The Environment of Marketing Channels

Marketing Channel and the Environment Marketing channels develop and operate in a complex environment that is continually changing. Channel managers must therefore have an understanding of the environment and how it can influence channel management in order to plan effective marketing channel strategies for meeting these changes successfully.

Major Environment Economic environment Competitive environment Sociocultural environment Technological environment Legal environment

Impact of Environment in a Marketing Channel Context Economic Sociocultural Competitive Legal Technological Producers and manufacturers Locus of channel management Member participants Intermediaries Target markets Nonmember participants Facilitating agencies Channel manager’s analysis of environmental impact must include all channel participants

1. Economic Environment The most obvious and pervasive category of variables affecting all members and participants in the channel.

1. Economic Environment Major economic phenomena: Recession: 2 consecutive quarters of decline in the Gross Domestic Product (GDP), any period in which the GDP is stagnant or increasing very slowly is often referred to as ‘recessionary” or at least and “economic slowdown.”

1. Economic Environment Major economic phenomena: Inflation: Inflation is the rate of increase in prices for goods and services.  When the price level rises, each unit of currency buys fewer goods and services. There are a number of different measures of inflation in use. The most frequently quoted and most significant ones are the Consumer Prices Index (CPI) and the Retail Prices Index (RPI). www.bbc.com/news/business-12196322

1. Economic Environment Major economic phenomena: Deflation: When the overall price level decreases so that inflation rate becomes negative, it is called deflation. It is the opposite of the often-encountered inflation. http://economictimes.indiatimes.com/definition/deflation

1. Economic Environment Major economic phenomena: Other economic issues: Trade deficit National debt/ budget deficit High interest rate

2. Competitive Environment Types of competition: Horizontal competition Intertype competition Vertical competition Channel system competition

1) Horizontal (Intratype) Competition Competition between firms of the same type. M M W W R R

2) Intertype Competition Competition between different types of firms at the same channel level. M M W W R R

3) Vertical Competition Competition between channel members at different levels in the channel. M W R

4) Channel System Competition Complete channels competing with other complete channels. M M W W R R

3. Sociocultural Environment Age patterns of population Changing ethnic mix Educational trends Family or household structure Changing role of women

3. Sociocultural Environment Population Age Patterns Ethnic Mix Educational Trends Family or Household Structure U.S. pop. Becoming both younger & older # of minority-owned businesses Levels = people more demanding Smaller & more varied Role of Women # = changing shopping needs

4. Technological Environment Scanners Computerized inventory management & Portable computers Help retailers & wholesalers closely monitor success or failure of products they handle

4. Technological Environment Electronic data interchange EDI – Electronic Data Interchange = Enhanced Distribution Efficiency • Links together channel information systems • Provides real-time responses • Enhanced by Internet

5. Legal Environment The set of laws that impact marketing channels • Continually evolving • Affected by changing values, norms, politics, & precedents • Knowledge of basics helps channel manager avoid serious & costly legal problems

• Dual Distribution, or multi-channel distribution 5. Legal Environment Legal issues in channel management • Dual Distribution, or multi-channel distribution Producer or manufacturer uses 2 or more different channel structures for distributing the same product Exclusive Dealing Supplier requires its channel members to sell only its products or to refrain from selling directly to competitive suppliers •Full-Line Forcing Supplier requires channel members to carry a full-line of its products in order to sell any particular products in supplier’s line

• Price Discrimination 5. Legal Environment Legal issues in channel management • Price Discrimination Supplier sells at different prices to the same class of channel members Price Maintenance Supplier dictates prices charged by channel members to their customers • Refusal to Deal Supplier has right to refuse to deal with whomever they want as channel members

• Vertical Integration 5. Legal Environment Legal issues in channel management • Resale Restrictions Manufacturer attempts to stipulate to whom and in what geographical market channel members may resell the manufacturer’s products Tying Agreements Supplier sells a product to a channel member on condition that the channel member also purchase another product • Vertical Integration Firm owns and operates organizations at other levels of the distribution channel