Chapter 2Marketing Strategy and

Channel Design

Major Topics for Ch. 2Major Topics for Ch. 2 55

1. Major Decisions to Make

2. When to Emphasize Channel strategy?

3. Channel Design: Value Chain and Value Chain Analysis

4. Three Strategic Questions

5. Segmentation: Service Output Demand

I. Major Decisions To Make*I. Major Decisions To Make*

1. The role of distribution in the firm’s overall objectives & strategies (Strategy Level Issue)

2. The role distribution should play in the marketing mix (Program Level Issue)

3. -The design of the firm’s marketing channels -The selection of channel members4. -The management of the marketing channel -The evaluation of channel member

performance

II. When to Emphasize Distribution II. When to Emphasize Distribution StrategyStrategy

• Distribution is the most relevant variable

• Parity exists among competitors in the other three variables of the marketing mix.

• A high degree of competitive vulnerability exists

• Distribution can create synergy among

marketing channels.

IF:

THEN:

or

or

or

The firm should choose distribution strategy for strategic emphasis

III. Marketing Strategy III. Marketing Strategy & Channel Design& Channel Design

Differential advantage occurs when a firm attains a long-term, advantageous position

in the market relative to competitors.

• Caterpillar Versus Komatsu

6

Channel Design

• What is channel design?– Decisions associated with forming new or

altering existing channels.

• Why are channel design decisions critical?– They directly influence all other marketing

decisions.– Key external resource for many manufacturers.

©McGraw-Hill Companies, Inc. 2002

The Value ChainThe Value Chain

Firm infrastructure

Human resource management

Technology development

Human resource management

Inbound Operations Outbound Marketing Service logistics logistics & sales Margin

MarginSupportActivities

Primary Activities

IV. Three Strategic IV. Three Strategic Questions*Questions*

3StrategicQuestions

How close a relationship should be developed

with the channelmembers?

How should the channelmembers be motivated to cooperate

in achieving the manufacturer’s distribution objectives?

How should the marketing mix be used to

enhance channelmember cooperation?

Question1: Closeness of Channel Question1: Closeness of Channel RelationshipsRelationships

55

• Distribution intensity*• Targeted markets*• Products*• Company policies*• Middlemen• Environment• Behavioral dimensions

Factors to consider

10

Number of Intermediaries at Each Level

Intermediaries

Use as few outlets (intermediaries) as possible

Exclusive Distributi

on

Intermediaries

Selective Distributio

nIntermediaries

Not all available intermediaries are used

Outlet

Outlet

Outlet

Use as many outlets as possible

Outlet

OutletOutlet

Intensive Distributi

on

©McGraw-Hill Companies, Inc. 2002

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Analyzing Target Market Behaviors

• Current and potential buyer behaviors:

– Who is doing the buying?

• Where,when and how end-users buy:

– Seasonal

– Shopping from home

• Knowledge of industry (and its language)

©McGraw-Hill Companies, Inc. 2002

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Analyzing Product Characteristics

• Product Characteristics– Unit value: length– Standardization: length, intensity– Bulkiness: length– Complexity: length, intensity– Stage of Product Life Cycle: intensity,

ownership

Implications for Channel Design©McGraw-Hill Companies, Inc. 2002

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Changes in Life Cycle and Channels: The Case of Designer Apparel

Introductory Stage

Declining/ Death

GrowthStage

Mature Stage

Boutique(e.g., service utility)

Offprice Outlets(e.g., convenience utility)

Better Department Stores(e.g., selection utility)

Merchandisers(e.g., lot size utility)

Market Growth Rate

Low

High

Utility Added by Channel

LowHigh

Exhibit 3.4

©McGraw-Hill Companies, Inc. 2002

Value added by channel

Question 2: Marketing Mix inQuestion 2: Marketing Mix inChannel ManagementChannel Management

55

MarketingMix

Product Strategy

(Quality/Branding)

Pricing Strategy

(Wholesale/Retail/Consumer)

PromotionStrategy

(Push/Pull)

Distributionstrategy

Question 3: Motivation of Question 3: Motivation of Channel MembersChannel Members

55

Portfolio concept:

A tool for motivating different typesand sizes of channel members

Question: What makes a distributor work for you?

Evaluation of Channel MemberEvaluation of Channel MemberPerformancePerformance

Have provisions been made in the design andmanagement of the channel to assure that

channel member performance will be evaluated effectively?

Channel manager’s involvementin evaluating member performance is integral to

developing & managing channel

Ex) Measurement and Reward of Channel Performance

TABLE 2-3: BUSINESS-TO-BUSINESS CHANNEL SEGMENTS FOR A NEW HIGH-TECHNOLOGY PRODUCT

= Additional Important Attributes= Greatest Discriminating Attributes

Respondents allocated 100 points among the following supplier-provided service outputs according to their importance to their company:

Possible Service Output Priorities

Lowest Total Cost/ Pre-Sales Info Segment

Responsive Support/ Post-Sales Segment

Full-Service Relationship

Segment

References and Credentials Segment

References and Credentials 5 4 6 25

Financial Stability and Longevity

4 4 5 16

Product Demonstrations & Trials

11 10 8 20

Proactive Advice & Consulting

10 9 8 10

Responsive Assistance During Decision Process

14 9 10 6

One-Stop Solution 4 1 18 3

Lowest Price 32 8 8 6

Installation and Training Support

10 15 12 10

Responsive Problem Solving After Sale

8 29 10 3

Ongoing Relationship with a Supplier

1 11 15 1

Total 100 100 100 100

% Respondents 16% 13% 61% 10%Source: Reprinted with permission of Rick Wilson, Chicago Strategy Associates, 2000.

