Marketing 324 Channels Of Distribution Management Overview Lecture Marketing Channels

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Marketing 324Channels Of Distribution
Management Overview LectureMarketing Channels

• A Strategic Tool of Growing Importance for the
  Next Millennium
• by Dr. Bert Rosenbloom
• Rauth Professor of Marketing Management

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Underlying Philosophy of Modern Marketing
Management (since the 1960s) Stressing an
Outward Focus on Customers as the Center of the
Universe Captured in Terms Such as
Marketing Concept

• Customer Orientation
• Customer Focused
• Customer Driven
• Customer Centered
• Customer Satisfaction
• Market Driven
• Exceed Customer Expectations

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Operational Model for Implementing the Philosophy
of the Marketing Concept is the

• Marketing Mix

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The Marketing Mix Consists of Four Basic
Strategic Variables (the four Ps)

• Product Strategy
• Price Strategy
• Promotional Strategy
• Place Strategy (Channels of Distribution)

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The Role of Marketing Management is to Mix or
Blend These Four Strategic Variables in Such a
Way as to Achieve a Higher Level of Customer
Satisfaction Than Competitors
Customer Focus
Optimized Marketing Mix
Competitive Advantage
High Profitability
Shareholder Value
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But what is different about the Marketing Mix
model as we move into this millennium?
Question
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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.....
Answer
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(Place) the fourth P in the Marketing Mix
hasbeen largely neglectedBut this is
changing....
Marketing Channel Strategy
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Five Reasons
Marketing Channel Strategy is Growing in
Importance. Why?

• (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

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I. The Search for Sustainable Competitive
Advantage
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Sustainable Competitive Advantage

• A competitive advantage that cannot be quickly
  and easily copied by competitors

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A sustainable competitive advantage is becoming
more difficult to attain through

• Product Strategy- rapid technology transfer
  enables competitors to quickly produce similar
  products
• Pricing Strategy- global economy allows
  competitors to find low cost production to match
  prices
• Promotion Strategy- high cost, clutter, and short
  life promotional campaigns limit competitive
  advantage

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Superior Marketing Channel Strategy is More
Difficult for Competitors to Copy Because
Competitive Advantage Based on
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• Channel Strategy is Long Term
• Requires a Channel Structure
• Depends on Relationships and People
• Requires Effective Interorganizational
  Management
• http//www.youtube.com/watch?v1IyLWkkjMtk

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II. Growing Power of Retailers in Marketing
Channels
Retailers
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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

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Retailers Are Growing Larger
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Concentration of Sales Among the Top 50 Retail
Firms
Top 50
Rest
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Kinds of Retailers Where Largest Four Firms
Account for At Least 50 of Total Sales
Variety Stores
4 Largest
Rest
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Percentage Distribution of Retail Firms and
Sales by Size of Firms
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Enjoy Substantial Channel Power
Retailer
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• Retailers Act as Buying Agents for Customers
  Rather than as Selling Agents for Suppliers

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• Retailers Often Operate on Low Price / Low
  Margin Model

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• Retailers Operate in Saturated Markets and Fight
  for Market Share

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Power or Dominant Retailers are therefore the
Gatekeepers into the Consumer Marketplace
Thus, Effective Channel Strategy for Dealing
with Power Retailers is Crucial
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III. The Need to Reduce Distribution Costs
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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
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Some Examples...
Autos Software Gasoline Fax Machines
Packaged Foods
15 40 45
25 65 10
28 19 53
30 30 40
41 33 26
Distribution Manufacturing Raw
Materials and Components
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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

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IV. Increasing Role and Usefulness of Technology
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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.
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Some Examples...

