The Environment of Marketing Channels
Distribution Management
The Marketing Channel and the
Environment
The environment consists of myriad
external, uncontrollable factors within which
marketing channels exist.
● Economic Environment
● Competitive Environment
● Sociocultural Environment
● Technological Environment
● Legal Environment
- Channel managers must be
concerned with eh impact of the
environment on their channel
members.
- Channel managers should analyze
the impact of the environment not
only on their own firms and ultimate
target markets but also on the
participants in the marketing
channel.
- Channel managers must also
consider the strategic implications
not only for their firm but for other
channel participants
The Economic Environment
● Economic factors are a critical
determinant of channel member
behavior and performance.
● As channel manager, you must be
aware of the influence of economic
variables on the participants in the
channels distribution.
RECESSION
Any period in which the GDP is
stagnant or increasing very slowly is often
referred to as “recessionary” or at least as
an “economic showdown.”
● All members of the marketing
channel feel the effects of recession
because sales volume levels and
profitability fall significantly during
recessions.
● Changes in consumer shopping
behavior brought on by the
recession also had a significant
impact on virtually all participants in
marketing channels.
● Given the greater price sensitivity on
the part of consumers during this
period, all channel members need to
focus on delivering increased value,
especially given the consumers’
rapidly growing use of the Internet
for shopping.
INFLATION
Is the rate of increase in prices over
a given period of time.
● Inflation rates could increase
significantly, if:
○ The economy were to grow
rapidly
○ If the money supply were
loosened excessively
○ If a world crisis were to
create energy shortages
 leading to spiraling energy
prices
● Channel managers must be prudent
to become acquainted with the
implications of higher inflation for
marketing channel strategy.
● The reactions of channel members
in the wholesale and retail level to
high rates of inflation are in large
measure determined by the
reactions of consumers or other final
users.
● Consumers also tend to trade down
in terms of stores they patronize and
search the Internet for bargains on
both new and used merchandise.
● From the perspective of the channel
manager in the manufacturing
perspective, changes in consumers
buying behavior should be viewed in
the context of how this might affect
channel member behavior and its
implications in channel strategy.
○ Retailers become
increasingly cautious of what
products they will handle
○ They generally try to reduce
their inventory levels to the
minimum
○ They will seek more special
prices deals from
manufacturers and a higher
level of promotional support
In the face of such increased channel
member demands, an effective strategy
must be developed to satisfy the
channel members.
DEFLATION
Is the decline of prices across a
broad spectrum of goods and services.
● Deflation, static prices, or even very
low rates of price increase can
create serious channel management
difficulties.
○ Manufacturers, wholesalers,
and retailers often face built-
in cost pressures, such as
higher energy costs, and
especially from labor
contracts that might have
been negotiated years earlier
when inflation rate was
higher
○ Increasing prices to offset
these cost pressures
becomes very difficult when
inflation is low because each
member of the channel is
highly sensitive to higher
prices.
Although is is relatively easy during
periods of inflation to pass on price
increase to the next level of the
marketing channel all the way down to
the final buyer, it becomes anything but
easy when the inflation rate is low, and
virtually impossible in a period of actual
deflation.
OTHER ECONOMIC ISSUES
● The government’s national budget,
national debt, and trade deficit,
which have risen dramatically - they
are not bad in and of themselves but
they can aggravate recession and
inflation.
● The budget deficit and the national
debt make huge demands on capital
and hence raise interest rates, which
in turn adds to the level of inflation.
 ● High interest rates can affect all
members of the marketing channel
● When consumers spending slow
down, this affect sales for retailers,
wholesalers, and manufacturers
● Because manufacturers, retailers,
and wholesalers often need to
borrow money, high real interest
rates have a direct impact on their
costs of doing business
The Competitive Environment
● Horizontal competition
● Intertype competition
● Vertical competition
● Channel system competition
HORIZONTAL COMPETITION
● Is the competition between firms of
the same type. This is the most
visible and frequently discussed
form of competition.
● For example, an automobile
manufacture vs another automobile
manufacturer
INTERTYPE COMPETITION
● Is competition between different
types of firms at the same channel
level, such as the off-price store
versus the department store
● Reflected in online retailers
competing with conventiona store-
based retailers (Amazon vs
Walmart)
VERTICAL COMPETITION
● Refers to competition between
channel members at different levels
in the channel, such as retailer
versus wholesaler, wholesaler
versus manufacturer, or
manufacturer versus retailer.
● A good example is competition
between manufacturers of national
brands versus private brands
(private labels)
CHANNEL SYSTEM COMPETITION
● Refers to complete channels
competing with other complete
channels.
● In order for channels to compete as
a unit, they must be organized,
cohesive organizations. Such
channels have been referred to as
vertical marketing systems.
Vertical Marketing Systems
● Corporate channels: production
and marketing facilities are owned
by the same company.
● Contractual channels: independent
channel members (producers or
manufacturers, wholesalers, and
retailers) are linked by a formal
contractual agreement