FIGURE 2-1: IDEAL CHANNEL SYSTEM FOR BUSINESS-TO-BUSINESS SEGMENTS BUYING A NEW HIGH-TECHNOLOGY PRODUCT

Manufacturer(New High Technology Product)

Full-ServiceResponsive

SupportReferences/Credentials

LowestTotalCost

Pre-Sales

Sales

Post-Sales

VARs

Associations,Events,

AwarenessEfforts

Third-Party

SupplyOut-

source

DealersTeleSales/TeleMktg

Internal Support- Install, Training &

Service Group

Segment

Source: Reprinted with permission of Rick Wilson, Chicago Strategy Associates, 2000.

 FIGURE 2-2: ADVERTISING COPY FOR AN AD FOR BN.COM

Advertising Copy Service Output Offered

“Really free shipping”: offers free shipping if 2 or more items are purchased. “We make it easy and simple.”

Customer service

“Fast & easy returns”: end-user can return unwanted books to a bricks-and-mortar Barnes & Noble bookstore. “Just try and return something to a store that isn’t there.”

Quick delivery (for returns), spatial convenience; note implicit comparison with amazon.com, the pure-play online bookseller

“Books not bait”: promises no additional sales pitches to buy non-book products.

Assortment/variety: just books (targeting the book lover). Again, note implicit comparison with amazon.com.

“Same day delivery in Manhattan”: delivery by 7:00 p.m. on any item(s) ordered by 11:00 a.m. that day. “No other online bookseller offers that.”

Quick delivery: the offer is possible because of Barnes & Noble’s warehouses in New Jersey, near Manhattan. Note direct comparison with other online booksellers (notably, amazon.com)

“The gift card that gives more”: can be used either online or in the bricks-and-mortar bookstores, nationwide.

Spatial convenience, assortment/variety: when buying a gift for a friend, this provides virtually limitless assortment, and does so anywhere the recipient lives in the United States.

“bn.com – 1,000,000 titles; amazon.com – 375,000 titles” Assortment/variety: direct comparison with amazon.com, offering a broader assortment of titles to the consumer

Source: advertisement for bn.com in Wall Street Journal, November 20, 2002, p. A11.

TABLE 2-5: THE SERVICE OUTPUT DEMANDS (SOD) TEMPLATE

SERVICE OUTPUT DEMAND:*

SEGMENT NAME/ DESCRIPTOR

BULK BREAKING SPATIAL CONVENIENCE

DELIVERY/ WAITING TIME

ASSORTMENT/ VARIETY

CUSTOMER SERVICE

INFORMATION PROVISION

1.

2.

3.

4.

5.

INSTRUCTIONS: If quantitative marketing-research data are available to enter numerical ratings in each cell, this should be done. If not, an intuitive ranking can be imposed by noting for each segment whether demand for the given service output is high, medium, or low.

TABLE 1-1: SERVICE OUTPUT DEMAND DIFFERENCES(an example of segmentation in the book-buying market)

Browser buying best-sellers to take on vacation Student buying textbooks for fall semester at college

DescriptorService Output Demand Level Descriptor

Service Output Demand Level

Bulk-breaking

“I’m looking for some ‘good read’ paperbacks to enjoy.”

Medium“I only need one copy of my

Marketing textbook!”High

Spatial convenience

“I have lots of errands to run before leaving town, so I’ll be

going past several bookstores.”

Medium“I don’t have a car, so I can’t

travel far to buy.”High

Waiting and delivery time

“I’m not worried about getting the books now… I can even pick up a few when I’m out of

town if need be.”

Low

“I just got to campus, but classes are starting

tomorrow and I’ll need my books by then.”

High

Assortment and variety

“I want the best choice available, so that I can pick

what looks good.”High

“I’m just buying what’s on my course reading list.”

Low

Customer service

“I like to stop for a coffee when book browsing.”

High“I can find books myself,

and don’t need any special help.”

Low

Information provision

“I value the opinions of a well-read bookstore employee; I

can’t always tell a good book from a bad one before I buy.”

High“My professors have already

decided what I’ll read this semester.”

Low

  FAMILY OFFICE EMPLOYEE

SERVICE OUTPUT

DESCRIPTOR SERVICE OUTPUT DEMAND LEVEL

DESCRIPTOR SERVICE OUTPUT DEMAND

LEVEL

Bulk-breaking “I buy groceries weekly for my family, and all of us like soft drinks”

 LOW

“I’m on my coffee break and I have only have time for one can of soft drink”

 HIGH

Spatial convenience

“I drive to the supermarkets in my area to shop”

 LOW

“I only have 15 minutes for my break, so I need to buy whatever is handy”

 HIGH

Quick delivery “We usually have some extra cans of soft drinks in the house, so I’ll just come back the next time if I can’t find the drinks I want on this trip”

   

LOW

“If I don’t get my soft drink right at 3:00 when my break starts, I’ll never have a chance to go back later and get one”

   

HIGH

Assortment and variety

“My husband and I like Coke and Pepsi, but our kids aren’t permitted to drink caffeinated soft drinks. They like caffeine-free fruit-flavored soft drinks”

   

HIGH

“I can’t be too particular about which soft drink I pick. It’s important to me to get one, as long as it has caffeine”

   

MODERATE

TABLE 2.1: SERVICE OUTPUT DEMAND DIFFERENCES(an example of segmentation in the soft drink market)

23

Trade-offs

• Firm– Service Output Demands Versus Cost, Competition,

and Ease of entry

• Consumers– Product Attributes– Price– Service Outputs

©McGraw-Hill Companies, Inc. 2002