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Marketing 324 Channels Of Distribution Management Overview Lecture Marketing Channels. A Strategic Tool of Growing Importance for the Next Millennium by Dr. Bert Rosenbloom Rauth Professor of Marketing Management. Marketing Concept.

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marketing 324 channels of distribution management overview lecture marketing channels

Marketing 324Channels Of Distribution Management Overview LectureMarketing Channels

A Strategic Tool of Growing Importance for the Next Millennium

by Dr. Bert Rosenbloom

Rauth Professor of Marketing Management


Marketing Concept

Underlying Philosophy of Modern Marketing Management (since the 1960’s) Stressing an Outward Focus on Customers as the “Center of the Universe” Captured in Terms Such as:

  • Customer Orientation
  • Customer Focused
  • Customer Driven
  • Customer Centered
  • Customer Satisfaction
  • Market Driven
  • Exceed Customer Expectations
operational model for implementing the philosophy of the marketing concept is the

Operational Model for Implementing the Philosophy of the Marketing Concept is the:

Marketing Mix

the marketing mix consists of four basic strategic variables the four p s
The Marketing Mix Consists of Four Basic Strategic Variables (the four “P’s”)
  • Product Strategy
  • Price Strategy
  • Promotional Strategy
  • Place Strategy (Channels of Distribution)

The Role of Marketing Management is to Mix or Blend These Four Strategic Variables in Such a Way as to Achieve a Higher Level of Customer Satisfaction Than Competitors

Customer Focus

Optimized Marketing Mix

Competitive Advantage

High Profitability

Shareholder Value



Over the past three decades, the overwhelming emphasis in the Marketing Mix has been on:Product Strategy with Pricing Strategy andPromotional Strategy also being stressed.But.....

five reasons

Marketing Channel Strategy is Growing in Importance. Why?

Five Reasons

(1) Search for Sustainable Competitive Advantage

(2) Growing Power of Retailers in Marketing Channels

(3) The Need to Reduce Distribution Costs

(4) The Increased Role and Power of Technology

(5) The New Stress on Growth

sustainable competitive advantage

Sustainable Competitive Advantage:

A competitive advantage that cannot be quickly and easily copied by competitors

a sustainable competitive advantage is becoming more difficult to attain through
A sustainable competitive advantage is becoming more difficult to attain through:
  • Product Strategy- rapid technology transfer enables competitors to quickly produce similar products
  • Pricing Strategy- global economy allows competitors to find low cost production to match prices
  • Promotion Strategy- high cost, clutter, and short life promotional campaigns limit competitive advantage
Channel Strategy is Long Term
  • Requires a Channel Structure
  • Depends on Relationships and People
  • Requires Effective Interorganizational Management

  • Are Growing Larger
  • Enjoy Substantial Channel Power
  • Act as Buying Agents for Customers Rather than Selling Agents for Suppliers
  • Often Operate on Low Price / Low Margin Model
  • Operate in Saturated Markets and Fight for Market Share

Concentration of Sales Among the

Top 50 Retail Firms

Top 50



Kinds of Retailers Where Largest Four Firms Account for At Least 50% of Total Sales

Variety Stores

4 Largest


power or dominant retailers are therefore the gatekeepers into the consumer marketplace
Power or Dominant Retailers are therefore the“Gatekeepers” into the Consumer Marketplace

Thus, Effective Channel Strategy

for Dealing with

Power Retailers is Crucial

distribution costs often account for a significant percentage of the final price of products
Distribution Costs Often Account for a Significant Percentage of the Final Price of Products

Sometimes Distribution Costs

areHigher than the Manufacturing

Cost or the Costs of Raw

Materials and Component Parts

some examples
Some Examples...

Autos Software Gasoline Fax Machines Packaged Foods


















Raw Materials




While terms such as “restructuring”, “flattening out”, “downsizing”, and “rightsizing” have usually been mentioned in the context of corporate organizations, they also apply to Marketing Channels. The latest term....



Technology has the power to greatly enhance the effectiveness and efficiency of Marketing Channels and could potentially change the entire structure of distribution around the world.

some examples32
Some Examples...
  • E-commerce
  • M (mobile)-commerce
  • F (facebook)-commerce
  • Wireless Communications
  • Smart phones
  • Global Telecommunications (Skype)
  • Robotics & Automated Warehousing
  • Computerized “Salespeople”
Firms that make effective use of these technologies in their channel strategy can gain a substantial competitive advantage


in american business circles growth has overtaken restructuring as the 1 buzzword




Flat Organizations

Lean and Mean




New Markets

Market Share

Top Line Revenue

In American Business Circles “Growth” has Overtaken “Restructuring” as the #1 Buzzword

