Besides cost, several other factors should be considered. Speed of delivery: How fast will it get to the user? Flexibility: Will it reach the user directly or will other modes of transportation also be required? Bulk size of shipment: Which mode of transportation is best suited for the bulk size of the product? Speed of delivery is especially important for time sensitive items such as perishable fruits and vegetables, cut flowers, periodicals, and livestock or pets, while bulk size is a major concern in transporting coal, sand, grain, or other similar commodities.

Basic Types of Carriers

Carriers can be classified legally as common, contract, or private. Common carriers offer regular services to the general public. They haul the vast majority of small shipments in the United States, and will carry just about anything along specified routes. Common carriers include airlines, railroads, trucklines, and buses. In the early 1980s, the airlines and trucklines became deregulated, but only after a long history of heavy government regulations on rates.

Levi Strauss & Company must remember that a product’s image is often reflected in its price. Many students are willing to pay more for Calvin Klein jeans, for example, and many businessmen are willing to pay more for Brooks Brothers suits. The essential pricing question for Levi Strauss & Company is: Will men pay more for the Levi’s image?

Marketing research from consumer focus groups indicates that this is questionable. The Levi Strauss & Company brand name, while exceptionally positioned for jeans, does not compare to Brooks Brothers, Palm Beach, Hart, Schaffner & Marx, and other makers of quality men’s suits. Nevertheless, Levi Strauss & Company is excited about its quality product and is committed to a strategy of diversifying its product line to improve corporate profits. Entry into this new market involves a definite risk, but it is one that Levi Strauss deems necessary.

Consider a coat that sells in the store for $100. Certainly it cost the manufacturer much less than $100 to make the coat. Consumers know, of course, that the goods they purchase cost the manufacturer much less than the retail price, and prices are a constant subject of conversation and an object of controversy.

As goods move through the channels of distribution, they are priced according to their value. Because channel members provide a variety of services for the man

Supply and Demand Theory

Economic theory assumes that companies will set prices to maximize profits. Based on this assumption, companies will set their prices so that the quantity of a product demanded at a certain price is equal to the quantity suppliers will supply for that price. In other words, the quantity supplied is in equilibrium to the quantity demanded. The demand curve represents the number of basketballs demanded at different price levels. The supply curve represents the number of basketballs that will be available at various prices. The point of intersection for those two curves is the equilibrium price. At $23 apiece, 250,000 basketballs might be sold.

The demand for products can be described as elastic or inelastic. The demand for products such as cars and furniture is elastic: more units will be sold at lower prices and fewer units will be sold at higher prices. For example, more people would rather pay $9,000 than $12,000 for a comparable car. However, the demand for other products is inelastic: meaning the demand does not vary much with changes in price. The classic example of an inelastic product is salt.

Shortages of supplies of a product can be caused by several things: strikes, bad weather, lack of plant capacity, cutbacks on production of less profitable items, and stricter inventory controls. Such spot shortages can cause prices to increase. When shortages do exist, many large companies use their economic muscle to demand prompt delivery of goods. This means that industrial users and consumers must pay premium prices if they expect delivery in a reasonable period.

The early 1970s witnessed a major advance in coastal and transoceanic shipping. Ships were redesigned to handle containerized freight or conex containers, which hold smaller packages and freight. These containers enable ships and barges to link more efficiently with trucking and railroads. Ships combining with trucks provide what is called fishyback service. Those combining with railroads are known as seatrains. Containerized freight cuts down on damage and pilferage of goods both major disadvantages of water transportation. In addition, containerized ships can transport stacked conexes on deck, which increases their load capacity.

The remote Prudhoe Bay, Alaska, fields, 500 miles north of the Arctic Circle, hold the richest known reserves of natural gas in North America but the problem has always been getting the gas to market. General Dynamics proposed a solution right out of Jules Verne. It hopes to build a fleet of gigantic 950,000 ton submarine supertankers to ferry liquefied natural gas (LNG) on a 3,200-mile voyage beneath the Arctic ice cap to ports on the East Coast of Canada and in Europe.

