Marketing Channels

Part 1: Marketing Channel Systems

A Management View
8e
Rosenbloom

3
Part 1: Marketing Channel Systems
CHAPTER

The3 Environment
CHAPTER

of Marketing
The Environment of
ChannelsChannels
Marketing
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 ① The external environment – five factors
Learning Objectives

② The economic environment

③ The competitive environment
④ Types of competition
⑤ The sociocultural environment
⑥ The technological environment
⑦ The legal environment
⑧ Legal issues in channel management
2

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Objective
The External Environment – 5 Factors
1

Consists of all external

uncontrollable factors within which
marketing channels exist

Affects channel members and nonmembers, such

as facilitating agencies
=
All channel participants

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 The Environment

Producers
& Manufacturers Locus of
Member channel
participants management
Environment
Intermediaries

1. Economic
2. Sociocultural Target Markets
3. Competitive
Nonmember
4. Technological
participants
Facilitating
5. Legal agencies

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Objective
The Economic Environment
2

Recession Inflation

Major
Economic
Forces

Deflation

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 Recession

Reduced sales
Consumer = volume
and/or
Reduced
profitability
Corporate
spending
Firms caught with
large inventories

Channel
strategy:
Manufacturers provide channel member
support by financing high inventory costs
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 Inflation
Continued high spending

OR
Drop-offs in spending, fueling a
recession

Possible channel strategies:

1. Reduce manufacturer’s product mix from higher-
price to lower-price products
2. Reduce inventory burden on members with:
• Streamlined product line
• Faster order processing & delivery
• Higher inventory turnover through
stronger promotional support

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 Deflation

Prices

Challenge:

Pass cost-induced price increases through channel

when built-in cost pressures from labor contracts
were negotiated several years earlier

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 Other Economic Factors

1. Real interest 2. Strong U.S. Dollar

rates

= Difficult to sell
products through
channel members
Demand
=
U.S. products
Costs less competitive

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Objective
The Competitive Environment
3
Global in scope: longer is it “No
realistic for domestic firms to focus only
on rivals within the boundaries of their
own country.”

Global marketplace, global arena, global

competition; terms that describe today’s
market.
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Objective
Types of Competition
4

Vertical
Horizontal

Channel System
Intertype

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 Horizontal Competition

M M

W W

R R

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 Intertype Competition

M M

W W

R R

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 Vertical Competition

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 Channel System Competition

M M

M M

M M

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Objective
The Sociocultural Environment
5
Pervades all aspects of
a society

Influences both national

and
international
marketing channels

Influences wide variations

among
channel structures worldwide
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 Sociocultural Developments

Population Age U.S. pop. Becoming

Patterns both younger &
older
Ethnic Mix # of minority-owned
businesses
Educational Trends Levels = people
more demanding
Family or Household Smaller & more varied
Structure

Role of Women # = changing

shopping needs

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Objective
The Technological Environment
6

Scanners & EDI

Computerized inventory management
& Portable computers

Help retailers & wholesalers closely monitor success or

failure of products they handle

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 The Technological Environment

EDI - Electronic
Data
Interchange
= Enhanced
Distribution
Efficiency
• Links together channel
information systems
• Provides real-time responses
• Enhanced by Internet
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 The Technological Environment

“Computer sales
People”

Mobile
robots Accelerating 3-D
technology modeling

Ultra-wideband
technology

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Objective
The Legal Environment
7

The set of laws that impact marketing channels

• Continually evolving
• Affected by changing values, norms, politics,
& precedents
• Knowledge of basics helps channel manager
avoid serious & costly legal problems
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 Legislation Affecting Marketing
Channels
Sherman Antitrust Act
1890; Fundamental antimonopoly law
Public welfare best served through competition

Clayton Act
1914; Strengthen Sherman Antitrust Act
Prohibits specific practices among competing firms

Federal Trade Commission Act

1914; Established FTC
Power to investigate & enforce
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 Legislation Affecting Marketing
Channels
Robinson-Patman Act
1936; Amendment to Clayton Act
Prohibits price discrimination
Allows price differentials to different customers
under specific circumstances

Celler-Kefauver Act
1950; Amendment to Clayton Act
Prohibits vertical mergers & acquisitions

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Objective
Legal Issues in Channel
8 Management
• Dual Distribution, or multi-channel distribution
Producer or manufacturer uses 2 or more different channel
structures for distributing the same product

• Exclusive Dealing
Supplier requires its channel members to sell only its products or to
refrain from selling directly to competitive suppliers

• Full-Line Forcing
Supplier requires channel members to carry a full-line of its
products in order to sell any particular products in supplier’s line

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 Legal Issues in Channel Management

• Price Discrimination
Supplier sells at different prices to the same class of channel
members

• Price Maintenance
Supplier dictates prices charged by channel members to their
customers

• Refusal to Deal
Supplier has right to refuse to deal with whomever they want as
channel members

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 Legal Issues in Channel Management
• Resale Restrictions
Manufacturer attempts to stipulate to whom and in what geographical
market channel members may resell the manufacturer’s products

• Tying Agreements
Supplier sells a product to a channel member on condition that the
channel member also purchase another product

• Vertical Integration
Firm owns and operates organizations at other levels of the
distribution channel

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 Discussion Question #2
Almost 80 percent of chief financial officers at the 100 largest
retailers say that too much inventory is the greatest risk factor to the
viability of their businesses during recessionary periods. High
inventories lead to heavy discounting when consumer demand is
lacking. This, in turn, undermines gross margins. When demand is
very weak, gross margins can disappear completely as retailers may be
forced to liquidate slow moving merchandise at prices below their
wholesale cost. Paradoxically, retailers also worry about having too
little inventory to meet consumer demand and thus losing sales when
consumers cannot find the products they are looking for on retailers’
shelves. Hence, retailers attempting to manage their inventories
during a recession often feel that when it comes to stocking their
shelves, they are damned if they do and damned if they don’t.

How might retailers deal with this inventory dilemma more

effectively during recessionary periods? What might suppliers do to
help retailers address this problem?

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 Discussion Question #3
Home Depot, Toys “R” Us, Staples, Best Buy and many other
giant retailers (often referred to as “category killers” or “big box”
retailers because of their dominance in particular merchandise
categories and the sheer physical size of the stores) are fierce
competitors and are frequently accused of driving small retailers
out of business. Observers who have witnessed this competitive
struggle take place over the past decade say the reason that small
retailers go out of business is that they “can’t compete” with
these giants. The verdict in most cases has been “no contest”
between the retail giants and the little guys because the little guy
so seldom wins or even gets to stay in business. From a
competitive standpoint, is such an outcome inevitable?

Discuss. Is it really the “big guys” driving the “little guys” out
of business or is there something more fundamental at work
here?
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 Discussion Question #5
By 2009, social media services, such as Facebook and
Twitter, had become a popular marketing tool for small
businesses. In fact, almost 25 percent of firms with fewer
than 100 employees were using social media for marketing
purposes. This was more than double the percentage of the
prior year. Many of these firms cite the ease of use and low
cost of these social media as the main reason for using
them for reaching out to and communicating with potential
and existing customers.

How can the ability to communicate with customers via

social media enhance channel management? Discuss.

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