1. Chapter 2 Marketing Strategy and Channel Design

2. Major Topics for Ch. 2 Major Decisions to Make5
Major Decisions to Make
When to Emphasize Channel strategy?
Channel Design: Value Chain and
Value Chain Analysis
4. Three Strategic Questions
5. Segmentation: Service Output Demand

3. 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

4. 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

5. 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

6. 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.
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7. The Value Chain Firm infrastructure Human resource management Margin
Technology development
Support
Activities
Margin
Inbound Operations Outbound Marketing Service
logistics logistics & sales
Margin
Primary Activities

8. 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?

9. Question1: Closeness of Channel Relationships5
Factors to consider
Distribution intensity*
Targeted markets*
Products*
Company policies*
Middlemen
Environment
Behavioral dimensions

10. 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
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11. 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)
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12. 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
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13. 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
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14. Question 2: Marketing Mix in Channel Management5
Product
Strategy
(Quality/Branding)
Marketing
Mix
Pricing
Strategy
(Wholesale/Retail/Consumer)
Distribution
strategy
Promotion
Strategy
(Push/Pull)

15. Question 3: Motivation of Channel Members5
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?

16. 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

17. 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%
Source: Reprinted with permission of Rick Wilson, Chicago Strategy Associates, 2000.

18. (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.

19. 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
Source: advertisement for bn.com in Wall Street Journal, November 20, 2002, p. A11.

20. 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.

21. 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.”

22. 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

23. Trade-offs Firm Consumers
Service Output Demands Versus Cost, Competition, and Ease of entry
Consumers
Product Attributes
Price
Service Outputs
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