Part 1: Marketing Channel Systems. The Environment of Marketing Channels. The external environment – five factors The economic environment The competitive environment Types of competition The sociocultural environment The technological environment The legal environment
The external environment – five factors The economic environment The competitive environment Types of competition The sociocultural environment The technological environment The legal environment Legal issues in channel management
The External Environment – 5 Factors 1 Consists of all external uncontrollable factors within which marketing channels exist Affects channel members and nonmembers, such as facilitating agencies = All channel participants
The Environment Producers & Manufacturers Locus of channel management Member participants Environment Economic Sociocultural Competitive Technological Legal Intermediaries Target Markets Nonmember participants Facilitating agencies
The Economic Environment 2 Recession Inflation Major Economic Forces Deflation
Recession Reduced sales volume Reduced profitability Firms caught with large inventories Consumer and/or Corporate spending = Channel strategy: Manufacturers provide channel member support by financing high inventory costs
Inflation Continued high spending OR Drop-offs in spending, fueling a recession Possible channel strategies: 1. Reduce manufacturer’s product mix from higher-price to lower-price products 2. Reduce inventory burden on members with: Streamlined product line Faster order processing & delivery Higher inventory turnover through stronger promotional support
Deflation Prices Challenge: Pass cost-induced price increases through channel when built-in cost pressures from labor contracts were negotiated several years earlier
Other Economic Factors 1. Real interest rates 2. Strong U.S. Dollar Difficult to sell products through channel members = Demand Costs = U.S. products less competitive
The Competitive Environment 3 Global in scope: “No longer is it realistic for domestic firms to focus only on rivals within the boundaries of their own country.” Global marketplace, global arena, global competition; terms that describe today’s market.
Types of Competition 4 Vertical Horizontal Channel System Intertype
Horizontal Competition M M W W R R
Intertype Competition M M W W R R
Vertical Competition M W R
Channel System Competition M M M M M M
The Sociocultural Environment 5 Pervades all aspects of a society Influences both national and international marketing channels Influences wide variations among channel structures worldwide
The Technological Environment 6 Scanners & EDI Computerized inventory management & Portable computers Help retailers & wholesalers closely monitor success or failure of products they handle
The Technological Environment EDI - Electronic Data Interchange = Enhanced Distribution Efficiency Links together channel information systems Provides real-time responses Enhanced by Internet
The Technological Environment “Computer sales People” Accelerating technology Mobile robots 3-D modeling Ultra-wideband technology
The Legal Environment 7 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
Legislation Affecting Marketing Channels Sherman Antitrust Act 1890; Fundamental antimonopoly law Public welfare best served through competition Clayton Act 1914; Strengthen Sherman Antitrust Act Prohibits specific practices among competing firms Federal Trade Commission Act 1914; Established FTC Power to investigate & enforce
Legislation Affecting Marketing Channels Robinson-Patman Act 1936; Amendment to Clayton Act Prohibits price discrimination Allows price differentials to different customers under specific circumstances Celler-Kefauver Act 1950; Amendment to Clayton Act Prohibits vertical mergers & acquisitions
Legal Issues in Channel Management 8 • 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
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
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
Discussion Question #2 Almost 80 percent of chief financial officers at the 100 largest retailers say that too much inventory is the greatest risk factor to the viability of their businesses during recessionary periods. High inventories lead to heavy discounting when consumer demand is lacking. This, in turn, undermines gross margins. When demand is very weak, gross margins can disappear completely as retailers may be forced to liquidate slow moving merchandise at prices below their wholesale cost. Paradoxically, retailers also worry about having too little inventory to meet consumer demand and thus losing sales when consumers cannot find the products they are looking for on retailers’ shelves. Hence, retailers attempting to manage their inventories during a recession often feel that when it comes to stocking their shelves, they are damned if they do and damned if they don’t. How might retailers deal with this inventory dilemma more effectively during recessionary periods? What might suppliers do to help retailers address this problem?
Discussion Question #3 Home Depot, Toys “R” Us, Staples, Best Buy and many other giant retailers (often referred to as “category killers” or “big box” retailers because of their dominance in particular merchandise categories and the sheer physical size of the stores) are fierce competitors and are frequently accused of driving small retailers out of business. Observers who have witnessed this competitive struggle take place over the past decade say the reason that small retailers go out of business is that they “can’t compete” with these giants. The verdict in most cases has been “no contest” between the retail giants and the little guys because the little guy so seldom wins or even gets to stay in business. From a competitive standpoint, is such an outcome inevitable? Discuss. Is it really the “big guys” driving the “little guys” out of business or is there something more fundamental at work here?
Discussion Question #5 By 2009, social media services, such as Facebook and Twitter, had become a popular marketing tool for small businesses. In fact, almost 25 percent of firms with fewer than 100 employees were using social media for marketing purposes. This was more than double the percentage of the prior year. Many of these firms cite the ease of use and low cost of these social media as the main reason for using them for reaching out to and communicating with potential and existing customers. How can the ability to communicate with customers via social media enhance channel management? Discuss.