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Chapter 7. Marketing Channel Strategy and Management. In this chapter, you will learn about…. The Channel-Selection Decision The Design of Marketing Channels Channel Selection at the Retail Level Channel Selection at Other Levels of Distribution Dual Distribution and Multi-Channel Marketing

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Presentation Transcript
chapter 7

Chapter 7

Marketing Channel Strategy and Management

slide2

In this chapter, you will learn about…

  • The Channel-Selection Decision
    • The Design of Marketing Channels
    • Channel Selection at the Retail Level
    • Channel Selection at Other Levels of Distribution
  • Dual Distribution and Multi-Channel Marketing
    • Dual Distribution
    • Multi-Channel Marketing
slide3

In this chapter, you will learn about…

  • Satisfying Intermediary Requirements and Trade Relations
    • Intermediary Requirements
    • Trade Relations
  • Channel-Modification Decisions
    • Qualitative Factors in Modification Decisions
    • Quantitative Factors in Modification Decisions
slide4

What is a marketing channel?

A marketing channel consists of individuals and firms involved in the process of making a product or service available for consumption or use by consumers and industrial users.

slide5

Role of the channel in marketing strategy

  • Links a producer to buyers
  • Performs sales, advertising, and promotion
  • Influences the firm’s pricing strategy
  • Affects product strategy through branding policies, willingness to stock and customize offerings, install, maintain, offer credit, etc.
the channel selection decision fundamental questions
The Channel-Selection DecisionFundamental Questions
  • Who are potential customers?
  • Where do they buy?
  • When do they buy?
  • How do they buy?
  • What do they buy?
    • Avon Cosmetics example

The marketing manager must answer the following questions:

traditional marketing channel designs

Brokers or Agents

Distributors or Wholesalers

Retailers or Dealers

Traditional Marketing Channel Designs

Producer

Ultimate Buyers

the design of marketing channels

INDIRECT DIST.

vs.

DIRECT DIST.

The Design of Marketing Channels
  • Use intermediaries to reach target market
    • type
    • location
    • density
    • number of channel levels
  • Contact ultimate buyers directly
    • using its own sales force or distribution outlets
    • using the Internet through a marketing Web site or electronic storefront
the design of marketing channels1
The Design of Marketing Channels
  • Buyers are easily identifiable
  • Personal selling is a major component of the communication mix
  • Organization has a wide variety of offerings for the target market
  • Sufficient resources are available

Direct distribution is typically used when:

the design of marketing channels2
The Design of Marketing Channels
  • Intermediaries are not available for reaching target markets
  • Intermediaries do not possess the capacity to service the requirements of target markets

Direct distribution must be considered when:

the design of marketing channels3
The Design of Marketing Channels
  • Intermediaries can perform distribution functions more efficiently and less expensively
  • Customers are hard to reach directly
  • Organization does not have resources to perform distribution function

Indirect distribution must be considered when:

the design of marketing channels4
The Design of Marketing Channels

Electronic marketing channels employ some form of electronic communication, including the Internet, to make products and services available for consumption or use by consumers and industrial users.

representative electronic marketing channels

Auto Manufacturer

Book Publisher

Airline

Dell Computers

Auto Dealer

Book Distributor

Auto-By-Tel (Virtual Broker)

Amazon.com (Virtual Retailer)

Travelocity (Virtual

Agent)

Representative Electronic Marketing Channels

Autobytel.com

Amazon.com

Travelocity.com

Dell.com

Ultimate Buyers

the design of marketing channels5
The Design of Marketing Channels

Disintermediation is the elimination of traditional intermediaries and direct distribution through electronic marketing channels.

channel selection at the retail level channel selection decisions
Channel Selection at the Retail LevelChannel Selection Decisions
  • Which channel and intermediaries will provide the best coverage of the target market?
  • Which channel and intermediaries will best satisfy the buying requirements of the target market?
  • Which channel and intermediaries will be the most profitable?
channel selection at the retail level target market coverage

Rolex

Faberge

Levi’s

Sony

Wrigley’s

Coke

Channel Selection at the Retail LevelTarget Market Coverage

Intensive

Exclusive

Selective

channel selection at the retail level
Channel Selection at the Retail Level

Effective Distribution occurs when a limited number of retail outlets account for a significant fraction of the market potential.

