Channel Implementation

 Coverage vs Assortment
Product category
Routine, non-involvement, convenience
goods require wide coverage
 Downstream channel members dislike
intensive distribution
Channel Implementation

 Channel members drop the brand in

three ways:
Overtly discontinue saturated brands
Discontinue the entire product category
Channel members may appear to carry a
brand, but convert prospect customers to a
different brand (bait and switch tactic)
This can be prevented by creating pull strategy
and brand equity
Channel Implementation

 Downstream channel members of

different service levels disturb the brand
credibility
High end retailer invests on space,
ambience, trained people; but ends up
educating prospects
Prospects end up buying from low-end
retailers who only stock to sell without any
value added services
Channel Implementation

 Sustaining intensive distribution:

Bind by contract
Create brand equity
Have some degree of selectivity in
distribution
Impose Resale Price Maintenance (RPM) –
similar to MRP
Control on degree of category exclusivity
Channel Implementation

 Selectivity distribution choice:

Threat of complacency that sets in with few
brands
Nature of product category
Convenience goods (intense distribution)
Shopping goods (moderate distribution)
Speciality goods (exclusive distribution)
Brand and price positioning
Channel Implementation

 Selectivity distribution choice:

Selectivity creates reward power, which in
turn creates influence
Selective distribution can also be a balancing
dependence in a distribution channel system
Trading territory exclusivity for category
exclusivity
Channel Implementation

 Selectivity vs costs:
Selectivity is an expensive concession to
trade off between area coverage and
product category
Opportunity cost of limiting the number of
trading partners is great
Note: choosing to limit the trading partners
is different from unable to attract or
unwilling to support many trading partners
Channel Implementation

 Selectivity vs costs:
Limiting trading partners mean:
Less marketing cost (inventory and control
costs)
Less revenues
 Also focus on reducing buyers' cost of
selective distribution
Channel Implementation

 Stimulating sales with selectivity:

Brand building
Lead generation by the upstream partners
Introduce branded variants
Strategic Alliances in
Distribution
 Two or more organization come
together (legal, economic or
interpersonal) to perform activities to
achieve a common goal shared by all
parties
 Success of strategic alliances is built on
mutual trust and commitment
 Strategic Alliances in
Distribution
 Upstream motives: (of companies)
Companies can profit from efficient
distribution partners
Elicit commitment for growth and information
sharing (through EDI network)
Consolidate position of strength in distribution
Create barriers to entry by future competitors
 Strategic Alliances in
Distribution
 Downstream motives: (of channel partners)
Have an assured supply of desirable products
To complement marketing efforts
To differentiate from other distributors
To achieve a sense of value addition
involvement
To endure competitive advantage to achieve
their profit motives
 Strategic Alliances in
Distribution
CIRCLE OF COMMITMENT

Suppliers Guess:
How committed is this
distributor to me?

Distributor‘s Supplier’s
Commitment commitment to
to a supplier a distributor

Distributor's
Guess:
How
committed is
this supplier
to me?
 Strategic Alliances in
Distribution
 Signs of commitment:
Partners identify dedicated personnel and
facilities for the alliance
Partners understand each others methods,
people, strengths and weaknesses
Evolve a compatible reporting system
Common training needs to run business better
Put a common front against competition
 Strategic Alliances in
Distribution
 Building commitment:
Trust (or honesty)
Believe in other party's integrity and concern for
mutual well-being
Distrust is to fear deception and exploitation
Trust is never awarded; it is earned
Economic satisfaction
Non-economic satisfaction
Accommodating, problem solving and distributive
fairness
 Strategic Alliances in
Distribution
 Picking the partners:
Look for complementary capability so that
together create competitive advantage
Select one with similar goals
Goal congruence dampens conflicts
Personal relationship and reputation between
people in organizations play an important role
in forging alliances
 Strategic Alliances in
Distribution
 Decision making and enhancing trust:
Centralization and formalization of decision
making process hurt trust development; hence,
keep it minimum
Operating level cooperative decisions and
effective communication enhances trust
 Phases of Relationships in
Marketing Channels
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5

Decline and
Awareness Exploration Expansion Commitment Dissolution
 Phases of Relationships in
Marketing Channels
 Awareness:
Feasible partner
One player recommends another
Physical proximity
Experience in other domains
Little interaction
 Phases of Relationships in
Marketing Channels
 Exploration:
Probing by both sides
Inter-dependence grows
bargaining is intensive
selective information revealing
norms begin to emerge
role definitions become more clear
This phase is easily terminated by either side
 Phases of Relationships in
Marketing Channels
 Expansion:
Benefits expand for both sides
Interdependence expands
Risk taking increases
Goal congruence pursued
Alternative partners look less attractive
Cooperation and communication enhances
 Phases of Relationships in
Marketing Channels
 Commitment:
Each party invests to build relationships
High expansion on both side
High trust and dependence
Partners resolve conflicts quickly
Shared values reinforce mutual dependence
 Phases of Relationships in
Marketing Channels
 Decline and Dissolution:
One side tends to spark it
Mounting dissatisfaction makes one party to hold
back investments
May be abrupt; but generally gradual
It takes two to build, but one to undermine!
 Relationships in Marketing
Channels
 When are alliances necessary?
One side has special needs
The others have the capability to meet the
needs
 Why the alliances sustain?
Each side faces barriers to exiting relationship
Structuring Channel System:
Vertical Integration
Function Classical Channel Contracting Vertical Integration
Company direct sales
Selling direct Company reps force

Wholesale Distribution arm of

distribution Independent wholesaler producer

Retail distribution Independent (third party) Company store

 Vertical Integration
 Costs of distribution: (Buy model)
Margin: difference between manufacturer's
price and price obtained by the reseller
Commission: fraction of resale price
Royalty: percentage of reseller's business
 Costs of distribution: (Make model)
Manpower costs (Overhead, partly direct)
Logistics cost (direct)
Warehouse/Infrastructure costs (Investment)
Vertical Integration
 Benefits of 'Buy' model
Interchangeable
Independent and impersonal dealings
Costs are easily determinable as 'direct'
 Benefits of 'Make' model
Influence end customers
Better market intelligence
Economic benefit
Outsourced Distribution
 Channel Members' advantages:
Motivation
Specialization
Survival of the economically fittest
Economies of scale
Wider and heavier market coverage
Independent from any single manufacturer
Vertical Integration:
Competition Low
 Company Specific Capabilities:
 Idiosyncratic knowledge (that can not be easily
redeployed to others)
 High degree of customer relationship
 Involved brand equity development during
transaction and after sales service
 Dedicated capacity to specific customer needs
 Site specificity suited to company and customer
 Customized physical facility
Vertical Integration:
Environmental Uncertainty
 Difficult to forecast situation
 If company specific capabilities are not
involved, uncertainty favours outsourcing
 If company specific capabilities are significant,
uncertainty favours vertical integration
 In case of extreme political risk and/or lack of
economic development, do not venture into
distribution
Vertical Integration:
Performance Ambiguity
 Performances measured in terms of sales and
service levels
 If performance ambiguity is high, vertical
integration is preferred: gain direct information
and ability to direct behaviour
Example: Pharma companies