Overview Lecture_Marketing Channels

8/3/2019 Overview Lecture_Marketing Channels

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A Strategic Tool of Growing Importance forthe Next Millennium

Marketing

Channels

by:

Ms. Ma. Anna Corina G. Kagaoan

Instructor

College of Business and Accountancy


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Underlying philosophy of Modern MarketingManagement (since the 1960s) stressing an outwardfocus on customers as the Center of the Universecaptured in terms such as:

Customer OrientationCustomer FocusedCustomer Driven

Customer CenteredCustomer SatisfactionMarket DrivenExceed Customer Expectations

Marketing Concept


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Marketing

The operational model for implementing thephilosophy of the marketing concept.


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Four Basic Strategic Variables

of the Marketing Mix (4 Ps)

Product Strategy

Price Strategy

Promotional Strategy

Place Strategy (Channels of Distribution)


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Mix or blend four strategic variables in such a way toachieve a higher level of customer satisfaction thancompetitors.

Customer Focus

Competitive Advantage

Optimized Marketing Mix

Shareholder Value

High Profitability

Marketing Management Role


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The success of Japanese automobiles in worldmarkets, especially the United States is a textbook

example of the implementation of the MarketingConcept and Marketing Mix

Dell Computer

Lite Beer from Miller

Polo Clothing by RalphLauren

Microsoft Windows

Nike Athletic Footwear

And the list goes on:


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What is different about the Marketing Mix model as wemove into this millennium?

Question


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Over the past three decades, the overwhelmingemphasis in the Marketing Mix has been on:

Answer

Product Strategy withPricing Strategy

and Promotional Strategyalso being stressed. But...


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(Place); the fourth P in theMarketing Mix has

been largely neglected

But this is changing....

Marketing Channel

Strategy


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Five Reasons:

(1) Search for sustainable competitive advantage;

(2) Growing power of retailers in marketing channels;

(3) The need to reduce distribution costs;

(4) The increased role and power of technology; and

(5) The new stress on growth.

Marketing Channel Strategy is

Growing in Importance


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I. The Search for

Sustainable Competitive

Advantage


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Sustainable Competitive

Advantage

A competitive advantage that cannot be quicklyand easily copied by competitors.


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A Sustainable Competitive

Advantage is Becoming More

Difficult to Attain Through:

Product Strategy - rapid technology transferenables competitors to quickly produce similar

products.Pricing Strategy - global economy allowscompetitors to find low cost production to matchprices.

Promotion Strategy - high cost, clutter, and shortlife promotional campaigns limit competitiveadvantage.


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Superior marketing channel strategy is moredifficult for competitors to copy because:

Competitive Advantage

Based on:


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Channel strategy islong-term;Requires a channelstructure;Depends onrelationships andpeople; andRequires effectiveinter-organizationalmanagement.


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II. Growing Power of

Retailers in MarketingChannels

Retailers


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Retailers....

Are growing larger;

Enjoy substantial channel power;

Act as buying agents for customers ratherthan selling agents for suppliers;

Often operate on low price/low margin model;and

Operate in saturated markets and fight formarket share.


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RetailersAreGrowing Larger


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Concentration of Sales

Among the Top 50Retail Firms

76%

24%

Top 50

Rest


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Kinds of Retailers Where Largest

Four Firms Account for At Least

50% of Total SalesHobby, Toy and Game Stores

70%

30%

Warehouse Clubs and Superstores

90%

10%

Home Centers

75%

25%

Office Supply Stores

78%

22%

4 Largest

Rest


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Percentage Distribution of Retail Firms

and Sales by Size of Firms

75.90

4.00 5.43 12.2

23.5

6.5

69.5

0

10

20

30

40

50

60

70

80

90

100

$10,000,000

or more

$5,000,000 to

$9,999,999

$1,000,000 to

$4,999,999

Less than

$1,000,000

Sales as aPercentage of theTotal

Firms as apercentage of the

Total


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Enjoy SubstantialChannel Power

Retailer


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Retailers Act as Buying

Agents for CustomersRather than as Selling

Agents for Suppliers


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Retailers Often Operate on

Low Price/Low Margin

Model


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Retailers Operate in

SaturatedMarkets andFight for Market Share


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Power or Dominant

Retailers are therefore theGatekeepers into the

Consumer Marketplace

Thus, effective channel strategy

for dealing withpower retailers is crucial.


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III. The Need to Reduce

Distribution Costs

Distribution

Costs


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Distribution Costs Often

Account for a SignificantPercentage of the Final Price

of Products

Sometimes, distribution costsAre higher than the manufacturing

cost or the costs of raw

materials and component parts


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Some Examples...

Autos Software Gasoline Fax Machines Packaged Foods

Distribution

Manufacturing

Raw Materials

and

Components

15%

40%

45%

25%

65%

10%

28%

19%

53%

30%

30%

40%

41%

33%

26%


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Disintermediation

While terms such as restructuring, flatteningout, downsizing, and rightsizing haveusually been mentioned in the context of

corporate organizations, they also apply tomarketing channels. This is the latest term.