● Administered channel system
result from strong domination by one
of the channel members, frequently
a manufacturer, over the other
members.
Competitive Environment
● An understanding of competitive
structure and the changes taking
place in that structure are crucial for
successful channel design and
management.
● Channel managers need to
determine which kinds of distributors
and/or dealers can provide the most
efficient and effective distribution of
the firm’s products.
SCRAMBLED MERCHANDISING
The selling of products through
nontraditional channels.
This changing competitive environment also
means that producers and manufacturers
attempting to manage marketing channels
now face a more complex management
task because they are dealing with different
types of channel members.
The Sociocultural Environment
● Globalization
● Consumer Mobility and
Connectedness
● Social Networking
● The Green Movement
GLOBALIZATION
● Is the term most commonly used to
describe the interconnectedness and
interdependencies of countries
around the world.
● Typically focuses on the vast and
complex trade flows among
countries and the international
supply chains that make huge flows
of products and services across
national boundaries possible.
● Globalization can also be viewed as
a frame-of-mind or outlook that is
held by millions of consumers from
all over the world.
● Consumers increasingly expect to
have access to world class products
and services at the favorable prices
global competition is supposed to
foster.
Globalization has created a world-class
customer expectations that need to be
satisfied through world-class channel
strategy, design, and management.
MOBILITY AND CONNECTEDNESS
Today’s highly mobile generation expects
not only to cover a great deal of territory on
a frequent basis, but to also be completely
in touch with colleagues, friends, and family
in the process.
MOBILE COMMERCE (MCOMMERCE)
● The ability to constantly be on the
move while still being able to stay in
constant contact.
● This phenomenon is expected to
grow rapidly and become
mainstream and significant channel
of distribution in the near future.
● Consumers will be able to buy
virtually any product from virtually
any place on the globe during the
course of moving from one place to
the next.
- Channel managers will need to
include mobile commerce channels
in their channel mixes simply
because highly mobile and
connected consumers expect to
have such channels available to
them.
- Channel managers will need to sort
out the role that m-commerce
channels will play in the multi-
channel mix.
- Channel managers will need to
examine closely the potential and
limitations of m-commerce channels.
SOCIAL NETWORKING
● Refers to the interaction in networks
comprised of individual
organizations that are linked
together based on some type of
common interest, such as
friendships, beliefs, hobbies,
 professional pursuits, special
knowledge, and many others.
● In a business context, social
networking has enabled millions of
consumers to share information and
opinions about products, services,
and firms they have dealt with or are
considering dealing with.
● From a marketing channels
perspective, social networking has
not only empowered consumers to
make much more informed decisions
about the products they buy, the
services they use, and the firms they
deal with through virtually limitless
information sharing, but also
enabled them to make better
channel choices and made them
more demanding about the channels
they choose.
THE GREEN MOVEMENT
● This term is used to refer to a focus
on preserving the environment and
human health.
● All members of marketing channels,
including producers, wholesalers,
agents, brokers, and consumers,
participate in activities that affect the
environment and quality of life.
● The Green movement provide
tremendous opportunities as well as
challenges to channel managers to
be full participants in developing and
managing marketing channels that
will support the aspirations of the
movement.
The Technological Environment
In the face of rapidly changing
technology, the channel manager has to
sort out those developments that are
relevant to his or her own firm as well as the
participants in the marketing channel and
then determine how these changes might
affect the channel participants.
ELECTRONIC DATA INTERCHANGE
(EDI)
- Refers to the linking together of
channel member information
systems to provide real-time
responses to communication
between channel members.
SCANNERS, COMPUTERIZED
INVENTORY MANAGEMENT, AND
HANDHELD COMPUTERS
- These technologies have created a
new world in retailing and
wholesaling. It has made a vast
array of timely and valuable
information available to managers,
enabling them to make better
merchandising decisions.
DIGITAL REVOLUTION AND
SMARTPHONES
- This technology has made online
shopping a mainstream marketing
channel. The potential for
channel managers to use this
technology strategically to enhance
design and management is
practically unlimited.
RADIO FREQUENCY IDENTIFICATION
(RFID)
- The main application to marketing
channel is believed to be in the area
of inventory tracking, management
of the supply chain and increasing
 the efficiency of the in-store buying
process.

CLOUD COMPUTING
- The capabilities provided by cloud
computing mean that virtually any
firm in the marketing channel
regardless of size will find it feasible
and cost effective to obtain the
computing capabilities and expertise
needed to develop and support
whatever channel management
applications they need, whatever the
involves managing distributor
relationships, coordinating multiple
channels or tracking products in the
supply chain.

The Legal Environment

The legal environment refers to the
set of laws that impact marketing channels.
Channel managers with background
and awareness of the legal side of channel
management will help the manager to
communicate better with legal experts and
perhaps avoid potentially serious and costly
legal problems that can arise in the
management of marketing channels.