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 Part 2: Developing the Marketing Channel

5
CHAPTER

Strategy in
Marketing
Channels
5
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Le ① Marketing Channel Strategy

ar ② Distribution decisions

ni ③ Channel strategy as overall corporate objectives

ng ④ Channel strategy and the marketing mix

O ⑤ Emphasis on distribution strategy

bj ⑥ Differential advantage and channel design

ec ⑦ Selection of channel members
tiv ⑧ Channel strategy and managing the channel
es ⑨ Motivation of channel members

⑩ Evaluation of channel member performance

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Objective

1 Marketing Channel Strategy

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 Firms to
2 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 Corporate
3 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

4 Channel Strategy & the Marketing 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

5 Emphasis on Distribution Strategy

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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 & Channel
6 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 (1 of 2)

… 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 (2 of 2)

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

7 Selection of Channel Members

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

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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

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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

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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 Discussion Question #7

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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 Discussion Question #8

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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