Presentation on Marketing Strategy and Channel Design www Presentation on Marketing Strategy and Channel Design www.AssignmentPoint.com www.assignmentpoint.com

Major Topics for Ch. 2 Major Decisions to Make 5 Major Decisions to Make When to Emphasize Channel strategy? Channel Design: Value Chain and Value Chain Analysis Three Strategic Questions Segmentation: Service Output Demand www.assignmentpoint.com

I. Major Decisions To Make* The role of distribution in the firm’s overall objectives & strategies (Strategy Level Issue) The role distribution should play in the marketing mix (Program Level Issue) -The design of the firm’s marketing channels -The selection of channel members -The management of the marketing channel -The evaluation of channel member performance www.assignmentpoint.com

II. When to Emphasize Distribution Strategy IF: 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. or or or THEN: The firm should choose distribution strategy for strategic emphasis www.assignmentpoint.com

III. Marketing Strategy & Channel Design Differential advantage occurs when a firm attains a long-term, advantageous position in the market relative to competitors. • Caterpillar Versus Komatsu www.assignmentpoint.com

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

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

IV. Three Strategic Questions* How close a relationship should be developed with the channel members? How should the marketing mix be used to enhance channel member cooperation? 3 Strategic Questions How should the channel members be motivated to cooperate in achieving the manufacturer’s distribution objectives? www.assignmentpoint.com

Question1: Closeness of Channel Relationships 5 Factors to consider Distribution intensity* Targeted markets* Products* Company policies* Middlemen Environment Behavioral dimensions www.assignmentpoint.com

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

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 www.assignmentpoint.com

Analyzing 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 www.assignmentpoint.com

Changes in Life Cycle and Channels: The Case of Designer Apparel Value added by channel 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 Exhibit 3.4 www.assignmentpoint.com ©McGraw-Hill Companies, Inc. 2002

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

Question 3: Motivation of Channel Members 5 Question 3: Motivation of Channel Members Portfolio concept: A tool for motivating different types and sizes of channel members Question: What makes a distributor work for you? www.assignmentpoint.com

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

TABLE 2-3: BUSINESS-TO-BUSINESS CHANNEL SEGMENTS FOR A NEW HIGH-TECHNOLOGY PRODUCT Respondents allocated 100 points among the following supplier-provided service outputs according to their importance to their company: = Additional Important Attributes = Greatest Discriminating Attributes Possible Service Output Priorities Lowest Total Cost/ Pre-Sales Info Segment Responsive Support/ Post-Sales Segment Full-Service Relationship Segment References and Credentials Segment References and Credentials 5 4 6 25 Financial Stability and Longevity 16 Product Demonstrations & Trials 11 10 8 20 Proactive Advice & Consulting 9 Responsive Assistance During Decision Process 14 One-Stop Solution 1 18 3 Lowest Price 32 Installation and Training Support 15 12 Responsive Problem Solving After Sale 29 Ongoing Relationship with a Supplier Total 100 % Respondents 16% 13% 61% 10% www.assignmentpoint.com Source: Reprinted with permission of Rick Wilson, Chicago Strategy Associates, 2000.

(New High Technology Product) - Install, Training & Service Group FIGURE 2-1: IDEAL CHANNEL SYSTEM FOR BUSINESS-TO-BUSINESS SEGMENTS BUYING A NEW HIGH-TECHNOLOGY PRODUCT Manufacturer (New High Technology Product) VARs Associations, Events, Awareness Efforts Third-Party Supply Out-source Pre-Sales Dealers TeleSales/ TeleMktg Sales Internal Support - Install, Training & Service Group Post-Sales Full-Service Responsive Support References/ Credentials Lowest Total Cost Segment Source: Reprinted with permission of Rick Wilson, Chicago Strategy Associates, 2000. www.assignmentpoint.com

