Marketing Channels

A Strategic Tool of Growing

Importance for the Next Millennium

by Dr. Bert Rosenbloom
A: Over the past three decades, the
overwhelming emphasis in the
Marketing Mix has been on:
Product Strategy with
Pricing Strategy
and Promotional Strategy
also being stressed.

But.....
Marketing Channel Strategy
(Place); the fourth P in the
Marketing Mix has
been largely neglected

But this is changing....
Marketing Channel Strategy is
Growing in Importance. Why?

Five Reasons
(1) Search for Sustainable Competitive Advantage
(2) Growing Power of Retailers in Marketing
Channels
(3) The Need to Reduce Distribution Costs
(4) The Increased Role and Power of Technology
(5) The New Stress on Growth
I. The Search for Sustainable
Competitive Advantage
Sustainable Competitive
Advantage:
A competitive advantage that
cannot be quickly and easily
copied by competitors
A sustainable competitive
advantage is becoming more
difficult to attain through:
Product Strategy- rapid technology transfer
enables competitors to quickly produce similar
products
Pricing Strategy- global economy allows
competitors to find low cost production to match
prices
Promotion Strategy- high cost, clutter, and short
life promotional campaigns limit competitive
advantage
Competitive Advantage Based
on

Superior Marketing Channel
Strategy is More Difficult for
Competitors to Copy
Because:
Channel Strategy is Long Term
Requires a Channel Structure
Depends on Relationships and People
Requires Effective Interorganizational
Management
II. Growing Power of Retailers
in Marketing Channels
Retailers
Retailers....
Are Growing Larger
Enjoy Substantial Channel Power
Act as Buying Agents for Customers Rather
than Selling Agents for Suppliers
Often Operate on Low Price / Low Margin
Model
Operate in Saturated Markets and Fight for
Market Share
Retailers Are Growing Larger
77.6%
22.4%
Top 50
Rest
Concentration of Sales Among the
Top 50 Retail Firms
69%
31%
56%
44%
79%
21%
55%
45%
58%
42%
Four
Largest
Firms
All Other
Firms
65%
36%
Kinds of Retailers Where Largest Four Firms
Account for At Least 50% of Total Sales
Conventional
Department Stores
Discount
Mass Merchandisers
Variety Stores
Misc. General
Merchandisers
Athletic Footwear Toy Stores
62.8
7.0
1.8 1.6
83.5
14.6
15.6
13.1
$10,000,000
or more
$5,000,000 to
$9,999,999
$1,000,000 to
$4,999,999
Less than
$1,000,000
Sales as a percentage of
the total
Firms as a percentage
of the total
Percentage Distribution of Retail Firms and Sales
by Size of Firms
Enjoy Substantial Channel Power
Retailer
Retailers Act as Buying Agents for
Customers Rather than as Selling
Agents for Suppliers
Retailers Often Operate on Low
Price / Low Margin Model
Retailers Operate in Saturated
Markets and Fight for Market
Share
Power or Dominant Retailers are
therefore the Gatekeepers into
the Consumer Marketplace
Thus, Effective Channel Strategy
for Dealing with
Power Retailers is Crucial
III. The Need to Reduce
Distribution Costs
Distribution
Costs
Distribution Costs Often Account
for a Significant Percentage of the
Final Price of Products
Sometimes Distribution Costs
are Higher than the Manufacturing
Cost or the Costs of Raw
Materials and Component Parts
Some Examples...
Autos Software Gasoline Fax Machines Packaged Foods
Distribution


