Part 2: Developing the Marketing Channel. Strategy in Marketing Channels. Marketing Channel Strategy Distribution decisions Channel strategy as overall corporate objectives Channel strategy and the marketing mix Emphasis on distribution strategy
Channel Strategy: the broad
principles by which the firm expects to
achieve its distribution objectives for
its target market(s)
The higher the priority given to
distribution, the higher the level
at which it should be considered
in formulating the organization’s
overall objectives and strategies
Distribution does increasingly warrant
the attention of top management,
because competition has made the
issue of distribution too important for
top management to ignore.
Changes in distributive channels may not matter much to GNP and macroeconomics. But they should be a major concern to every business and industry … Everyone knows how fast technology is changing. Everyone knows about markets becoming global and about shifts in the work force and in demographics. But few people pay attention to changing distribution channels. Peter Drucker
The essence of modern marketing
management – to develop an appropriate and complementary marketing mix
Product Strategy e.g., quality and benefits desired)
Pricing Strategy (e.g., level of pricing and/or price points)
Promotional Strategy (e.g., the “right” combination of “push” & “pull” promotion to apply)
Distribution Strategy (e.g., intensity of distribution)
The firm should choose distribution
strategy for strategic emphasis
Firms should stress distribution when it serves customers’ needs in the target market.
Marketing channels are so closely linked to customer need satisfaction because it is through distribution that firms can provide the kinds and levels of service that make for satisfied customers.
Distribution advantages are not easily copied by competitors.
Distribution advantages are based on a combination of superior strategy, organization, and human capabilities.
Competitors’ neglect of distribution strategies provides excellent opportunities.
The channel manager must analyze target markets to determine whether competitors have neglected distribution and whether vulnerabilities exist that can be exploited.
“Hooking up” with a mix of cooperative channel members will strengthen the channel.
Because each channel member is an independent entity, rewarding opportunities exist for channel managers to cultivate cooperation among members.
Differential advantage: Also
called sustainable competitive
advantage, occurs when a firm
attains a long-term, advantageous
position in the market relative to
… the reputation a manufacturer acquires among distributors [channel members] for furnishing products, services, financial returns, programs, and systems that are in some way superior to those offered by competing manufacturers.
Narus and Anderson
A firm that plans the channel and
makes decisions by viewing the
relationship with channel members as
a partnership or strategic alliance
that offers recognizable benefits to
the manufacturer & channel
members on a long-term basis
close a relationship
should be developed
with the channel
How should the
marketing mix be used
to enhance channel
How should the channel
members be motivated to cooperate
in achieving the manufacturer’s
Factors to consider:
Portfolio Concept: A tool for motivating
different types and sizes of channel
members participating in various channel
structures who may respond differently to
various motivation strategies.
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
Although online sales channels have enjoyed tremendous growth over the past decade, a strategic disadvantage which could limit future growth potential is that of immediacy. For physical products ordered online, consumers do not have the same experience of taking the product with them immediately when they purchase it in a store. Rather, they must wait at least a day and sometimes several days. Recently, the world’s largest online retailer, Amazon.com has attempted to mitigate the immediacy problem by offering same-day delivery in a number of major metropolitan areas. But the service is pricey—$17.99 per shipment plus $1.99 per pound of product weight. Now some traditional bricks and mortar retailers such as Nordstrom and the retail division of Jones Apparel Group Inc. think they have found a synergy that will provide a differential advantage over Amazon.com by using their retail stores as delivery centers for online operations. By doing so, these retailers believe they will be able to offer same-day service more efficiently and at lower cost than Amazon.com because, unlike Amazon.com, they have many stores very close to their customers.
Do you think this synergy between the online and retail store channels available to traditional retailers that makes possible quicker and cheaper product delivery to consumers will provide a differential advantage to most retail store chains that also offer online sales channels?
The grocery business is one of the most competitive of all businesses, especially when it comes to getting a new product from a small manufacturer onto supermarket shelves. The typical supermarket carries about 30,000 different items, but some 15,000 new products are introduced each year. There is no way that all of these products will get on the shelves because there is limited space for such a host of new products. One method of helping the odds is for the manufacturer to pay slotting fees or pay-to-stay fees—in effect paying the retailers for the right to place the products on the retailers’ shelves. But these fees can be very high, sometimes as much as $5,000 for four feet of shelf space per store per year.
Are “slotting fees” simply a way of life in highly competitive industries where the fight for shelf space is intense? Might there be other approaches? What are its possible strengths and weaknesses? Discuss from the standpoints of the manufacturer and the grocery retailers.
Movie studios are in something of a dilemma lately when it comes to planning their future channel strategy for distribution of their films. Electronic distribution is very profitable because, of the typical $4.99 cable companies charge consumers to rent a movie. The studios get to keep about 70 percent of that. DVDs are less profitable. The usual gross margin received by studios on the sale of DVDs is about 30 percent. But
there’s a catch. Even though electronic channels for distributing movies are growing rapidly, “old fashioned” DVDs still account for approximately 70 percent of film profits. So, while electronic distribution holds great promise, especially given the expected growth potential for showing movies on mobile devices such as smartphones, physical DVDs are still an important distribution channel for movies.
What kind of channel strategy would you recommend to the movie studios to deal with this challenge?