Channel Design Strategy Chapter 8 Target Markets & Channel Design Strategy

Objective 1: Market Variables 8 Channel manager decisions regarding the design of the firm’s marketing channel… MUST be a function of the firm’s target markets’ needs and wants Remember customer value is the driver of design.

Framework for Market Analysis Objective 2: Framework for Market Analysis 8 Market Geography The Four Market Size Dimensions Of All Market Density Markets Market Behavior

Market Geography Market Geography Channel Manager’s Task… Objective 3: Market Geography 8 Market Geography Refers to the geographical extent of markets and where they are located. Channel Manager’s Task… To evaluate market geography relative to channel structure to ensure that the structure is able to serve the markets effectively and efficiently.

Locating Markets 8 Channel managers ascertain the geographical locations of target markets through the use of… The Bureau of Census (http://www.census.gov) Regions, States, counties, MSAs (x > 50k*), secondary markets (x < 50k)*, etc. Postal Zip Codes GIS* Computerized systems that combine physical geography with cultural geography* (Dunne, Lusch, & Carver 2010)

Tracking Changes in Market Geography 8 In the U.S. A high degree of mobility means markets change frequently Globally Southeast Asian countries & former Eastern Bloc countries of Europe have become key locations

Market Size Market Size Bucklin’s Model of Channel Structure Objective 4: Market Size 8 Market Size Refers to the number of buyers or potential buyers in a given market Can be either end-users or industrial buyers Bucklin’s Model of Channel Structure Cost per unit Cd Cm Ue Number of Buyers (U)

Market Size Channel Manager’s Task… 8 Channel Manager’s Task… When using Bucklin’s model for market size data, it is important to consider the particulars of certain situations For Example: Will an increase in buyers increase or decrease average cost of serving customers? If an increase in average cost is likely, can channel structure be changed to reduce costs before market reaches its increased size?

Market Density Market Density Efficient Congestion Objective 5: Market Density 8 Market Density Refers to the number of buyers or potential buyers per unit of geographical area. Efficient Congestion Congested, high-density, markets can promote efficiency in the performance of several basic distribution tasks (e.g., transportation, storage, communication, and negotiation.)

Strategic Implication of Density 8 “Density offers efficiency” Opportunity to achieve high levels of customer contact at lower average costs Manufacturers often seek out intermediaries (wholesalers & retailers) operating in dense markets

Market Behavior “Market Behavior” is characterized by, or encompasses… Objective 6: Market Behavior 8 “Market Behavior” is characterized by, or encompasses… When the market buys Where the market buys How the market buys, and Who buys

When the Market Buys Buying Patterns Seasonal Weekly Daily 8 Buying Patterns Seasonal Weekly Daily Implications Variance creates peaks and valleys in production Should seek members who are in tune with changes in patterns How could a “Category Killer” help the manufacturer?*

Where the Market Buys A “Function” of: 8 A “Function” of: The types of intermediaries from which buyers make a purchase The location of these intermediaries Implications Particular types of products are typically purchased where? What product categories align well with one’s product(s)? Are these patterns likely to change?

How the Market Buys Large vs. Small Quantities? 8 Large vs. Small Quantities? Self-Serve vs. Assisted Shopping? One-Stop vs. Multi-Store Shopping? Impulse vs. Planned Purchases? Cash vs. Credit? Shop at home vs. Prefer Traditional Store? Shopping vs. Non-Shopping Good (i.e., search level)

Who Buys Who makes the actual purchase? 8 Who makes the actual purchase? Affects type of retailer chosen May alter channel members for industrial goods Who decides whether to purchase? Who in “family unit” Buying centers for industrial goods

Buying Centers Definition: Typical Participants (or Roles Performed): 8 Buying Centers Definition: a set of people who participate in industrial buying decisions & who are responsible for the consequences resulting from those decisions. Typical Participants (or Roles Performed): Users Influencers Deciders Approvers Buyers Gatekeepers Note: Individuals may perform more than one.

Changes in Market Behavior Objective 8: Changes in Market Behavior 8 Channel Managers must be attune to: Changes likely to occur in the targeted markets’ shopping behavior Whether these changes are likely to remain (i.e., permanent) or are more likely fleeting (i.e., short-term)

Implications of Changes in Market Behavior 8 Increased demand for… Knowledgeable & helpful sales assistance: Increase in personal selling in department/specialty stores Minimum service with very low prices Increase in retailers w/ sparse surroundings & aesthetics (e.g., warehouse clubs like Sam’s) Convenience & no crowds of shoppers Increase in firms offering mail order & catalog services to avoid crowds & shop from home

Implications of Changes in Market Behavior 8 Increased demand for… Efficiency in information gathering & purchasing Increase in Internet shopping, especially for B2B Innovation in service, selection, or effectiveness Department stores featuring different layouts (e.g., the “loop” vs. “free flow”), kiosks, and specialty stores adopting “fast turn” (e.g., Zara)*