Chapter 05 - Rosenbloom 8ed

Marketing Channels
Part 2: Developing the Marketing Channel
A Management View
8e
Rosenbloom
Part 2:CHAPTER 5
Developing the Marketing Channels
5
CHAPTER
Strategy in Marketing
Channels
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
① Marketing Channel Strategy
② Distribution decisions
Learning Objectives
③ Channel strategy as overall corporate objectives
④ Channel strategy and the marketing mix
⑤ Emphasis on distribution strategy
⑥ Differential advantage and channel design
⑦ Selection of channel members
⑧ Channel strategy and managing the channel
⑨ Motivation of channel members
⑩ Evaluation of channel member performance

2
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Objective
Marketing Channel Strategy
1
Channel Strategy: the broad

principles by which the firm expects to
achieve its distribution objectives for
its target market(s)
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Objective
6 Distribution Decisions for
2 Firms to Address
1. The role of distribution in the firm’s overall
objectives & strategies
2. The role distribution should play in the
marketing mix
3. The design of the firm’s marketing channels
4. The selection of channel members
5. The management of the marketing channel in
order to implement the firm’s channel design
effectively & efficiently on a continuing basis
6. The evaluation of channel member performance
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Objective
Channel Strategy as Overall
3 Corporate Objective
The higher the priority given to

distribution, the higher the level
at which it should be considered
in formulating the organization’s
overall objectives and strategies
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Companies that use Distribution
Strategically
• Dell Computer
• BMW
• Amazon.com
• Apple Computer
• Edward Jones
• Rayovac Corporation
• Proctor & Gamble Company
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Determining the Priority Given
to Distribution
Distribution does increasingly warrant
the attention of top management,
because competition has made the
issue of distribution too important for
top management to ignore.
Changes in distributive channels may not matter much to

GNP and macroeconomics. But they should be a major concern
to every business and industry … Everyone knows how fast
technology is changing. Everyone knows about markets
becoming global and about shifts in the work force and in
demographics. But few people pay attention to changing
distribution channels. Peter Drucker
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Objective
Channel Strategy & the Marketing
4 Mix
The essence of modern marketing
management – to develop an appropriate and
complementary marketing mix
1. Product Strategy e.g., quality and benefits
desired)
2. Pricing Strategy (e.g., level of pricing and/or
price points)
3. Promotional Strategy (e.g., the “right”
combination of “push” & “pull” promotion to
apply)
4. Distribution Strategy (e.g., intensity of
distribution)
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Objective
Emphasis on Distribution Strategy
5
• Distribution is the most relevant variable for
IF: satisfying target market demands.
• Parity exists among competitors in the other
or three variables of the marketing mix.
• A high degree of vulnerability exists because
or of competitors’ neglect of distribution.
• Distribution can enhance the firm by creating
or synergy from marketing channels.
THEN: The firm should choose distribution

strategy for strategic emphasis
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Target Market Demand
Firms should stress distribution when it

serves customers’ needs in the target
market.
Marketing channels are so closely linked to

customer need satisfaction because it is through
distribution that firms can provide the kinds and
levels of service that make for satisfied
customers.
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Competitive Parity
Distribution advantages are not easily

copied by competitors.
Distribution advantages are based on a

combination of superior strategy, organization,
and human capabilities.
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Distribution Neglect
Competitors’ neglect of distribution

strategies provides excellent opportunities.
The channel manager must analyze target

markets to determine whether competitors have
neglected distribution and whether
vulnerabilities exist that can be exploited.
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Distribution and Synergy
“Hooking up” with a mix of cooperative

channel members will strengthen the
channel.
Because each channel member is an

independent entity, rewarding opportunities
exist for channel managers to cultivate
cooperation among members.
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Objective
Differential Advantage
6 & Channel Design
Differential advantage: Also

called sustainable competitive
advantage, occurs when a firm
attains a long-term, advantageous
position in the market relative to
competitors.
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Positioning the Channel
… the reputation a manufacturer

acquires among distributors [channel
members] for furnishing products,
services, financial returns, programs,
and systems that are in some way
superior to those offered by competing
manufacturers.
Narus and Anderson
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Positioning the Channel
A firm that plans the channel and

makes decisions by viewing the
relationship with channel members as
a partnership or strategic alliance
that offers recognizable benefits to
the manufacturer & channel
members on a long-term basis
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Objective
Selection of Channel Members
7
Because customers perceive channel members as
an extension of the manufacturer’s own
organization, members should:
• Reflect channel strategies the firm has developed to
achieve its distribution objectives
• Be consistent with the firm’s broader marketing
objectives & strategies
• Reflect the objectives & strategies of the
organization as a whole
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Objective
Channel Strategy & Managing the
8 Channel
How
How should the
close a relationship
marketing mix be used
should be developed
to enhance channel
with the channel
member cooperation?
members? 3
Strategic
Questions
How should the channel

