Marketing Channels and E-Marketing

Chapter NineChapter Nine

MMarket-Basedarket-Based Management, 4Management, 4thth editionedition

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Marketing Channels and Marketing Channels and E-MarketingE-Marketing

Chapter Nine

– Marketing Channels and Channel Strategy

– Alternative Channel Systems

– Building Value with Channel Systems

– Profit Impact of Channel Strategies

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Marketing Channels and Marketing Channels and Channel StrategyChannel Strategy

• What are Marketing Channels?

• What Types of Marketing Channels exist?– Direct– Indirect– Mixed

• What is the primary objective of a Marketing Channel?

• What three areas of performance will the choice of channel impact?

1. Customer Value2. Sales Revenues3. Profitability

• How can Marketing Channels serve as a source of Competitive Advantage?

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Marketing Channel Marketing Channel PerformancePerformance

Channel Performance

Customer Reach

(Volume)

Operating Efficiency

(Cost to Serve)

Service Quality

(Retention)

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Alternative Channel SystemsAlternative Channel Systems

Direct Channel Systems

Mixed Channel Systems

Indirect Channel Systems

Which Channel system is most preferred by firms?

Channel Intermediaries

Target Market Customers

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Direct Channel SystemsDirect Channel Systems

Direct Sales

Direct Marketing

Online Marketing

Tele-Marketing

Reps/Agents

Consumer Markets

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Indirect Channel SystemsIndirect Channel Systems

Why do firms use Indirect Channel Systems?

When is it appropriate to use Mixed Channel Systems?

Indirect Channel System

s

Reps/Agents

Wholesalers

Retailers

Consumer Markets

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Channel Systems that Build Channel Systems that Build Customer ValueCustomer Value

BrandBenefits

ServiceBenefits

Product Benefits

Price

Customer Value

• How does a channel system enhance customer value?

– Increasing Customer Benefits

– Lowering Cost of Purchase

Non-price Costs

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Building ValueBuilding Value

• Delivering Product Benefits– Product Quality– Product Assortment– Product Form

• Delivering Service Benefits– After-Sale Services– Availability/Delivery– Transaction Services

• Improving Cost Efficiency– i.e. making a product readily available

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Channel Systems and Channel Systems and Competitive AdvantageCompetitive Advantage

• Sales Force Advantage

• Sales Productivity

• Distribution Advantage

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Profit Impact of Alternative Profit Impact of Alternative Marketing ChannelsMarketing Channels

$15.08

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TakeawaysTakeaways//ReviewReview

• Building Customer Value and a Competitive Advantage with Channels

• Profit Impact of Channel Selection

• Marketing Channels and Systems• Channel Performance• Alternative Systems

– Direct– Indirect– Mixed

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Marketing Performance ToolsMarketing Performance Tools

Channel Marketing Profitability

Channel Strategy Direct Mixed Indirect

End User Price $30.00 $30.00 $30.00

Retailer/Dealer Margin (% of end user price) 33.00% 33.00%

Distributor Price $20.10

Distributor Margin (% of distributor price)

Wholesale Price $0.00 $0.00 $20.10

Wholesaler Margin (% of w holesale price) 25%

Selling Price $0.00 $0.00 $15.08

Sales Commission (% on Selling Price) 10% 10% 0%

Invoice P rice (after all discounts/commissions) $27.00 $18.09 $15.08

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Marketing Performance ToolsMarketing Performance Tools

Channel Break-Even Volume/PriceChannel Strategy Direct Mixed Indirect

Invoice Price $27.00 $18.09 $15.08

Transaction Costs (Shipping, Billing, etc.) $5.00 $2.00 $1.00

Net Price $22.00 $16.09 $14.08

Volume Sold (units) 100,000 100,000 100,000

Sales Revenues $2,200,000 $1,609,000 $1,407,500

Variable Cost per Unit $10.00 $10.00 $10.00

Margin per Unit $12.00 $6.09 $4.08

Gross Profit $1,200,000 $609,000 $407,500

Marketing & Sales Expense (% sales) 15% 10% 5%

Marketing & Sales Expense (dollars) $330,000 $160,900 $70,375

Net Marketing Contribution $870,000 $448,100 $337,125

Marketing Return on Sales 39.5% 27.8% 24.0%

Marketing Productivity 264% 278% 479%

Channel Strategy Direct Mixed Indirect

Net Price $22.00 $16.09 $14.08

Margin per Unit $12.00 $6.09 $4.08

Marketing & Sales Expenses $330,000 $160,900 $70,375

Breakeven Volume 27,500 26,420 17,270

Breakeven Price $13.30 $11.61 $10.70

Net Price Premium Over Breakeven Price $8.70 $4.48 $3.37