PG i Marketing Channel Module 5

8/6/2019 PG i Marketing Channel Module 5

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Marketing ChannelsMarketing Channels


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A: Over the past three decades, theA: Over the past three decades, the

overwhelming emphasis in theoverwhelming emphasis in the

Marketing Mix has been on:Marketing Mix has been on:

Product StrategyProduct Strategy withwith

Pricing StrategyPricing Strategyandand Promotional StrategyPromotional Strategy

also being stressed.also being stressed.

But.....But.....


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Marketing Channel StrategyMarketing Channel Strategy

(Place); the fourth P in the(Place); the fourth P in the

Marketing Mix hasMarketing Mix has

been largely neglectedbeen largely neglected

But this is changing....But this is changing....


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Marketing Channel Strategy isMarketing Channel Strategy is

Growing in Importance. Why?Growing in Importance. Why?

Five ReasonsFive Reasons

(1)(1) Search for Sustainable Competitive AdvantageSearch for Sustainable Competitive Advantage

(2)(2) Growing Power of Retailers in MarketingGrowing Power of Retailers in Marketing

ChannelsChannels

(3)(3) The Need to Reduce Distribution CostsThe Need to Reduce Distribution Costs

(4)(4) The Increased Role and Power of TechnologyThe Increased Role and Power of Technology

(5)(5) The New Stress on GrowthThe New Stress on Growth


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I. The Search for SustainableI. The Search for Sustainable

Competitive AdvantageCompetitive Advantage


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Sustainable CompetitiveSustainable Competitive

Advantage:Advantage:

A competitive advantage thatA competitive advantage that

cannot be quickly and easilycannot be quickly and easily

copied by competitorscopied by competitors


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A sustainable competitiveA sustainable competitive

advantage is becoming moreadvantage is becoming more

difficult to attain through:difficult to attain through:

Product StrategyProduct Strategy- rapid technology transferrapid technology transfer

enables competitors to quickly produce similarenables competitors to quickly produce similarproductsproducts

Pricing StrategyPricing Strategy- global economy allowsglobal economy allows

competitors to find low cost production to matchcompetitors to find low cost production to matchpricesprices

Promotion StrategyPromotion Strategy- high cost, clutter, and shorthigh cost, clutter, and short

life promotional campaigns limit competitivelife promotional campaigns limit competitive

advantageadvantage


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Competitive Advantage BasedCompetitive Advantage Based

onon

SuperiorM

arketing ChannelSuperiorM

arketing ChannelStrategy is More Difficult forStrategy is More Difficult for

Competitors to CopyCompetitors to Copy

Because:Because:


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Channel Strategy is Long TermChannel Strategy is Long Term

Requires a Channel StructureRequires a Channel StructureDepends on Relationships and PeopleDepends on Relationships and People

Requires Effective InterorganizationalRequires Effective Interorganizational

ManagementManagement


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II. Growing Power of RetailersII. Growing Power of Retailers

in Marketing Channelsin Marketing ChannelsRetailersRetailers


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Retailers....Retailers....

Are Growing LargerAre Growing Larger

Enjoy Substantial Channel PowerEnjoy Substantial Channel Power

Act as Buying Agents for Customers RatherAct as Buying Agents for Customers Ratherthan Selling Agents for Suppliersthan Selling Agents for Suppliers

Often Operate on Low Price / Low MarginOften Operate on Low Price / Low Margin

ModelModel Operate in Saturated Markets and Fight forOperate in Saturated Markets and Fight for

Market ShareMarket Share


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Enjoy Substantial Channel PowerEnjoy Substantial Channel Power

Retailer


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Retailers Act as Buying Agents forRetailers Act as Buying Agents for

Customers Rather than as SellingCustomers Rather than as Selling

Agents for SuppliersAgents for Suppliers


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Retailers Often Operate on LowRetailers Often Operate on Low

Price / Low Margin ModelPrice / Low Margin Model


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Retailers Operate in SaturatedRetailers Operate in Saturated

