channel concept
Post on 20-Oct-2014
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A Strategic Tool of Growing Importance for the Next Millennium
(1) (1) Search for Sustainable Competitive Search for Sustainable Competitive AdvantageAdvantage
(2) (2) Growing Power of Retailers in Growing Power of Retailers in Marketing Marketing ChannelsChannels
(3) (3) The Need to Reduce Distribution CostsThe Need to Reduce Distribution Costs(4) (4) The Increased Role and Power of The Increased Role and Power of
TechnologyTechnology(5) (5) The New Stress on GrowthThe New Stress on Growth
A competitive A competitive advantage that cannot advantage that cannot be quickly and easily be quickly and easily copied by competitorscopied by competitors
Product StrategyProduct Strategy- rapid technology rapid technology transfer enables competitors to quickly transfer enables competitors to quickly produce similar productsproduce similar products
Pricing StrategyPricing Strategy- global economy global economy allows competitors to find low cost allows competitors to find low cost production to match pricesproduction to match prices
Promotion StrategyPromotion Strategy- high cost, clutter, high cost, clutter, and short life promotional campaigns and short life promotional campaigns limit competitive advantagelimit competitive advantage
Competitive Advantage Based on
Channel Strategy is Long TermChannel Strategy is Long TermRequires a Channel StructureRequires a Channel StructureDepends on Relationships and Depends on Relationships and PeoplePeople
Requires Effective Requires Effective Interorganizational ManagementInterorganizational Management
RetailersRetailers
Are Growing LargerAre Growing Larger Enjoy Substantial Channel PowerEnjoy Substantial Channel Power Act as Buying Agents for Customers Act as Buying Agents for Customers
Rather than Selling Agents for Rather than Selling Agents for SuppliersSuppliers
Often Operate on Low Price / Low Often Operate on Low Price / Low Margin ModelMargin Model
Operate in Saturated Markets and Operate in Saturated Markets and Fight for Market ShareFight for Market Share
77.6%
22.4%
Top 50
Rest
Concentration of Sales Among the
Top 50 Retail Firms
69%
31%
56%
44%
79%
21%
55%
45%
58%
42% FourLargestFirms
All OtherFirms
64%
36%
Kinds of Retailers Where Largest Four Firms Kinds of Retailers Where Largest Four Firms Account for At Least 50% of Total SalesAccount for At Least 50% of Total Sales
Conventional Conventional Department StoresDepartment Stores
DiscountDiscountMass MerchandisersMass Merchandisers
Variety StoresVariety Stores
Misc. GeneralMisc. GeneralMerchandisersMerchandisers
Athletic FootwearAthletic Footwear Toy StoresToy Stores
62.8
7.01.8 1.6
83.5
14.615.613.1
$10,000,000or more
$5,000,000 to$9,999,999
$1,000,000 to$4,999,999
Less than$1,000,000
Sales as a percentage ofthe total
Firms as a percentageof the total
Percentage Distribution of Retail Firms and SalesPercentage Distribution of Retail Firms and Salesby Size of Firmsby Size of Firms
Retailer
Retailers Act as Buying Agents Retailers Act as Buying Agents for Customers Rather than as for Customers Rather than as Selling Agents for SuppliersSelling Agents for Suppliers
Retailers Often Operate on Low Retailers Often Operate on Low Price / Price / Low Margin ModelLow Margin Model
Retailers Operate in Saturated Retailers Operate in Saturated Markets and Fight for Market Markets and Fight for Market ShareShare
Thus, Effective Channel Strategy Thus, Effective Channel Strategy for Dealing with for Dealing with
Power Retailers is CrucialPower Retailers is Crucial
DistributionDistributionCostsCosts
Sometimes Distribution Costs Sometimes Distribution Costs are are Higher Higher than the Manufacturing than the Manufacturing
Cost or the Costs of Raw Cost or the Costs of Raw Materials and Component PartsMaterials and Component Parts
Autos Autos SoftwareSoftware GasolineGasoline Fax MachinesFax Machines Packaged FoodsPackaged Foods
DistributionDistribution
ManufacturingManufacturing
Raw MaterialsRaw Materialsandand
