Marketing Channel Strategy and Management CHAPTER 7

AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: Describe the nature of a marketing channel and their functions as intermediaries. Distinguish between traditional and electronic marketing channel designs. Identify the factors organizations use to select and manage a single or multiple marketing channel(s).

AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: Describe the role intermediaries have in the marketing channel selection process. Discuss how organizations modify marketing channel decisions.

Marketing Channel Intermediaries MARKETING CHANNELS A marketing channel consists of individuals and firms involved in the process of making an offering available for consumption or use by consumers and industrial users. Channels link the producer and its buyers: Producer Marketing Channel Intermediaries Consumers

MARKETING CHANNELS

Channel Members Add Value Notes to Accompany Slide: Figure 10.1A shows three manufacturers, each using direct marketing to reach three customers. This system requires nine different contacts. Figure 10.1B shows the three manufacturers working through one distributor, which contacts the three customers. This system requires only six contacts. In this way, intermediaries reduce the amount of work that must be done by both producers and consumers.

Number of Channel Levels

Segmentation Strategy Communications Strategy MARKETING CHANNELS Marketing channels affect an organization’s: Determines whether its chosen target markets are reached Segmentation Strategy Dictates its advertising, sales promotion, direct marketing, etc. activities Communications Strategy Influences its markup and discount policies Pricing Strategy Impacts its: Branding policies Willingness to stock and customize offerings Ability to augment offerings Offering Strategy

Go-to-Market Strategy MARKETING CHANNELS Go-to-Market Strategy Marketers use this term to describe how organizations select and employ marketing channels to cost-effectively deliver a value proposition to each of its target markets.

THE CHANNEL-SELECTION DECISION CHAPTER 7: MARKETING CHANNEL STRATEGY AND MANAGEMENT THE CHANNEL-SELECTION DECISION

THE CHANNEL-SELECTION DECISION Marketers must make these marketing channel decisions regarding intermediaries: Type Location Density Functions Conduct a market analysis to identify the target markets served and their buying requirements that will be served by prospective marketing channels

Marketing Channel Design THE CHANNEL-SELECTION DECISION Marketing Channel Design The number of levels in a marketing channel is determined by the number of intermediaries between the producer and ultimate buyers or users As the number of intermediaries between the producer and the ultimate buyer increases, the channel increases in length

Channel Design Decisions Marketing channel design includes designing effective marketing channels by analyzing consumer needs, setting channel objectives, identifying major channel alternatives, and evaluating them.

Distributors or Wholesalers INDIRECT CHANNEL DESIGNS Distributors or Wholesalers Retailers or Dealers Brokers or Agents Producer Ultimate Buyers

Own Distribution Outlets DIRECT CHANNEL DESIGN Producer Own Sales Force Own Distribution Outlets Ultimate Buyers Producer Own Marketing Website Ultimate Buyers

E-Commerce Marketing Practices Uses a Web site to transact or facilitate the sale of products and services online Pure-click vs. brick-and-click companies We can distinguish between pure-click companies, those that have launched a Web site without any previous existence as a firm, and brick-and-click companies, existing companies that have added an online site for information or e-commerce.

Direct vs. Indirect Distribution Technically Sophisticated THE CHANNEL-SELECTION DECISION Direct vs. Indirect Distribution Marketers employ direct distribution when: Personal selling is a major component of the organization’s communication program Intermediaries are not available for reaching target markets Intermediaries do not possess the capacity to service the requirements of target markets Offerings possess certain characteristics: Technically Sophisticated Nonstandardized High Unit Value

Electronic Marketing Channels THE CHANNEL-SELECTION DECISION Electronic Marketing Channels Employ some form of electronic communication, including the Internet, to make offerings available for consumption or use by consumers and industrial users Many services can be distributed through electronic marketing channels, while others still involve traditional intermediaries

Target Market Coverage THE CHANNEL-SELECTION DECISION Marketers ask three questions when selecting the type and location of retail outlets: Target Market Coverage Which retailers will provide the best coverage of the target market? Buyer Requirement Satisfaction Which retailers will best satisfy the target market’s buying requirements? Profitability Which retailers will be the most profitable?

