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Marketing Channel Strategy

Chapter 1
Understanding Channel Strategy

Marketing Channel Strategy © 2015 by Pearson Education

 Importance of Marketing Channel Strategies
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 Represents a large portion of the world’s business:

total sales through channels represents two third of
the worldwide annual gross domestic product,
which makes understanding and managing sales
channels critical to most businesses.
 A gatekeeper between the manufacturer and the
end-user: channel partners control customer access
to manufacturer’s products, so without and effective
channel strategy, the manufacturer’s products suffer
from limited reach and lack of attractiveness to
buyers. Marketing Channel Strategy © 2015 by Pearson Education
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Channel experience strongly affects perception

of manufacturer’s brand image:
which leads to customer satisfaction. For
example, consumers who take care of their cars
actually expect high quality service at
dealerships. This implies that the dealer’s
postsales service inputs are crucial to the
brand’s long term image and hence its resale
price.
Marketing Channel Strategy © 2015 by Pearson Education
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 An under utilized source of sustainable competitive

advantage
in many industries, the distribution process is
seen as a necessary and costly evil to move
products into the hand of end users. But in any
sort of competitive environment, a manager
who recognizes the value of positioning
through effective channel design, is likely to
beat the company’s rivals easily.
Marketing Channel Strategy © 2015 by Pearson Education
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 Important asset in the company’s overall

marketing and positioning strategy, the
channel often serve to differentiate the
company’ products from those of its
competitors. Differentiation is fundamental to
building and maintaining a competitive
advantage and brand image.

Marketing Channel Strategy © 2015 by Pearson Education

 What is a Marketing Channel?
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 It’s one of four key marketing mix elements(4Ps)

 Product, Price, Promotion, and Place (Channel)
 Marketing Channel: a set of interdependent
organizations involved in the process of making a
product or service available for use or consumption
 Not just one firm, many entities are involved
 Each channel member depends on others
 Running a marketing channel is a process

Marketing Channel Strategy © 2015 by Pearson Education

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Marketing Channel Strategy © 2015 by Pearson Education

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1-Set of interdependent organizations: that is, it cannot

be limited to one firm doing its best in the market.
Many entities generally are involved in the business,
and each channel member depends on the others to
do their jobs.
2-Marketing channel is a process, takes time to
accomplish, and continue after the sale is made (after
sale service).
 3-The purpose of the process is to make the product
available for use or consumption. That is, it is to
satisfy end users.
Marketing Channel Strategy © 2015 by Pearson Education
 Marketing Channel Strategy
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 All channel members should focus attention on end-users

 Managers invest their limited resources to make
marketing channels a strategic asset
 Increases customers satisfaction
 Reduces distribution costs
 Minimizes competitor rivalry
 Results in superior financial performance for their firm
Market Channel Strategy: the set of activities focused on
designing and managing a marketing channel to enhance a
firm’s sustainable competitive advantage and financial
performance
Marketing Channel Strategy © 2015 by Pearson Education
 Who Participates in a Marketing Channel
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 Three Key Entities:

 Manufacturers
 A prime mover in establishing and maintaining channel links
 Can be the “channel captain”
 Intermediaries
 Wholesale
 Retail
 Specialized
 End-users
 Business customers
 Consumers Marketing Channel Strategy © 2015 by Pearson Education
 Manufacturer: Upstream Channel
Members
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 Producer or originator of the product or service being

sold
 Branded manufacturing: brand their products and thus
are known by name to end-users
 Private-label manufacturing: do not invest in building
a brand name
 The lack of a physical product to move through the
channel does not mean that a services company has
no channel design or management issues

Marketing Channel Strategy © 2015 by Pearson Education

 Intermediaries: Middle Channel
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Members
 Refers to any channel member other than the
manufacturer or the end-user
 Three basic types:

