Channel Concept

A Strategic Tool of Growing Importance for the Next Millennium

(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

A competitive advantage that cannot be quickly and easily copied by competitors

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

Channel Strategy is Long Term

Requires a Channel Structure

Depends on Relationships and People

Requires Effective Interorganizational Management

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

Concentration of Sales Among the Top 50 Retail Firms

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

Percentage Distribution of Retail Firms and Sales by Size of Firms

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

Thus, Effective Channel Strategy for Dealing with Power Retailers is Crucial

Distribution Costs

Sometimes Distribution Costs are Higher than the Manufacturing Cost or the Costs of Raw Materials and Component Parts

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%

Disintermediation

The Internet

Wireless Communications

B2C and B2B E-Commerce

Cell Phones

Global Telecommunications

Robotics & Automated Warehousing

Computerized “Salespeople”

Competition

Out

Reengineering

Restructuring

Downsizing

Flat Organizations

Lean and Mean

In

Growth

Expansion

New Markets

Market Share

Top Line Revenue

Translation By getting channel members to focus on your products to a greater extent than your competitors, you gain market share and growth

(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

Marketing Channel Strategy Has Become Critically Important For Most Businesses

The broad principles by which a firm expects to achieve its distribution objectives for satisfying its customers

(1) What role should distribution play in the firm’s overall objectives and strategies?

(2) What role should distribution play in the marketing mix?

(3) How should the firm’s marketing channels be designed to achieve its distribution objectives?

(4) What kinds of channel members should be selected to meet the firm’s distribution objectives?

(5) How can the marketing channel be managed to implement the firm’s channel design effectively and efficiently on a continuing basis?

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 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

Dual Distribution

Exclusive Dealing

Full-Line Forcing

Price Differentiation

Price Maintenance

Refusal to Deal

Resale Restrictions

Tying Agreements

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 takes a broader perspective by viewing logistics as an integral part of the marketing channel relationship

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

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

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

(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

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