FIGURE 2-2: ADVERTISING COPY FOR AN AD FOR BN.COM   FIGURE 2-2: ADVERTISING COPY FOR AN AD FOR BN.COM Advertising Copy Service Output Offered “Really free shipping”: offers free shipping if 2 or more items are purchased. “We make it easy and simple.” Customer service “Fast & easy returns”: end-user can return unwanted books to a bricks-and-mortar Barnes & Noble bookstore. “Just try and return something to a store that isn’t there.” Quick delivery (for returns), spatial convenience; note implicit comparison with amazon.com, the pure-play online bookseller “Books not bait”: promises no additional sales pitches to buy non-book products. Assortment/variety: just books (targeting the book lover). Again, note implicit comparison with amazon.com. “Same day delivery in Manhattan”: delivery by 7:00 p.m. on any item(s) ordered by 11:00 a.m. that day. “No other online bookseller offers that.” Quick delivery: the offer is possible because of Barnes & Noble’s warehouses in New Jersey, near Manhattan. Note direct comparison with other online booksellers (notably, amazon.com) “The gift card that gives more”: can be used either online or in the bricks-and-mortar bookstores, nationwide. Spatial convenience, assortment/variety: when buying a gift for a friend, this provides virtually limitless assortment, and does so anywhere the recipient lives in the United States. “bn.com – 1,000,000 titles; amazon.com – 375,000 titles” Assortment/variety: direct comparison with amazon.com, offering a broader assortment of titles to the consumer www.assignmentpoint.com Source: advertisement for bn.com in Wall Street Journal, November 20, 2002, p. A11.

TABLE 2-5: THE SERVICE OUTPUT DEMANDS (SOD) TEMPLATE SEGMENT NAME/ DESCRIPTOR BULK BREAKING SPATIAL CONVENIENCE DELIVERY/ WAITING TIME ASSORTMENT/ VARIETY CUSTOMER SERVICE INFORMATION PROVISION 1. 2. 3. 4. 5. * Explain six service output demand INSTRUCTIONS: If quantitative marketing-research data are available to enter numerical ratings in each cell, this should be done. If not, an intuitive ranking can be imposed by noting for each segment whether demand for the given service output is high, medium, or low. www.assignmentpoint.com

TABLE 1-1: SERVICE OUTPUT DEMAND DIFFERENCES (an example of segmentation in the book-buying market) Browser buying best-sellers to take on vacation Student buying textbooks for fall semester at college Descriptor Service Output Demand Level Bulk-breaking “I’m looking for some ‘good read’ paperbacks to enjoy.” Medium “I only need one copy of my Marketing textbook!” High Spatial convenience “I have lots of errands to run before leaving town, so I’ll be going past several bookstores.” “I don’t have a car, so I can’t travel far to buy.” Waiting and delivery time “I’m not worried about getting the books now… I can even pick up a few when I’m out of town if need be.” Low “I just got to campus, but classes are starting tomorrow and I’ll need my books by then.” Assortment and variety “I want the best choice available, so that I can pick what looks good.” “I’m just buying what’s on my course reading list.” Customer service “I like to stop for a coffee when book browsing.” “I can find books myself, and don’t need any special help.” Information provision “I value the opinions of a well-read bookstore employee; I can’t always tell a good book from a bad one before I buy.” “My professors have already decided what I’ll read this semester.” www.assignmentpoint.com

TABLE 2.1: SERVICE OUTPUT DEMAND DIFFERENCES (an example of segmentation in the soft drink market)   FAMILY OFFICE EMPLOYEE SERVICE OUTPUT DESCRIPTOR SERVICE OUTPUT DEMAND LEVEL DESCRIPTOR SERVICE OUTPUT DEMAND LEVEL Bulk-breaking “I buy groceries weekly for my family, and all of us like soft drinks”   LOW “I’m on my coffee break and I have only have time for one can of soft drink”   HIGH Spatial convenience “I drive to the supermarkets in my area to shop”   LOW “I only have 15 minutes for my break, so I need to buy whatever is handy”   HIGH Quick delivery “We usually have some extra cans of soft drinks in the house, so I’ll just come back the next time if I can’t find the drinks I want on this trip”   LOW “If I don’t get my soft drink right at 3:00 when my break starts, I’ll never have a chance to go back later and get one”   HIGH Assortment and variety “My husband and I like Coke and Pepsi, but our kids aren’t permitted to drink caffeinated soft drinks. They like caffeine-free fruit-flavored soft drinks”   HIGH “I can’t be too particular about which soft drink I pick. It’s important to me to get one, as long as it has caffeine”   MODERATE www.assignmentpoint.com

Trade-offs Firm Consumers Service Output Demands Versus Cost, Competition, and Ease of entry Consumers Product Attributes Price Service Outputs ©McGraw-Hill Companies, Inc. 2002 www.assignmentpoint.com