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Channel marketing


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Channel marketing

  1. 1. Channel MarketingChannel Marketing A Strategic Tool of Growing Importance for the Next Millennium by Muhammad Adeel Javaid
  2. 2. A: Over the past three decades, theA: Over the past three decades, the overwhelming emphasis in theoverwhelming emphasis in the Marketing Mix has been on:Marketing Mix has been on: Product StrategyProduct Strategy withwith Pricing StrategyPricing Strategy andand Promotional StrategyPromotional Strategy also being stressed.also being stressed. But.....But.....
  3. 3. Channel Marketing StrategyChannel Marketing Strategy (Place); the fourth “P” in the(Place); the fourth “P” in the Marketing Mix hasMarketing Mix has been largely neglectedbeen largely neglected But this is changing....But this is changing....
  4. 4. Channel Marketing Strategy isChannel Marketing Strategy is Growing in Importance. Why?Growing in Importance. Why? Five ReasonsFive Reasons (1)(1) Search for Sustainable CompetitiveSearch for Sustainable Competitive AdvantageAdvantage (2)(2) Growing Power of Retailers in MarketingGrowing Power of Retailers in Marketing ChannelsChannels (3)(3) The Need to Reduce Distribution CostsThe Need to Reduce Distribution Costs (4)(4) The Increased Role and Power of TechnologyThe Increased Role and Power of Technology (5)(5) The New Stress on GrowthThe New Stress on Growth
  5. 5. I. The Search for SustainableI. The Search for Sustainable Competitive AdvantageCompetitive Advantage
  6. 6. Sustainable CompetitiveSustainable Competitive Advantage:Advantage: A competitive advantage thatA competitive advantage that cannot be quickly and easilycannot be quickly and easily copied by competitorscopied by competitors
  7. 7. A sustainable competitiveA sustainable competitive advantage is becoming moreadvantage is becoming more difficult to attain through:difficult to attain through: Product StrategyProduct Strategy- rapid technology transferrapid technology transfer enables competitors to quickly produce similarenables competitors to quickly produce similar productsproducts Pricing StrategyPricing Strategy- global economy allowsglobal economy allows competitors to find low cost production to matchcompetitors to find low cost production to match pricesprices Promotion StrategyPromotion Strategy- high cost, clutter, and shorthigh cost, clutter, and short life promotional campaigns limit competitivelife promotional campaigns limit competitive advantageadvantage
  8. 8. Competitive Advantage BasedCompetitive Advantage Based onon Superior Channel MarketingSuperior Channel Marketing Strategy is More Difficult forStrategy is More Difficult for Competitors to CopyCompetitors to Copy Because:Because:
  9. 9. Channel Strategy is Long TermChannel Strategy is Long Term Requires a Channel StructureRequires a Channel Structure Depends on Relationships and PeopleDepends on Relationships and People Requires Effective InterorganizationalRequires Effective Interorganizational ManagementManagement
  10. 10. II. Growing Power of RetailersII. Growing Power of Retailers in Channel Marketingin Channel Marketing RetailersRetailers
  11. 11. Retailers....Retailers.... Are Growing LargerAre Growing Larger Enjoy Substantial Channel PowerEnjoy Substantial Channel Power Act as Buying Agents for Customers RatherAct as Buying Agents for Customers Rather than Selling Agents for Suppliersthan Selling Agents for Suppliers Often Operate on Low Price / Low MarginOften Operate on Low Price / Low Margin ModelModel Operate in Saturated Markets and Fight forOperate in Saturated Markets and Fight for Market ShareMarket Share
  12. 12. •Retailers Are Growing LargerRetailers Are Growing Larger
  13. 13. 77.6% 22.4% Top 50 Rest Concentration of Sales Among theConcentration of Sales Among the Top 50 Retail FirmsTop 50 Retail Firms
  14. 14. 69% 31% 56% 44% 79% 21% 55% 45% 58% 42% Four Largest Firms All Other Firms 65% 36% Kinds of Retailers Where Largest Four FirmsKinds of Retailers Where Largest Four Firms Account for At Least 50% of Total SalesAccount for At Least 50% of Total Sales ConventionalConventional Department StoresDepartment Stores DiscountDiscount Mass MerchandisersMass Merchandisers Variety StoresVariety Stores Misc. GeneralMisc. General MerchandisersMerchandisers Athletic FootwearAthletic Footwear Toy StoresToy Stores
