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Channel Concept


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Channel Concept

  1. 1. A Strategic Tool of Growing Importance for the Next Millennium
  2. 4. <ul><li>(1) Search for Sustainable Competitive Advantage </li></ul><ul><li>(2) Growing Power of Retailers in Marketing Channels </li></ul><ul><li>(3) The Need to Reduce Distribution Costs </li></ul><ul><li>(4) The Increased Role and Power of Technology </li></ul><ul><li>(5) The New Stress on Growth </li></ul>
  3. 6. A competitive advantage that cannot be quickly and easily copied by competitors
  4. 7. <ul><li>Product Strategy - rapid technology transfer enables competitors to quickly produce similar products </li></ul><ul><li>Pricing Strategy - global economy allows competitors to find low cost production to match prices </li></ul><ul><li>Promotion Strategy - high cost, clutter, and short life promotional campaigns limit competitive advantage </li></ul>
  5. 8. Competitive Advantage Based on
  6. 9. <ul><li>Channel Strategy is Long Term </li></ul><ul><li>Requires a Channel Structure </li></ul><ul><li>Depends on Relationships and People </li></ul><ul><li>Requires Effective Interorganizational Management </li></ul>
  7. 10. Retailers
  8. 11. <ul><li>Are Growing Larger </li></ul><ul><li>Enjoy Substantial Channel Power </li></ul><ul><li>Act as Buying Agents for Customers Rather than Selling Agents for Suppliers </li></ul><ul><li>Often Operate on Low Price / Low Margin Model </li></ul><ul><li>Operate in Saturated Markets and Fight for Market Share </li></ul>
  9. 13. Concentration of Sales Among the Top 50 Retail Firms
  10. 14. 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
  11. 15. Percentage Distribution of Retail Firms and Sales by Size of Firms
  12. 16. Retailer
  13. 17. <ul><li>Retailers Act as Buying Agents for Customers Rather than as Selling Agents for Suppliers </li></ul>
  14. 18. <ul><li>Retailers Often Operate on Low Price / Low Margin Model </li></ul>
  15. 19. <ul><li>Retailers Operate in Saturated Markets and Fight for Market Share </li></ul>
  16. 20. Thus, Effective Channel Strategy for Dealing with Power Retailers is Crucial
  17. 21. Distribution Costs
  18. 22. Sometimes Distribution Costs are Higher than the Manufacturing Cost or the Costs of Raw Materials and Component Parts
  19. 23. 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%
  20. 24. Disintermediation
  21. 27. <ul><li>The Internet </li></ul><ul><li>Wireless Communications </li></ul><ul><li>B2C and B2B E-Commerce </li></ul><ul><li>Cell Phones </li></ul><ul><li>Global Telecommunications </li></ul><ul><li>Robotics & Automated Warehousing </li></ul><ul><li>Computerized “Salespeople” </li></ul>
  22. 28. Competition
  23. 30. <ul><li>Out </li></ul><ul><li>Reengineering </li></ul><ul><li>Restructuring </li></ul><ul><li>Downsizing </li></ul><ul><li>Flat Organizations </li></ul><ul><li>Lean and Mean </li></ul><ul><li>In </li></ul><ul><li>Growth </li></ul><ul><li>Expansion </li></ul><ul><li>New Markets </li></ul><ul><li>Market Share </li></ul><ul><li>Top Line Revenue </li></ul>
  24. 32. Translation By getting channel members to focus on your products to a greater extent than your competitors, you gain market share and growth
  25. 33. <ul><li>(1) Search For Competitive Advantage </li></ul><ul><li>(2) Growing Size and Power of </li></ul><ul><li>Retailers </li></ul><ul><li>(3) Need to Reduce Distribution Costs </li></ul><ul><li>(4) Power and Potential of Technology </li></ul><ul><li>(5) Stress on Growth Instead of </li></ul><ul><li>Downsizing </li></ul>
  26. 34. Marketing Channel Strategy Has Become Critically Important For Most Businesses
  27. 36. <ul><li>The broad principles by which a firm expects to achieve its distribution objectives for satisfying its customers </li></ul>
  28. 37. <ul><li>(1) What role should distribution play in the firm’s overall objectives and strategies? </li></ul><ul><li>(2) What role should distribution play in the marketing mix? </li></ul><ul><li>(3) How should the firm’s marketing channels be designed to achieve its distribution objectives? </li></ul><ul><li>(4) What kinds of channel members should be selected to meet the firm’s distribution objectives? </li></ul><ul><li>(5) How can the marketing channel be managed to implement the firm’s channel design effectively and efficiently on a continuing basis? </li></ul>
  29. 38. 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)
  30. 39. <ul><li>Distribution appears to be the most relevant variable for satisfying customers </li></ul><ul><li>Parity exists among competitors in the other three marketing mix variables </li></ul><ul><li>High degree of vulnerability exists because of competitors’ neglect of distribution </li></ul><ul><li>Distribution channel strategy can foster synergies </li></ul>
