1. Marketing Channel Strategy and Management
Chapter 7
Marketing Channel Strategy and Management

2. In this chapter, you will learn about…
The Channel-Selection Decision
The Design of Marketing Channels
Channel Selection at the Retail Level
Channel Selection at Other Levels of Distribution
Dual Distribution and Multi-Channel Marketing
Dual Distribution
Multi-Channel Marketing

3. In this chapter, you will learn about…
Satisfying Intermediary Requirements and Trade Relations
Intermediary Requirements
Trade Relations
Channel-Modification Decisions
Qualitative Factors in Modification Decisions
Quantitative Factors in Modification Decisions

4. What is a marketing channel?
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.

5. Role of the channel in marketing strategy
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.

6. The Channel-Selection Decision Fundamental Questions
The marketing manager must answer the following questions:
Who are potential customers?
Where do they buy?
When do they buy?
How do they buy?
What do they buy?
Avon Cosmetics example

7. Traditional Marketing Channel Designs
Producer
Retailers or Dealers
Distributors or Wholesalers
Brokers or Agents
Ultimate Buyers

8. The Design of Marketing Channels
vs.
INDIRECT DIST.
DIRECT DIST.
Use intermediaries to reach target market
type
location
density
number of channel levels
Contact ultimate buyers directly
using its own sales force or distribution outlets
using the Internet through a marketing Web site or electronic storefront

9. The Design of Marketing Channels
Direct distribution is typically used when:
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

10. The Design of Marketing Channels
Direct distribution must be considered when:
Intermediaries are not available for reaching target markets
Intermediaries do not possess the capacity to service the requirements of target markets

11. The Design of Marketing Channels
Indirect distribution must be considered when:
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

12. The Design of Marketing Channels
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.

13. Representative Electronic Marketing Channels
Amazon.com
Autobytel.com
Travelocity.com
Dell.com
Book Publisher
Book Distributor
Amazon.com (Virtual Retailer)
Dell Computers
Airline
Travelocity (Virtual
Agent)
Auto Manufacturer
Auto Dealer
Auto-By-Tel (Virtual Broker)
Ultimate Buyers

14. The Design of Marketing Channels
Disintermediation is the elimination of traditional intermediaries and direct distribution through electronic marketing channels.

15. Channel Selection at the Retail Level Channel Selection Decisions
Which channel and intermediaries will provide the best coverage of the target market?
Which channel and intermediaries will best satisfy the buying requirements of the target market?
Which channel and intermediaries will be the most profitable?

16. Channel Selection at the Retail Level Target Market Coverage
Exclusive
Selective
Intensive
Rolex
Faberge
Levi’s
Sony
Wrigley’s
Coke

17. Channel Selection at the Retail 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.

18. Channel Selection at the Retail Level Satisfying Buyer Requirements
Information
Convenience
Variety
Attendant services

19. Channel Selection at the Retail Level Profitability
Margins = Revenues – Channel Costs
Channel costs are:
Distribution costs
Advertising costs
Selling costs

20. Channel Selection at Other Levels of Distribution Types of Wholesaler
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

21. Dual Distribution
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

22. Dual Distribution When is it used own brand and private store brand
distribution to large and small retailers
multibrand strategy
geographic factors

23. Dual Distribution Example Hallmark
Sells Hallmark brand cards through Hallmark stores and selected department stores
Sells Ambassador brand cards through discount drugstore chains

24. Multi-Channel Marketing
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.

25. Multi-Channel Marketing Justifications
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)

26. Multi-Channel Marketing Considerations
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

27. Satisfying Intermediary Requirements and Trade Relations Intermediary Requirements
Improvements in product assortments
Trade discounts
Fill-rate standards
Promotional support
Lead-time requirements
Product-service exclusivity agreements

28. Satisfying Intermediary Requirements and Trade Relations Trade Relations
Channel Conflict arises when one channel member believes another channel member is engaged in behavior that is preventing it from achieving its goals.

29. Satisfying Intermediary Requirements and Trade Relations Sources of Channel Conflict
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)

30. Satisfying Intermediary Requirements and Trade Relations Channel Power
Channel Captain is a channel member that takes on the role of coordinating, directing, and supporting other channel members.

31. Satisfying Intermediary Requirements and Trade Relations Forms of Channel Captain Power
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)

32. Channel-Modification Decisions Reasons
Shifts in the geographical concentration of buyers
Inability of existing intermediaries to meet the needs of buyers
Costs of distribution

33. Channel-Modification Decisions Basic Objectives
Provide the best coverage of the target market sought
Satisfy the buying requirements of the target market
Maximize revenue and minimize cost

34. Channel-Modification Decisions Qualitative Factors
Will the change improve the effective coverage of the target markets sought? How?
Will the change improve the satisfaction of buyer needs? How?
Which marketing functions, if any, must be absorbed in order to make the change?
Does the organization have the resources to perform new functions?
What effect will the change have on other channel participants?
What will be the effect of the change on the achievement of long-range organizational objectives?

35. Channel-Modification Decisions Quantitative Assessment
…considers the financial impact of the change in channel members in terms of revenues and expenses

36. Channel-Modification Decisions Quantitative Assessment Example
Suppose an organization is considering replacing its wholesalers with its own distribution centers. The cost of wholesalers includes:
Margin to wholesalers $5,000,000
Service expense ,000
Total cost $5,500,000

37. Channel-Modification Decisions Quantitative Assessment Example
The cost of Distribution Centers:
Sales to retailers $1,500,000
Sales administration ,000
Inventory cost ,000
Delivery and storage 1,877,000
Accounts receivable ,000
Total cost $5,000,000

38. Channel-Modification Decisions Quantitative 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