Kerin 12 Ebgdfbb CH07

CHAPTER
7
Marketing Channel Strategy and Management
2010 Pearson Education, Inc. publishing as Prentice Hall
Slide 7-1
AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO:

1. Describe the nature of a marketing channel and their functions as intermediaries.
2. Distinguish between traditional and electronic marketing channel designs.

3. Identify the factors organizations use to select and manage a single or multiple marketing channel(s).
2010 Pearson Education, Inc. publishing as Prentice Hall Slide 7-2
AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: 4. Describe the role intermediaries have in the marketing channel selection process.
5. Discuss how organizations modify marketing channel decisions.
Slide 7-3
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
Slide 7-4
MARKETING CHANNELS
Marketing channels affect an organizations:
Segmentation Strategy Communications Strategy Pricing Strategy Offering Strategy Determines whether its chosen target markets are reached Dictates its advertising, sales promotion, direct marketing, etc. activities Influences its markup and discount policies Impacts its:
Branding policies Willingness to stock and customize offerings
Ability to augment offerings

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.
Slide 7-6
CHAPTER 7: MARKETING CHANNEL STRATEGY AND MANAGEMENT
THE CHANNELSELECTION DECISION
Slide 7-7
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 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
EXHIBIT 7.1: TRADITIONAL MARKETING CHANNEL DESIGNS

Producer
Brokers or Agents
Distributors or Wholesalers
Retailers or Dealers
Ultimate Buyers

Direct vs. Indirect Distribution
Marketers must decide whether to use:

Intermediaries to reach target markets
Contact buyers directly via either channel strategy:

Producer Producer
Own Sales Force
Own Distribution Outlets
Own Marketing Website
Ultimate Buyers
Ultimate Buyers
Slide 7-11

Marketers employ direct distribution when:

Buyers of target markets are easily identifiable Personal selling is a major component of the organizations communication program The organization has a wide variety of offerings for the target market Resources are available to satisfy target market requirements normally handled by intermediaries


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

Slide 7-13


The organizations marketing strategy dictates:
An aura of exclusivity An emphasis on buying direct
The organization seeks to differentiate its offering from others distributed through intermediaries
Slide 7-14

The decision to employ direct distribution to ultimate buyers requires the absorption of all functions performed and costs incurred by the intermediaries bypassed Similarly, intermediaries who wish to acquire functions typically performed by channel members above or below them must also absorb their costs

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
EXHIBIT 7.2: REPRESENTATIVE ELECTRONIC MARKETING CHANNELS
Book Publisher
Auto Manufacturer
Commercial Airline
Computer Manufacturer
Book Distributor
Auto Dealer
Amazon.com (Virtual Retailer)
Auto-By-Tel (Virtual Broker)
Travelocity (Virtual Agent)
Ultimate Buyers

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

Target Market Coverage
Three degrees of distribution density are:

Intensive Distribution Exclusive Distribution Selective Distribution
Slide 7-19
TARGET MARKET COVERAGE: DISTRIBUTION DENSITY

Intensive Distribution
The firms offerings are sold through as many retail outlets as possible One retail outlet in a geographic area or one retail chain sells the firms offerings
Is the defined trade area of the retailer Some retailers sign exclusive distribution agreements with manufacturers
Exclusive Distribution
Franchising
A marketer gives a retailer exclusive rights to sell its offerings in a defined area in return for performing specific marketing functions The marketer selects a few retail outlets in a specific area to carry its offerings
Selective Distribution

Target Market Coverage: Distribution Density
Effective distribution means that a limited number of outlets at the retail level account for a significant fraction of the market potential Example: A marketer distributes the product through 40% of available retail outlets, but these outlets account for 80% of the market

Distribution density selection rests on:

How buyers purchase the manufacturers offering
The amount of control over resale desired by the manufacturer
The degree of exclusivity intermediaries seek

The contribution of intermediaries to the manufacturers marketing effort

This strategy is chosen when:
Intensive Distribution
The offering is purchased frequently
Buyers wish to expend little effort purchasing it

Example: Convenience goods
Exclusive Distribution
Selective Distribution
These limited-distribution strategies are chosen when:

The offering requires personal selling at the point of purchase Example: Shopping/specialty goods

Buyer Requirement Satisfaction
Marketers must select channels that satisfy the interests buyers want fulfilled when purchasing a firms offerings These interests fall into four categories:
Information Convenience Variety Attendant Services
Slide 7-24

