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CHAPTER 7 Marketing Channel Strategy and Management © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-1 AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: 1. Describe the nature of a marketing channel and their functions as intermediaries. 2. Distinguish between traditional and electronic marketing channel designs. 3. Identify the factors organizations use to select and manage a single or multiple marketing channel(s). © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-2 AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: 4. Describe the role intermediaries have in the marketing channel selection process. 5. Discuss how organizations modify marketing channel decisions. © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-3 MARKETING CHANNELS A marketing channel consists of individuals and firms involved in the process of making an offering available for consumption or use by consumers and industrial users. Channels link the producer and its buyers: Producer Marketing Channel Intermediaries © 2013 Pearson Education, Inc. publishing as Prentice Hall Consumers Slide 7-4 MARKETING CHANNELS © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-5 Channel Members Add Value © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-6 Number of Channel Levels © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-7 MARKETING CHANNELS Marketing channels affect an organization’s: Segmentation Strategy Communications Strategy Pricing Strategy Determines whether its chosen target markets are reached Dictates its advertising, sales promotion, direct marketing, etc. activities Influences its markup and discount policies Impacts its: Offering Strategy Branding policies Willingness to stock and customize offerings Ability to augment offerings © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-8 MARKETING CHANNELS Go-to-Market Strategy Marketers use this term to describe how organizations select and employ marketing channels to cost-effectively deliver a value proposition to each of its target markets. © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-9 CHAPTER 7: MARKETING CHANNEL STRATEGY AND MANAGEMENT THE CHANNELSELECTION DECISION © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-10 THE CHANNEL-SELECTION DECISION Marketers must make these marketing channel decisions regarding intermediaries: Type Location Density Functions Conduct a market analysis to identify the target markets served and their buying requirements that will be served by prospective marketing channels © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-11 THE CHANNEL-SELECTION DECISION Marketing Channel Design The number of levels in a marketing channel is determined by the number of intermediaries between the producer and ultimate buyers or users As the number of intermediaries between the producer and the ultimate buyer increases, the channel increases in length © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-12 Channel Design Decisions • Marketing channel design includes designing effective marketing channels by analyzing consumer needs, setting channel objectives, identifying major channel alternatives, and evaluating them. © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-13 EXHIBIT 7.1: TRADITIONAL MARKETING CHANNEL DESIGNS Producer Brokers or Agents Distributors or Wholesalers Retailers or Dealers Ultimate Buyers © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-14 THE CHANNEL-SELECTION DECISION Direct vs. Indirect Distribution Marketers must decide whether to use: Intermediaries to reach target markets Contact buyers directly via either channel strategy: Producer Own Sales Force Own Distribution Outlets Ultimate Buyers © 2013 Pearson Education, Inc. publishing as Prentice Hall Producer Own Marketing Website Ultimate Buyers Slide 7-15 THE CHANNEL-SELECTION DECISION Direct vs. Indirect Distribution Marketers employ direct distribution when: Personal selling is a major component of the organization’s communication program Intermediaries are not available for reaching target markets Intermediaries do not possess the capacity to service the requirements of target markets Offerings possess certain characteristics: Technically Sophisticated Nonstandardized © 2013 Pearson Education, Inc. publishing as Prentice Hall High Unit Value Slide 7-16 THE CHANNEL-SELECTION DECISION Electronic Marketing Channels Employ some form of electronic communication, including the Internet, to make offerings available for consumption or use by consumers and industrial users Many services can be distributed through electronic marketing channels, while others still involve traditional intermediaries © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-17 EXHIBIT 7.2: REPRESENTATIVE ELECTRONIC MARKETING CHANNELS DELL Book Publisher Auto Manufacturer Book Distributor Auto Dealer Amazon.com (Virtual Retailer) Auto-By-Tel (Virtual Broker) Commercial Airline Computer Manufacturer Travelocity (Virtual Agent) Ultimate Buyers © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-18 THE CHANNEL-SELECTION DECISION Marketers ask three questions when selecting the type and location of retail outlets: Target Market Coverage Which retailers will provide the best coverage of the target market? Buyer Requirement Satisfaction Which retailers will best satisfy the target market’s buying requirements? Profitability Which retailers will be the most profitable? © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-19 THE CHANNEL-SELECTION DECISION Target Market Coverage Three degrees of distribution density are: Intensive Distribution Exclusive Distribution © 2013 Pearson Education, Inc. publishing as Prentice Hall Selective Distribution Slide 7-20 TARGET MARKET COVERAGE: DISTRIBUTION DENSITY Intensive Distribution Exclusive Distribution Selective Distribution The firm’s offerings are sold through as many retail outlets as possible One retail