A case study Gavina Coffee

THE CHANNEL-SELECTION DECISION Target Market Coverage Three degrees of distribution density are: Intensive Distribution Selective Distribution Exclusive Distribution

Intensive Distribution Selective Distribution TARGET MARKET COVERAGE: DISTRIBUTION DENSITY The firm’s offerings are sold through as many retail outlets as possible Intensive Distribution The marketer selects a few retail outlets in a specific area to carry its offerings Selective Distribution One retail outlet in a geographic area or one retail chain sells the firm’s offerings Some retailers sign exclusive distribution agreements with manufacturers Exclusive Distribution

Target Market Coverage: Distribution Density THE CHANNEL-SELECTION DECISION Target Market Coverage: Distribution Density Distribution density selection rests on: How buyers purchase the manufacturer’s offering The amount of control over resale desired by the manufacturer The degree of exclusivity intermediaries seek The contribution of intermediaries to the manufacturer’s marketing effort

Target Market Coverage: Distribution Density THE CHANNEL-SELECTION DECISION Target Market Coverage: Distribution Density This strategy is chosen when: The offering is purchased frequently Buyers wish to expend little effort purchasing it Example: Convenience goods Intensive Distribution These limited-distribution strategies are chosen when: The offering requires personal selling at the point of purchase Example: Shopping/specialty goods Exclusive Distribution Selective Distribution

THE CHANNEL-SELECTION DECISION Profitability Profitability is determined by the: Margins earned (revenues – costs) for each channel member Channel as a whole Extent to which channel members share costs Costs include distribution, advertising, and selling expenses associated with different types of marketing channels

MULTI-CHANNEL MARKETING Multi-channel marketing involves the blending of an electronic or direct marketing channels and a traditional channel in ways that are mutually reinforcing in attracting, retaining, and building customer relationships.

Benefits of Multi-channel approach MULTI-CHANNEL MARKETING Benefits of Multi-channel approach A firm uses multi-channel marketing because: The addition of another marketing channel can provide incremental revenue An additional marketing channel can leverage the presence of a traditional channel It can satisfy buyer requirements

MULTI-CHANNEL MARKETING Multi-channel marketing is viable if additional marketing channels: Generate incremental revenue Don’t cannibalize sales from traditional intermediaries Reach different market segments than the traditional channel Reinforce with traditional channels in attracting, retaining, and building customer relationships

MULTI-CHANNEL MARKETING Disintermediation is the practice whereby a traditional intermediary member is dropped from a marketing channel and replaced by an electronic storefront.

MULTI-CHANNEL MARKETING Disintermediation Is considered more serious than cannibalization by intermediaries— it affects reseller survival May cause firms to avoid multi-channel marketing due to complaints and threats by intermediaries, particularly retailers, to discontinue carrying their products and delivering their services

SATISFYING INTERMEDIARY REQUIREMENTS AND TRADE RELATIONS MARKETING CHANNEL STRATEGY AND MANAGEMENT SATISFYING INTERMEDIARY REQUIREMENTS AND TRADE RELATIONS

Industrial Distributors SATISFYING INTERMEDIARY REQUIREMENTS Sales department generally manages intermediary relations Intermediaries choose more profitable suppliers Are concerned with the adequacy of a firm’s offerings in improving the assortment for its own target markets Intermediaries seek marketing support from manufacturers: Wholesalers Want promotional assistance Industrial Distributors Want technical assistance

SATISFYING TRADE RELATIONS Channel Conflict Marketing managers recognize that conflicts often occur in trade relations Channel conflict arises when one channel member (such as a manufacturer or an intermediary) believes another channel member is engaged in behavior that is preventing it from achieving its goals

SATISFYING TRADE RELATIONS Channel Conflict Occurs when: A channel member bypasses another member and sells or buys direct There is a dispute over how profit margins are distributed among channel members Manufacturers believe wholesalers or retailers are not giving their offerings adequate attention A manufacturer engages in dual distribution—particularly when different retailers or dealers carry the same brands

CHANNEL MODIFICATION DECISIONS CHAPTER 7: MARKETING CHANNEL STRATEGY AND MANAGEMENT CHANNEL MODIFICATION DECISIONS

CHANNEL-MODIFICATION DECISIONS Bases of the channel modification decision: Provide the best target market coverage Satisfy the target market’s buying requirements Maximize revenue and minimize cost

CHANNEL-MODIFICATION DECISIONS: QUALITATIVE FACTORS When modifying existing or adding new channels, ask : Will the change improve the effective coverage of the target markets sought? How will the change improve the satisfaction of buyer needs? Which marketing functions must be absorbed in order to make the change? Does the firm have the resources to perform the new functions? What effect will the change have on other channel members? What will be the effect of the change on the achievement of long-range organizational objectives?

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