Marketing Channels and MBM6

Channel Mapping Chapter 9

Chapter 9
 Marketing Channels
and Channel Mapping
 Marketing Channel
Performance
 Alternative Marketing
Channels
 Marketing Channels
and Competitive
Marketing channels are the Advantage
conduits that create customer
access to a company’s products.

Copyright Roger J. Best, 2012

 Channel value
proposition
• Companies need a value proposition
for both end user customers and
channel partners.
• Every channel intermediary must ask
this question: “How will I be better off
by carrying this company’s line of
products?”
• Like end-users, channel intermediaries
must have a good reason to buy and
market a company’s products
 Important considerations for mktg channel

• Sales growth – Co should emphasise demand level

for its products/services, and investment it will
continue to make to stimulate demand and grow
channel partners’ sales.
• Profitability – Co should be transparent about it
e.g. margins, contributions, overhead, net
profitability it has – offer ways to reward partners
for performance.
• Return on capital – Co must show how productivity
of channel members’ investment in inventory,
working capital and fixed assets will improve by
engaging with the co (supplier).
• Brand leverage – Co should show how an
association will empower the channel member’s
own brand or allow to borrow or leverage the
supplier’s brand
 No matter how good the product value is or
how great the benefits are, how attractive
The the $ are, without mktg channels there can
be no sales.
importance
of mktg
channel Mktg channels connect businesses with their
target customers – allow customers to buy
products at their desired point of purchase
(PoP).

Mktg channel can serve as a source of

competitive advantage (CA)
 Marketing Channels and MBM6
Channel Mapping Chapter 9

Objective # 1:
Marketing Channels and
Channel Mapping

In this section we will look at how

marketing channels are the conduits
that create customer access to a
company’s products.

Copyright Roger J. Best, 2012

 MBM6
Basic Marketing Channels Chapter 9

Channel Considerations (what do

the channel members look for in a
Hewlett-Packard sells its company):
products through all the  Sales Growth
channel paths shown  Profitability
above.  Return on Capital
 Brand Leverage

Copyright Roger J. Best, 2012

• The right mktg channel depends on a variety of
company, product and channel factors.

• The types of purchase points that a business uses is

called a channel map –
a) direct relationship with customers and channel
b) Indirect relationship with customers and channel
 Marketing
MBM6
Channel Mapping Performance
Chapter
Tool 9.1 9

This business uses a direct sales force to reach and serve the
needs of its large accounts, and uses intermediaries to serve the
medium and small accounts
Copyright Roger J. Best, 2012
 1. Agents:
• The agent as a marketing
Types of intermediary is an independent
intermediaries individual or company whose main
function is to act as the primary
selling arm of the producer and
represent the producer to users.
• Agents take possession of products
but do not actually own them.
• Agents usually make profits from
commissions or fees paid for the
services they provide to the
producer and users.

•Source:
http://smallbusiness.chron.com/4-types-marketing-inter
mediaries-24330.html
 2. Wholesalers:
Types of – Wholesalers are independently owned
intermediaries firms that take title to the merchandise
they handle.
• In other words, the wholesalers own
the products they sell.
– Wholesalers purchase product in bulk
and store it until they can resell it.
– Wholesalers generally sell the products
they have purchased to other
intermediaries, usually retailers, for a
profit.

Source:
http://smallbusiness.chron.com/4-types-marketin
g-intermediaries-24330.html
www.mercucita.com
 3. Distributors:
•Distributors are similar to
wholesalers, but with one key
difference: while wholesalers will
carry a variety of competing
products, for instance Pepsi and Coke
products, distributors only carry
Types of complementary product lines, either
intermediaries Pepsi or Coke products.
•Distributors usually maintain
close relationships with their
suppliers and customers.
•Distributors will take title to
products and store them until they
are sold.

http://www.permanis.com.my/compa
ny/

•Source:
http://smallbusiness.chron.com/4-types-marketing-intermediaries-243
30.html
 4. Retailers:
• A retailer takes title to, or purchases,
products from other market
intermediaries.
Types of • Retailers can be independently
intermediaries owned and operated, like small
“mom and pop” stores, or they can
be part of a large chain, like Walmart.
• The retailer will sell the products it
has purchased directly to the end
user for a profit.

•Source:
http://smallbusiness.chron.com/4-types-marketi
ng-intermediaries-24330.html
 Types of intermediaries
5. Value-added reseller:
– A value-added reseller is an intermediary that buys a
product from the manufacturer, improves it and then
resells it.

Source: http://smallbusiness.chron.com/differences-between-intermediaries-dealers-marketing-33543.html
 6. Dealer:
– The term dealer is used to describe a specific type
of intermediary that is not a retailer, value-added
seller or wholesaler.
Types of • Unlike a wholesaler, a dealer represents the
end of a distribution channel and sells a
intermediaries product directly to the consumer.
• A dealer is distinct from a value-added seller
because a dealer does not alter a product.
• Whereas a retailer -- such as a department
store -- may sell a variety of different types of
products, a dealer specializes in one type of
product.
– The term dealer can refer to both a company or an
individual and can describe an intermediary that
buys directly from the manufacturer or from
another intermediary.

Source:
http://smallbusiness.chron.com/differences-between-intermedia
ries-dealers-marketing-33543.html
www.machines.com.my
 Marketing
MBM6
Mapping Channel Pricing and Pocket Price Performance
Chapter
Tool 9.1 9

Each channel to the market produces a different level of sales revenue

and has its own set of costs. The channel costs may include discounts to
intermediaries, transaction costs, and commissions.
Copyright Roger J. Best, 2012
 Pocket Price
• “The actual price paid to a company
for a product after all discounts, sales
commissions, shipping charges, and
other transaction costs are deducted”.

It allows a company to determine the

profitability of each channel in
relation to the cost of goods sold and
the M&S expenses allocated to each
channel for marketing
communications, sales, service, and
technical support
 Marketing
MBM6
Channel Strategies and Profitability Performance
Chapter
Tool 9.2 9

Copyright Roger J. Best, 2012

 Marketing Channels and MBM6
Channel Mapping Chapter 9

Objective # 2:
Marketing Channel
Performance

In this section we will look at how

channel partners affect marketing
channel performance.

Copyright Roger J. Best, 2012

Marketing Channel Performance
Based on 3 areas:
a. Customer reach b. Operating Efficiency c.
Service Quality
• To achieve desired levels of sales & profit, a
channel must do well in the three area.
• Poor performance in any of the 3 areas causes
the channel to perform poorly overall.
• E.g. If customer service is inferior, customer
satisfaction will suffer, and retention will
decline
• If operation efficiency is low, the cost of
serving customers will be too high, and reduce
the profit.
 MBM6
Channel Performance Chapter 9

Copyright Roger J. Best, 2012

 A primary objective of a
mktg channel is to reach
target customers

a. Direct mktg channels – a

business engage with its
Customer customers by directly mktg
& selling to them
reach
Indirect mktg channel – a
business used wholesalers,
distributors, retailers, OEMs
an others to reach customers
 Customer Reach and Digital Marketing Channels MBM6
Chapter 9

The ability to reach a world of prospective customers at a low

marketing cost has led nearly every business, large and small, to invest
in digital marketing.

Copyright Roger J. Best, 2012

 A direct marketing channel produces
higher margins, but the business must bear
the cost of channel management and all
M&S expenses

An indirect channel produces lower

margins, but the costs of channel
b. Operating management and marketing are lower

efficiency
NMC is the same, but revenue & cost
structure differs

Digital mktg channel have improved the

operating efficiency of many business – it
can lower variable cost & MSE
 c. Service quality

EVERY CHANNEL HAS A DIRECT MARKETING

DIFFERENT LEVEL OF CHANNEL GIVES A
SERVICE Q. COMPANY MORE INDIRECT CHANNELS MAKE THE
CONTROL OVER SERVICE COMPANY RELY ON ITS SUPPLIERS
QUALITY – CAN ENHANCE TO DELIVER THE DESIRED RESULTS –
SQ AT ANY TIME EG DIGITAL MKTG CHANNEL
IMPROVES ORDER PROCESSING
&TRACK DELIVERIES WITHOUT
MULTIPLE PHONE CALLS
 Marketing Channels and MBM6
Channel Mapping Chapter 9

Objective # 3:
Alternative Marketing
Channels

In this section we will examine the

ways that marketing channels can be
configured to reach customers with
different needs.

Copyright Roger J. Best, 2012

 MBM6
Alternative Channel Systems Chapter 9

 Direct Channel Systems: the business retains product ownership until delivery
 Indirect Channel Systems: intermediaries take ownership of product
 Mixed Channel Systems: utilize a combination of direct and indirect channels

Copyright Roger J. Best, 2012

 MBM6
Alternative B2C Marketing Channels Chapter 9

What are the realities of each channel in a B2C space?

