A Strategic Tool of Growing
Importance for the Next
Millennium
(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
A competitive
advantage that cannot
be quickly and easily
copied by competitors
Product
StrategyStrategy rapid technology
transfer enables competitors to quickly
produce similar products
Pricing StrategyStrategy global economy
allows competitors to find low cost
production to match prices
Promotion StrategyStrategy high cost, clutter,
and short life promotional campaigns
limit competitive advantage
Competitive Advantage
Based on
Channel
Strategy is Long Term
Requires a Channel Structure
Depends on Relationships and
People
Requires Effective
Interorganizational Management
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
Concentration of Sales
Among the
Top 50 Retail Firms
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
Percentage Distribution of Retail Firms and Sales
by Size of Firms
Retailer
Retailers Act as Buying Agents for
Customers Rather than as Selling
Agents for Suppliers
Retailers Often Operate on Low
Price /
Low Margin Model
Retailers Operate in Saturated
Markets and Fight for Market
Share
Thus, Effective Channel Strategy
for Dealing with
Power Retailers is Crucial
Distribution
Costs
Sometimes Distribution Costs
are Higher than the Manufacturing
Cost or the Costs of Raw
Materials and Component Parts
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%
Disintermediati
on
The Internet
Wireless Communications
B2C and B2B E-Commerce
Cell Phones
Global Telecommunications
Robotics & Automated
Warehousing
Computerized Salespeople
Competition
Out
Reengineering
Restructuring
Downsizing
Flat
Organizations
Lean and Mean
In
Growth
Expansion
New Markets
Market Share
Top Line
Revenue
Translation
By getting channel members to focus on your
products to a greater extent than your
competitors, you gain market share and
growth
(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
Marketing Channel Strategy
Has Become Critically
Important For Most
Businesses
The broad principles by
which a firm expects to
achieve its distribution
objectives for satisfying
its customers
(1) What role should distribution play in the firms
overall objectives and strategies?
(2) What role should distribution play in the
marketing mix?
(3) How should the firms marketing channels be
designed to achieve its distribution objectives?
(4) What kinds of channel members should be
selected to meet the firms distribution
objectives?
(5) How can the marketing channel be managed
to implement the firms channel design
effectively and efficiently on a continuing basis?
Cs = f (P1, P2, P3, P4)
where:
Cs= degree of customer satisfaction
P1= product strategy
P2= pricing strategy
P3= promotional strategy
P4= place (channel strategy)
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
Dual Distribution
Exclusive Dealing
Full-Line Forcing
Price Differentiation
Price Maintenance
Refusal to Deal
Resale Restrictions
Tying Agreements
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?
Supply Chain Management takes
a broader perspective by
viewing logistics as an integral
part of the marketing channel
relationship
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
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
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.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
Claims Response
Billing Procedures
Average Order Cycle Time
Order Cycle Time Variability
Rush Service
Product Availability
Competent Technical Reps
Equipment Demonstrations
Availability of Literature
Accuracy in Filling Orders
Terms of Sale
Protective Packaging
Degree of Cooperation
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
(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
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
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
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
Reward Power
Coercive Power
Legitimate Power
Referent Power
Expert Power
Effective Channel Management Depends
on How Well These Power Bases are
Combined and Used
Role Incongruities
Resource Scarcities
Perceptual Divergencies
Expectational Differences
Decision Domain
Disagreements
Goal Incompatabilities
Communication Difficulties
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)
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