QUESTIONIn a relatively slow growth economy, how can an individual company selling mature products in mature markets grow?

share of mind share of market


Share of Mind = Share of Market


By getting channel members to focus on your

products to a greater extent than your

competitors, you gain market share and



(1) Search For Competitive Advantage

(2) Growing Size and Power of


(3) Need to Reduce Distribution Costs

(4) Power and Potential of Technology

(5) Stress on Growth Instead of


bottom line

Bottom Line

Marketing Channel Strategy Has Become Critically Important For Most Businesses

channel strategy
Channel Strategy

The broad principles by which a firm expects to achieve its distribution objectives for satisfying its customers

basic strategic questions
Basic Strategic Questions

(1) What role should distribution play in the firm’s overall objectives and strategies?

(2) What role should distribution play in the marketing mix?

(3) How should the firm’s marketing channels be designed to achieve its distribution objectives?

(4) What kinds of channel members should be selected to meet the firm’s distribution objectives?

(5) How can the marketing channel be managed to implement the firm’s channel design effectively and efficiently on a continuing basis?


The Relationship between customer satisfaction and the company’s marketing mix can be represented as:

Cs = f (P1, P2, P3, P4)


Cs= degree of customer satisfaction

P1= product strategy

P2= pricing strategy

P3= promotional strategy

P4= place (channel strategy)

Distribution Channel Strategy should receive especially heavy emphasis if one or more of the following conditions prevails:
  • Distribution appears to be the most relevant variable for satisfying customers
  • Parity exists among competitors in the other three marketing mix variables
  • High degree of vulnerability exists because of competitors’ neglect of distribution
  • Distribution channel strategy can foster synergies
classic marketing channel strategies still relevant today
Classic Marketing Channel Strategies Still Relevant Today

Dual Distribution

Exclusive Dealing

Full-Line Forcing

Price Differentiation

Price Maintenance

Refusal to Deal

Resale Restrictions

Tying Agreements

the most basic questions in the design of marketing channels
The Most Basic Questions in the Design of Marketing Channels
  • When Do Customers Buy?
  • Where Do Customers Buy?
  • How Do Customers Buy?
  • Who Buys?
      • Who makes the actual purchase?
      • Who uses the product?
      • Who takes part in the buying decision?

QUESTIONIs this just another “buzzword” for logistics - getting the right product in the right quantity, at the right time and right place?ORIs there something more substantive to this term?



There is something more than semantics here:

Supply Chain Management takes a broader perspective by viewing logistics as an integral part of the marketing channel relationship

supply chain management can therefore be defined as

Supply Chain Management Can Therefore be Defined as:

A long-term “partnership” among marketing channel participants aimed at reducing inefficiencies, costs, and redundancies in the logistical system in order to provide high levels of customer service


Contrasts Between a Traditional Logistics System and Supply Chain Based System

Supply Chain Mgmt. System

Joint Effort to Reduce

Channel Inventories

Channel-Wide Cost Efficiencies


Continuous Effort to

Gather and Monitor


Important for Major Initiatives

Required for

Coordination and Focus

Risks and Rewards Shared

over Long-range

“Distribution Center”

Orientation-JIT, Quick

Response, Cross Docking


Inventory Management

Total Cost Approach

Time Horizon

Information Sharing and


Joint Planning

Compatibility of Corporate


Channel Leadership

Sharing of Risks and


Inventory Flow


Logistics System

Independent Effort

Minimize Firm Costs


Limited to Needs of

Current Transaction

Transaction Based

Not Relevant

Not Needed

Each Channel Member

on Their Own

“Warehouse” Mentality

Storage Safety Stocks

common issues in supply chain management
1. Order Processing Time

2. Order Assembly Time

3. Delivery Time

4. Inventory Reliability

5. Order Size Constraints

6. Consolidation Stipulation

7. Consistency of Delivery

8. Frequency of Sales Visits

9. Ordering Convenience

10. Order Progress Information

11. Inventory Backup During Promotion

12. Invoice Formats

13. Physical Condition of Goods

14. Claims Response

15. Billing Procedures

16. Average Order Cycle Time

17. Order Cycle Time Variability

18. Rush Service

19. Product Availability

20. Competent Technical Reps

21. Equipment Demonstrations

22. Availability of Literature

23. Accuracy in Filling Orders

24. Terms of Sale

25. Protective Packaging

26. Degree of Cooperation

Common Issues in Supply Chain Management


  • Shopping via Personal Computer on the Internet
  • Wireless Access from Remote Locations
  • Electronic Shopping in a “Virtual Store”
some predictions

Some Predictions....

