This document discusses the growing importance of channel marketing strategy. It notes that while product, price, and promotion strategies were previously emphasized, channel strategy (place) has been neglected. However, it is increasing in importance due to: (1) the need to find sustainable competitive advantages beyond just product and price; (2) the growing power and size of retailers; (3) the need to reduce distribution costs; (4) the role of new technologies; and (5) a new focus on growth over downsizing. Developing an effective channel strategy is critical for most businesses to satisfy customers and gain competitive advantages.

1. Channel MarketingChannel Marketing
A Strategic Tool of Growing
Importance for the Next Millennium
by Muhammad Adeel Javaid

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. 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. 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. I. The Search for SustainableI. The Search for Sustainable
Competitive AdvantageCompetitive Advantage

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. 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. 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. 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. II. Growing Power of RetailersII. Growing Power of Retailers
in Channel Marketingin Channel Marketing
RetailersRetailers

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. •Retailers Are Growing LargerRetailers Are Growing Larger

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. 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. 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. •Enjoy Substantial Channel PowerEnjoy Substantial Channel Power
Retailer

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. Retailers Often Operate on LowRetailers Often Operate on Low
Price / LowPrice / Low
Margin ModelMargin Model

19. Retailers Operate in SaturatedRetailers Operate in Saturated
Markets and Fight for MarketMarkets and Fight for Market
ShareShare

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. III. The Need to ReduceIII. The Need to Reduce
Distribution CostsDistribution Costs
DistributionDistribution
CostsCosts

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. 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. 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. IV. Increasing Role andIV. Increasing Role and
Usefulness of TechnologyUsefulness of Technology

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. 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. 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. V. The New Stress on GrowthV. The New Stress on Growth
StrategyStrategy

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. 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. 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. 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. Bottom LineBottom Line
Marketing Channel Strategy HasMarketing Channel Strategy Has
Become Critically ImportantBecome Critically Important
For Most BusinessesFor Most Businesses

35. Strategy in Channel MarketingStrategy in Channel Marketing

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. 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. 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. 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. 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. 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. Supply Chain ManagementSupply Chain Management

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. 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. 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. 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. 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. Strategic Alliances andStrategic Alliances and
Partnerships in MarketingPartnerships in Marketing
ChannelsChannels

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. 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. 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. Relationship MarketingRelationship Marketing
via the Marketing Channelvia the Marketing Channel

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. 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. 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. 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. 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. 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. 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