MKTG 566 Marketing Decision Making

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MKTG 566 Marketing Decision Making

• Chapter 7 Marketing Channel Strategy and
  Management
• Dr. John Drea

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Questions a channel manager should ask
Question 1 Can the channel provide the best
coverage of the target market?
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Questions a channel manager should ask
Question 2 Can the channel satisfy the buying
requirements of the target market?
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Questions a channel manager should ask
Question 3 Can the channel maximize revenue
returned to the organization while minimizing
costs?
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Channel Design

• There are elements which must be achieved in any
  channel design

• Logistical
• Functions
• Assorting (building up an assortment)
• Sorting (breaking down quantities)
• Storing
• Transporting

• Facilitating
• Functions
• Financing inventories
• Grading (based on inspection)
• Marketing research and information

• Transactional
• Functions
• Buying products for resale
• Selling products/locating clients
• Risk taking (inventory)

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Channel Design

• Which elements do you need, and who will perform
  these functions?

Some functions are transferred onto
intermediaries, some are absorbed, some can be
passed on to clients
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Direct vs. Indirect

• A direct channel is most common when
• Target market buyers are equally identifiable
• Personal selling is a major element of the
  promotional strategy
• The organization has a wide variety of offerings
  for the target market
• Resources are available to satisfy functions
  normally handled by intermediaries
• Consider differences of two large companies
  interacting, vs. two small companies.

• Channel Functions
• Buying for resale
• Locating clients
• Risk taking
• Assorting
• Sorting
• Storing
• Transporting
• Financing
• Grading
• Marketing research and information

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Electronic Marketing Channels

• Disintermediation
• The elimination of traditional intermediaries and
  instead the use of direct distribution through
  electronic channels
• Ex Implications of disintermediation for the
  auto industry? (both new and used)

Dealership Information Sampling Sales Inventory Se
rvice
Auto Mfg. Production Warranty
Consumer
Auto Transport
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Degrees of Distribution
Intensive Distribution
Use of all acceptable retail outlets for the
product.
Selective Distribution
Use of a limited number of outlets in an area to
handle a product.
Use of a single outlets or chain in an area to
handle a product.
Exclusive Distribution
From a mfg. perspective, consider how these
issues impact Cost? Leverage with
retailers? Consumer shopping behaviors?
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Dual Distribution

• Occurs when an organization distributes its
  offerings through two or more marketing channels
• The channels may or may not compete for the same
  buyers
• Why use dual distribution?
• Different requirements/capabilities of buyers
• Will dual distribution cannibalize existing
  sales?
• What are the effects of creating a second channel
  on existing relationships?

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Dual Distribution Premium Dog Food
Small Veterinary Clinics
Independent Veterinary Wholesalers
Retailers
Wholesalers
Premium Dog Food Manufacturer
Wholly Owned Wholesaler
Large Veterinary Clinics
Consumer
Jobbers
Supermarkets
Food Wholesalers
C-stores
C-store Wholesaler
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Channel Modification Decisions

• One of the elements that drives channel decisions
  is the make or buy decision. This is often
  driven by the
• Size of the margin (high margins encourage
  vertical integration)
• Unique competencies of the channel member
• Can the value added by the intermediary be
  replaced?
• Consider a wholesaler who is adept at obtaining
  shelf space vs. one who stores and/or transports
  products.
• Can the bundle of benefits received from the
  intermediary be disaggregated? Can you provide
  some elements on your own (make or buy is not
  always an either-or decision)

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Channel Modification Decisions Problem
You have 80,000,000 in sales to a wholesaler,
and the wholesaler has a margin of 12 on these
sales. You presently have 200,000 in personnel
and 100,000 in information systems annual costs
to maintain this relationship (on top of the
200,000 that the information system cost you to
create three years ago!) Youre considering
whether a distribution center option is viable.
Sales force costs are estimated to be 4 of gross
sales plus 200,000 of fixed sales administration
costs. Inventory cost is estimated at 1.5 of
gross sales. Transportation and storage have been
estimated at 4 of sales, while accounts
receivable are 0.5. Should the distribution
center idea be pursued?
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Channel Modification Decisions Solution

• Cost of Wholesalers

• Cost of Distrib. Center

Bonus Question How could you use this
information, besides on the decision of whether
to build a distribution center? (Think leverage.)