Information
Is important when buyers:

Have limited knowledge Desire specific data about an offering
Communicate with buyers through in-store displays, demonstrations, and personal selling

Convenience
Has different meanings for buyers at outlets:

Proximity Driving time Minimal time and hassle
For Internet purchases, it means:

Websites are easy to locate and navigate The 8-second rule

Variety
Reflects buyers interest in having numerous competing and complementary items from which to choose Is evident in both the breadth and depth of products and brands carried by intermediaries

Attendant Services
Are an important buying requirement for products such as large household appliances that require delivery, installation, and credit
Slide 7-28

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
THE CHANNEL-SELECTION DECISION: SECOND-LEVEL INTERMEDIARIES

Wholesalers Brokers
Industrial Distributors
Specialty General Merchandise
Carries a limited line of items within a product line Carries a wide assortment of products
General Line
Carries a complete assortment of items in a single retailing field
The issue to resolve for marketers is which of these wholesalers sell to the desired retail outlets

Wholesalers The location of wholesalers is based on:
Transportation costs The requirement for fast delivery service
The density of wholesalers is influenced by:

The density of the retail network Wholesaler service capabilities
As retail outlet density increases, wholesaler density necessary to service them also increases
DUAL DISTRIBUTION AND MULTI-CHANNEL MARKETING
Slide 7-32
DUAL DISTRIBUTION
Dual distribution occurs when an organization distributes its offering through two or more different marketing channels that may or may not compete for similar buyers.
Slide 7-33
DUAL DISTRIBUTION
A firm uses dual distribution because it:
Produces its own brand (for resellers) as well as a private store brand (for a specific retailer) May distribute directly to a large-volume retailer and use wholesalers for small-volume retailers Considers geography:
Uses it own sale force in concentrated markets Uses intermediaries elsewhere
Employs a multibrand strategy

DUAL DISTRIBUTION
The viability of dual distribution is situational and depends on the relative strengths of manufacturers and retailers If a manufacturer decides to distribute directly to ultimate buyers in a retailers territory:
The retailer may drop the firms offering lines or May not drop them if they too important to it or
May not drop them if competitive offerings have a strong presence in the market
If a retailer accounts for a significant sales volume, dropping the lines will negatively affect the firm
MULTI-CHANNEL MARKETING
Multi-channel marketing involves the blending of an electronic marketing channel and a traditional channel in ways that are mutually reinforcing in attracting, retaining, and building customer relationships.
A firm uses multi-channel marketing because:

The addition of an electronic marketing channel can provide incremental revenue
An electronic marketing channel can leverage the presence of a traditional channel It can satisfy buyer requirements
Multi-channel marketing is viable if an electronic marketing channel:

Generates incremental revenue Doesnt cannibalize sales from traditional intermediaries Reaches a different market segment than the traditional channel Reinforces with traditional channels in attracting, retaining, and building customer relationships
Disintermediation is the practice whereby a traditional intermediary member is dropped from a marketing channel and replaced by an electronic storefront.
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

SATISFYING INTERMEDIARY REQUIREMENTS

Intermediaries
Choose the suppliers they want to deal with
Are concerned with the adequacy of a firms offerings in improving the assortment for its own target markets Seek marketing support from manufacturers:
Wholesalers Industrial Distributors Want promotional assistance Want technical assistance
SATISFYING INTERMEDIARY REQUIREMENTS

The following contribute to long-term exchange relationships between a manufacturer and their intermediaries:
Trade Discounts Fill-Rate Standards Cooperative Advertising
Lead-Time Requirements
Offering Exclusivity
Profit Margins
Slide 7-43
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

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 distributionparticularly when different retailers or dealers carry the same brands

Channel Power
A channel captain is a member of a marketing channel who seeks to coordinate, direct, support, and influence the behavior of other channel members to reduce the likelihood of conflict.
CHANNEL POWER
Channel Power
Can take these forms:

Economic
The ability of a firm to reward or coerce other members due to its strong financial position or consumer franchise A distinctive competence that provides a value-added service to channel members Resellers compete with others to carry a firms highly valued brand offerings The ability of one channel member to legally dictate how another behaves
Expertise Channel Member Identification Legitimate Right
CHANNEL MODIFICATION DECISIONS
Slide 7-48
CHANNEL-MODIFICATION DECISIONS
Bases of the channel modification decision:
Provide the best target market coverage Satisfy the target markets buying requirements Maximize revenue and minimize cost
Slide 7-49
CHANNEL-MODIFICATION DECISIONS: QUALITATIVE FACTORS