Nearly 5 million new US households will shop online in each of the next five years, with the total number of US online shopping households expected to reach 63 million by 2008-Forrester Research(2003)

Online retail sales will account for 10 percent of total US retail sales by 2008 -Forrester Research(2003)

some current facts and figures
Some Current Facts and Figures
  • Total U.S. Retail Sales = $3.25 trillion
  • Catalog, T.V., Mail Order = $1.26 billion (.38%)
  • Internet Shopping = $43.5 billion (1.3%)
how about potential
How About Potential?
  • 45% of Americans Purchase from Catalogs
  • 7% of Americans buy via television
  • 90 million PCs in U.S. homes
  • 60 million Internet users
  • 20,000 new users added daily
electronic home shopping customer perspectives

Global access to multitude of products and times

Speed relative to physical shopping

Information and screening enhanced

Lower costs in long run


Delayed gratification

No real product contact

No shopping atmosphere

Personal and social motives for shopping not satisfied

Electronic Home Shopping- Customer Perspectives
Personal Motives for Shopping

Role playing



Learning about new trends

Physical activity

Sensory stimulation

Social Motives for Shopping

Social expression outside the home

Communication with others holding similar interests

Peer group attraction

Status and power

Personal Motives for Shopping

Social Motives for Shopping

b2c electronic commerce company perspective

Expanded geographical coverage

Centralized inventories

Lower transaction costs

Complete customer database

Better targeted products and promotions

Superior performance measurement


Company must pick, pack, and deliver products usually one at a time

Limited opportunity to demonstrate products

High return rates (25% for QVC & HSN)

Reduced impulse purchasing

Limited opportunity to use atmospherics & entertainment

B2C Electronic Commerce- Company Perspective


Continuing and mutually supportive relationship between the manufacturer and its channel members in an effort to provide a more highly motivated team, network, and alliance of channel partners


Traditional “us-against-them” mentality is replaced with a new cooperative perception of “us” in an effective channel partnership or strategic allianceThus, partnerships or strategic alliances go well beyond the ad-hoc, on-again / off-again interactions typical of traditional relationships among channel members

requirements for partnerships or strategic alliances in marketing channels
Requirements for Partnerships or Strategic Alliances in Marketing Channels

(1) Recognition of interdependence of channel members

(2) Close cooperation between channel members

(3) Careful specification of roles, rights, and responsibilities in the relationship

(4) Coordinated effort focused on common goals

(5) Good communications and trust between channel members

relationship marketing

Relationship Marketing

The practice of building long-term relations with key parties - customers, suppliers, distributors- in order to retain their long-term preference and business

Because of the importance of channels of distribution, building good relationships in the marketing channel is key to successful relationship marketing

building relationships with channel members
Building Relationships with Channel Members
  • Find Out the Needs and Problems of Channel Members

-informal information system (“grapevine”)

-research studies of channel members

-research studies by outside parties

-marketing channel audit

-distributor advisory councils

building relationships with channel members cont d
Building Relationships with Channel Members Cont’d…
  • Offer Support to Channel Members that is Consistent with Their Needs and Helps Solve their Problems

-cooperative arrangements

-partnerships and strategic alliances

-distribution programming

  • Provide Leadership to Motivate Channel Members

-use power effectively

-recognize causes of conflict

-resolve conflicts

bases of power in the marketing channel
Bases of Power in the Marketing Channel
  • Reward Power
  • Coercive Power
  • Legitimate Power
  • Referent Power
  • Expert Power

Effective Channel Management Depends

on How Well These Power Bases are

Combined and Used

causes of marketing channel conflict
Causes of Marketing Channel Conflict
  • Role Incongruities
  • Resource Scarcities
  • Perceptual Divergencies
  • Expectational Differences
  • Decision Domain Disagreements
  • Goal Incompatabilities
  • Communication Difficulties
ten trends in marketing channels as we move into the next millennium
Ten Trends in Marketing Channels as We Move into the Next Millennium

1. Growing Emphasis on Marketing Channel Strategy

2. More and More Stress on Technology

3. Focus on Efficiency and Reducing Distribution Costs

4. Shortening and Flattening of Distribution Channels (Disintermediation)

5. Development of New Types of Intermediaries in Channels (Reintermediation)

trends continued
Trends Continued...

6. Continued Growth in Partnerships and Alliances (Relationship Marketing)

7. Increasing Power for Retailers and Wholesalers (Gatekeepers)

8. Mergers and Acquisitions to Gain Distribution Clout

9. Flexible and Focused Distribution to Match Micro, Niche, and Database Marketing

10. Attention to the Behavioral Dimensions of Distribution to Augment Technology