Marketing Channel

Strategy and
Management

What is a marketing
channel?
A marketing channel consists of
individuals and firms involved in
the process of making a product or
service available for consumption
or use by consumers and industrial
users.

Role of the channel in

marketing strategy
Links a producer to buyers
Performs sales, advertising, and
promotion
Influences the firms pricing strategy
Affects product strategy through branding
policies, willingness to stock and
customize offerings, install, maintain,
offer credit, etc.

The Channel-Selection
Decision
Fundamental Questions

The marketing manager must

answer the following questions:
Who are potential customers?
Where do they buy?
When do they buy?
How do they buy?
What do they buy?

Traditional Marketing Channel

Designs
Producer
Brokers or Agents
Distributors or Wholesalers
Retailers or Dealers
Ultimate Buyers

The Design of Marketing

Channels
INDIRECT DIST.
Use intermediaries to
reach target market
type
location
density
number of
channel levels

vs.

DIRECT DIST.
Contact ultimate
buyers directly
using its own
sales force or
distribution outlets
using the Internet
through a
marketing Web
site

The Design of Marketing

Channels
Direct distribution is typically used
when:
Buyers are easily identifiable
Personal selling is a major
component of the communication mix
Organization has a wide variety of
offerings for the target market
Sufficient resources are available
7-7

The Design of Marketing

Channels
Direct distribution must be considered
when:
Intermediaries are not available
for reaching target markets
Intermediaries do not possess
the capacity to service the
requirements of target markets
7-8

The Design of Marketing

Channels
Indirect distribution must be considered
when:
Intermediaries can perform distribution
functions more efficiently and less
expensively
Customers are hard to reach directly
Organization does not have resources
to perform distribution function
7-9

The Design of Marketing

Channels
Electronic marketing channels employ
some form of electronic communication,
including the Internet, to make products
and services available for consumption
or use by consumers and industrial
users.
7-10

Representative Electronic Marketing

Channels
Amazon.com
Book
Publisher

Makemytrip.com
Airline

Book
Distributor

Amazon.com
(Virtual
Retailer)

Makemytrip.c
om (Virtual
Agent)

Ultimate Buyers

Dell.com
Dell
Computers

The Design of Marketing

Channels

Disintermediation is the elimination of

traditional intermediaries and direct
distribution through electronic
marketing channels.

7-12

Channel Selection at the

Retail Level
Channel Selection Decisions

1. Which channel and intermediaries will

provide the best coverage of the target
market?
2. Which channel and intermediaries will
best satisfy the buying requirements of
the target market?
3. Which channel and intermediaries will be
the most profitable?
7-13

Channel Selection at the

Retail Level
Target Market Coverage

Exclusive

Selective

When the firm

distributes
its
brand
through
just one or two
major outlets in
the market, who
exclusively deal
in it and not all
competing
brands

When the firm

selects
some
outlets
to
distribute
its
products.

Intensive

using
all
available outlets.

Channel Selection at the

Retail Level
Effective Distribution occurs when a
limited number of retail outlets account
for a significant fraction of the market
potential.
Example: A marketer distributes the
product through 40% of available
outlets, but these outlets account for
80% of the market.
7-15

Channel Selection at the

Retail Level
Satisfying Buyer Requirements

Information
Convenience
Variety
Attendant services
7-16

Channel Selection at the

Retail Level
Profitability

Margins = Revenues Channel Costs

Channel costs are:
- Distribution costs
- Advertising costs
- Selling costs

7-17

Channel Selection at Other

Levels of Distribution
Types of Wholesaler

Specialty wholesaler
Limited line of items within a product
line

General-merchandise wholesaler
Wide assortment of products

General-line wholesaler
Complete assortment of items in a
single retailing field

Combination
7-18

Dual Distribution

occurs when an organization distributes

its offering through two or more different
marketing channels that may or may not
compete for similar buyers
the main consideration is whether it will
provide incremental sales revenue or
cannibalize existing sales

7-19

Dual Distribution
When is it used

distribution to large and small retailers

multibrand strategy
geographic factors

7-20

Dual Distribution
Example

Hallmark
Sells Hallmark brand cards through
Hallmark stores and selected
department stores

7-21

Multi-Channel Marketing

Multi-channel marketing involves the

blending of an electronic marketing
channel and a traditional channel in
ways that are mutually reinforcing in
attracting, retaining, and building
relationships with customers.
7-22

Multi-Channel Marketing
Justifications

An electronic marketing channel can

provide incremental revenue
An electronic marketing channel can
leverage the presence of a traditional
channel
Multi-channel marketing can satisfy
buyer requirements

7-23

Multi-Channel Marketing
Considerations

Actual incremental revenue or merely

cannibalization?
Incremental cost to launch and sustain
an electronic forefront
Disintermediation a traditional
intermediary member is replaced by
electronic storefront

7-24

Satisfying Intermediary
Requirements and Trade
Relations
Intermediary Requirements

Improvements in product assortments

Trade discounts
Promotional support
Lead-time requirements

7-25

Satisfying Intermediary
Requirements and Trade
Relations
Trade Relations
Channel Conflict arises when one
channel member believes another
channel member is engaged in
behavior that is preventing it from
achieving its goals.
7-26

Satisfying Intermediary
Requirements and Trade
Relations
Sources of Channel Conflict

Channel member bypasses another

member and sells or buys direct
Uneven distribution of profit margins
among channel members
Manufacturer believes channel member is
not giving its products adequate attention

7-27

Satisfying Intermediary
Requirements and Trade
Relations
Channel Power

Channel Captain is a channel

member that takes on the role of
coordinating, directing, and
supporting other channel members.

7-28

Satisfying Intermediary
Requirements and Trade
Relations
Forms of Channel Captain Power
Ability to reward or coerce other
members
Expertness
Identification with a particular channel
member (Referent Power)
Legitimate right to dictate the behavior of
other members
7-29

Channel-Modification
Decisions
Reasons

Shifts in the geographical

concentration of buyers
Inability of existing intermediaries
to meet the needs of buyers
Costs of distribution

7-30

Channel-Modification
Decisions
Basic Objectives
1. Provide the best coverage of the
target market sought
2. Satisfy the buying requirements of
the target market
3. Maximize revenue and minimize
cost

7-31

Channel-Modification
Decisions
Qualitative Factors

1. Will the change improve the effective coverage

of the target markets sought? How?
2. Will the change improve the satisfaction of buyer
needs? How?
3. Which marketing functions, if any, must be
absorbed in order to make the change?
4. Does the organization have the resources to
perform new functions?
5. What effect will the change have on other
channel participants?
6. What will be the effect of the change on the
achievement of long-range organizational
objectives?
7-32