This document discusses the growing importance of marketing channel strategy. It provides 5 reasons for this: 1) the search for sustainable competitive advantage, 2) the growing power of retailers, 3) the need to reduce distribution costs, 4) the increased role of technology, and 5) the new stress on growth. It then examines these reasons in more detail, focusing on the power of large retailers, the substantial percentage of costs often accounted for by distribution, and how technology can enhance marketing channels. Finally, it discusses concepts like supply chain management, strategic alliances, and the requirements for effective partnerships between companies and their marketing channel members.

1. Marketing Channels
A Strategic Tool of Growing
Importance for the Next Millennium
by Dr. Bert Rosenbloom

2. 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.....

3. Marketing Channel Strategy
(Place); the fourth “P” in the
Marketing Mix has
been largely neglected
But this is changing....

4. 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

5. I. The Search for Sustainable
Competitive Advantage

6. Sustainable Competitive
Advantage:
A competitive advantage that
cannot be quickly and easily
copied by competitors

7. A sustainable competitive
advantage is becoming more
difficult to attain through:
Product Strategy- rapid technology transfer
Strategy
enables competitors to quickly produce similar
products
Pricing Strategy- global economy allows
Strategy
competitors to find low cost production to match
prices
Promotion Strategy- high cost, clutter, and short
Strategy
life promotional campaigns limit competitive
advantage

8. Competitive Advantage Based
on
Superior Marketing Channel
Strategy is More Difficult for
Competitors to Copy
Because:

9. Channel Strategy is Long Term
Requires a Channel Structure
Depends on Relationships and People
Requires Effective Interorganizational
Management

10. II. Growing Power of Retailers
in Marketing Channels
Retailers

11. 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

12. •Retailers Are Growing Larger

13. Concentration of Sales Among the
Top 50 Retail Firms
77.6%
22.4%
Top 50
Rest

14. Kinds of Retailers Where Largest Four Firms
Account for At Least 50% of Total Sales
44%
56%
Conventional
Department Stores
31%
69%
Misc. General
Merchandisers
21%
45%
55%
79%
Discount
Mass Merchandisers
36%
Variety Stores
42%
65%
Athletic Footwear
58%
Toy Stores
Four
Largest
Firms
All Other
Firms

15. Percentage Distribution of Retail Firms and Sales
by Size of Firms
83.5
Sales as a percentage of
the total
Firms as a percentage
of the total
62.8
15.6
7.0
1.8
$10,000,000
or more
13.1
14.6
1.6
$5,000,000 to $1,000,000 to
$9,999,999
$4,999,999
Less than
$1,000,000

16. •Enjoy Substantial Channel Power
Retailer

17. Retailers Act as Buying Agents for
Customers Rather than as Selling
Agents for Suppliers

18. Retailers Often Operate on Low
Price / Low
Margin Model

19. Retailers Operate in Saturated
Markets and Fight for Market
Share

20. Power or Dominant Retailers are
therefore the “Gatekeepers” into
the Consumer Marketplace
Thus, Effective Channel Strategy
for Dealing with
Power Retailers is Crucial

21. III. The Need to Reduce
Distribution Costs
Distribution
Costs

22. 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

23. Some Examples...
Autos
Distribution
Manufacturing
Raw Materials
and
Components
Software
Gasoline
Fax Machines
Packaged Foods
15%
25%
28%
30%
41%
40%
65%
19%
30%
33%
45%
10%
53%
40%
26%

24. 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

25. IV. Increasing Role and
Usefulness of Technology

26. 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.

27. Some Examples...
The Internet
Wireless Communications
B2C and B2B E-Commerce
Cell Phones
Global Telecommunications
Robotics & Automated Warehousing
Computerized “Salespeople”

28. Firms that make effective use of
these technologies in their channel
strategy can gain a substantial
competitive advantage
Competition

29. V. The New Stress on Growth
Strategy

30. In American Business Circles
“Growth” has Overtaken
“Restructuring” as the #1 Buzzword
Out
In
Reengineering
Restructuring
Downsizing
Flat Organizations
Lean and Mean
Growth
Expansion
New Markets
Market Share
Top Line Revenue

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

32. 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

33. 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

34. Bottom Line
Marketing Channel Strategy Has
Become Critically Important
For Most Businesses

35. Strategy in Marketing Channels

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

37. Basic Strategic Questions
(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?

38. The Relationship between customer
satisfaction and the company’s
marketing mix can be represented as:
Cs = f (P1, P2, P3, P4)
where:
Cs= degree of customer satisfaction
P1= product strategy
P2= pricing strategy
P3= promotional strategy
P = place (channel strategy)

39. 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

40. 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

41. 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?

42. Supply Chain Management

43. 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?

44. 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

45. 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

46. Contrasts Between a Traditional Logistics System and Supply Chain Based System
Factor
Traditional
Supply Chain Mgmt. System
Inventory Management
Logistics System
Total Cost Approach
Independent Effort
Minimize Firm Costs
Short-Term
Limited to Needs of
Current Transaction
Transaction Based
Not Relevant
Joint Effort to Reduce
Channel Inventories
Channel-Wide Cost Efficiencies
Time Horizon
Information Sharing and
Monitoring
Joint Planning
Compatibility of Corporate
Philosophies
Channel Leadership
Sharing of Risks and
Rewards
Inventory Flow
Not Needed
Each Channel Member
on Their Own
“Warehouse” Mentality
Storage Safety Stocks
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

47. 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

48. Strategic Alliances and
Partnerships in Marketing
Channels

49. 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

50. 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 adhoc, on-again / off-again
interactions typical of traditional
relationships among channel
members

51. 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

52. Relationship Marketing
via the Marketing Channel

53. Relationship Marketing
The practice of building long-term relations
with key parties - customers, suppliers,
distributors- in order to retain their longterm preference and business
Because of the importance of channels of
distribution, building good relationships in
the marketing channel is key to successful
relationship marketing

54. 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

55. 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

56. 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

57. Causes of Marketing Channel
Conflict
Role Incongruities
Resource Scarcities
Perceptual Divergencies
Expectational Differences
Decision Domain Disagreements
Goal Incompatabilities
Communication Difficulties

58. 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)

59. 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