Chapter 3

The
environment
of marketing
channels

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 Learning Objectives
1. Understand the impact of environment in a marketing
channels context.
2. Be aware of some of the major economic forces affecting
marketing channels.
3. Recognize that unusual economic conditions can have a
dramatic impact on marketing channels.
4. Be cognizant of the international or global nature of the
competitive environment as it affects marketing channels.
5. Be able to delineate the major types of competition in the
context of marketing channel structure and strategy.

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 Learning Objectives
6. Appreciate some of the major sociocultural developments
taking place with respect to their implications for marketing
channels.
7. Be alert to rapid changes in technology and be sensitive to
how such changes can affect marketing channels.
8. Gain a general knowledge of the basic antitrust laws as
they apply to marketing channel strategy.
9. Be familiar with the key legal issues relating to marketing
channels.

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 Contents
3.1. The marketing channel and environment
3.2. The economic environment
3.3. The competitive environment
3.4. The Sociocultural Environment
3.5. The technological environment
3.6. The legal environment

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 The Marketing Channel and the
Environment
 The environment consists of myriad external,
uncontrollable factors within which marketing channels
exist. To give some order to this huge array of variables,
we will categorize them in this chapter under the following
five general headings:
1. Economic environment
2. Competitive environment
3. Sociocultural environment
4. Technological environment
5. Legal environment

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The Marketing Channel and the
Environment

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 The Economic Environment
 The economy is probably the most obvious and pervasive
category of environmental variables affecting all members
of the marketing channel.
 In a channel management context, economic factors are a
critical determinant of channel member behavior and
performance.
 Recession
 As a recessionary period unfolds, consumer spending, (especially
for such durable goods as automobiles, major appliances and
personal computers which consumers can postpone purchasing)
usually slows down
 All members of the marketing channel feel the effects of recession

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 The Economic Environment

 Inflation

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 Inflation

 Even though inflation rates have been relatively low for a

considerable period of time, there is no guarantee that
they will remain at such low levels in the future. Indeed,
many mainstream economists argue that inflation rates
could increase significantly

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 Deflation
 Deflation on a wide scale resulting in a decline in prices
across a broad spectrum of goods and services has not
occurred in the United States since the Great Depression
of the 1930s.
 Most economists do not expect a deflationary environment
broad enough to cause a sustained decline in the
Consumer Price Index to emerge in the foreseeable future
 Deflation, static prices or even very low rates of price
increases can create serious channel management
difficulties.

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 Other Economic Issues
 Recession, inflation and deflation are not the only
variables in the economic environment. The federal budget
deficit, the national debt, and the trade deficit, which have
risen dramatically in recent years, are all of continuing
concern as we move into the second decade of the
twenty-first century.

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 The Competitive
Environment
 Competition is always a critical factor to consider for all
members of the marketing channel. This is especially the
case in recent years as competition has become global in
scope
 The terms global marketplace, global arena and global
competition are not just international business jargon, but
realistic descriptions of the competitive environment as it
exists today in an increasing number of industries.

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 Types of Competition
 1. Horizontal competition
 2. Intertype competition
 3. Vertical competition
 4. Channel system competition13

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 Types of Competition
 Horizontal competition
 Horizontal competition is competition between firms of
the same type
 This is the most visible and frequently discussed form
of competition.
 Intertype competition
 Intertype competition is competition between different
types of firms at the same channel level, such as the
off-price store versus the department store or the
merchant wholesaler versus agents and brokers.

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 Types of Competition
 Vertical competition
 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
 As competition between manufacturers and retailers intensifies, this
vertical competition could become vertical conflict whereby one channel
member acts to directly impede another channel member’s attempt to
achieve its objectives
 Channel system competition refers to complete channels competing
with other complete channels. In order for channels to compete as
complete units, they must be organized, cohesive organizations. Such
channels have been referred to as vertical marketing systems and are
classified into three types:
 (1) corporate;
 (2) contractual and
 (3) administered.
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 Competitive Structure and Channel
Management
 In designing the marketing channel, the channel
manager needs to determine which kinds of
distributors and/or dealers can provide the most
efficient and effective distribution of the firm’s
products.
 Producers and manufacturers attempting to
manage marketing channels now face a more
complex management task because they are
dealing with more different types of channel
members.

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 The Sociocultural Environment
 Marketing channels (and particularly the structure of
marketing channels) are therefore also influenced by the
sociocultural environment within which they exist
 Other Sociocultural Forces
 1. Globalization
 2. Consumer mobility and connectedness
 3. Social networking
 4. The Green Movement

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 The Technological
Environment
 Technology is the most continuously and rapidly
changing aspect of the environment.
 The widespread use of laptop computers,
smartphones, GPS navigation systems, and
electronic books are some of the most obvious
examples.
 Electronic Data Interchange
 Electronic data interchange (EDI) refers to the linking
together of channel member information systems to
provide real-time responses to communication between
channel members
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 The Technological
Environment
 Scanners, Computerized Inventory Management,
and Handheld Computers
 have created a new world in retailing and wholesaling
 If a newly introduced product is not catching on, they
know about it—and quickly.
 The Digital Revolution and Smartphones
 The digital revolution already has and will continue to have
profound effects on channel structure and strategy
 By 2010, shoppers had ordered over $2.2 billion of physical goods
using smartphones. That is double the amount ordered in 2009
and five times more than in 2008!

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 RFID
 This acronym stands for radio frequency identification
 This is a relatively new technology that uses a device
called an RFID tag attached to a person or object, such as
a product, that enables that person or product to be
identified and tracked using radio waves.
 By implanting RFID chips or tags in or on a product,
detailed information, including price, basic characteristics,
date of manufacture, origin, and current location, can be
recorded.
 it has the potential to truly revolutionize not only inventory
control in the supply chain, but the entire consumer in-
store shopping process as well.
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 Cloud Computing
 Cloud computing is an Internet-based
technology that enables both large and small
businesses and organizations to utilize highly
sophisticated computer applications without
having to have their own hardware, software,
office computing space and staff.
 multi-tenancy
 regardless of size

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 The Legal Environment
 The legal environment refers to the set of laws
that impact marketing channels. The legal
structure resulting from these laws is not a
static code
 Legislation Affecting Marketing Channels
 Legal Issues in Channel Management

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