Example: A marketer distributes the product through 40% of available outlets, but these outlets account for 80% of the market.

channel selection at the retail level satisfying buyer requirements
Channel Selection at the Retail LevelSatisfying Buyer Requirements
  • Information
  • Convenience
  • Variety
  • Attendant services
channel selection at the retail level profitability
Channel Selection at the Retail LevelProfitability
  • Margins = Revenues – Channel Costs
  • Channel costs are:
    • Distribution costs
    • Advertising costs
    • Selling costs
channel selection at other levels of distribution types of wholesaler
Channel Selection at Other Levels of DistributionTypes of Wholesaler
  • Specialty wholesaler
    • Limited line of items within a product line
  • General-merchandise wholesaler
    • Wide assortment of products
  • General-line wholesaler
    • Complete assortment of items in a single retailing field
  • Combination
slide21

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
  • the main consideration is whether it will provide incremental sales revenue or cannibalize existing sales
slide22

Dual Distribution

When is it used

  • own brand and private store brand
  • distribution to large and small retailers
  • multibrand strategy
  • geographic factors
slide23

Dual Distribution

Example

Hallmark

  • Sells Hallmark brand cards through Hallmark stores and selected department stores
  • Sells Ambassador brand cards through discount drugstore chains
slide24

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 relationships with customers.

slide25

Multi-Channel MarketingJustifications

  • An electronic marketing channel can provide incremental revenue (Victoria’s Secret)
  • An electronic marketing channel can leverage the presence of a traditional channel (Ethan Allen)
  • Multi-channel marketing can satisfy buyer requirements (Clinique division of Estée Lauder)
multi channel marketing considerations
Multi-Channel MarketingConsiderations
  • Actual incremental revenue or merely cannibalization?
  • Incremental cost to launch and sustain an electronic forefront
  • Disintermediation – a traditional intermediary member is replaced by electronic storefront
slide27

Satisfying Intermediary Requirements and Trade RelationsIntermediary Requirements

  • Improvements in product assortments
  • Trade discounts
  • Fill-rate standards
  • Promotional support
  • Lead-time requirements
  • Product-service exclusivity agreements
slide28

Satisfying Intermediary Requirements and Trade RelationsTrade Relations

Channel Conflict arises when one channel member believes another channel member is engaged in behavior that is preventing it from achieving its goals.

slide29

Satisfying Intermediary Requirements and Trade RelationsSources of Channel Conflict

  • Channel member bypasses another member and sells or buys direct (Wal-Mart)
  • Uneven distribution of profit margins among channel members (Michelin)
  • Manufacturer believes channel member is not giving its products adequate attention (Heinz)
  • Manufacturer engages in dual distribution (Elizabeth Arden)
slide30

Satisfying Intermediary Requirements and Trade RelationsChannel Power

Channel Captain is a channel member that takes on the role of coordinating, directing, and supporting other channel members.

slide31

Satisfying Intermediary Requirements and Trade RelationsForms of Channel Captain Power

  • Ability to reward or coerce other members (Microsoft and Wal-Mart)
  • Expertness (American Hospital Supply)
  • Identification with a particular channel member (Ralph Lauren)
  • Legitimate right to dictate the behavior of other members (franchising)
channel modification decisions reasons
Channel-Modification DecisionsReasons
  • Shifts in the geographical concentration of buyers
  • Inability of existing intermediaries to meet the needs of buyers
  • Costs of distribution
channel modification decisions basic objectives
Channel-Modification DecisionsBasic Objectives
  • Provide the best coverage of the target market sought
  • Satisfy the buying requirements of the target market
  • Maximize revenue and minimize cost
channel modification decisions qualitative factors
Channel-Modification DecisionsQualitative Factors
  • Will the change improve the effective coverage of the target markets sought? How?
  • Will the change improve the satisfaction of buyer needs? How?
  • Which marketing functions, if any, must be absorbed in order to make the change?
  • Does the organization have the resources to perform new functions?
  • What effect will the change have on other channel participants?
  • What will be the effect of the change on the achievement of long-range organizational objectives?
channel modification decisions quantitative assessment
Channel-Modification DecisionsQuantitative Assessment

…considers the financial impact of the change in channel members in terms of revenues and expenses

channel modification decisions quantitative assessment example
Channel-Modification DecisionsQuantitative Assessment Example

Margin to wholesalers $5,000,000

Service expense 500,000

Total cost $5,500,000

Suppose an organization is considering replacing its wholesalers with its own distribution centers. The cost of wholesalers includes:

channel modification decisions quantitative assessment example1
Channel-Modification DecisionsQuantitative Assessment Example

Sales to retailers $1,500,000

Sales administration 250,000

Inventory cost 935,000

Delivery and storage 1,877,000

Accounts receivable 438,000

Total cost $5,000,000

The cost of Distribution Centers:

channel modification decisions quantitative assessment example2
Channel-Modification DecisionsQuantitative Assessment Example

Determining the dollar value of:

  • Market coverage
  • Satisfaction of buyer needs
  • Channel-participant response

Since using wholesalers costs $3.5 million and the cost of distribution centers would be $5 million, a cost perspective suggests selection of the latter option. However, the effect on revenues must be considered by: