Explain the Environment of Marketing Channels

1. The Economic Environment

The economy is far and away the most visible and broad set of
environmental factors influencing all marketing channel participants. Almost
every day, the situation of the economy captures the attention of customers
and executives in industrial, wholesale, and retail organizations. All of these
parties must keep a close eye on what is going on in the economy. Economic
variables influence everything from a manufacturing company seeking funding
for a long-term investment to a customer purchasing a cup of tea at the
supermarket. Economic variables are a significant cause of channel member
behavior and performance in a channel management scenario. As a result, the
channel manager must be aware of the impact of economic variables on the
participants in the distribution channels. in terms of the influence they have on
various partners in the marketing channel and the consequences for channel
management.

Major of Economic Environment

 Recession

This happens when there are two consecutive quarters of gross domestic
product dropped Product (GDP). All marketing channel participants may
experiencing the recession's effects in the form of significant decreases in
sales volume and revenues and profits.

 Inflation

Unfortunately, these behaviors are difficult to forecast. Instead, they are

frequently a reflection of how consumers or other final users will respond to
inflation. Such changes in customer purchasing patterns should be
considered from the channel manager's standpoint in light of the potential
effects they may have on channel member behavior and the potential
consequences for the channel strategy of decreasing the channel's inventory
costs for members with a simplified product, quicker order processing
procedures, improved delivery, a strategy for increasing inventory turnover, or
better promotional assistance integrated into the channel strategy during high
rates of inflation.

 Deflation
Serious channel management issues might result from deflation, stagnant
pricing, or even extremely gradual price hikes. When inflation is low, it is
challenging to raise prices, and when prices are decreasing, it is practically
impossible. During these times, each channel member is extremely sensitive
to price increases, and manufacturers may find it challenging to pass on cost
increases to other channel members.

 Other economic issues

Early in the twenty-first century, the United States experienced exceptionally

low interest rates, but there is no assurance that this will continue or that high
interest rates won't return. Even when inflation is mild and the economy is not
in a recession, high interest rates can be a concern. If nominal interest rates
do not drop enough to counterbalance the decline in inflation, the real cost of
borrowing money will actually rise as inflation slows.

2. The Competitive Environment

For all participants in the marketing channel, competition is a constant
aspect that must be taken into account. This is especially true today because
of how globalized competition has grown. It is no longer practical for
domestic businesses to concentrate primarily on competitors outside of their
own nation. They must also closely monitor both current and potential rivals
from throughout the world. The terms "global marketplace," "global arena,"
and "global competition" aren't simply words used in international business;
they also accurately describe the market environment as it is in an expanding
number of businesses today.

There are four different categories of competition:

1. Horizontal competition
is characterized as rivalry between businesses of the same kind. Examples
include one manufacturer competing with another automaker. This is the
most typical kind of competition, and people usually just call it "competition."

2. Intertype competition

is rivalry at the same channel level between different sorts of enterprises. Two
examples are off-price stores and department store retailers.

3. Vertical competition

refers to competition between channel members at different levels of the

channel, such as retailer vs. supplier or distributor vs. manufacturer. This
vertical competition may lead to vertical conflict when one channel member
seeks to directly obstruct another channel member's efforts to achieve their
goals.

4. Channel system competition

refers to full channels that compete with one another. Channels must be
structured, consistent entities in order to compete as full units.

3. The Sociocultural Environment

The sociocultural environment in which marketing practices occur has an

impact on them. However, some channel experts contend that this is a
significant influence affecting channel structure. In general, as the marketing
channel spreads into other cultures, the channel manager must be sensitive
to the sociocultural environment of the marketing channel.

4. The Technological Environment

The most active and ever-changing part of the environment is technology.

Everyone could certainly run off from a large number of technical
developments that have occurred in his or her lifetime, or even just in the last
decade. Some of the most famous examples include the widespread use of
personal computers, DVDs, electronic scanners, fiber optics, cellular
cellphones, and the Internet. In the face of this fast-changing and accelerating
technology, the channel manager must first identify the advancements that
are important to his or her own business and the channel participants, and
then decide how these changes are likely to effect the channel participants.
This is not a simple process that can be carefully programmed. Although
technological advancements are continuous, they do not develop in an even
or predictable manner across time. While it is impossible to provide a
comprehensive list of technology advances affecting the marketing channel, a
few are indicative of the kind of technological developments that should be
carefully managed.

5. The Legal Environment

The collection of laws that affect marketing channels is referred to as the

legal environment. These rules produce a legal framework that is not simply a
set of fixed marketing channels. These laws have produced an evolving legal
system. Furthermore, it is a framework that is always changing as a result of
politics, shifting social conventions, and, of course, the precedents set by
legal decisions. The channel manager may view the many and diverse judicial
interpretations of the laws affecting channel management as a confusing
patchwork of legal mishmash. Thankfully, it is not necessary for the marketing
channel manager to be an authority on legal matters relating to marketing
channels. Aiming to such a position would be a full-time job in and of itself,
considering the technical nature of the topic. Only experienced legal experts
are qualified to handle the legal difficulties related to the marketing channel
with competence. The channel manager still has to have a broad
understanding of various channel-related laws and be conversant with some
legal matters that are pertinent to channel management. The manager will be
able to engage with legal professionals more effectively and maybe help avoid
potentially major and expensive legal issues that may develop in the
administration of marketing channels thanks to this general knowledge and
understanding of the legal side of channel management.