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IV. Increasing Role and

Usefulness of Technology


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Technology has the power to greatly enhance

the effectiveness and efficiency of marketingchannels and could potentially change the entirestructure of distribution around the world.


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Some Examples...

The Internet

Wireless Communications

B2C and B2B E-Commerce

Cell Phones

Global Telecommunications

Robotics & Automated Warehousing

Computerized Salespeople


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Firms that make effective use of these technologiesin their channel strategy can gain a substantialcompetitive advantage

Competition


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V. The New Stress on

Growth Strategy


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In American business circles, Growth hasovertaken Restructuring as the #1 buzzword:

OutReengineering

Restructuring

Downsizing

FlatOrganizations

Lean and Mean

InGrowth

Expansion

New Markets

Market ShareTop LineRevenue


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QUESTION

In a relatively slow growtheconomy, how can an individual

company selling mature productsin mature markets grow?


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Share of Mind = Share of Market

Translation

By getting channel members to focus on your

products to a greater extent than yourcompetitors, you gain market share and growth.

ANSWER


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Summary

(1) Search for competitive advantage;

(2) Growing size and power of retailers;

(3) Need to reduce distribution costs;

(4) Power and potential of technology; and(5) Stress on growth instead of downsizing


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Bottom Line

Marketing channel strategy has becomecritically important for most businesses.


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Strategy in Marketing

Channels


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Channel Strategy

The broad principles by which a firm expectsto achieve its distribution objectives forsatisfying its customers


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Basic StrategicQuestions

(1) What role should distribution play in the firms overallobjectives and strategies?

(2) What role should distribution play in the marketingmix?

(3) How should the firms marketing channels bedesigned to achieve its distribution objectives?

(4) What kinds of channel members should be selected tomeet the firms distribution objectives?

(5) How can the marketing channel be managed toimplement the firms channel design effectively andefficiently on a continuing basis?


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The relationship between customersatisfaction and the companys marketing

mix can be represented as:

Cs = f (P1,P2,P3,P4)

where:

Cs= degree of customer satisfaction

P1= product strategy

P2= pricing strategy

P3= promotional strategy

P4= place (channel strategy)


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Distribution channel strategy should receive

especially heavy emphasis if one or more ofthe following conditions prevails:

Distribution appears to be the most relevant variable

for satisfying customers;Parity exists among competitors in the other threemarketing mix variables;

High degree of vulnerability exists because of

competitors neglect of distribution; andDistribution channel strategy can foster synergies.


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Classic Marketing Channel

Strategies Still Relevant Today

Dual Distribution

Exclusive Dealing

Full-Line ForcingPrice Differentiation

Price Maintenance

Refusal to Deal

Resale Restrictions

Tying Agreements


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The Most BasicQuestions in the

Design of Marketing Channels

When do customers buy?

Where do customers buy?

How do customers buy?

Who buys?

Who makes the actual purchase?

Who uses the product?

Who takes part in the buying decision?


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Supply Chain

Management


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QUESTION

Is this just another buzzword for logistics - getting theright product in the right quantity, at the right time and

right place?

ORIs there something more substantive to this term?


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ANSWER

Supply Chain Management takes a broader perspectiveby viewing logistics as an integral part of the

marketing channel relationship.

There is something more than semantics here:


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Supply Chain Management Can

Therefore be Defined as:

A long-term partnership among marketing channelparticipants aimed at reducing inefficiencies, costs,and redundancies in the logistical system in order toprovide high levels of customer service.


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Factor

Inventory Management

Total Cost Approach

Time Horizon

Information Sharing and

MonitoringJoint Planning

Compatibility of Corporate

Philosophies

Channel Leadership

Sharing ofR

isks andRewards

Inventory Flow

Traditional

Logistics System

Independent Effort

Minimize Firm Costs

Short-Term

Limited to Needs of

Current TransactionTransaction Based

Not Relevant

Not Needed

Each Channel Memberon Their Own

Warehouse Mentality

Storage Safety Stocks

Supply Chain Mgmt. System

Joint Effort to ReduceChannel Inventories

Channel-Wide Cost Efficiencies

Long-Term

Continuous Effort to

Gather and MonitorOngoing

Important for Major Initiatives

Required for

Coordination and Focus

Risks and Rewards Sharedover Long-range

Distribution Center

Orientation-JIT, Quick

Response, Cross Docking

Contrasts Between a Traditional Logistics System andSupply Chain Based System


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Common Issues in Supply Chain Management

1. Order Processing Time

2. Order Assembly Time3. Delivery Time

4. Inventory Reliability

5. Order Size Constraints

6. Consolidation Stipulation

7. Consistency of Delivery

8. Frequency of Sales Visits

9. Ordering Convenience

10. Order Progress Information

11. Inventory Backup DuringPromotion

12. Invoice Formats

13. Physical Condition of Goods

14. Claims Response

15. Billing Procedures16. Average Order Cycle Time

17. Order Cycle Time Variability

18. Rush Service

19. Product Availability

20. Competent Technical Reps

21. Equipment Demonstrations

22. Availability of Literature

23. Accuracy in Filling Orders

24. Terms of Sale25. Protective Packaging

26. Degree of Cooperation


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The Internet and

Electronic Distribution


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Shopping via Personal Computer on the Internet;

Wireless Access from Remote Locations; and

Electronic Shopping in a Virtual Store.