Markets and Fight for MarketMarkets and Fight for MarketShareShare


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Power or Dominant Retailers arePower or Dominant Retailers are

therefore thetherefore the GatekeepersGatekeepers intointothe Consumer Marketplacethe Consumer Marketplace

Thus, Effective Channel StrategyThus, Effective Channel Strategy

for Dealing withfor Dealing with

Power Retailers is CrucialPower Retailers is Crucial


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III. The Need to ReduceIII. The Need to Reduce

Distribution CostsDistribution Costs

DistributionDistribution

CostsCosts


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Distribution Costs Often AccountDistribution Costs Often Account

for a Significant Percentage of thefor a Significant Percentage of theFinal Price ofProductsFinal Price ofProducts

Sometimes Distribution CostsSometimes Distribution Costs

areare HigherHigherthan the Manufacturingthan the Manufacturing

Cost or the Costs of RawCost or the Costs of RawMaterials and Component PartsMaterials and Component Parts


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IV. Increasing Role andIV. Increasing Role and

Usefulness of TechnologyUsefulness of Technology


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Technology has the power toTechnology has the power to

greatly enhance thegreatly enhance theeffectiveness and efficiency ofeffectiveness and efficiency of

Marketing Channels and couldMarketing Channels and could

potentially change the entirepotentially change the entirestructure of distribution aroundstructure of distribution around

the world.the world.


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Some Examples...Some Examples...

The InternetThe Internet

Wireless CommunicationsWireless Communications

B2C and B2B EB2C and B2B E--CommerceCommerce

Cell PhonesCell Phones

Global TelecommunicationsGlobal Telecommunications

Robotics & Automated WarehousingRobotics & Automated Warehousing

Computerized SalespeopleComputerized Salespeople


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Firms that make effective use ofFirms that make effective use of

these technologies in their channelthese technologies in their channelstrategy can gain astrategy can gain a substantialsubstantial

competitive advantagecompetitive advantage

CompetitionCompetition


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V. The New Stress on GrowthV. The New Stress on Growth

StrategyStrategy


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Bottom LineBottom Line

Marketing Channel Strategy HasMarketing Channel Strategy Has

Become Critically ImportantBecome Critically Important

For Most BusinessesFor Most Businesses


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Strategy in Marketing ChannelsStrategy in Marketing Channels


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Channel StrategyChannel Strategy

The broad principles by which aThe broad principles by which a

firm expects to achieve itsfirm expects to achieve itsdistribution objectives fordistribution objectives for

satisfying its customerssatisfying its customers


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The Relationship between customerThe Relationship between customer

satisfaction and the companyssatisfaction and the companys

marketing mix can be represented as:marketing mix can be represented as:

CCss = f (P= f (P11, P, P22, P, P33, P, P44))

where:where:

CCss= degree of customer satisfaction= degree of customer satisfaction

PP11

= product strategy= product strategy

PP22= pricing strategy= pricing strategy

PP33= promotional strategy= promotional strategy

PP44= place (channel strategy)= place (channel strategy)


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Classic Marketing ChannelClassic Marketing Channel

Strategies Still Relevant TodayStrategies Still Relevant Today

Dual DistributionDual Distribution

Exclusive DealingExclusive Dealing

FullFull--Line ForcingLine Forcing

Price DifferentiationPrice Differentiation

Price MaintenancePrice Maintenance

Refusal to DealRefusal to Deal

Resale RestrictionsResale Restrictions

Tying AgreementsTying Agreements


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The Most Basic Questions in theThe Most Basic Questions in the

Design of Marketing ChannelsDesign of Marketing ChannelsWhen Do Customers Buy?When Do Customers Buy?

Where Do Customers Buy?Where Do Customers Buy?

How Do Customers Buy?How Do Customers Buy?

Who Buys?Who Buys?

Who makes the actual purchase?Who makes the actual purchase?Who uses the product?Who uses the product?

