to create a brand/ business model alone, the costs could be prohibitive.
Business assistance from franchisor.
Term
Franchise Fee.
Definition
One time flat fee to sign the contract
Term
Royalty Fee
Definition
Fixed (rare) or as a % of sale (usually).
With % method, royalty will adjust to changing market conditions
But fixed method offers more certainty to parties
Term
Downsides for Franchisee
Definition
Flexibility limited by franchisor terms
Negative halo effect (if other franchisees goof up, you are also impacted!)
Obligation to pay royalty etc even if a loss is made
Term
Can you afford a franchise?
Definition
-Start-up costs & fees?
-Sources of funds
-Profit potential & Time to break even?
-Other franchisees happy with their investment?
Term
Channel Environment: Economic Factors
Definition
-Recession
-Inflation
-Deflation
-Fluctuating Currency Rates
Term
Channel Environment: Competitive Factors
Definition
-Different Languages
-Many less-developed
countries do not
have free &
open competition
-Different Cultures
-Different Currencies
Term
Sociocultural Environment
Definition
-Varying behavior
norms
-Varying cultural
values
-Varying
attitudes
Term
Values:
Definition
Broad preferences about appropriate courses of action; Values trigger attitudes.
Term
Attitudes:
Definition
+ or - evaluation of people, objects, event, activities, ideas.
Term
Norms:
Definition
Describe shared expectations (unlike values which can be individual) about appropriate courses of action, but are specific to a situation (less broad than values).
Term
Power Distance
Definition
Willingness of society to accept unequal power distribution w/o justification. Strict societal and workplace hierarchy.
Term
Individualism vs. Collectivism
Definition
Take care of only self vs. the larger extended kinship/ group (I vs. we). Channels in collectivist cultures may rely on personal interaction rather than contracts.
Term
Uncertainty Avoidance
Definition
Preference for structured rules (predictable situations).
Term
Masculinity vs. Femininity
Definition
Assertiveness vs. cooperative values
Term
Exporting
Definition
Most companies start their international expansion by exporting
Term
Indirect exporting
Definition
-For example, a trading company will buy the firm’s goods outright and resell them in the foreign market
-Firm uses a middleman (independent intermediary) based in its home market to handle its exporting
Term
Direct exporting
Definition
-Company sets up (gets involved directly) its own export organization
-Once the international sales potential becomes substantial, direct exporting is appealing
Term
Licensing
Definition
Firm - the licensor – offers its brand name to a foreign company – the licensee - in exchange for a royalty fee.
Term
Benefits of Licensing
Definition
-Licensing is not very demanding on the company’s resources
-Therefore, it is especially appealing to small companies that lack the resources
Term
Caveats of Licensing
Definition
Misguided moves by the licensee can tarnish the brand
Term
Joint Venture (JV).
Definition
Two companies jointly own part of each other (e.g., Ford-Mazda JV)
Term
Benefits of Joint Venture
Definition
Less resource needed, and can learn from a partner
Term
Caveats of Joint Venture
Definition
-Partners may cut corners and leave JV after learning your technology.
-Cultural clashes
Term
100% Owned Plant (Manufacturing Subsidiary)Benefits
Definition
-Full control
-All profits go to company
Term
100% Owned Plant (Manufacturing Subsidiary)Caveats
Definition
-Carry the full burden of possible losses
-Risk of nationalization
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