Chapter 7 Marketing Channel Strategy and Management.
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Transcript of Chapter 7 Marketing Channel Strategy and Management.
Chapter 7Chapter 7
Marketing Channel Strategy and Management
7-2
In this chapter, you will In this chapter, you will learn about…learn about…
1. The Channel-Selection Decision
The Design of Marketing Channels
Channel Selection at the Retail Level
Channel Selection at Other Levels of
Distribution
2. Dual Distribution and Multi-Channel Marketing
Dual Distribution
Multi-Channel Marketing
7-3
In this chapter, you will In this chapter, you will learn about…learn about…
3. Satisfying Intermediary Requirements and
Trade Relations
Intermediary Requirements
Trade Relations
4. Channel-Modification Decisions
Qualitative Factors in Modification
Decisions
Quantitative Factors in Modification
Decisions
7-4
A marketing channel consists of
individuals and firms involved in
the process of making a product or
service available for consumption
or use by consumers and industrial
users.
What is a marketing What is a marketing channel?channel?
7-5
Links a producer to buyers
Performs sales, advertising, and
promotion
Influences the firm’s pricing strategy
Affects product strategy through branding
policies, willingness to stock and
customize offerings, install, maintain,
offer credit, etc.
Role of the channel in Role of the channel in marketing strategymarketing strategy
7-6
The Channel-Selection The Channel-Selection DecisionDecision
Fundamental QuestionsFundamental Questions
Who are potential customers?
Where do they buy?
When do they buy?
How do they buy?
What do they buy?
- Avon Cosmetics example
The marketing manager must answer the following questions:
Traditional Marketing Channel Traditional Marketing Channel DesignsDesigns
Producer
Ultimate Buyers
Retailers or Dealers
Distributors or Wholesalers
Brokers or Agents
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The Design of Marketing The Design of Marketing ChannelsChannels
Use intermediaries to reach target market
typelocationdensitynumber of channel levels
Contact ultimate buyers directly
using its own sales force or distribution outletsusing the Internet through a marketing Web site or electronic storefront
vs.INDIRECT DIST. DIRECT DIST.
7-9
The Design of Marketing The Design of Marketing ChannelsChannels
Buyers are easily identifiable
Personal selling is a major component of the communication mix
Organization has a wide variety of offerings for the target market
Sufficient resources are available
Direct distribution is typically used when:
7-10
Intermediaries are not available for reaching target markets
Intermediaries do not possess the capacity to service the requirements of target markets
Direct distribution must be considered when:
The Design of Marketing The Design of Marketing ChannelsChannels
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Intermediaries can perform distribution functions more efficiently and less expensively
Customers are hard to reach directly
Organization does not have resources to perform distribution function
Indirect distribution must be considered when:
The Design of Marketing The Design of Marketing ChannelsChannels
7-12
The Design of Marketing The Design of Marketing ChannelsChannels
Electronic marketing channels employ
some form of electronic communication,
including the Internet, to make products
and services available for consumption
or use by consumers and industrial
users.
Ultimate Buyers
Amazon.com Dell.comTravelocity.com
Representative Electronic Marketing Representative Electronic Marketing ChannelsChannels
Autobytel.com
Book Publisher
Book Distributor
Amazon.com (Virtual Retailer)
Dell Computers
Airline
Travelocity (Virtual Agent)
Auto Manufacturer
Auto Dealer
Auto-By-Tel (Virtual Broker)
7-14
The Design of Marketing The Design of Marketing ChannelsChannels
Disintermediation is the elimination of
traditional intermediaries and direct
distribution through electronic
marketing channels.
7-15
Channel Selection at the Channel Selection at the Retail LevelRetail Level
Channel Selection DecisionsChannel Selection Decisions
1. Which channel and intermediaries will
provide the best coverage of the target
market?
2. Which channel and intermediaries will
best satisfy the buying requirements of
the target market?
3. Which channel and intermediaries will be
the most profitable?
Channel Selection at the Channel Selection at the Retail LevelRetail Level
Target Market CoverageTarget Market Coverage
Exclusive IntensiveSelective
Levi’sSony
RolexFaberge
Wrigley’sCoke
7-17
Channel Selection at the Channel Selection at the Retail LevelRetail Level
Effective Distribution occurs when a limited number of retail outlets account for a significant fraction of the market potential.
Example: A marketer distributes the product through 40% of available outlets, but these outlets account for 80% of the market.
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Channel Selection at the Channel Selection at the Retail LevelRetail Level
Satisfying Buyer RequirementsSatisfying Buyer Requirements
Information
Convenience
Variety
Attendant services
7-19
Channel Selection at the Channel Selection at the Retail LevelRetail Level
ProfitabilityProfitability
Margins = Revenues – Channel Costs
Channel costs are:
- Distribution costs
- Advertising costs
- Selling costs
7-20
Specialty wholesaler– Limited line of items within a product
line
General-merchandise wholesaler– Wide assortment of products
General-line wholesaler– Complete assortment of items in a
single retailing field
Combination
Channel Selection at Other Channel Selection at Other Levels of DistributionLevels of Distribution
Types of WholesalerTypes of Wholesaler
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occurs when an organization distributes its offering through two or more different marketing channels that may or may not compete for similar buyers
the main consideration is whether it will provide incremental sales revenue or cannibalize existing sales
Dual DistributionDual Distribution
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own brand and private store brand
distribution to large and small retailers
multibrand strategy
geographic factors
Dual DistributionDual DistributionWhen is it usedWhen is it used
7-23
Hallmark
Sells Hallmark brand cards through Hallmark stores and selected department stores
Sells Ambassador brand cards through discount drugstore chains
Dual DistributionDual DistributionExampleExample
7-24
Multi-channel marketing involves the
blending of an electronic marketing
channel and a traditional channel in
ways that are mutually reinforcing in
attracting, retaining, and building
relationships with customers.