  15. 15. 62.8 7.0 1.8 1.6 83.5 14.615.6 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 SalesPercentage Distribution of Retail Firms and Sales by Size of Firmsby Size of Firms
  16. 16. •Enjoy Substantial Channel PowerEnjoy Substantial Channel Power Retailer
  17. 17. Retailers Act as Buying Agents forRetailers Act as Buying Agents for Customers Rather than as SellingCustomers Rather than as Selling Agents for SuppliersAgents for Suppliers
  18. 18. Retailers Often Operate on LowRetailers Often Operate on Low Price / LowPrice / Low Margin ModelMargin Model
  19. 19. Retailers Operate in SaturatedRetailers Operate in Saturated Markets and Fight for MarketMarkets and Fight for Market ShareShare
  20. 20. Power or Dominant Retailers arePower or Dominant Retailers are therefore thetherefore the “Gatekeepers”“Gatekeepers” intointo the Consumer Marketplacethe Consumer Marketplace Thus, Effective Channel StrategyThus, Effective Channel Strategy for Dealing withfor Dealing with Power Retailers is CrucialPower Retailers is Crucial
  21. 21. III. The Need to ReduceIII. The Need to Reduce Distribution CostsDistribution Costs DistributionDistribution CostsCosts
  22. 22. Distribution Costs Often AccountDistribution Costs Often Account for a Significant Percentage of thefor a Significant Percentage of the Final Price of ProductsFinal Price of Products Sometimes Distribution CostsSometimes Distribution Costs areare HigherHigher than the Manufacturingthan the Manufacturing Cost or the Costs of RawCost or the Costs of Raw Materials and Component PartsMaterials and Component Parts
  23. 23. Some Examples...Some Examples... AutosAutos SoftwareSoftware GasolineGasoline Fax MachinesFax Machines Packaged FoodsPackaged Foods DistributionDistribution ManufacturingManufacturing Raw MaterialsRaw Materials andand ComponentsComponents 15%15% 40%40% 45%45% 25%25% 65%65% 10%10% 28%28% 19%19% 53%53% 30%30% 30%30% 40%40% 41%41% 33%33% 26%26%
  24. 24. While terms such as “restructuring”,While terms such as “restructuring”, “flattening out”, “downsizing”, and“flattening out”, “downsizing”, and “rightsizing” have usually been“rightsizing” have usually been mentioned in the context ofmentioned in the context of corporate organizations, they alsocorporate organizations, they also apply to Marketing Channels.apply to Marketing Channels. The latest term....The latest term.... DisintermediationDisintermediation
  25. 25. IV. Increasing Role andIV. Increasing Role and Usefulness of TechnologyUsefulness of Technology
  26. 26. Technology has the power toTechnology has the power to greatly enhance thegreatly enhance the effectiveness and efficiency ofeffectiveness and efficiency of Marketing Channels and couldMarketing Channels and could potentially change the entirepotentially change the entire structure of distribution aroundstructure of distribution around the world.the world.
  27. 27. Some Examples...Some Examples... The InternetThe Internet Wireless CommunicationsWireless Communications B2C and B2B E-CommerceB2C and B2B E-Commerce Cell PhonesCell Phones Global TelecommunicationsGlobal Telecommunications Robotics & Automated WarehousingRobotics & Automated Warehousing Computerized “Salespeople”Computerized “Salespeople”
  28. 28. Firms that make effective use ofFirms that make effective use of these technologies in their channelthese technologies in their channel strategy can gain astrategy can gain a substantialsubstantial competitive advantagecompetitive advantage CompetitionCompetition
  29. 29. V. The New Stress on GrowthV. The New Stress on Growth StrategyStrategy
  30. 30. In American Business CirclesIn American Business Circles “Growth”“Growth” has Overtakenhas Overtaken “Restructuring” as the #1 Buzzword“Restructuring” as the #1 Buzzword OutOut ReengineeringReengineering RestructuringRestructuring DownsizingDownsizing Flat OrganizationsFlat Organizations Lean and MeanLean and Mean InIn GrowthGrowth ExpansionExpansion New MarketsNew Markets Market ShareMarket Share Top Line RevenueTop Line Revenue
  31. 31. QUESTIONQUESTION In a relatively slow growthIn a relatively slow growth economy, how can an individualeconomy, how can an individual company selling mature products incompany selling mature products in mature markets grow?mature markets grow?