Manufacturing


Raw Materials
and
Components
15%


40%


45%
25%


65%


10%
28%


19%


53%
30%


30%


40%
41%


33%


26%
While terms such as restructuring,
flattening out, downsizing, and
rightsizing have usually been
mentioned in the context of
corporate organizations, they also
apply to Marketing Channels.
The latest term....
Disintermediation
IV. Increasing Role and
Usefulness of Technology
Technology has the power to
greatly enhance the
effectiveness and efficiency of
Marketing Channels and could
potentially change the entire
structure of distribution around
the world.
Some Examples...
The Internet
Wireless Communications
B2C and B2B E-Commerce
Cell Phones
Global Telecommunications
Robotics & Automated Warehousing
Computerized Salespeople
Firms that make effective use of
these technologies in their channel
strategy can gain a substantial
competitive advantage
Competition
V. The New Stress on Growth
Strategy
In American Business Circles
Growth has Overtaken
Restructuring as the #1 Buzzword
Out
Reengineering
Restructuring
Downsizing
Flat Organizations
Lean and Mean
In
Growth
Expansion
New Markets
Market Share
Top Line Revenue
QUESTION

In a relatively slow growth
economy, how can an individual
company selling mature products in
mature markets grow?
ANSWER

Share of Mind = Share of Market

Translation

By getting channel members to focus on your
products to a greater extent than your
competitors, you gain market share and
growth
Summary
(1) Search For Competitive Advantage
(2) Growing Size and Power of
Retailers
(3) Need to Reduce Distribution Costs
(4) Power and Potential of Technology
(5) Stress on Growth Instead of
Downsizing
Bottom Line
Marketing Channel Strategy Has
Become Critically Important
For Most Businesses
Strategy in Marketing Channels
Channel Strategy
The broad principles by which a
firm expects to achieve its
distribution objectives for
satisfying its customers
Basic Strategic Questions
(1) What role should distribution play in the firms
overall objectives and strategies?
(2) What role should distribution play in the
marketing mix?
(3) How should the firms marketing channels be
designed to achieve its distribution objectives?
(4) What kinds of channel members should be
selected to meet the firms distribution objectives?
(5) How can the marketing channel be managed to
implement the firms channel design effectively and
efficiently on a continuing basis?
The Relationship between customer
satisfaction and the companys
marketing mix can be represented as:

C
s
= f (P
1
, P
2
, P
3
, P
4
)
where:
C
s
= degree of customer satisfaction
P
1
= product strategy
P
2
= pricing strategy
P
3
= promotional strategy
P
4
= place (channel strategy)

Distribution Channel Strategy should
receive especially heavy emphasis if one or
more of the following conditions prevails:
Distribution appears to be the most relevant
variable for satisfying customers
Parity exists among competitors in the other
three marketing mix variables
High degree of vulnerability exists because of
competitors neglect of distribution
Distribution channel strategy can foster
synergies
Classic Marketing Channel
Strategies Still Relevant Today
Dual Distribution
Exclusive Dealing
Full-Line Forcing
Price Differentiation
Price Maintenance
Refusal to Deal
Resale Restrictions
Tying Agreements
The Most Basic Questions in the
Design of Marketing Channels
When Do Customers Buy?
Where Do Customers Buy?
How Do Customers Buy?
Who Buys?
Who makes the actual purchase?
Who uses the product?
Who takes part in the buying decision?
Supply Chain Management
QUESTION

Is this just another buzzword
for logistics - getting the right
product in the right quantity, at
the right time and right place?
OR
Is there something more
substantive to this term?
ANSWER

There is something more than
semantics here:
Supply Chain Management takes a
broader perspective by viewing
logistics as an integral part of the
marketing channel relationship
Supply Chain Management Can
Therefore be Defined as:
A long-term partnership among marketing
channel participants aimed at reducing
inefficiencies, costs, and redundancies in the
logistical system in order to provide high levels
of customer service
Factor
Inventory Management

Total Cost Approach

Time Horizon
Information Sharing and
Monitoring
Joint Planning
Compatibility of Corporate
Philosophies
Channel Leadership

Sharing of Risks and
Rewards

Inventory Flow
Traditional
Logistics System

Independent Effort
Minimize Firm Costs
Short-Term
Limited to Needs of
Current Transaction
Transaction Based
Not Relevant

Not Needed

Each Channel Member
on Their Own
Warehouse Mentality
Storage Safety Stocks

Supply Chain Mgmt. System
Joint Effort to Reduce
Channel Inventories
Channel-Wide Cost Efficiencies