  31. 40. <ul><li>Dual Distribution </li></ul><ul><li>Exclusive Dealing </li></ul><ul><li>Full-Line Forcing </li></ul><ul><li>Price Differentiation </li></ul><ul><li>Price Maintenance </li></ul><ul><li>Refusal to Deal </li></ul><ul><li>Resale Restrictions </li></ul><ul><li>Tying Agreements </li></ul>
  32. 41. <ul><li>When Do Customers Buy? </li></ul><ul><li>Where Do Customers Buy? </li></ul><ul><li>How Do Customers Buy? </li></ul><ul><li>Who Buys? </li></ul><ul><li>Who makes the actual purchase? </li></ul><ul><li>Who uses the product? </li></ul><ul><li>Who takes part in the buying decision? </li></ul>
  33. 44. Supply Chain Management takes a broader perspective by viewing logistics as an integral part of the marketing channel relationship
  34. 45. 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
  35. 46. 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
  36. 47. <ul><li>1. Order Processing Time </li></ul><ul><li>2. Order Assembly Time </li></ul><ul><li>3. Delivery Time </li></ul><ul><li>4. Inventory Reliability </li></ul><ul><li>5. Order Size Constraints </li></ul><ul><li>6. Consolidation Stipulation </li></ul><ul><li>7. Consistency of Delivery </li></ul><ul><li>8. Frequency of Sales Visits </li></ul><ul><li>9. Ordering Convenience </li></ul><ul><li>10. Order Progress Information </li></ul><ul><li>11. Inventory Backup During Promotion </li></ul><ul><li>12. Invoice Formats </li></ul><ul><li>13. Physical Condition of Goods </li></ul><ul><li>14. Claims Response </li></ul><ul><li>15. Billing Procedures </li></ul><ul><li>16. Average Order Cycle Time </li></ul><ul><li>17. Order Cycle Time Variability </li></ul><ul><li>18. Rush Service </li></ul><ul><li>19. Product Availability </li></ul><ul><li>20. Competent Technical Reps </li></ul><ul><li>21. Equipment Demonstrations </li></ul><ul><li>22. Availability of Literature </li></ul><ul><li>23. Accuracy in Filling Orders </li></ul><ul><li>24. Terms of Sale </li></ul><ul><li>25. Protective Packaging </li></ul><ul><li>26. Degree of Cooperation </li></ul>
  37. 49. 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
  38. 51. <ul><li>(1) Recognition of interdependence of channel members </li></ul><ul><li>(2) Close cooperation between channel members </li></ul><ul><li>(3) Careful specification of roles, rights, and responsibilities in the relationship </li></ul><ul><li>(4) Coordinated effort focused on common goals </li></ul><ul><li>(5) Good communications and trust between channel members </li></ul>
  39. 53. 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
  40. 54. <ul><li>Find Out the Needs and Problems of Channel Members </li></ul><ul><li>-informal information system (“grapevine”) </li></ul><ul><li>-research studies of channel members </li></ul><ul><li>-research studies by outside parties </li></ul><ul><li>-marketing channel audit </li></ul><ul><li>-distributor advisory councils </li></ul>
  41. 55. <ul><li>Offer Support to Channel Members that is Consistent with Their Needs and Helps Solve their Problems </li></ul><ul><li>-cooperative arrangements </li></ul><ul><li>-partnerships and strategic alliances </li></ul><ul><li>-distribution programming </li></ul><ul><li>Provide Leadership to Motivate Channel Members </li></ul><ul><li>-use power effectively </li></ul><ul><li>-recognize causes of conflict </li></ul><ul><li>-resolve conflicts </li></ul>
  42. 56. <ul><li>Reward Power </li></ul><ul><li>Coercive Power </li></ul><ul><li>Legitimate Power </li></ul><ul><li>Referent Power </li></ul><ul><li>Expert Power </li></ul>Effective Channel Management Depends on How Well These Power Bases are Combined and Used
  43. 57. <ul><li>Role Incongruities </li></ul><ul><li>Resource Scarcities </li></ul><ul><li>Perceptual Divergencies </li></ul><ul><li>Expectational Differences </li></ul><ul><li>Decision Domain Disagreements </li></ul><ul><li>Goal Incompatabilities </li></ul><ul><li>Communication Difficulties </li></ul>
  44. 58. <ul><li>1. Growing Emphasis on Marketing Channel Strategy </li></ul><ul><li>2. More and More Stress on Technology </li></ul><ul><li>3. Focus on Efficiency and Reducing Distribution Costs </li></ul><ul><li>4. Shortening and Flattening of Distribution Channels (Disintermediation) </li></ul><ul><li>5. Development of New Types of Intermediaries in Channels (Reintermediation) </li></ul>
  45. 59. <ul><li>6. Continued Growth in Partnerships and Alliances (Relationship Marketing) </li></ul><ul><li>7. Increasing Power for Retailers and Wholesalers (Gatekeepers) </li></ul><ul><li>8. Mergers and Acquisitions to Gain Distribution Clout </li></ul><ul><li>9. Flexible and Focused Distribution to Match Micro, Niche, and Database Marketing </li></ul><ul><li>10. Attention to the Behavioral Dimensions of Distribution to Augment Technology </li></ul>