ComponentsComponents
15%15%
40%40%
45%45%
25%25%
65%65%
10%10%
28%28%
19%19%
53%53%
30%30%
30%30%
40%40%
41%41%
33%33%
26%26%
DisintermediatiDisintermediationon
The InternetThe Internet Wireless CommunicationsWireless Communications B2C and B2B E-CommerceB2C and B2B E-Commerce Cell PhonesCell Phones Global TelecommunicationsGlobal Telecommunications Robotics & Automated Robotics & Automated
WarehousingWarehousing Computerized “Salespeople”Computerized “Salespeople”
CompetitionCompetition
OutOutReengineeringReengineeringRestructuringRestructuringDownsizingDownsizing
Flat Flat OrganizationOrganization
ssLean and MeanLean and Mean
In In GrowthGrowth
ExpansionExpansionNew MarketsNew MarketsMarket ShareMarket Share
Top Line Top Line RevenueRevenue
TranslationTranslation
By getting channel members to focus on yourBy getting channel members to focus on yourproducts to a greater extent than yourproducts to a greater extent than your
competitors, you gain market share and competitors, you gain market share and growthgrowth
(1) (1) Search For Competitive Search For Competitive AdvantageAdvantage
(2) (2) Growing Size and Power of Growing Size and Power of RetailersRetailers (3) (3) Need to Reduce Distribution CostsNeed to Reduce Distribution Costs(4) (4) Power and Potential of Power and Potential of
TechnologyTechnology(5) (5) Stress on Growth Instead of Stress on Growth Instead of Downsizing Downsizing
Marketing Channel Strategy Marketing Channel Strategy Has Become Critically Has Become Critically Important For Most Important For Most BusinessesBusinesses
The broad principles by The broad principles by which a firm expects to which a firm expects to achieve its distribution achieve its distribution objectives for satisfying objectives for satisfying
its customersits customers
(1) (1) What role should distribution play in the firm’s What role should distribution play in the firm’s overall objectives and strategies? overall objectives and strategies?
(2) (2) What role should distribution play in the What role should distribution play in the marketing mix?marketing mix?
(3) (3) How should the firm’s marketing channels be How should the firm’s marketing channels be designed to achieve its distribution objectives?designed to achieve its distribution objectives?
(4) (4) What kinds of channel members should be What kinds of channel members should be selected to meet the firm’s distribution selected to meet the firm’s distribution objectives?objectives?
(5) (5) How can the marketing channel be managed How can the marketing channel be managed to implement the firm’s channel design to implement the firm’s channel design effectively and efficiently on a continuing basis?effectively and efficiently on a continuing basis?
CCss = f (P = f (P11, P, P22, P, P33, P, P44))where:where:CCss= degree of customer satisfaction= degree of customer satisfactionPP11= product strategy= product strategyPP22= pricing strategy= pricing strategyPP33= promotional strategy= promotional strategyPP44= place (channel strategy)= place (channel strategy)
Distribution appears to be the most Distribution appears to be the most relevant variable for satisfying relevant variable for satisfying customerscustomers
Parity exists among competitors in the Parity exists among competitors in the other three marketing mix variablesother three marketing mix variables
High degree of vulnerability exists High degree of vulnerability exists because of competitors’ neglect of because of competitors’ neglect of distributiondistribution
Distribution channel strategy can foster Distribution channel strategy can foster synergiessynergies
Dual DistributionDual DistributionExclusive DealingExclusive DealingFull-Line ForcingFull-Line ForcingPrice DifferentiationPrice DifferentiationPrice MaintenancePrice MaintenanceRefusal to DealRefusal to DealResale RestrictionsResale RestrictionsTying AgreementsTying Agreements
When Do Customers Buy?When Do Customers Buy?Where Do Customers Buy?Where Do Customers Buy?How Do Customers Buy?How Do Customers Buy?Who Buys?Who Buys?