Long-Term
Continuous Effort to
Gather and Monitor
Ongoing
Important for Major Initiatives

Required for
Coordination and Focus
Risks and Rewards Shared
over Long-range
Distribution Center
Orientation-JIT, Quick
Response, Cross Docking
Contrasts Between a Traditional Logistics System and Supply Chain Based System
Common Issues in Supply Chain Management
1. Order Processing Time
2. Order Assembly Time
3. Delivery Time
4. Inventory Reliability
5. Order Size Constraints
6. Consolidation Stipulation
7. Consistency of Delivery
8. Frequency of Sales Visits
9. Ordering Convenience
10. Order Progress Information
11. Inventory Backup During
Promotion
12. Invoice Formats
13. Physical Condition of Goods
14. Claims Response
15. Billing Procedures
16. Average Order Cycle Time
17. Order Cycle Time Variability
18. Rush Service
19. Product Availability
20. Competent Technical Reps
21. Equipment Demonstrations
22. Availability of Literature
23. Accuracy in Filling Orders
24. Terms of Sale
25. Protective Packaging
26. Degree of Cooperation
Strategic Alliances and
Partnerships in Marketing
Channels
Definition:
Continuing and mutually supportive
relationship between the manufacturer and
its channel members in an effort to provide
a more highly motivated team, network,
and alliance of channel partners
Traditional us-against-them
mentality is replaced with a new
cooperative perception of us in
an effective channel partnership
or strategic alliance

Thus, partnerships or strategic
alliances go well beyond the ad-
hoc, on-again / off-again
interactions typical of traditional
relationships among channel
members
Requirements for Partnerships or
Strategic Alliances in Marketing
Channels
(1) Recognition of interdependence of channel
members
(2) Close cooperation between channel members
(3) Careful specification of roles, rights, and
responsibilities in the relationship
(4) Coordinated effort focused on common goals
(5) Good communications and trust between
channel members
Relationship Marketing
via the Marketing Channel
Relationship Marketing
The practice of building long-term relations
with key parties - customers, suppliers,
distributors- in order to retain their long-
term preference and business

Because of the importance of channels of
distribution, building good relationships in
the marketing channel is key to successful
relationship marketing
Building Relationships with Channel
Members
Find Out the Needs and Problems of Channel
Members
-informal information system (grapevine)
-research studies of channel members
-research studies by outside parties
-marketing channel audit
-distributor advisory councils
Offer Support to Channel Members that
is Consistent with Their Needs and Helps
Solve their Problems
-cooperative arrangements
-partnerships and strategic alliances
-distribution programming
Provide Leadership to Motivate Channel
Members
-use power effectively
-recognize causes of conflict
-resolve conflicts
Bases of Power in the Marketing
Channel
Reward Power
Coercive Power
Legitimate Power
Referent Power
Expert Power
Effective Channel Management Depends
on How Well These Power Bases are
Combined and Used
Causes of Marketing Channel
Conflict
Role Incongruities
Resource Scarcities
Perceptual Divergencies
Expectational Differences
Decision Domain Disagreements
Goal Incompatabilities
Communication Difficulties
Ten Trends in Marketing Channels
as We Move into the Next Millennium
1. Growing Emphasis on Marketing Channel
Strategy
2. More and More Stress on Technology
3. Focus on Efficiency and Reducing Distribution
Costs
4. Shortening and Flattening of Distribution
Channels (Disintermediation)
5. Development of New Types of Intermediaries
in Channels (Reintermediation)
Trends Continued...
6. Continued Growth in Partnerships and
Alliances (Relationship Marketing)
7. Increasing Power for Retailers and
Wholesalers (Gatekeepers)
8. Mergers and Acquisitions to Gain
Distribution Clout
9. Flexible and Focused Distribution to Match
Micro, Niche, and Database Marketing
10. Attention to the Behavioral Dimensions of
Distribution to Augment Technology