Who takes part in the buying decision?Who takes part in the buying decision?


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Supply Chain ManagementSupply Chain Management


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QUESTIONQUESTION

Is this just anotherbuzzwordIs this just anotherbuzzword

for logisticsfor logistics -- getting the rightgetting the right

product in the right quantity, atproduct in the right quantity, atthe right time and right place?the right time and right place?

ORORIs there something moreIs there something more

substantive to this term?substantive to this term?


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ANSWERANSWER

ThereThere isis something more thansomething more than

semantics here:semantics here:

Supply Chain Management takes aSupply Chain Management takes a

broader perspective by viewingbroader perspective by viewing

logistics as an integral part of thelogistics as an integral part of themarketing channelmarketing channel relationshiprelationship


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Supply Chain Management CanSupply Chain Management Can

Therefore be Defined as:Therefore be Defined as:A longA long--term partnership among marketingterm partnership among marketing

channel participants aimed at reducingchannel participants aimed at reducing

inefficiencies, costs, and redundancies in theinefficiencies, costs, and redundancies in the

logistical system in order to provide high levelslogistical system in order to provide high levelsof customer serviceof customer service


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Common Issues in Supply Chain ManagementCommon Issues in Supply Chain Management

1.1. Order Processing TimeOrder Processing Time

2.2. Order Assembly TimeOrder Assembly Time3.3. Delivery TimeDelivery Time

4.4. Inventory ReliabilityInventory Reliability

5.5. Order Size ConstraintsOrder Size Constraints

6.6. Consolidation StipulationConsolidation Stipulation

7.7. Consistency of DeliveryConsistency of Delivery

8.8. Frequency of Sales VisitsFrequency of Sales Visits

9.9. Ordering ConvenienceOrdering Convenience

10.10. Order Progress InformationOrder Progress Information

11.11. Inventory Backup DuringInventory Backup During

PromotionPromotion

12.12. Invoice FormatsInvoice Formats

13.13. Physical Condition of GoodsPhysical Condition of Goods

14.14. Claims ResponseClaims Response

15.15. Billing ProceduresBilling Procedures16.16. Average Order Cycle TimeAverage Order Cycle Time

17.17. Order Cycle Time VariabilityOrder Cycle Time Variability

18.18. Rush ServiceRush Service

19.19. Product AvailabilityProduct Availability

20.20. Competent Technical RepsCompetent Technical Reps

21.21. Equipment DemonstrationsEquipment Demonstrations

22.22. Availability of LiteratureAvailability of Literature

23.23. Accuracy in Filling OrdersAccuracy in Filling Orders

24.24. Terms of SaleTerms of Sale

25.25. Protective PackagingProtective Packaging

26.26. Degree of CooperationDegree of Cooperation


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Strategic Alliances andStrategic Alliances and

Partnerships in MarketingPartnerships in MarketingChannelsChannels


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Definition:Definition:

Continuing and mutually supportiveContinuing and mutually supportive

relationship between the manufacturer andrelationship between the manufacturer and

its channel members in an effort to provideits channel members in an effort to providea more highly motivated team, network,a more highly motivated team, network,

and alliance of channel partnersand alliance of channel partners


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Traditional usTraditional us--againstagainst--themthem

mentality is replaced with a newmentality is replaced with a new

cooperative perception ofus incooperative perception ofus inan effective channel partnershipan effective channel partnership

or strategic allianceor strategic alliance

Thus, partnerships or strategicThus, partnerships or strategic

alliances go well beyond the adalliances go well beyond the ad--

hoc, onhoc, on--again / offagain / off--againagaininteractions typical of traditionalinteractions typical of traditional

relationships among channelrelationships among channel

membersmembers


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Requirements for Partnerships orRequirements for Partnerships or

Strategic Alliances in MarketingStrategic Alliances in Marketing

ChannelsChannels

(1)(1) Recognition of interdependence of channelRecognition of interdependence of channel

membersmembers(2)(2) Close cooperation between channel membersClose cooperation between channel members

