Chapter 3Chapter 3The Environment of Marketing Channels

Key Topics for Ch. 3

1. Meaning of Business Environment2. Economic Environment*3. Competitive Environment*4. Social/Cultural Environment5. Technological Environment6. Legal Environment

The Business EnvironmentThe Business Environment

Consists of all externaluncontrollable factors within

which marketing channels exist

Affects channel members and nonmembers, such as facilitating

agencies =

All channel participants

Nonmember participants

The Environment*The Environment*

Environment

1. Economic (M)2. Socio-cultural (M)3. Competitive (m)4. Technological (M)5. Legal (m)

Producers& Manufacturers

Intermediaries

Target Markets

Facilitatingagencies

Memberparticipants

Focus ofchannel

management

Question: “Right” boundary of a firm?

I. The Economic I. The Economic Environment*Environment*

Major EconomicForces

Recession Inflation

Deflation

RecessionRecession

Consumer and/orCorporate

spending =

Channelstrategy: Manufacturers provide channel

member support by financing high inventory costs

Ex) U.S. Economy

Reduced sales volume

Reduced profitability

Firms caught with large

inventories

InflationInflationContinued high spending Price Increase

OR Spending, fueling a recession

Possible channel strategy:• Reduce manufacturer’s product mix from higher-price to lower-price products• Reduce inventory burden on members with:

Streamlined product lineFaster order processing & deliveryHigher inventory turnover through

stronger promotional support

DeflationDeflation

Prices

Challenge:Pass cost-induced price increases through channelwhen built-in cost pressures from labor contracts

were negotiated several years earlier

Ex) Japan’s lost decade

Other Economic FactorsOther Economic Factors

Real interest

rates

Demand

Costs

=

1. 2. Strong U.S. Dollar

Difficult to sellproducts throughchannel members

= U.S. products become less competitive

II. The Competitive II. The Competitive Environment*Environment*

Local Regional Domestic Global in scope

* Opportunity and Threat

Types of Competition in Types of Competition in ChannelsChannels

Horizontal

Intertype

Vertical

Channel System

Horizontal CompetitionHorizontal Competition

M

W

R R

W

M

Vertical CompetitionVertical Competition

M

R

W

Inter-type CompetitionInter-type Competition

M

W

R

M

W

R

Channel System CompetitionChannel System Competition

M

R

W

R

W

M

III. The Sociocultural III. The Sociocultural EnvironmentEnvironment

Pervades all aspects of a society

Influences both national and international

marketing channels

Influences wide variations among channel structures worldwide

Sociocultural DevelopmentsSociocultural Developments

Population Age Patterns

Ethnic Mix

Educational Trends

Family or Household Structure

U.S. pop. Becoming both younger & older # of minority-owned businesses Levels = people more demanding Smaller & more varied

Role of Women

Importance of Time

# = changing shopping needs

IV. The Technological IV. The Technological EnvironmentEnvironment

Help retailers & wholesalers closely monitor success orfailure of products they handle

ScannersComputerized inventory management

Portable computers

The Technological EnvironmentThe Technological Environment

EDI - Electronic Data

Interchange

• Links together channel information systems• Provides real-time responses• Enhanced by Internet

= Enhanced

Distribution Efficiency

The Technological EnvironmentThe Technological Environment

Acceleratingtechnology

“Computer salesPeople”

Mobilerobots 3-D

modeling

Ultra-widebandtechnology

V. The Legal Environment*V. The Legal Environment*

The set of laws that impact marketing channels

• Continually evolving • Affected by changing values, norms, politics,

& precedents• Knowledge of basics helps channel manager

avoid serious & costly legal problems

Legislation Affecting Marketing Legislation Affecting Marketing ChannelsChannels

Sherman Antitrust Act 1890; Fundamental antimonopoly law

Public welfare best served through competition

Clayton Act 1914; Strengthen Sherman Antitrust Act

Prohibits specific practices among competing firms

Federal Trade Commission Act 1914; Established FTC

Power to investigate & enforce

Legislation Affecting Marketing Legislation Affecting Marketing ChannelsChannels

Robinson-Patman Act 1936; Amendment to Clayton Act

Prohibits price discrimination Allows price differentials to different customers

under specific circumstances

Celler-Kefauver Act 1950; Amendment to Clayton Act

Prohibits vertical mergers & acquisitions

Legal Issues in Channel Legal Issues in Channel ManagementManagement

• Dual Distribution, or multi-channel distributionProducer or manufacturer uses 2 or more different channel

structures for distributing the same product• Exclusive Dealing

Supplier requires its channel members to sell only its products or to refrain from selling directly to competitive suppliers

•Full-Line ForcingSupplier requires channel members to carry a full-line of its products

in order to sell any particular products in supplier’s line

Legal Issues in Channel Legal Issues in Channel ManagementManagement

• Price DiscriminationSupplier sells at different prices to the same class of channel

members• Price Maintenance

Supplier dictates prices charged by channel members to their customers

• Refusal to DealSupplier has right to refuse to deal with whomever they want as

channel members

Legal Issues in Channel Legal Issues in Channel ManagementManagement

• Resale RestrictionsManufacturer attempts to stipulate to whom and in what geographical

market channel members may resell the manufacturer’s products• Tying Agreements

Supplier sells a product to a channel member on condition that the channel member also purchase another product

• Vertical IntegrationFirm owns and operates organizations at other levels of the

distribution channel