  32. 32. ANSWERANSWER Share of Mind = Share of MarketShare of Mind = Share of Market TranslationTranslation By getting channel members to focus on yourBy getting channel members to focus on your products to a greater extent than yourproducts to a greater extent than your competitors, you gain market share andcompetitors, you gain market share and growthgrowth
  33. 33. SummarySummary (1)(1) Search For Competitive AdvantageSearch For Competitive Advantage (2)(2) Growing Size and Power ofGrowing Size and Power of RetailersRetailers (3)(3) Need to Reduce Distribution CostsNeed to Reduce Distribution Costs (4)(4) Power and Potential of TechnologyPower and Potential of Technology (5)(5) Stress on Growth Instead ofStress on Growth Instead of DownsizingDownsizing
  34. 34. Bottom LineBottom Line Marketing Channel Strategy HasMarketing Channel Strategy Has Become Critically ImportantBecome Critically Important For Most BusinessesFor Most Businesses
  35. 35. Strategy in Channel MarketingStrategy in Channel Marketing
  36. 36. Channel StrategyChannel Strategy The broad principles by which aThe broad principles by which a firm expects to achieve itsfirm expects to achieve its distribution objectives fordistribution objectives for satisfying its customerssatisfying its customers
  37. 37. Basic Strategic QuestionsBasic Strategic Questions (1)(1) What role should distribution play in the firm’sWhat role should distribution play in the firm’s overall objectives and strategies?overall objectives and strategies? (2)(2) What role should distribution play in theWhat role should distribution play in the marketing mix?marketing mix? (3)(3) How should the firm’s marketing channels beHow should the firm’s marketing channels be designed to achieve its distribution objectives?designed to achieve its distribution objectives? (4)(4) What kinds of channel members should beWhat kinds of channel members should be selected to meet the firm’s distribution objectives?selected to meet the firm’s distribution objectives? (5)(5) How can the marketing channel be managed toHow can the marketing channel be managed to implement the firm’s channel design effectively andimplement the firm’s channel design effectively and efficiently on a continuing basis?efficiently on a continuing basis?
  38. 38. The Relationship between customerThe Relationship between customer satisfaction and the company’ssatisfaction and the company’s marketing mix can be represented as:marketing mix can be represented as: CCss = f (P= f (P11, P, P22, P, P33, P, P44)) where:where: CCss= degree of customer satisfaction= degree of customer satisfaction PP11= product strategy= product strategy PP22= pricing strategy= pricing strategy PP33= promotional strategy= promotional strategy PP = place (channel strategy)= place (channel strategy)
  39. 39. Distribution Channel Strategy shouldDistribution Channel Strategy should receive especially heavy emphasis if one orreceive especially heavy emphasis if one or more of the following conditions prevails:more of the following conditions prevails: Distribution appears to be the most relevantDistribution appears to be the most relevant variable for satisfying customersvariable for satisfying customers Parity exists among competitors in the otherParity exists among competitors in the other three marketing mix variablesthree marketing mix variables High degree of vulnerability exists because ofHigh degree of vulnerability exists because of competitors’ neglect of distributioncompetitors’ neglect of distribution Distribution channel strategy can fosterDistribution channel strategy can foster synergiessynergies
  40. 40. Classic Channel MarketingClassic Channel Marketing Strategies Still Relevant TodayStrategies Still Relevant Today Dual DistributionDual Distribution Exclusive DealingExclusive Dealing Full-Line ForcingFull-Line Forcing Price DifferentiationPrice Differentiation Price MaintenancePrice Maintenance Refusal to DealRefusal to Deal Resale RestrictionsResale Restrictions Tying AgreementsTying Agreements
  41. 41. The Most Basic Questions in theThe Most Basic Questions in the Design of Marketing ChannelsDesign of Marketing Channels When Do Customers Buy?When Do Customers Buy? Where Do Customers Buy?Where Do Customers Buy? How Do Customers Buy?How Do Customers Buy? Who Buys?Who Buys? Who makes the actual purchase?Who makes the actual purchase? Who uses the product?Who uses the product? Who takes part in the buying decision?Who takes part in the buying decision?
  42. 42. Supply Chain ManagementSupply Chain Management
  43. 43. QUESTIONQUESTION Is this just another “buzzword”Is this just another “buzzword” for logistics - getting the rightfor logistics - getting the right product in the right quantity, atproduct in the right quantity, at the right time and right place?the right time and right place? OROR Is there something moreIs there something more substantive to this term?substantive to this term?