members be motivated to cooperate
in achieving the manufacturer’s
distribution objectives?
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Closeness of Channel Relationships
Factors to consider:
– Distribution intensity
– Targeted markets
– Products
– Company policies
– Middlemen
– Environment
– Behavioral dimensions
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Interrelationships among 4 Strategic
Variables of the Marketing Mix
Product
strategy
Distribution Pricing
Marketing strategy
strategy
Mix
Promotion
strategy
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Objective
9 Motivation of Channel Members
Portfolio Concept: A tool for motivating

different types and sizes of channel
members participating in various channel
structures who may respond differently to
various motivation strategies.
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Objective
Evaluation of Channel Member
10 Performance
Channel manager’s involvement

in evaluating member performance is integral to
developing & managing channel
Have provisions been made in the design and

management of the channel to assure that
channel member performance will be
evaluated effectively?
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Discussion Question #1
Although online sales channels have enjoyed tremendous growth over the
past decade, a strategic disadvantage which could limit future growth potential
is that of immediacy. For physical products ordered online, consumers do not
have the same experience of taking the product with them immediately when
they purchase it in a store. Rather, they must wait at least a day and sometimes
several days. Recently, the world’s largest online retailer, Amazon.com has
attempted to mitigate the immediacy problem by offering same-day delivery in
a number of major metropolitan areas. But the service is pricey—$17.99 per
shipment plus $1.99 per pound of product weight. Now some traditional bricks
and mortar retailers such as Nordstrom and the retail division of Jones Apparel
Group Inc. think they have found a synergy that will provide a differential
advantage over Amazon.com by using their retail stores as delivery centers for
online operations. By doing so, these retailers believe they will be able to offer
same-day service more efficiently and at lower cost than Amazon.com because,
unlike Amazon.com, they have many stores very close to their customers.
Do you think this synergy between the online and retail store channels
available to traditional retailers that makes possible quicker and cheaper
product delivery to consumers will provide a differential advantage to most
retail store chains that also offer online sales channels?
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The grocery business is one of the most competitive of all
businesses, especially when it comes to getting a new product from a
small manufacturer onto supermarket shelves. The typical supermarket
carries about 30,000 different items, but some 15,000 new products are
introduced each year. There is no way that all of these products will get
on the shelves because there is limited space for such a host of new
products. One method of helping the odds is for the manufacturer to
pay slotting fees or pay-to-stay fees—in effect paying the retailers for
the right to place the products on the retailers’ shelves. But these fees
can be very high, sometimes as much as $5,000 for four feet of shelf
space per store per year.
Are “slotting fees” simply a way of life in highly competitive

industries where the fight for shelf space is intense? Might there be
other approaches? What are its possible strengths and weaknesses?
Discuss from the standpoints of the manufacturer and the grocery
retailers.
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Movie studios are in something of a dilemma lately when it
comes to planning their future channel strategy for distribution of
their films. Electronic distribution is very profitable because, of
the typical $4.99 cable companies charge consumers to rent a
movie. The studios get to keep about 70 percent of that. DVDs
are less profitable. The usual gross margin received by studios
on the sale of DVDs is about 30 percent. But
there’s a catch. Even though electronic channels for distributing
movies are growing rapidly, “old fashioned” DVDs still account for
approximately 70 percent of film profits. So, while electronic
distribution holds great promise, especially given the expected
growth potential for showing movies on mobile devices such as
smartphones, physical DVDs are still an important distribution
channel for movies.
What kind of channel strategy would you recommend to the

movie studios to deal with this challenge?
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Marketing Channels

Part 2: Developing the Marketing Channel

③ Channel strategy as overall corporate objectives

④ Channel strategy and the marketing mix

⑤ Emphasis on distribution strategy

⑥ Differential advantage and channel design

⑦ Selection of channel members

⑧ Channel strategy and managing the channel

⑨ Motivation of channel members

⑩ Evaluation of channel member performance

Channel Strategy: the broad

The higher the priority given to

Changes in distributive channels may not matter much to

THEN: The firm should choose distribution

Firms should stress distribution when it

Marketing channels are so closely linked to

Distribution advantages are not easily

Distribution advantages are based on a

Competitors’ neglect of distribution

The channel manager must analyze target

“Hooking up” with a mix of cooperative

Because each channel member is an

Differential advantage: Also

… the reputation a manufacturer

Narus and Anderson

A firm that plans the channel and

How should the channel

9 Motivation of Channel Members

Portfolio Concept: A tool for motivating

Channel manager’s involvement

Have provisions been made in the design and

Are “slotting fees” simply a way of life in highly competitive

What kind of channel strategy would you recommend to the

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