When modifying existing or adding new channels, ask :
1. Will the change improve the effective coverage of the target markets sought? 2. How will the change improve the satisfaction of buyer needs? 3. Which marketing functions must be absorbed in order to make the change? 4. Does the firm have the resources to perform the new functions? 5. What effect will the change have on other channel members? 6. What will be the effect of the change on the achievement of long-range organizational objectives?
CHANNEL-MODIFICATION DECISIONS: QUANTITATIVE FACTORS

Consider the financial impact of a channel modification decision If a firm eliminated its wholesalers, it would have to assume the costs of:
Sales to retail accounts Sales administration
Carrying the inventory

Delivery and storage Carrying the accounts receivable
CHANNEL-MODIFICATION DECISIONS: QUANTITATIVE FACTORS

Cost of Wholesalers
Margin to wholesalers Service expense Total cost $5,000,000 500,000 $5,500,000
Cost of Distribution Centers

Sales to retailers Sales administration Inventory cost Delivery and storage Accounts receivable Total cost $1,500,000 250,000 935,000 1,877,000 438,000 $5,000,000
Which alternative should be selected? What factors could affect revenues?

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
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CHAPTER

2010 Pearson Education, Inc. publishing as Prentice Hall

AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO:

2. Distinguish between traditional and electronic marketing channel designs.

2010 Pearson Education, Inc. publishing as Prentice Hall

2010 Pearson Education, Inc. publishing as Prentice Hall

Ability to augment offerings

2010 Pearson Education, Inc. publishing as Prentice Hall

CHAPTER 7: MARKETING CHANNEL STRATEGY AND MANAGEMENT

THE CHANNELSELECTION DECISION

2010 Pearson Education, Inc. publishing as Prentice Hall

THE CHANNEL-SELECTION DECISION

THE CHANNEL-SELECTION DECISION

EXHIBIT 7.1: TRADITIONAL MARKETING CHANNEL DESIGNS

THE CHANNEL-SELECTION DECISION

Marketers must decide whether to use:

Contact buyers directly via either channel strategy:

Own Sales Force

Own Distribution Outlets

Own Marketing Website

THE CHANNEL-SELECTION DECISION

Marketers employ direct distribution when:

THE CHANNEL-SELECTION DECISION

Marketers employ direct distribution when:

High Unit Value

THE CHANNEL-SELECTION DECISION

Marketers employ direct distribution when:

2010 Pearson Education, Inc. publishing as Prentice Hall

THE CHANNEL-SELECTION DECISION

THE CHANNEL-SELECTION DECISION

EXHIBIT 7.2: REPRESENTATIVE ELECTRONIC MARKETING CHANNELS

Amazon.com (Virtual Retailer)

Auto-By-Tel (Virtual Broker)

Travelocity (Virtual Agent)

THE CHANNEL-SELECTION DECISION

THE CHANNEL-SELECTION DECISION

Three degrees of distribution density are:

2010 Pearson Education, Inc. publishing as Prentice Hall

TARGET MARKET COVERAGE: DISTRIBUTION DENSITY

THE CHANNEL-SELECTION DECISION

THE CHANNEL-SELECTION DECISION

Distribution density selection rests on:

The degree of exclusivity intermediaries seek

THE CHANNEL-SELECTION DECISION

The offering is purchased frequently

Buyers wish to expend little effort purchasing it

These limited-distribution strategies are chosen when:

THE CHANNEL-SELECTION DECISION

2010 Pearson Education, Inc. publishing as Prentice Hall

THE CHANNEL-SELECTION DECISION

Is important when buyers:

THE CHANNEL-SELECTION DECISION

Has different meanings for buyers at outlets:

For Internet purchases, it means:

THE CHANNEL-SELECTION DECISION

THE CHANNEL-SELECTION DECISION

2010 Pearson Education, Inc. publishing as Prentice Hall

THE CHANNEL-SELECTION DECISION

Profitability is determined by the:

THE CHANNEL-SELECTION DECISION: SECOND-LEVEL INTERMEDIARIES

Specialty General Merchandise

Carries a complete assortment of items in a single retailing field

THE CHANNEL-SELECTION DECISION