Part 2 Developing the Marketing Channel

Chapter 5: Marketing Channel Strategy 5 The broad principles by which the firm expects to achieve its distribution objectives for its target market(s) Channel Strategy:

Major Topics for Ch Major Decisions to Make* 2.When to Emphasize Distribution Strategy?* 3.Channel Design: Value Chain and Value Chain Analysis 4. Three Strategic Questions for Channels* 1.Closeness of Channel Relationships 2.Marketing Mix 3.Motivating Channel Members

5 Major Decisions To Make* Topic 1 1.The role of distribution in the firm’s overall objectives & strategies (Strategy Level Issue) 2.The role distribution should play in the marketing mix (Program Level Issue) 3.-The design of the firm’s marketing channels -The selection of channel members 4.-The management of the marketing channel -The evaluation of channel member performance

5 Channel Strategy as Overall Corporate Objective The higher the priority given to distribution, the higher the level at which it should be considered

5 Topic 2 When to Emphasize Distribution Strategy Distribution is the most relevant variable Parity exists among competitors in the other three variables of the marketing mix. A high degree of competitive vulnerability exists Distribution can create synergy among marketing channels. IF : THEN: or The firm should choose distribution strategy for strategic emphasis

Target Market Demand 5 Firms should stress distribution when it serves customers’ needs in the target market best. It is through distribution that firms can provide the kinds and levels of service that make for satisfied customers. Ex) Recent Trend in IT channel - B2B - B2C

5 Competitive Parity Distribution advantages are not easily copied by competitors. Distribution advantages are based on a combination of superior strategy, organization, and human capabilities. Ex) Toyota vs. Honda and Nissan in Japan

5 Distribution Neglect Competitors’ neglect of distribution strategies The channel manager must analyze target markets to determine whether competitors have neglected distribution and whether vulnerabilities exist Ex) Nintendo versus SONY (in the past)

Distribution and Synergy 5 “Hooking up” with a mix of cooperative channel members will strengthen the channel. Because each channel member is an independent entity, rewarding opportunities exist for channel managers to cultivate cooperation among members. Ex) Online and Offline; H-P and Best Buy

5 Channel Strategy & Channel Design Topic 3 Differential advantage occurs when a firm attains a long-term, advantageous position in the market relative to competitors. Caterpillar Versus Komatsu

12 Channel Design What is channel design? –Decisions associated with creating new or altering existing channels. Why are channel design decisions critical? –They directly influence all other marketing decisions. –Key external resource for many manufacturers. ©McGraw-Hill Companies, Inc. 2002

5 The Value Chain Firm infrastructure Human resource management Technology development Human resource management Inbound Operations Outbound Marketing Service logistics logistics& sales Margin Support Activities Primary Activities

5 Channel Position and Positioning* Channel Position: The reputation a manufacturer acquires among distributors Key to Channel Positioning: Viewing the Relationship with channel members as a partnership or strategic alliance** Infiniti (p )

5 Channel Strategy and Selection of Channel Members Reflect channel strategies your firm has developed to achieve its distribution objectives Be consistent with the firm’s broader marketing objectives & strategies Reflect the objectives & strategies of the organization as a whole Customers perceive channel members as an extension of the manufacturer’s own organization  Your channel members should:

Channel Strategy & Managing the Channel* 5 Topic 4 3 Strategic Questions How close a relationship should be developed with the channel members? How should the channel members be motivated to cooperate in achieving the manufacturer’s distribution objectives? How should the marketing mix be used to enhance channel member cooperation?

Question1: Closeness of Channel Relationships 5 Distribution intensity* Targeted markets* Product Characteristics* Company policies* Middlemen Environment Behavioral dimensions Factors to consider

18 Number of Intermediaries at Each Level Intermediaries Use as few outlets (intermediaries) as possible Exclusive Distribution Intermediaries Selective Distribution Intermediaries Not all available intermediaries are used Outlet Use as many outlets as possible Outlet Intensive Distribution ©McGraw-Hill Companies, Inc. 2002

19 Analyzing Target Market Behaviors Current and potential buyer behaviors: –Who is doing the buying? Where,when and how end users buy: –Seasonal –Shopping from home Knowledge of industry (and its language) ©McGraw-Hill Companies, Inc. 2002

20 Analyzing Product Characteristics Product Characteristics –Unit value: length –Standardization: length, intensity –Bulkiness: length –Complexity: length, intensity –Stage of Product Life Cycle: intensity, ownership  Implications for Channel Design ©McGraw-Hill Companies, Inc. 2002

21 Changes in Life Cycle and Channels: The Case of Designer Apparel Introductory Stage Declining/ Death Growth Stage Mature Stage Boutique (e.g., service utility) Offprice Outlets (e.g., convenience utility) Better Department Stores (e.g., selection utility) Merchandisers (e.g., lot size utility) Market Growth Rate Low High Utility Added by Channel LowHigh Exhibit 3.4 ©McGraw-Hill Companies, Inc Value added by channel

Question 2: Marketing Mix in Channel Management 5 Marketing Mix Product Strategy (Quality/Branding) Pricing Strategy (Wholesale/Retail/Consumer) Promotion Strategy (Push/Pull) Distribution strategy

Question 3: Motivation of Channel Members 5 Incentive Portfolio concept: A set of tools for motivating different types and sizes of channel members Question: What makes a distributor work for you?

5 Evaluation of Channel Member Performance Have provisions been made in the design and management of the channel to assure that channel member performance will be evaluated effectively? Channel manager’s involvement in evaluating member performance is integral to developing & managing channel Ex) Measurement and Reward of Channel Performance