• E-commerce
• M (mobile)-commerce
• F (facebook)-commerce
• Wireless Communications
• Smart phones
• Global Telecommunications (Skype)
• Robotics Automated Warehousing
• Computerized Salespeople

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Firms that make effective use of these
technologies in their channel strategy can gain
a substantial competitive advantage
Competition
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V. The New Stress on Growth Strategy
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In American Business Circles Growth has
Overtaken Restructuring as the 1 Buzzword

• Out
• Reengineering
• Restructuring
• Downsizing
• Flat Organizations
• Lean and Mean

• In
• Growth
• Expansion
• New Markets
• Market Share
• Top Line Revenue

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QUESTIONIn a relatively slow growth economy,
how can an individual company selling mature
products in mature markets grow?
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Share of Mind Share of Market
ANSWER
Translation
By getting channel members to focus on
your products to a greater extent than
your competitors, you gain market share and
growth
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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

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Bottom Line

• Marketing Channel Strategy Has Become Critically
  Important For Most Businesses

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Strategy in Marketing Channels
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Channel Strategy

• The broad principles by which a firm expects to
  achieve its distribution objectives for
  satisfying its customers

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Basic Strategic Questions

• (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?

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The Relationship between customer satisfaction
and the companys 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
• P4 place (channel strategy)

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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

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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

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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?

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Supply Chain Management
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QUESTIONIs this just another buzzword for
logistics - getting the right product in the
right quantity, at the right time and right
place?ORIs there something more substantive to
this term?
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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

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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

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

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The Internet and Electronic Distribution
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Examples...

• Shopping via Personal Computer on the
  Internet
• Wireless Access from Remote Locations
• Electronic Shopping in a Virtual Store

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Some Predictions....

• Nearly 5 million new US households will shop
  online in each of the next five years, with the
  total number of US online shopping households
  expected to reach 63 million by 2008 - Forrester
  Research (2003)
• Online retail sales will account for 10 percent
  of total US retail sales by 2008 - Forrester
  Research (2003)

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Some Current Facts and Figures

• Total U.S. Retail Sales 3.25 trillion
• Catalog, T.V., Mail Order 1.26 billion (.38)
• Internet Shopping 43.5 billion (1.3)

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How About Potential?

• 45 of Americans Purchase from Catalogs
• 7 of Americans buy via television
• 90 million PCs in U.S. homes
• 60 million Internet users
• 20,000 new users added daily

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Electronic Home Shopping- Customer Perspectives

• Disadvantages
• Delayed gratification
• No real product contact
• No shopping atmosphere
• Personal and social motives for shopping not
  satisfied

• Advantages
• Global access to multitude of products and times
• Speed relative to physical shopping
• Information and screening enhanced
• Lower costs in long run

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Personal Motives for Shopping
Social Motives for Shopping

• Personal Motives for Shopping
• Role playing
• Diversion
• Self-gratification
• Learning about new trends
• Physical activity
• Sensory stimulation

• Social Motives for Shopping
• Social expression outside the home
• Communication with others holding similar
  interests
• Peer group attraction
• Status and power

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B2C Electronic Commerce- Company Perspective

• Advantages
• Expanded geographical coverage
• Centralized inventories
• Lower transaction costs
• Complete customer database
• Better targeted products and promotions
• Superior performance measurement

• Disadvantages
• Company must pick, pack, and deliver products
  usually one at a time
• Limited opportunity to demonstrate products
• High return rates (25 for QVC HSN)
• Reduced impulse purchasing
• Limited opportunity to use atmospherics
  entertainment

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Strategic Alliances and Partnerships in Marketing
Channels
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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

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Traditional us-against-them mentality is
replaced with a new cooperative perception of
us in an effective channel partnership or
strategic allianceThus, partnerships or
strategic alliances go well beyond the ad-hoc,
on-again / off-again interactions typical of
traditional relationships among channel members
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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

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Relationship Marketing via the Marketing Channel
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Relationship Marketing

• 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

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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

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Building Relationships with Channel Members
Contd

• 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

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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
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Causes of Marketing Channel Conflict

• Role Incongruities
• Resource Scarcities
• Perceptual Divergencies
• Expectational Differences
• Decision Domain Disagreements
• Goal Incompatabilities
• Communication Difficulties

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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)

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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