outlet in a geographic area or one retail chain sells the firm’s offerings • Is the defined trade area of the retailer • Some retailers sign exclusive distribution agreements with manufacturers The marketer selects a few, (fewer than others) retail outlets in a specific area to carry its offerings © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-21 THE CHANNEL-SELECTION DECISION Target Market Coverage: Distribution Density Distribution density selection rests on: How buyers purchase the manufacturer’s offering The amount of control over resale desired by the manufacturer The degree of exclusivity intermediaries seek The contribution of intermediaries to the manufacturer’s marketing effort © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-22 THE CHANNEL-SELECTION DECISION Target Market Coverage: Distribution Density This strategy is chosen when: Intensive Distribution • The offering is purchased frequently • Buyers wish to expend little effort purchasing it • Example: Convenience goods Exclusive Distribution Selective Distribution These limited-distribution strategies are chosen when: • The offering requires personal selling at the point of purchase • Example: Shopping/specialty goods © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-23 © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-24 THE CHANNEL-SELECTION DECISION Profitability Profitability is determined by the: • Margins earned (revenues – costs) for each channel member • Channel as a whole • Extent to which channel members share costs Costs include distribution, advertising, and selling expenses associated with different types of marketing channels © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-25 MULTI-CHANNEL MARKETING Multi-channel marketing involves the blending of an electronic or direct marketing channels and a traditional channel in ways that are mutually reinforcing in attracting, retaining, and building customer relationships. © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-26 © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-27 MULTI-CHANNEL MARKETING Benefits of Multi-channel approach A firm uses multi-channel marketing because: The addition of another marketing channel can provide incremental revenue An additional marketing channel can leverage the presence of a traditional channel It can satisfy buyer requirements © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-28 MULTI-CHANNEL MARKETING Multi-channel marketing is viable if additional marketing channels: Generate incremental revenue Don’t cannibalize sales from traditional intermediaries Reach different market segments than the traditional channel Reinforce with traditional channels in attracting, retaining, and building customer relationships © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-29 MULTI-CHANNEL MARKETING Disintermediation is the practice whereby a traditional intermediary member is dropped from a marketing channel and replaced by an electronic storefront. © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-30 MULTI-CHANNEL MARKETING Disintermediation Is considered more serious than cannibalization by intermediaries— it affects reseller survival May cause firms to avoid multi-channel marketing due to complaints and threats by intermediaries, particularly retailers, to discontinue carrying their products and delivering their services © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-31 CHAPTER 7: MARKETING CHANNEL STRATEGY AND MANAGEMENT SATISFYING INTERMEDIARY REQUIREMENTS AND TRADE RELATIONS © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-32 SATISFYING INTERMEDIARY REQUIREMENTS Intermediaries Choose more profitable suppliers Are concerned with the adequacy of a firm’s offerings in improving the assortment for its own target markets Seek marketing support from manufacturers: Wholesalers Want promotional assistance Industrial Distributors Want technical assistance © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-33 SATISFYING TRADE RELATIONS Channel Conflict Marketing managers recognize that conflicts often occur in trade relations Channel conflict arises when one channel member (such as a manufacturer or an intermediary) believes another channel member is engaged in behavior that is preventing it from achieving its goals © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-34 SATISFYING TRADE RELATIONS Channel Conflict Occurs when: A channel member bypasses another member and sells or buys direct There is a dispute over how profit margins are distributed among channel members Manufacturers believe wholesalers or retailers are not giving their offerings adequate attention A manufacturer engages in dual distribution—particularly when different retailers or dealers carry the same brands © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-35 CHAPTER 7: MARKETING CHANNEL STRATEGY AND MANAGEMENT CHANNEL MODIFICATION DECISIONS © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-36 CHANNEL-MODIFICATION DECISIONS Bases of the channel modification decision: Provide the best target market coverage Satisfy the target market’s buying requirements Maximize revenue and minimize cost © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-37 CHANNEL-MODIFICATION DECISIONS: QUALITATIVE FACTORS When modifying existing or adding new channels, ask : 1. Will the change improve the effective coverage of the target markets sought? 2. How will the change improve the satisfaction of buyer needs? 3. Which marketing functions must be absorbed in order to make the change? 4. Does the firm have the resources to perform the new functions? 5. What effect will the change have on other channel members? 6. What will be the effect of the change on the achievement of long-range organizational objectives? © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-38 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. © 2013 Pearson Education, Inc. publishing as Prentice Hall Slide 7-39