 Wholesalers
 Retailers
 Specialized

Marketing Channel Strategy © 2015 by Pearson Education

 Wholesalers
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 Include merchant wholesalers or distributors,

manufacturers’ representatives, agents, and brokers
 Sell to other channel intermediaries, such as retailers,
or to business end-users, but not to individual
consumer end-users
 Takes title to and physical possession of inventory
 Earns the difference between buying at a wholesale
price and selling at a marked-up price to their
downstream customers
 Major function: promotion and negotiation
Marketing Channel Strategy © 2015 by Pearson Education
 Retail Intermediaries
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 Include department stores, mass merchandisers,

hypermarkets
 Sell directly to individual consumers
 Role of today’s retailers goes much further
 May contract for private label goods, vertically integrating
upstream in the supply chain
 May sell to buyers other than consumer end-users

Marketing Channel Strategy © 2015 by Pearson Education

 Specialized Intermediaries
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 Financing function
 Insurance companies
 Finance companies
 Credit card companies
 Promotion function
 Advertising agencies
 Physical possession function
 Logistics and shipping firms
 Ordering or payment functions
 Information technology firms
Marketing Channel Strategy © 2015 by Pearson Education
 End-Users (Downstream Channel Members
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 End-users (either business customers or individual

consumers) are often channel members as well
 Reason: they can and frequently do perform channel
functions, just as other channel members do
 Ex. Consumers who shop at Costco
 Stock up on paper towels → physical possession
 Pay for the paper towels before they use them, thus injecting cash
into the channel → financing function

Marketing Channel Strategy © 2015 by Pearson Education

 Why Do Marketing Channels Exist
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Benefits for Downstream Channel Members:

 Sorting out: breaking down a heterogeneous supply into

separate stocks that are relatively homogeneous (size and
grade).
 Accumulation: brings similar stocks from a number of
sources together into a larger homogeneous supply
wholesalers accumulate goods for retailers, and retailers
accumulate goods for their consumers

Marketing Channel Strategy © 2015 by Pearson Education

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 Allocation: break a homogeneous supply down into

smaller and smaller lots to help other channel
members handle the supply more easily. Allocation
is also referred to as Breaking bulk.

Intermediaries → create possession, place , and

time utilities for the end-users
Marketing Channel Strategy © 2015 by Pearson Education
 Benefits for Upstream Channel Members
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 Routinization of transactions
 Every transaction is subject to bargaining, with an
accompanying loss of efficiency
 Costs of distribution can be minimized if the transactions are
routinized
 Routinization leads to standardization of goods and services
 Reduction in number of contacts
 Without intermediaries, every producer would interact with
every potential buyer
 Intermediaries serve to reduce the complexity of this
exchange system and thus facilitate transactions
Marketing Channel Strategy © 2015 by Pearson Education
 Example of a Decentralized System of
Exchange
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Marketing Channel Strategy © 2015 by Pearson Education

 Example of a Centralized System of
Exchange
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Marketing Channel Strategy © 2015 by Pearson Education

 Agenda
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 Importance of Marketing Channel Strategies

 What is a Marketing Channel Strategy
 Who Participates in a Marketing Channel
 Why Do Marketing Channels Exist
 Key Functions Performed By Marketing Channels

Marketing Channel Strategy © 2015 by Pearson Education

 Nine Universal Channel Functions
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Marketing Channel Strategy © 2015 by Pearson Education

 Channel Function Directions
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 Some functions move forward through the channel

 Physical possession
 Ownership
 Promotion
 Some functions move “backwards” through the channel (up
from the end-users)
 Ordering
 Payment
 Other functions can move in either direction
 Negotiation
 Financing
 Risking
Marketing Channel Strategy © 2015 by Pearson Education
 Information sharing
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The goal of channel coordination

-The end goal of the entire channel management process
not one time action but ongoing process of analysis and
response to the market.
We reach coordination when the channel members act to
further the goals of the channel, rather than their own
independent goals.
-Channel design and implementation in short:
Efficiently, Cost decrease
Effectively, On time delivery
Marketing Channel Strategy © 2015 by Pearson Education