Multi-Channel MarketingMulti-Channel Marketing
7-25
An electronic marketing channel can provide incremental revenue (Victoria’s Secret)
An electronic marketing channel can leverage the presence of a traditional channel (Ethan Allen)
Multi-channel marketing can satisfy buyer requirements (Clinique division of Estée Lauder)
Multi-Channel MarketingMulti-Channel MarketingJustificationsJustifications
7-26
Multi-Channel MarketingMulti-Channel MarketingConsiderationsConsiderations
Actual incremental revenue or merely
cannibalization?
Incremental cost to launch and sustain
an electronic forefront
Disintermediation – a traditional
intermediary member is replaced by
electronic storefront
7-27
Improvements in product assortments
Trade discounts
Fill-rate standards
Promotional support
Lead-time requirements
Product-service exclusivity agreements
Satisfying Intermediary Satisfying Intermediary Requirements and Trade Requirements and Trade
RelationsRelationsIntermediary RequirementsIntermediary Requirements
7-28
Satisfying Intermediary Satisfying Intermediary Requirements and Trade Requirements and Trade
RelationsRelationsTrade RelationsTrade Relations
Channel Conflict arises when one
channel member believes another
channel member is engaged in
behavior that is preventing it from
achieving its goals.
7-29
Channel member bypasses another member and sells or buys direct (Wal-Mart)
Uneven distribution of profit margins among channel members (Michelin)
Manufacturer believes channel member is not giving its products adequate attention (Heinz)
Manufacturer engages in dual distribution (Elizabeth Arden)
Satisfying Intermediary Satisfying Intermediary Requirements and Trade Requirements and Trade
RelationsRelationsSources of Channel ConflictSources of Channel Conflict
7-30
Satisfying Intermediary Satisfying Intermediary Requirements and Trade Requirements and Trade
RelationsRelationsChannel PowerChannel Power
Channel Captain is a channel
member that takes on the role of
coordinating, directing, and
supporting other channel members.
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Ability to reward or coerce other
members (Microsoft and Wal-Mart)
Expertness (American Hospital Supply)
Identification with a particular channel
member (Ralph Lauren)
Legitimate right to dictate the behavior of
other members (franchising)
Satisfying Intermediary Satisfying Intermediary Requirements and Trade Requirements and Trade
RelationsRelationsForms of Channel Captain PowerForms of Channel Captain Power
7-32
Channel-Modification Channel-Modification DecisionsDecisions
ReasonsReasons
Shifts in the geographical concentration of buyers
Inability of existing intermediaries to meet the needs of buyers
Costs of distribution
7-33
Channel-Modification Channel-Modification DecisionsDecisions
Basic ObjectivesBasic Objectives
1. Provide the best coverage of the target market sought
2. Satisfy the buying requirements of the target market
3. Maximize revenue and minimize cost
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1. Will the change improve the effective coverage of the target markets sought? How?
2. Will the change improve the satisfaction of buyer needs? How?
3. Which marketing functions, if any, must be absorbed in order to make the change?
4. Does the organization have the resources to perform new functions?
5. What effect will the change have on other channel participants?
6. What will be the effect of the change on the achievement of long-range organizational objectives?
Channel-Modification Channel-Modification DecisionsDecisions
Qualitative FactorsQualitative Factors
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…considers the financial impact of
the change in channel members in
terms of revenues and expenses
Channel-Modification Channel-Modification DecisionsDecisions
Quantitative AssessmentQuantitative Assessment
7-36
Margin to wholesalers $5,000,000
Service expense 500,000
Total cost $5,500,000
Suppose an organization is considering
replacing its wholesalers with its own
distribution centers. The cost of wholesalers
includes:
Channel-Modification Channel-Modification DecisionsDecisions
Quantitative Assessment ExampleQuantitative Assessment Example
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Sales to retailers $1,500,000
Sales administration 250,000
Inventory cost 935,000
Delivery and storage 1,877,000
Accounts receivable 438,000
Total cost $5,000,000
The cost of Distribution Centers:
Channel-Modification Channel-Modification DecisionsDecisions
Quantitative Assessment ExampleQuantitative Assessment Example
7-38
Channel-Modification Channel-Modification DecisionsDecisions
Quantitative Assessment ExampleQuantitative Assessment Example
Since using wholesalers costs $3.5 million
and the cost of distribution centers would
be $5 million, a cost perspective suggests
selection of the latter option. However, the
effect on revenues must be considered by:
Determining the dollar value of:
– Market coverage– Satisfaction of buyer needs– Channel-participant response