Part 2 Developing the Marketing Channel

Chapter 5 Strategy in Marketing Channels

5 Marketing Channel Strategy Objective 1: Channel Strategy: –The broad principles by which the firm expects to achieve its distribution objectives for its target market(s)

5 Distribution Decisions Objective 2: 1.The role distribution should play in the firm’s overall objectives & strategies 2.The role distribution should play in the marketing mix 3.The design of the firm’s marketing channels 4.The selection of channel members 5.The management of the marketing channel in order to implement the firm’s channel design effectively & efficiently on a continuing basis 6.The evaluation of channel member performance

5 Channel Strategy as an Overall Corporate Objective Objective 3: Three (3) general ways to view the importance of distribution in overall corporate strategy-making: 1.Who’s in charge? Corporate executives or functional managers? 2.Type of strategy-making Long-range vs. short-term (i.e., tactical ~ x < 1yr.) 3.Value-Chain analysis How pervasive is it in creating customer value?

Firm infrastructure Human resource management Technology development Procurement* Inbound Operations Outbound Marketing Service logistics logistics & sales Support Activities Primary Activities Sales 5 The Value Chain

5 Determining Priority Given to Distribution Increasingly distribution is warranting more attention from top management because competition on the other 3Ps has become too difficult to generate any long-term differential advantage.

The essence of modern marketing management: To develop a marketing mix of product, price, promotion, & distribution (place) 5 Channel Strategy and the “Marketing Mix” Objective 4:

5 Emphasis Placed on Distribution Strategy Objective 5: Firms should place a high priority on distribution when… 1.Customers’ needs highlight distribution as important 2.Homogeneity among competitors exists on other 3 Ps 3.Competitors are weak in their distribution efforts 4.Efficiency gains are possible over current efforts

Firms should stress distribution when it serves customers’ needs in the target market. Marketing channels are so closely linked to customer need satisfaction because it is through distribution that firms can provide the kinds and levels of service that make for satisfied customers (remember convenience is becoming increasingly important ~ Ch. 3) Target Market Demand

Distribution advantages are not easily copied by competitors. Distribution advantages are based on a combination of superior strategy, organization, and human capabilities Competitive Parity

Competitors’ neglect of distribution strategies provides excellent opportunities. The channel manager must analyze target markets to determine whether competitors have neglected distribution and whether vulnerabilities exist that can be exploited Distribution Neglect

“Hooking up” with a mix of cooperative channel members will strengthen the channel. Because each channel member is an independent entity, rewarding opportunities exist for channel managers to cultivate cooperation among members that possess specialized skills that would be too costly to develop or perform in-house Synergy in Distribution

5 Differential Advantage & Channel Design Objective 6: Channel Strategy affects channel design in that… –Appropriate strategies will guide the design phase so as to help the firm realize a differential advantage. Remember: –A differential advantage (sustainable competitive advantage) occurs when a firm attains a long-term, advantageous position in the market relative to its competitors.

5 Positioning the Channel Channel Position* –The reputation a manufacturer [member*] acquires among its other channel participants for furnishing products, services, financial returns, programs, and systems that are in some way superior to those offered by competing manufacturers [members*]. Channel Positioning –Is what a firm does with its channel planning and decision-making to attain the channel position it desires.

5 Positioning the Channel By taking a channel positioning point-of- view, the channel manager… –Asks the question, “How can I design the channel so that members will view my firm as having done a better job than my competitors they may represent or deal with?” –Seeks to understand the needs/wants of a firm’s “corporate” or “business” customers. –Effective positioning is likely to lead to “cheerleading” from other members.

5 Selection of Channel Members Objective 7: As such, chosen members should… –Reflect the channel’s positioning efforts while simultaneously assisting the firm to achieve its distribution objectives –Reflect the objectives & strategies of the organization as a whole Remember a company’s image will affect its positioning efforts.

5 Channel Strategy & Managing the Channel Objective 8: Three (3) strategic questions must be asked: 1.How close a relationship should be developed with the channel members? 2.How should the marketing mix be used to enhance channel member cooperation? 3.How should the channel members be motivated to cooperate in achieving the manufacturer’s distribution objectives?

5 Closeness of Channel Relationships Factors to consider: –Distribution intensity –Target markets –Products –Company policies –Middlemen –Environment –Behavioral dimensions Very loose  Very close  Medium

5 Motivation of Channel Members Objective 9: Portfolio concept to motivating others… –A tool (see table 5.1) for motivating different types and sizes of channel members participating in various channel structures who may respond differently to various motivation strategies.

Marketing Mix Product strategy Pricing strategy Promotion strategy Distribution strategy 5 The “Marketing Mix” in Channel Management Decision to change the features of product Increase in price Require changes in promotion to explain the new product feature and justify the higher price Channel members selling product may need to be informed about the changed product features. This can affect their attitudes towards selling the new price product vs. competitive products.

5 Evaluation of Channel Member Performance Objective 10: Channel manager’s involvement in evaluating member performance is integral to developing & managing channel Always important to ask… –Have provisions been made in the design and management of the channel to assure that channel member performance will be evaluated effectively?