General Dynamics, one of the nation’s largest shipbuilders, insists undersea supertankers are technically and commercially feasible. The company builds nuclear submarines for the U.S. Navy and commercial LNG tankers, and the new ships would be a hybrid of proven submarine and LNG tanker technology. Each sub would carry 37 million gallons of LNG chilled to minus 260 degrees Fahrenheit. The plan calls for them to load at an underwater terminal on the ocean floor without surfacing.

Thus, every marketing manager must ask the following questions before making a channel decision.

First, who are the potential users of this product? Potential users can be either consumers or industrial buyers, and they can be spread out geographically or concentrated in one large market such as Atlanta or Los Angeles. Generally, fewer middlemen are needed for industrial products than for consumer products.

Second, what services can channel members or middlemen provide to make the producer’s job easier? For example, will middlemen take title or goods, provide promotion (including sales force support), assure credit risks, offer credit plans, offer delivery and postpurchase service to buyers, provide sufficient storage and inventory, and perform many other similar support activities?

Third, do the product’s characteristics have a bearing on channel selection? Several types of goods such as perishable items and large or bulky merchandise require shorter channels. Smaller goods such as candy, stationery, inexpensive watches, toys, and many others may use longer channels or several middlemen.

Vertical shopping malls. As prime land becomes more scarce and more expensive, developers will start building up instead of out. This trend toward vertical shopping malls started in crowded Tokyo and the idea was first used in the United States at Water Tower Place in downtown Chicago.

Theme plazas. As more and more people look for unique shopping environments, more smaller, outdoor shopping centers that feature old world, international, or colonial village atmospheres, are appearing. These theme plazas usually feature unique specialty shops and restaurants. For example, in Tampa’s Ybor City (Latin Quarter), an old cigar factory has been converted into a unique shopping and eating facility.

Business, living, and entertainment complexes. Many people want to live near where they work. And as crime rates continue to increase, protected shopping and entertainment areas prosper. “Total” complexes are unique areas that offer condominiums, apartments, hotels, ice rinks, movie theaters, retail shopping, and business offices all under a common roof or adjoining roofs. The Galleria in Houston, Colony Square in Atlanta, Crown Center in Kansas City, Broadway Plaza in Los Angeles, and the Renaissance Center in Detroit are total complexes.

Water was there long before rails and roads, and it would be hard to over estimate the historical importance of waterways as a mode of transportation. Today ships and barges are the major vehicles of water transport, and together they offer the cheapest method of transportation. The 2,342-mile St. Lawrence Seaway completed in 1959 enables 80 percent of all ships that enter the Great Lakes to serve the American industrial and agricultural heartlands.

Ships are hampered only by winter ice, which annually closes portions of the Great Lakes and the St. Lawrence Seaway. Engineers and scientists have proposed a plan to melt the ice in the St. Lawrence waterway system, but environmentalists and many others strongly oppose the plan. Another way around the ice problem has been proposed by General Dynamics, which wants to build a fleet of gigantic submarine supertankers to ferry liquefied natural gas beneath the Arctic ice cap to the east coast of North America and to Europe. This plan is explained in the following exhibit.

The label is an important part of the package. Labels provide product information such as ingredients, instructions for use, care of the product, and the product’s benefits. Much of this information is required by the Food, Drug, and Cosmetics Act (1938); Fair Packaging and Labeling Act (1966); Wool Products Labeling Act (1939); Fur Products Labeling Act (1952); Textile Fiber Products Identification Act (1960); and the Federal Hazardous Substances Label

Once a shipment has been transported to a customer, it must be off loaded, stored, and often reshipped to the ultimate consumer. At each step the goods must be handled. Materials handling involves a variety of specialized techniques and equipment such as forklifts, conveyor belts, chain driven trollies, and cranes. Each of these is adapted according to the type of goods being handled and the plant layout. For example, the Sears Fashion Merchandising Distribution Center in Chicago has a clothes hanger style conveyor belt, which uses a network of belts at different ceiling heights to off load a truck and distribute a variety of clothes throughout the center. Many types of storage are available for goods once they are off loaded. The most common are stockrooms, warehouses, tanks, refrigerated areas, and outdoor areas. Each of these serves the marketing function of physically holding goods between the time they are produced and the time they are finally used. Described time utility as the quality of having products available when the customer wants them. Storage helps to create time utility in products.