The Environment of Marketing Channels

The Marketing Channel and the Environment

Consists of all external uncontrollable

factors within which marketing
channels exist.
The five environments that affect the
market operations are:
 1. Economic environment
2. Competitive environment
3. Sociocultural environment
4.Technological environment
5.Legal environment
 The Economic Environment
• The economy is the most obvious and
persuasive category of environmental
variable because it affects every business and
individual.

a) Recession
b) Inflation
c) Deflation
d) Other Economic Issues
The Competitive Environment
a) Types of Competition
There are four types of competition,
namely:
1.Horizontal competition
2.Intertype competition
3.Vertical competition
4.Channel system competition
1. Horizontal competition is defined as
competition between firms of the same
type.
2.Intertype competition is competition between
different types of firms at the same channel
level.
3. Vertical Competition
refers to competition between channel
members at different levels in the channel
such as retailer versus wholesaler or
wholesaler versus manufacturer.
4. Channel system
competition refers to complete
channels competing with other
complete channels.
Such channels have been referred to as
vertical marketing systems and are
classified into three types: (1) corporate;
(2) contractual and (3) administered.
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.
 The Sociocultural Environment
• Marketing patterns are influenced by the
sociocultural environment within which
they exist.
• Indeed, some channel analysts argue that
this is a major force affecting channel
structure.

Other Sociocultural Forces

1. Globalization
2. Consumer mobility and connectedness
3. Social networking
4. The Green Movement
 The Technological Environment
• Technology is the most continuously and
rapidly changing aspect of the
environment.
• The channel manager has to sort out
those developments that are relevant to
his or her own firm and then determine
how these changes are likely to affect the
channel participants.
Electronic Data Interchange
Scanners, Computerized
Inventory Management, and
Handheld Computers
The Digital Revolution and
Smartphones
RFID
Cloud Computing
 The Legal Environment

The legal environment refers to the set of laws

that impact marketing channels. Nevertheless,
the channel manager still needs a general
knowledge of some legislation pertaining to
channels and familiarity with some of the legal
issues relevant to channel management.
 Behavioral Processes in
Marketing Channels
The Marketing Channel as a Social
System

• A social system can be defined as:

… the system generated by any process of interaction

on sociocultural level, between two or more actors.
The actor is either a concrete human individual (a
person) or a collectivity.
Conflict in the Marketing Channel
• Conflict exists when a member of the market -
ing channel perceives that another member’s
actions impede (obstruct) the attainment of
his/her goals.

Conflict versus Competition

• Competition: behavior that is object-centered,
indirect, and impersonal
• Conflict: direct, personal, and opponent-cen-
tered behavior
 Causes of Channel Conflict
Seven categories of underlying causes of chan-
nel conflict:
• Role incongruities
• Resource scarcities
• Perceptual differences
• Expectational differences
• Decision domain disagreements
• Goal incompatibilities
• Communication difficulties
 Channel Conflict and
Channel Efficiency
• Channel efficiency: the degree to which the total in-
vestment in the various inputs necessary to achieve a
given distribution objective can be optimized in
terms of outputs.
Effect of conflict on channel efficiency
• Negative effect—reduced efficiency (extra inputs i.e.
time and effort of salespeople)
• No effect—efficiency remains constant
• Positive effect—efficiency increased
 Conflict and Channel Efficiency

Managing Channel Conflict

1. Detecting channel conflict
2. Appraising the effect of conflict
3. Resolving conflict
 Power in the Marketing Channel
Bases of power for channel control: the
source/root of the power that one party exer-
cises over another
– Reward power
– Coercive power
– Legitimate power
– Referent power
– Expert power
Using Power in Marketing Channel
1. Identifying the available power bases
Bigger size  high reward and coercive power
Franchise system  legal power
Early stages of the intro. of a new product  expert power from manufac-
turer: knows how to promote the product effectively
2. Selecting and using appropriate power bases
The important findings from the research are the power effectiveness in the
marketing channel appears to be situation-specific, that the use of
power can affect the degree of cooperation and conflict in the channel
and levels of channel member satisfaction, and the use of coercive
power appears to foster conflict and promote dissatisfaction to a greater
degree than other power bases.
 Role in Marketing Channel
Role: a set of prescriptions defining what the behavior of posi-
tion member should be.
 It provides the channel manager with the basis for describ-
ing what part he/she expects each channel member to
play and what role the firm is expected to play in the mar-
keting channel.

 By developing more congruent roles among the channel

members, the channel manager is more likely to achieve a
more effective and efficient marketing channel.
Communication Processes in Mar-
keting Channel
Communication is “the glue that holds together a
channel of distribution.”
• It provides the basis for sending and receiving infor-
mation among the channel members and between
the channel and its environment.
• It creates a flow of information within the channel
and leads to an efficient flow of products/services
through the channel.
 Behavioral Problems in Chan-
nel Communication
• Differing goals among channel members (large firms vs. small
firms)
• Language difficulties (terminology/jargon used by professional
corp. management in large firms: profit, promotion)
• Perceptual differences (reasonable delivery time)
• Secretive behavior (manufacturer not disclose the promo-
tional plan fail to get potentially valuable feedback from
middlemen)
• Inadequate frequency of communication (may leave channel
members feeling left out of the loop and lack of necessary
info.)