(3)(3) Careful specification of roles, rights, andCareful specification of roles, rights, and

responsibilities in the relationshipresponsibilities in the relationship(4)(4) Coordinated effort focused on common goalsCoordinated effort focused on common goals

(5)(5) Good communications and trust betweenGood communications and trust between

channel memberschannel members


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RelationshipM

arketingRelationshipM

arketingvia the Marketing Channelvia the Marketing Channel


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Relationship MarketingRelationship Marketing

The practice of building longThe practice of building long--term relationsterm relations

with key partieswith key parties -- customers, suppliers,customers, suppliers,

distributorsdistributors-- in order to retain their longin order to retain their long--term preference and businessterm preference and business

Because of the importance of channels ofBecause of the importance of channels ofdistribution, building good relationships indistribution, building good relationships in

the marketing channel is key to successfulthe marketing channel is key to successful

relationship marketingrelationship marketing


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Building Relationships with ChannelBuilding Relationships with Channel

MembersMembers

Find Out the Needs and Problems of ChannelFind Out the Needs and Problems of Channel

MembersMembers

--informal information system (grapevine)informal information system (grapevine)--research studies of channel membersresearch studies of channel members

--research studies by outside partiesresearch studies by outside parties

--marketing channel auditmarketing channel audit--distributor advisory councilsdistributor advisory councils


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Offer Support to Channel Members thatOffer Support to Channel Members that

is Consistent with Their Needs and Helpsis Consistent with Their Needs and HelpsSolve their ProblemsSolve their Problems

--cooperative arrangementscooperative arrangements

--partnerships and strategic alliancespartnerships and strategic alliances

--distribution programmingdistribution programming

Provide Leadership to Motivate ChannelProvide Leadership to Motivate Channel

MembersMembers

--use power effectivelyuse power effectively

--recognize causes of conflictrecognize causes of conflict

--resolve conflictsresolve conflicts


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Causes ofMarketing ChannelCauses ofMarketing Channel

ConflictConflict

Role IncongruitiesRole Incongruities

Resource ScarcitiesResource Scarcities

Perceptual DivergenciesPerceptual Divergencies

Expectational DifferencesExpectational Differences

Decision Domain DisagreementsDecision Domain DisagreementsGoal IncompatabilitiesGoal Incompatabilities

Communication DifficultiesCommunication Difficulties


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Ten Trends in Marketing ChannelsTen Trends in Marketing Channels

as We Move into the Next Millenniumas We Move into the Next Millennium

1.1. Growing Emphasis on Marketing ChannelGrowing Emphasis on Marketing Channel

StrategyStrategy

2.2. More and More Stress on TechnologyMore and More Stress on Technology3.3. Focus on Efficiency and Reducing DistributionFocus on Efficiency and Reducing Distribution

CostsCosts

4.4. Shortening and Flattening of DistributionShortening and Flattening of DistributionChannels (Disintermediation)Channels (Disintermediation)

5.5. Development of New Types of IntermediariesDevelopment of New Types of Intermediaries

in Channels (Reintermediation)in Channels (Reintermediation)


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Trends Continued...Trends Continued...

6.6. Continued Growth in Partnerships andContinued Growth in Partnerships andAlliances (Relationship Marketing)Alliances (Relationship Marketing)

7.7. Increasing Power for Retailers andIncreasing Power for Retailers and

Wholesalers (Gatekeepers)Wholesalers (Gatekeepers)8.8. Mergers and Acquisitions to GainMergers and Acquisitions to Gain

Distribution CloutDistribution Clout

9.9. Flexible and Focused Distribution to MatchFlexible and Focused Distribution to MatchMicro, Niche, and Database MarketingMicro, Niche, and Database Marketing

10.10. Attention to the Behavioral Dimensions ofAttention to the Behavioral Dimensions of

Distribution to Augment TechnologyDistribution to Augment Technology

Documents

PG i Marketing Channel Module 5