Who makes the actual purchase?Who makes the actual purchase?Who uses the product?Who uses the product?Who takes part in the buying Who takes part in the buying
decision?decision?
Supply Chain Management takes Supply Chain Management takes a broader perspective by a broader perspective by viewing logistics as an integral viewing logistics as an integral part of the marketing channel part of the marketing channel relationshiprelationship
A long-term “partnership” among marketing channel A long-term “partnership” among marketing channel participants aimed at reducing inefficiencies, costs, and participants aimed at reducing inefficiencies, costs, and redundancies in the logistical system in order to provide redundancies in the logistical system in order to provide high levels of customer servicehigh levels of customer service
Factor
Inventory ManagementInventory Management
Total Cost ApproachTotal Cost Approach
Time HorizonTime Horizon
Information Sharing and Information Sharing and
MonitoringMonitoring
Joint PlanningJoint Planning
Compatibility of CorporateCompatibility of Corporate
PhilosophiesPhilosophies
Channel LeadershipChannel Leadership
Sharing of Risks andSharing of Risks and
RewardsRewards
Inventory FlowInventory Flow
Traditional
Logistics SystemLogistics System
Independent EffortIndependent Effort
Minimize Firm CostsMinimize Firm Costs
Short-TermShort-Term
Limited to Needs ofLimited to Needs of
Current TransactionCurrent Transaction
Transaction BasedTransaction Based
Not RelevantNot Relevant
Not NeededNot Needed
Each Channel MemberEach Channel Member
on Their Ownon Their Own
““Warehouse” MentalityWarehouse” Mentality
Storage Safety StocksStorage Safety Stocks
Supply Chain Mgmt. System
Joint Effort to ReduceJoint Effort to Reduce
Channel InventoriesChannel Inventories
Channel-Wide Cost EfficienciesChannel-Wide Cost Efficiencies
Long-TermLong-Term
Continuous Effort toContinuous Effort to
Gather and MonitorGather and Monitor
OngoingOngoing
Important for Major InitiativesImportant for Major Initiatives
Required for Required for
Coordination and FocusCoordination and Focus
Risks and Rewards SharedRisks and Rewards Shared
over Long-rangeover Long-range
““Distribution Center”Distribution Center”
Orientation-JIT, Quick Orientation-JIT, Quick
Response, Cross DockingResponse, Cross Docking
Contrasts Between a Traditional Logistics System and Supply Chain Based SystemContrasts Between a Traditional Logistics System and Supply Chain Based System
1. 1. Order Processing TimeOrder Processing Time2. 2. Order Assembly TimeOrder Assembly Time3. 3. Delivery TimeDelivery Time4. 4. Inventory ReliabilityInventory Reliability5. 5. Order Size ConstraintsOrder Size Constraints6. 6. Consolidation StipulationConsolidation Stipulation7. 7. Consistency of DeliveryConsistency of Delivery8. 8. Frequency of Sales VisitsFrequency of Sales Visits9. 9. Ordering ConvenienceOrdering Convenience10. 10. Order Progress Order Progress
InformationInformation11. 11. Inventory Backup Inventory Backup
During PromotionDuring Promotion12. 12. Invoice FormatsInvoice Formats13. 13. Physical Condition of Physical Condition of
GoodsGoods
14. 14. Claims ResponseClaims Response15. 15. Billing ProceduresBilling Procedures16. 16. Average Order Cycle TimeAverage Order Cycle Time17. 17. Order Cycle Time VariabilityOrder Cycle Time Variability18. 18. Rush ServiceRush Service19. 19. Product AvailabilityProduct Availability20. 20. Competent Technical RepsCompetent Technical Reps21. 21. Equipment DemonstrationsEquipment Demonstrations22. 22. Availability of LiteratureAvailability of Literature23. 23. Accuracy in Filling OrdersAccuracy in Filling Orders24. 24. Terms of SaleTerms of Sale25. 25. Protective PackagingProtective Packaging26. 26. Degree of CooperationDegree of Cooperation
Continuing and mutually supportive Continuing and mutually supportive relationship between the relationship between the manufacturer and its channel manufacturer and its channel members in an effort to provide a members in an effort to provide a more highly motivated team, network, more highly motivated team, network, and alliance of channel partnersand alliance of channel partners
