Marketing Channel Concepts

by Anoop Kumar Gupta MAIT

1

Essence of Marketing Channels

Making

products and services conveniently available to customers when, where, and how they want them. It is through marketing channels that the vast array of customer demand is satisfied.
2

4Ps of Marketing
1. Examination of the place as a source of competitive advantage 2. Examine place as a key component of Strategic Marketing, that offer to the firm an advantage that cannot be easily copied by competition

Objective 1:

Why the growing importance of marketing channels?

1. The explosion of information technology and E-commerce

2.

A greater difficulty in gaining a sustainable competitive advantage

3. The growing power of distributors, especially retailers in marketing channels 4. The need to reduce distribution costs

1.

2.

3.
4.

The explosion of information technology and E-commerce A greater difficulty in gaining a sustainable competitive advantage The growing power of distributors, especially retailers in marketing channels The need to reduce distribution costs

The prediction: Disintermediation reduction of number of intermediaries The reality: Reintermediationevolution of a new type of intermediary
Yahoo! eBay Amazon.com Occurred as new types of middlemen called infomediaries such as eBay and Yahoo! emerged to connect producers to consumers.

Objective 4:

Disintermediation and Reintermediation

Reintermediation

Disintermediation

Intermediaries become superfluous because producers gain exposure to vast numbers of customers in cyberspace

Shifting, changing, or adding middlemen to the channel

Dell Computer Corp.

Amazon.com ebay

The explosion of information technology and Ecommerce 2. A greater difficulty in gaining a sustainable competitive advantage 3. The growing power of distributors, especially retailers in marketing channels 4. The need to reduce distribution costs

1.

Sustainable competitive advantage

Place (distribution), or Marketing Channel Strategy

Potential for gaining competitive advantage because place is more difficult for competitors to copy

1. 2. 3. 4.

1 The explosion of information technology and E-commerce A greater difficulty in gaining a sustainable competitive advantage The growing power of distributors The need to reduce distribution costs

Power retailers as

Gatekeepers

of consumer markets

Act as buying agents for customers rather than as selling agents for manufacturers
Economic power has shifted from the producers of goods to the distributors of goods. These distributors now form and play a role as gatekeepers for the consumers acting as buying agents and selecting what products the consumer sees. Examples include: Home Depot, Toys R Us, and other category killers.

1. 2. 3. 4.

The explosion of information technology and E-commerce A greater difficulty in gaining a sustainable competitive advantage The growing power of distributors The need to reduce distribution costs

Marketing channels are the most recent target for reducing distribution costs.

Distribution costs for many manufacturing The focus is on channel firms often meet or exceed the costs of manufacturing or raw materials. In order structure and management. to reduce these costs manufacturers must begin the process of focusing attention on marketing channel structure more than they have in the past.

Objective 2:

What is a marketing channel?

Outside the firm

Firm involved in negotiatory functions

Managements involvement in the process External contactual organization that management operates to achieve its distribution objectives Goals that change, causing variations Producers perspective in contactual organization & the way path taken to move in which from producer to management operates it consumer

What is a contactual organization ?

Firms or parties who are involved in negotiatory functions as a product or service moves from the producer to its ultimate user.

Negotiatory functions consists of buying, selling, and transferring title to products or services.

What is a channel manager?

Anyone in a firm or organization who is involved in marketing channel decision making

Objective 3:

How does marketing channel strategy relate to the rest of the marketing mix?
Marketing Mix or the four Ps Product

Challenges
Limited ability to gain and hold competitive advantage

Price Promotion
Place (Distribution)

Price wars erode profitability & provide unstable basis for sustaining competitive advantage Expensive and short-lived
Marketing channels support & enhance other Ps to meet demands of target markets

The change of focus to channel strategy

Creates competitive advantage with long-term viability
Builds strong relationships between manufacturers and channel members Based on trust, confidence, and people power

Channel Strategy versus Logistics Management

Channel strategy and logistics management comprise the distribution variable of the marketing mix. Channel strategy is concerned with the entire process of setting up and operating the contactual organizations that are responsible for meeting the firms distribution objectives. Logistics management more narrowly focuses on providing product availability at the appropriate place and time in the marketing channel. Channel strategy must first be established before logistics management should be considered. Logistic management is a subsidiary of channel management.

Channel Strategy and Logistics Management

Part of distribution variable

Concerned with entire process of starting and operating contactual organization Formulated before logistics management

Focused specifically on providing product availability at appropriate time & place

Objective 4:

Marketing Channel Flows

Product Flow
Negotiation Flow Ownership Flow

Information Flow
Promotion Flow

Product Flow
Manufacturer
Transportation Company Wholesalers

Retailers
Consumers

Negotiation Flow
Manufacturer

Wholesalers

Retailers
Consumers

Ownership Flow
Manufacturer

Wholesalers

Retailers
Consumers

Information Flow
Manufacturer Transportation Company Wholesalers

Retailers
Consumers

Promotion Flow
Manufacturer Advertising Agency Wholesalers

Retailers
Consumers

Objective 5:

Distribution through intermediaries

Factors that determine the role of intermediaries

Technology
Economic Considerations

the Internet
Specialization & Division of Labor Contactual Efficiency

Specialization & Division of Labor

Distribution Tasks Distributed interorganizationally Production Tasks Distributed intraorganizationally

Objective 6:

Channel Structure v. Ancillary Structure

Channel Structure The group of channel members to which a set of distribution tasks has been allocated

Why are singlechannel structures currently the exception?

Ancillary Structure The group of institutions that assist channel members in performing distribution tasks

Why is managing the ancillary structure most likely to be less complex than managing the channel structure?

Channel Structure v. Ancillary Structure

Channel structure: The group of channel members to which a set of distribution tasks has been allocated. The channel manager is faced with allocation decisions, how to allocate or structure the task of distribution. Multi-channel strategy is when the firm has chosen to reach its target consumer through more than one channel. With the advent of E-commerce, many firms have opted to use multi-channel strategies to reach their target market.

Channel Structure v. Ancillary Structure

Ancillary structure: The group of institutions (facilitating agents) that assist channel members in performing distribution tasks. These ancillary members provide services to the channel members after the basic channel decisions have already been made. Examples of ancillary members include: banks, insurance agents, storage agents, contractors, repair shops, etc. Channel management must also deal with these ancillary members who do not have as great a stake in the channel as channel members but who are nevertheless key components in ensuring that the product is available to the consumer.