Marketing Channel Concepts

byAnoop Kumar Gupta

MAIT1

Essence of Marketing Channels

►Making products and services conveniently available to customers when, where, and how they want them.

►It is through marketing channels that the vast array of customer demand is satisfied.

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4P’s of Marketing 4P’s of Marketing

1. Examination of the “place” as a source of competitive advantage

2. Examine “place” as a key component of Strategic Marketing, that offer to the firm an advantage that cannot be easily copied by competition

WhyWhy the growing importance of the growing importance of marketing channels?marketing channels?

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1. The explosion of information technology and E-commerce

2. A greater difficulty in gaining a sustainable competitive advantage

3. The growing power of distributors, especially retailers in marketing channels

4. The need to reduce distribution costs

Objective 1:

11.. 2. A greater difficulty in gaining a sustainable competitive

advantage 3. The growing power of distributors, especially retailers

in marketing channels 4. The need to reduce distribution costs

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Yahoo! eBay

Amazon.com

The prediction:Disintermediation — reduction of number of intermediaries

The reality:Reintermediation—evolution of a new type of intermediary

The explosion of information technology and E-commerceThe explosion of information technology and E-commerce

Occurred as new types of middlemen called infomediaries such as eBay and Yahoo! emerged to connect producers to consumers.

11Disintermediation andDisintermediation andReintermediationReintermediation

Disintermediation Reintermediation

Intermediaries becomesuperfluous because producers

gain exposure to vast numbers of customers in cyberspace

Shifting, changing, or addingmiddlemen to the channel

Objective 4:

Amazon.comebayDell

Computer Corp.

1. The explosion of information technology and E- commerce 2.2. 3. The growing power of distributors, especially retailers in marketing channels 4. The need to reduce distribution costs

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A greater difficulty in gaining a sustainable competitive advantageA greater difficulty in gaining a sustainable competitive advantage

Place (distribution), or Marketing

Channel Strategy Sustainable competitive advantage

Potential for gaining competitive advantage because place is more difficult for competitors

to copy

1. The explosion of information technology and E-commerce 2. A greater difficulty in gaining a sustainable competitive advantage 3.3. 4. The need to reduce distribution costs

The growing power of distributorsThe growing power of distributors

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Power retailers as of consumer marketsGatekeepers

Act as buying agents for customers rather than as selling agents for manufacturers

Economic power has shifted from the producers of goods to the distributors of goods. These distributors now form and play a role as “gatekeepers” for the consumers acting as buying agents and selecting what products the consumer “sees”. Examples include: Home Depot, Toys ‘R’ Us, and other “category killers”.

1. The explosion of information technology and E-commerce 2. A greater difficulty in gaining a sustainable competitive advantage 3. The growing power of distributors 4.4.

The need to reduce distribution costsThe need to reduce distribution costs

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Marketing channels are the most recent target for

reducing distribution costs.

The focus is on channel structure and management.

Distribution costs for many manufacturing firms often meet or exceed the costs of manufacturing or raw materials. In order to reduce these costs manufacturers must begin the process of focusing attention on marketing channel structure more than they have in the past.

What is a marketing channel?What is a marketing channel?

External contactual organization that management operates to achieve its distribution objectives

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Outside the firm

Firm involved in negotiatory functions

Management’s involvement in the process

Goals that change, causing variations

in contactual organization & the way in which

management operates it

Objective 2:

Producer’s perspective –“path taken to move from producer to consumer

What is a contactual organization ?

Firms or parties who are involved in negotiatory functions as a product or service moves from the producer to its ultimate user.

Negotiatory functions consists of buying, selling, and transferring title to products or services.

What is a channel manager?What is a channel manager?

Anyone in a firm or organization who is involved

in marketing channel decision making

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Objective 3: 11How does marketing channel strategy relate to How does marketing channel strategy relate to

the the rest of the marketing mix?rest of the marketing mix?

Marketing Mixor

the four Ps

Challenges

Product Limited ability to gain and hold competitive advantage

Price Price wars erode profitability & provide unstable basis for sustaining competitive

advantage

Promotion Expensive and short-lived

Place (Distribution)

Marketing channels support & enhance other Ps to meet demands of target

markets

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The change of focus to channel strategyThe change of focus to channel strategy

• Creates competitive advantage with long-term viability

• Builds strong relationships between manufacturers and channel members

• Based on trust, confidence, and people power

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Channel Strategy versus Logistics Management

• Channel strategy and logistics management comprise the distribution variable of the marketing mix.

• Channel strategy is concerned with the entire process of setting up and operating the contactual organizations that are responsible for meeting the firm’s distribution objectives.

• Logistics management more narrowly focuses on providing product availability at the appropriate place and time in the marketing channel.

• Channel strategy must first be established before logistics management should be considered. Logistic management is a subsidiary of channel management.

Channel Strategy and Logistics ManagementChannel Strategy and Logistics Management

Part of distribution variable

• Concerned with entire process of starting and operating contactual organization

• Formulated before logistics management

Focused specifically on providing product availability at appropriate time & place

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Objective 4: 11

Marketing Channel FlowsMarketing Channel Flows

Product Flow

Promotion Flow

Information Flow

Ownership Flow

Negotiation Flow

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Product FlowProduct Flow

Manufacturer

Transportation Company

Wholesalers

Retailers

Consumers

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Manufacturer

Wholesalers

Retailers

Consumers

Negotiation FlowNegotiation Flow

Ownership FlowOwnership Flow11

Manufacturer

Wholesalers

Retailers

Consumers

Information FlowInformation Flow11

Manufacturer

Wholesalers

Retailers

Consumers

Transportation Company

Promotion FlowPromotion Flow11

Manufacturer

Wholesalers

Retailers

Consumers

Advertising Agency

Distribution through intermediariesDistribution through intermediaries

Objective 5: 11

Technology the Internet

Economic Specialization &Considerations Division of Labor

Contactual Efficiency

Factors that determine the role of intermediaries

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Specialization & Division of LaborSpecialization & Division of Labor

Distribution Tasks Production Tasks

Distributed interorganizationally

Distributed intraorganizationally

Objective 6: 11

Channel Structure Channel Structure v.v. Ancillary Ancillary StructureStructure

Channel Structure

The group of channel members to which aset of distribution tasks has been

allocated

Ancillary Structure

The group of institutions that assist channel members in performing

distribution tasks

Why are single-channel

structures currentlythe exception?

Why is managing the ancillary structure

most likely to be less complex than

managing the channel structure?

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Channel Structure Channel Structure v.v. Ancillary Structure Ancillary Structure

• Channel structure: The group of channel members to which a set of distribution tasks has been allocated.

• The channel manager is faced with allocation decisions, how to allocate or structure the task of distribution.

• Multi-channel strategy is when the firm has chosen to reach its target consumer through more than one channel. With the advent of E-commerce, many firms have opted to use multi-channel strategies to reach their target market.

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Channel Structure Channel Structure v.v. Ancillary Structure Ancillary Structure

• Ancillary structure: The group of institutions (facilitating agents) that assist channel members in performing distribution tasks.

• These ancillary members provide services to the channel members after the basic channel decisions have already been made.

• Examples of ancillary members include: banks, insurance agents, storage agents, contractors, repair shops, etc.

• Channel management must also deal with these ancillary members who do not have as great a stake in the channel as channel members but who are nevertheless key components in ensuring that the product is available to the consumer.