Copyright Roger J. Best, 2012
 • A direct approach in B2C markets i.e. direct
sales force, direct mktg, telemktg, mfr reps.
• Direct sales force offers the best opportunity
for sales commission and customer
interaction, but the cost of sales contact is
very high (salary, benefits, expenses) and
increasing
a. Direct • Direct marketing reduces the cost
substantially, but also loses the chances of
channels sales communication
• Telemarketing is better in terms of sales
communication but is more labour intensive
and expensive than direct marketing
• Manufacturer’s representatives/agents can
reduce the cost, as they charge commission
only when the sale is made
• Digital marketing communication is very
effective and efficient when applied skillfully
 b. Indirect channels
• A direct channel is surely unprofitable for customers who
make small purchases, owing to its limited reach
• For these, an indirect channel may be used
• It is more complex because there is at least one
intermediary in between the producer and the customers
• Retailers take over the sales and point-of-purchase
distribution in customer markets, while distributors or
dealers assume this responsibility in business markets
– They are compensated in the form of discounts on purchase
price
 b. Indirect channels
• Wholesalers offer an intermediate point of sales and
physical distribution between a business and retailers or
dealers.
– Full-function wholesalers offer a full-range of functions
(inventory, delivery, credit, and stocking)
– limited-function wholesalers offer a narrow range of
products or services
• Cash-and-carry wholesalers are a special type of
limited-function wholesalers who do not offer any
credit or delivery service.
 They employ a mix of both
direct and indirect channels.

c. Mixed
channels They are needed for highly
specialized and
technological products
which customers need
localized availability or
service;
 MBM6
Marketing Channels & Customer Value Chapter 9

To be successful a channel system must enhance customer value by

increasing customer benefits, lowering customer cost of purchase, or both.

Copyright Roger J. Best, 2012

 Channel system can enhance
the following aspects;
Product Product form
a. Product Product assortment – – can the
quality – can can the channel
performance the channel channel system
system deliver system provide the
the product provide the product, in
with the required range the form
quality level of products to needed, to
required & achieve a both
expected by desired level intermediaries
customers? of customer and
appeal? customers?
 After sales service – what after sales
services are critical to achieving total
customer satisfaction wit the product or
service?

b. Service Availability and delivery – to what

degree do customer benefits from quick
access to goods & services and
Quality immediate delivery?

Transaction services – can the channel

system accommodate the customer’s
credit need, terms of payment, warranty
need etc.
 • How a channel
system will affect
the image of a
c. Brand product or mfr?
reputation
How to improve cost
efficiency?
 MBM6
Transaction Costs Without Wholesalers Chapter 9

The more cost-effective a channel system is, the greater the opportunity to
lower customer costs or to increase business profitability.
Copyright Roger J. Best, 2012
 MBM6
Transaction Costs With Wholesalers Chapter 9

Adding wholesalers to the channel system reduces the total annual

transaction costs for the industry by 82.5 percent, to only $210 million.
Copyright Roger J. Best, 2012
 Marketing Channels and MBM6
Channel Mapping Chapter 9

Objective # 4:
Marketing Channels and
Competitive Advantage

In this final section we will briefly

explore the ways that marketing
channels can serve as a source of
competitive advantage.

Copyright Roger J. Best, 2012

 Sales force advantage
• Quantity (number) of salespeople
• Quality of salespeople
Marketing
Higher sales productivity
channels • More sales per salesperson
and • High-quality products, broad lines
of related products, efficient sales
competitive administrative systems
advantage Distribution advantage
(CA) • Business with dominant distribution
shares have a source of CA. More
distributor outlet share usually
translates to more market share
(shown in next slide)
 MBM6
Distribution Share vs. Market Share Chapter 9

For markets dominated by indirect channel systems, share of

distributor outlets can be directly linked to market share.

Copyright Roger J. Best, 2012

 Several factors affect the profitability of
any channel strategy;

Profit impact
of alternative The reach of mktg channel affects the
marketing volume it produces.

channels

Different types of mktg channel require

different levels of investment in mktg &
sales, and different net prices
 Direct channels – able to capture most, if
not all, the end user price, but the cost of
DM channels is generally higher bcoz the
business is responsible for all activities for
selling, dist, & payment (digital mktg is
exceptional)
Channel Mixed channels – provide a combination
types and of direct sales and intermediary
distribution channel and lower mktg cost
(as % of sales), but revenue are lower
profit bcoz intermediaries take a portion of the
purchase price for their services.
impact Indirect channels – able to achieve the
lowest MSE. Net price derived from the
use of indirect mktg channels is much
lower than from direct mktg channels
bcoz multiple intermediaries capture % of
the end user price.
 Marketing
MBM6
Alternative Channel Marketing Performance
Chapter
Tool 9.3 9

The reach of a
marketing channel
affects the volume
that it produces.

The break-even
analysis for each
marketing channel
strategy provides a
way to assess the
profitability risk of
each channel.

Copyright Roger J. Best, 2012

 In many instances,
Multi tiered The believe of
channel systems having more
are more cost intermediaries in
effective than a channel system
direct systems as drives up cost
well as more
effective in and product
reaching price is not
Summary customers. always true.

The greater a
Rarely one business mkt
channel coverage with a
sufficient of direct indirect, and
reaching mixed channel
customers. system, the greater
its mkt share.