Examples...


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Some Predictions....

Nearly 5 million new US households will shop online ineach of the next five years, with the total number ofUS online shopping households expected to reach 63

million by 2008 - Forrester Research (2003) Online retail sales will account for 10 percent of totalUS retail sales by 2008 - Forrester Research (2003)


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Some Current Facts & Figures

Total U.S. Retail Sales = $3.25 trillion

Catalog, T.V., Mail Order = $1.26 billion(.38%)

Internet Shopping = $43.5 billion (1.3%)


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HowAbout Potential?

45% of Americans purchasefrom catalogs;

7% of Americans buy via

television;90 million PCs in U.S.

homes; and

60 million Internet users

20,000 new users addeddaily.


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Electronic Home Shopping-

Customer Perspectives

Advantages

Global access to multitude

of products and times

Speed relative to physicalshopping

Information and screeningenhanced

Lower costs in long run

Disadvantages

Delayed gratification

No real product contact

No shopping atmosphere

Personal and social motives

for shopping not satisfied


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Personal:

Role playing

Diversion

Self-gratificationLearning about newtrends

Physical activity

Sensory stimulation

Social:

Social expressionoutside the home

Communication withothers holding similarinterests

Peer group attraction

Status and power

Motives for Shopping


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B2C Electronic Commerce-

Company Perspective

Advantages Expanded geographical

coverage Centralized inventories Lower transaction costs Complete customer

database Better targeted products

and promotions Superior performance

measurement

Disadvantages Company must pick, pack, &

deliver products usually one ata time

Limited opportunity todemonstrate products

High return rates (25% forQVC & HSN)

Reduced impulse purchasing Limited opportunity to use

atmospherics & entertainment

S A &


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StrategicAlliances &

Partnerships in Marketing

Channels


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Definition Continuing and mutually supportive relationship between the

manufacturer and its channel members in an effort to providea more highly motivated team, network, and alliance ofchannel partners.

Traditional us-against-them mentality is replaced with a

new cooperative perception of us in an effective channelpartnership or strategic alliance.

Thus, partnerships or strategic alliances go well beyond thead-hoc, on-again/off-again interactions typical of traditionalrelationships among channel members.


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Requirements for

Partnerships or Strategic

Alliances in Marketing

Channels Recognition of interdependence of channel

members; Close cooperation between channel members;

Careful specification of roles, rights, andresponsibilities in the relationship;

Coordinated effort focused on common goals; and

Good communications and trust between channelmembers.


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Relationship Marketing via

the Marketing Channel


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Relationship Marketing

The practice of building long-term relations withkey partiescustomers, suppliers, distributorsinorder to retain their long-term preference and

business.

Because of the importance of channels ofdistribution, building good relationships in themarketing channel is key to successful relationshipmarketing.


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Building Relationships

with Channel MembersFind out the needs and problems of channel membersthrough: (1) informal information system (grapevine);(2) research studies of channel members; (3) research

studies by outside parties; (4) marketing channel audit;and (5) distributor advisory councils.

Offer support to channel members that is consistent withtheir needs and help solve their problems though: (1)

cooperative arrangements; (2) partnerships andstrategic alliances; and (3) distribution programming.


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Building Relationships

with Channel MembersProvide leadership to motivate channel members:

use power effectively recognize causes of conflict

resolve conflicts


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Bases of Power in the

Marketing ChannelReward Power

Coercive Power

LegitimatePower

ReferentPower

ExpertPower

Effective channel management depends

on how well these power bases arecombined and used.


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Causes of Marketing

Channel ConflictRole Incongruities

Resource Scarcities

Perceptual DivergencesExpectational Differences

Decision Domain Disagreements

Goal IncompatibilitiesCommunication Difficulties


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10 Trends in Marketing Channels

Into the Next Millennium

1. Growing emphasis on marketing channel strategy.2. More and more stress on technology.3. Focus on efficiency and reducing distribution costs.4. Shortening and flattening of distribution channels

(Disintermediation).

5. Development of new types of intermediaries in channels(Reintermediation).

6. Continued growth in partnerships and alliances (RelationshipMarketing).

7. Increasing power for retailers and wholesalers (Gatekeepers).

8. Mergers and acquisitions to gain distribution clout.9. Flexible and focused distribution to match micro, niche, anddatabase marketing.

10. Attention to the behavioral dimensions of distribution to augmenttechnology.

Documents

Overview Lecture_Marketing Channels