Marketing Channel Strategy and Management

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Chapter 7

• Marketing Channel Strategy and Management

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What is a marketing channel?
A marketing channel consists of individuals and
firms involved in the process of making a product
or service available for consumption or use by
consumers and industrial users.
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Role of the channel in marketing strategy

• Links a producer to buyers
• Performs sales, advertising, and promotion
• Influences the firms pricing strategy
• Affects product strategy through branding
  policies, willingness to stock and customize
  offerings, install, maintain, offer credit, etc.

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The Channel-Selection DecisionFundamental
Questions
The marketing manager must answer the following
questions

• Who are potential customers?
• Where do they buy?
• When do they buy?
• How do they buy?
• What do they buy?
• Avon Cosmetics example

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Traditional Marketing Channel Designs
Producer
Ultimate Buyers
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The Design of Marketing Channels

• Use intermediaries to reach target market
• type
• location
• density
• number of channel levels

• Contact ultimate buyers directly
• using its own sales force or distribution outlets
• using the Internet through a marketing Web site
  or electronic storefront

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The Design of Marketing Channels
Direct distribution is typically used when

• Buyers are easily identifiable
• Personal selling is a major component of the
  communication mix
• Organization has a wide variety of offerings for
  the target market
• Sufficient resources are available

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The Design of Marketing Channels
Direct distribution must be considered when

• Intermediaries are not available for reaching
  target markets
• Intermediaries do not possess the capacity to
  service the requirements of target markets

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The Design of Marketing Channels
Indirect distribution must be considered when

• Intermediaries can perform distribution functions
  more efficiently and less expensively
• Customers are hard to reach directly
• Organization does not have resources to perform
  distribution function

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The Design of Marketing Channels

• Electronic marketing channels employ some form of
  electronic communication, including the Internet,
  to make products and services available for
  consumption or use by consumers and industrial
  users.

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Representative Electronic Marketing Channels
Autobytel.com
Amazon.com
Dell.com
Travelocity.com
Ultimate Buyers
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The Design of Marketing Channels

• Disintermediation is the elimination of
  traditional intermediaries and direct
  distribution through electronic marketing
  channels.

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Channel Selection at the Retail LevelChannel
Selection Decisions

• Which channel and intermediaries will provide the
  best coverage of the target market?
• Which channel and intermediaries will best
  satisfy the buying requirements of the target
  market?
• Which channel and intermediaries will be the most
  profitable?

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Channel Selection at the Retail LevelTarget
Market Coverage
Intensive
Exclusive
Selective
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Channel Selection at the Retail Level

• Effective Distribution occurs when a limited
  number of retail outlets account for a
  significant fraction of the market potential.
• Example A marketer distributes the product
  through 40 of available outlets, but these
  outlets account for 80 of the market.

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Channel Selection at the Retail LevelSatisfying
Buyer Requirements

• Information
• Convenience
• Variety
• Attendant services

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Channel Selection at the Retail
LevelProfitability

• Margins Revenues Channel Costs
• Channel costs are
• Distribution costs
• Advertising costs
• Selling costs

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Channel Selection at Other Levels of
DistributionTypes of Wholesaler

• Specialty wholesaler
• Limited line of items within a product line
• General-merchandise wholesaler
• Wide assortment of products
• General-line wholesaler
• Complete assortment of items in a single
  retailing field
• Combination

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Dual Distribution

• occurs when an organization distributes its
  offering through two or more different marketing
  channels that may or may not compete for similar
  buyers
• the main consideration is whether it will provide
  incremental sales revenue or cannibalize existing
  sales

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Dual Distribution When is it used

• own brand and private store brand
• distribution to large and small retailers
• multibrand strategy
• geographic factors

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Dual Distribution Example

• Hallmark
• Sells Hallmark brand cards through Hallmark
  stores and selected department stores
• Sells Ambassador brand cards through discount
  drugstore chains

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Multi-Channel Marketing

• Multi-channel marketing involves the blending of
  an electronic marketing channel and a traditional
  channel in ways that are mutually reinforcing in
  attracting, retaining, and building relationships
  with customers.

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Multi-Channel MarketingJustifications

• An electronic marketing channel can provide
  incremental revenue (Victorias Secret)
• An electronic marketing channel can leverage the
  presence of a traditional channel (Ethan Allen)
• Multi-channel marketing can satisfy buyer
  requirements (Clinique division of Estée Lauder)

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Multi-Channel MarketingConsiderations

• Actual incremental revenue or merely
  cannibalization?
• Incremental cost to launch and sustain an
  electronic forefront
• Disintermediation a traditional intermediary
  member is replaced by electronic storefront

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Satisfying Intermediary Requirements and Trade
RelationsIntermediary Requirements

• Improvements in product assortments
• Trade discounts
• Fill-rate standards
• Promotional support
• Lead-time requirements
• Product-service exclusivity agreements

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Satisfying Intermediary Requirements and Trade
RelationsTrade Relations
Channel Conflict arises when one channel member
believes another channel member is engaged in
behavior that is preventing it from achieving its
goals.
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Satisfying Intermediary Requirements and Trade
RelationsSources of Channel Conflict

• Channel member bypasses another member and sells
  or buys direct
• Uneven distribution of profit margins among
  channel members
• Manufacturer believes channel member is not
  giving its products adequate attention

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Satisfying Intermediary Requirements and Trade
RelationsChannel Power
Channel Captain is a channel member that takes on
the role of coordinating, directing, and
supporting other channel members.
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Satisfying Intermediary Requirements and Trade
RelationsForms of Channel Captain Power

• Ability to reward or coerce other members
• Expertness
• Identification with a particular channel member
  (Referent Power)
• Legitimate right to dictate the behavior of other
  members

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Channel-Modification DecisionsReasons

• Shifts in the geographical concentration of
  buyers
• Inability of existing intermediaries to meet the
  needs of buyers
• Costs of distribution

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Channel-Modification DecisionsBasic Objectives

• Provide the best coverage of the target market
  sought
• Satisfy the buying requirements of the target
  market
• Maximize revenue and minimize cost

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Channel-Modification DecisionsQualitative Factors

• Will the change improve the effective coverage of
  the target markets sought? How?
• Will the change improve the satisfaction of buyer
  needs? How?
• Which marketing functions, if any, must be
  absorbed in order to make the change?
• Does the organization have the resources to
  perform new functions?
• What effect will the change have on other channel
  participants?
• What will be the effect of the change on the
  achievement of long-range organizational
  objectives?