Part 2: Developing the Marketing Channel Strategy in MarketingChannels
Marketing Channel Strategy • Distribution decisions • Channel strategy as overall corporate objectives • Channel strategy and the marketing mix • Emphasis on distribution strategy • Differential advantage and channel design • Selection of channel members • Channel strategy and managing the channel • Motivation of channel members • Evaluation of channel member performance
Marketing Channel Strategy 1 Channel Strategy: the broad principles by which the firm expects to achieve its distribution objectives for its target market(s)
6 Distribution Decisions for Firms to Address 2 • The role of distribution in the firm’s overall objectives & strategies • The role distribution should play in the marketing mix • The design of the firm’s marketing channels • The selection of channel members • The management of the marketing channel in order to implement the firm’s channel design effectively & efficiently on a continuing basis • The evaluation of channel member performance
Channel Strategy as Overall Corporate Objective 3 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
Companies that use Distribution Strategically • Dell Computer • BMW • Amazon.com • Apple Computer • Edward Jones • Rayovac Corporation • Proctor & Gamble Company
Determining the Priority Given to Distribution 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
Channel Strategy & the Marketing Mix 4 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)
Emphasis on Distribution Strategy 5 • Distribution is the most relevant variable for satisfying target market demands. • Parity exists among competitors in the other three variables of the marketing mix. • A high degree of vulnerability exists because of competitors’ neglect of distribution. • Distribution can enhance the firm by creating synergy from marketing channels. IF: or or or THEN: The firm should choose distribution strategy for strategic emphasis
Target Market Demand 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.
Competitive Parity Distribution advantages are not easily copied by competitors. Distribution advantages are based on a combination of superior strategy, organization, and human capabilities.
Distribution Neglect 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.
Distribution and Synergy “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 & Channel Design 6 Differential advantage: Also called sustainable competitive advantage, occurs when a firm attains a long-term, advantageous position in the market relative to competitors.
Positioning the Channel … 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
Positioning the Channel 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
Selection of Channel Members 7 • Because customers perceive channel members as • an extension of the manufacturer’s own • organization, members should: • Reflect channel strategies the firm has developed to achieve its distribution objectives • Be consistent with the firm’s broader marketing objectives & strategies • Reflect the objectives & strategies of the organization as a whole
Channel Strategy & Managing the Channel 8 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?
Closeness of Channel Relationships Factors to consider: • Distribution intensity • Targeted markets • Products • Company policies • Middlemen • Environment • Behavioral dimensions
Interrelationships among 4 Strategic Variables of the Marketing Mix Product strategy Marketing Mix Pricing strategy Distribution strategy Promotion strategy
Motivation of Channel Members 9 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.
Evaluation of Channel MemberPerformance 10 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?
Discussion Question #1 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?
Discussion Question #7 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.
Discussion Question #8 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?