  44. 44. ANSWERANSWER ThereThere isis something more thansomething more than semantics here:semantics here: Supply Chain Management takes aSupply Chain Management takes a broader perspective by viewingbroader perspective by viewing logistics as an integral part of thelogistics as an integral part of the marketing channelmarketing channel relationshiprelationship
  45. 45. Supply Chain Management CanSupply Chain Management Can Therefore be Defined as:Therefore be Defined as: A long-term “partnership” among marketingA long-term “partnership” among marketing channel participants aimed at reducingchannel participants aimed at reducing inefficiencies, costs, and redundancies in theinefficiencies, costs, and redundancies in the logistical system in order to provide high levelslogistical system in order to provide high levels of customer serviceof customer service
  46. 46. Factor Inventory ManagementInventory Management Total Cost ApproachTotal Cost Approach Time HorizonTime Horizon Information Sharing andInformation Sharing and MonitoringMonitoring Joint PlanningJoint Planning Compatibility of CorporateCompatibility of Corporate PhilosophiesPhilosophies Channel LeadershipChannel Leadership Sharing of Risks andSharing of Risks and RewardsRewards Inventory FlowInventory Flow Traditional Logistics SystemLogistics System Independent EffortIndependent Effort Minimize Firm CostsMinimize Firm Costs Short-TermShort-Term Limited to Needs ofLimited to Needs of Current TransactionCurrent Transaction Transaction BasedTransaction Based Not RelevantNot Relevant Not NeededNot Needed Each Channel MemberEach Channel Member on Their Ownon Their Own ““Warehouse” MentalityWarehouse” Mentality Storage Safety StocksStorage Safety Stocks Supply Chain Mgmt. System Joint Effort to ReduceJoint Effort to Reduce Channel InventoriesChannel Inventories Channel-Wide Cost EfficienciesChannel-Wide Cost Efficiencies Long-TermLong-Term Continuous Effort toContinuous Effort to Gather and MonitorGather and Monitor OngoingOngoing Important for Major InitiativesImportant for Major Initiatives Required forRequired for Coordination and FocusCoordination and Focus Risks and Rewards SharedRisks and Rewards Shared over Long-rangeover Long-range ““Distribution Center”Distribution Center” Orientation-JIT, QuickOrientation-JIT, Quick Response, Cross DockingResponse, Cross Docking Contrasts Between a Traditional Logistics System and Supply Chain Based SystemContrasts Between a Traditional Logistics System and Supply Chain Based System
  47. 47. Common Issues in Supply Chain ManagementCommon Issues in Supply Chain Management 1.1. Order Processing TimeOrder Processing Time 2.2. Order Assembly TimeOrder Assembly Time 3.3. Delivery TimeDelivery Time 4.4. Inventory ReliabilityInventory Reliability 5.5. Order Size ConstraintsOrder Size Constraints 6.6. Consolidation StipulationConsolidation Stipulation 7.7. Consistency of DeliveryConsistency of Delivery 8.8. Frequency of Sales VisitsFrequency of Sales Visits 9.9. Ordering ConvenienceOrdering Convenience 10.10. Order Progress InformationOrder Progress Information 11.11. Inventory Backup DuringInventory Backup During PromotionPromotion 12.12. Invoice FormatsInvoice Formats 13.13. Physical Condition of GoodsPhysical Condition of Goods 14.14. Claims ResponseClaims Response 15.15. Billing ProceduresBilling Procedures 16.16. Average Order Cycle TimeAverage Order Cycle Time 17.17. Order Cycle Time VariabilityOrder Cycle Time Variability 18.18. Rush ServiceRush Service 19.19. Product AvailabilityProduct Availability 20.20. Competent Technical RepsCompetent Technical Reps 21.21. Equipment DemonstrationsEquipment Demonstrations 22.22. Availability of LiteratureAvailability of Literature 23.23. Accuracy in Filling OrdersAccuracy in Filling Orders 24.24. Terms of SaleTerms of Sale 25.25. Protective PackagingProtective Packaging 26.26. Degree of CooperationDegree of Cooperation
  48. 48. Strategic Alliances andStrategic Alliances and Partnerships in MarketingPartnerships in Marketing ChannelsChannels
  49. 49. Definition:Definition: Continuing and mutually supportiveContinuing and mutually supportive relationship between the manufacturer andrelationship between the manufacturer and its channel members in an effort to provideits channel members in an effort to provide a more highly motivated team, network,a more highly motivated team, network, and alliance of channel partnersand alliance of channel partners
  50. 50. Traditional “us-against-them”Traditional “us-against-them” mentality is replaced with a newmentality is replaced with a new cooperative perception of “us” incooperative perception of “us” in an effective channel partnershipan effective channel partnership or strategic allianceor strategic alliance Thus, partnerships or strategicThus, partnerships or strategic alliances go well beyond the ad-alliances go well beyond the ad- hoc, on-again / off-againhoc, on-again / off-again interactions typical of traditionalinteractions typical of traditional relationships among channelrelationships among channel membersmembers
