Download marketing channel strategy and management

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
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Consumers
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MARKETING CHANNELS
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Channel Members Add Value
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Number of Channel Levels
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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
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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
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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
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Producer
Own
Marketing
Website
Ultimate Buyers
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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
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High Unit Value
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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?
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Slide 7-19
THE CHANNEL-SELECTION DECISION
Target Market Coverage
Three degrees of distribution density are:
Intensive
Distribution
Exclusive
Distribution
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Selective
Distribution
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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
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© 2013 Pearson Education, Inc. publishing as Prentice Hall
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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
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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.
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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
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