(1) (1) Recognition of interdependence of Recognition of interdependence of channel channel membersmembers
(2) (2) Close cooperation between channel Close cooperation between channel membersmembers
(3) (3) Careful specification of roles, rights, and Careful specification of roles, rights, and responsibilities in the relationshipresponsibilities in the relationship
(4) (4) Coordinated effort focused on common Coordinated effort focused on common goalsgoals
(5) (5) Good communications and trust Good communications and trust between between channel memberschannel members
The practice of building long-term relations with key The practice of building long-term relations with key parties - customers, suppliers, distributors- in order to parties - customers, suppliers, distributors- in order to retain their long-term preference and businessretain their long-term preference and business
Because of the importance of channels of distribution, Because of the importance of channels of distribution, building good relationships in the marketing channel is building good relationships in the marketing channel is key to successful relationship marketingkey to successful relationship marketing
Find Out the Needs and Problems of Find Out the Needs and Problems of Channel MembersChannel Members
-informal information system -informal information system (“grapevine”)(“grapevine”)
-research studies of channel -research studies of channel membersmembers
-research studies by outside parties-research studies by outside parties-marketing channel audit-marketing channel audit-distributor advisory councils-distributor advisory councils
Offer Support to Channel Members Offer Support to Channel Members that is Consistent with Their Needs that is Consistent with Their Needs and Helps Solve their Problemsand Helps Solve their Problems
-cooperative arrangements-cooperative arrangements-partnerships and strategic -partnerships and strategic
alliancesalliances-distribution programming-distribution programming
Provide Leadership to Motivate Provide Leadership to Motivate Channel Members Channel Members
-use power effectively-use power effectively-recognize causes of conflict-recognize causes of conflict-resolve conflicts-resolve conflicts
Reward PowerReward PowerCoercive PowerCoercive PowerLegitimate PowerLegitimate PowerReferent PowerReferent PowerExpert PowerExpert Power
Effective Channel Management Depends Effective Channel Management Depends on How Well These Power Bases are on How Well These Power Bases are
Combined and UsedCombined and Used
Role IncongruitiesRole IncongruitiesResource ScarcitiesResource ScarcitiesPerceptual DivergenciesPerceptual DivergenciesExpectational DifferencesExpectational DifferencesDecision Domain Decision Domain
DisagreementsDisagreementsGoal IncompatabilitiesGoal IncompatabilitiesCommunication DifficultiesCommunication Difficulties
1. 1. Growing Emphasis on Marketing Channel Growing Emphasis on Marketing Channel Strategy Strategy
2. 2. More and More Stress on TechnologyMore and More Stress on Technology3. 3. Focus on Efficiency and Reducing Focus on Efficiency and Reducing
Distribution CostsDistribution Costs4. 4. Shortening and Flattening of Shortening and Flattening of
Distribution Distribution Channels (Disintermediation)Channels (Disintermediation)5. 5. Development of New Types of Development of New Types of
Intermediaries in Channels Intermediaries in Channels (Reintermediation)(Reintermediation)
6. 6. Continued Growth in Partnerships and Continued Growth in Partnerships and Alliances (Relationship Marketing) Alliances (Relationship Marketing)
7. 7. Increasing Power for Retailers and Increasing Power for Retailers and Wholesalers (Gatekeepers)Wholesalers (Gatekeepers)
8. 8. Mergers and Acquisitions to Gain Mergers and Acquisitions to Gain Distribution CloutDistribution Clout
9. 9. Flexible and Focused Distribution to Flexible and Focused Distribution to Match Match Micro, Niche, and Database Micro, Niche, and Database MarketingMarketing
10. 10. Attention to the Behavioral Attention to the Behavioral Dimensions of Distribution to Dimensions of Distribution to Augment TechnologyAugment Technology