  51. 51. Requirements for Partnerships orRequirements for Partnerships or Strategic Alliances in MarketingStrategic Alliances in Marketing ChannelsChannels (1)(1) Recognition of interdependence of channelRecognition of interdependence of channel membersmembers (2)(2) Close cooperation between channel membersClose cooperation between channel members (3)(3) Careful specification of roles, rights, andCareful specification of roles, rights, and responsibilities in the relationshipresponsibilities in the relationship (4)(4) Coordinated effort focused on common goalsCoordinated effort focused on common goals (5)(5) Good communications and trust betweenGood communications and trust between channel memberschannel members
  52. 52. Relationship MarketingRelationship Marketing via the Marketing Channelvia the Marketing Channel
  53. 53. Relationship MarketingRelationship Marketing The practice of building long-term relationsThe practice of building long-term relations with key parties - customers, suppliers,with key parties - customers, suppliers, distributors- in order to retain their long-distributors- in order to retain their long- term preference and businessterm preference and business Because of the importance of channels ofBecause of the importance of channels of distribution, building good relationships indistribution, building good relationships in the marketing channel is key to successfulthe marketing channel is key to successful relationship marketingrelationship marketing
  54. 54. Building Relationships with ChannelBuilding Relationships with Channel MembersMembers Find Out the Needs and Problems of ChannelFind Out the Needs and Problems of Channel MembersMembers -informal information system (“grapevine”)-informal information system (“grapevine”) -research studies of channel members-research studies of channel members -research studies by outside parties-research studies by outside parties -marketing channel audit-marketing channel audit -distributor advisory councils-distributor advisory councils
  55. 55. Offer Support to Channel Members thatOffer Support to Channel Members that is Consistent with Their Needs and Helpsis Consistent with Their Needs and Helps Solve their ProblemsSolve their Problems -cooperative arrangements-cooperative arrangements -partnerships and strategic alliances-partnerships and strategic alliances -distribution programming-distribution programming Provide Leadership to Motivate ChannelProvide Leadership to Motivate Channel MembersMembers -use power effectively-use power effectively -recognize causes of conflict-recognize causes of conflict -resolve conflicts-resolve conflicts
  56. 56. Bases of Power in the ChannelBases of Power in the Channel MarketingMarketing Reward PowerReward Power Coercive PowerCoercive Power Legitimate PowerLegitimate Power Referent PowerReferent Power Expert PowerExpert Power Effective Channel Management DependsEffective Channel Management Depends on How Well These Power Bases areon How Well These Power Bases are Combined and UsedCombined and Used
  57. 57. Causes of Channel MarketingCauses of Channel Marketing ConflictConflict Role IncongruitiesRole Incongruities Resource ScarcitiesResource Scarcities Perceptual DivergenciesPerceptual Divergencies Expectational DifferencesExpectational Differences Decision Domain DisagreementsDecision Domain Disagreements Goal IncompatabilitiesGoal Incompatabilities Communication DifficultiesCommunication Difficulties
  58. 58. Ten Trends in Marketing ChannelsTen Trends in Marketing Channels as We Move into the Next Millenniumas We Move into the Next Millennium 1.1. Growing Emphasis on Marketing ChannelGrowing Emphasis on Marketing Channel StrategyStrategy 2.2. More and More Stress on TechnologyMore and More Stress on Technology 3.3. Focus on Efficiency and Reducing DistributionFocus on Efficiency and Reducing Distribution CostsCosts 4.4. Shortening and Flattening of DistributionShortening and Flattening of Distribution Channels (Disintermediation)Channels (Disintermediation) 5.5. Development of New Types of IntermediariesDevelopment of New Types of Intermediaries in Channels (Reintermediation)in Channels (Reintermediation)
  59. 59. Trends Continued...Trends Continued... 6.6. Continued Growth in Partnerships andContinued Growth in Partnerships and Alliances (Relationship Marketing)Alliances (Relationship Marketing) 7.7. Increasing Power for Retailers andIncreasing Power for Retailers and Wholesalers (Gatekeepers)Wholesalers (Gatekeepers) 8.8. Mergers and Acquisitions to GainMergers and Acquisitions to Gain Distribution CloutDistribution Clout 9.9. Flexible and Focused Distribution to MatchFlexible and Focused Distribution to Match Micro, Niche, and Database MarketingMicro, Niche, and Database Marketing 10.10. Attention to the Behavioral Dimensions ofAttention to the Behavioral Dimensions of Distribution to Augment TechnologyDistribution to Augment Technology