marketing channel

Session 4Session 4Part 2: Channel DesignPart 2: Channel Design

Chapter 4: Supply-Side Channel Analysis—Channel Structure and

Intensity

Channel Analysis FrameworkChannel Analysis Framework

CHANNEL DESIGN

Segmentation

Channel StructureSplitting the WorkloadDegree of Commitment

Gap Analysis

CHANNEL IMPLEMENTATION

Channel Power Channel Conflict

Manage/Defuse Conflict

Channel Coordination

INSIGHTS FOR SPECIFIC CHANNEL INSTITUTIONS

Channel Design ChallengesChannel Design Challenges

• Degree of Channel IntensityCoverage Upstream member consider (Degree of

selectivity)Downstream member (Category selectivity)

• Combining different Channel Types by going to market in multiple ways

• Decision of market entry mode• Direct vs. Indirect

Coverage VS. AssortmentCoverage VS. Assortment

• Why more coverage is better for manufacturers of convenience goods

• Why downstream channel member dislike intensive distribution

• Can the manufacturer sustain Intensive Distribution

• Degree of Category Exclusivity

Why more coverage is better for manufacturers of Why more coverage is better for manufacturers of convenience goodsconvenience goods

Manufacturers like intensive distribution• The more outlets, the more it will sell• True for convenience goods• Low involvement • Low Risk• Buyers tend to take what is offered• Addition of few more outlets after threshold coverage

increase market share due to coverage in small size high turnover stores.

• All else being constant, higher degree of distribution intensity will always boost sales.

• Like intra-brand competition• Avoid channel complacency

Why downstream channel member dislike intensive Why downstream channel member dislike intensive distributiondistribution

• Prefer exclusive distribution• More coverage is negative

• Erosion of uniqueness• Unable to differentiate on brands offered

• Prefer Exclusivity• Clash of interest with upstream member• Intrabrand price competition• Free-riding

Response of downstream member to Response of downstream member to intensive distributionintensive distribution

• Discontinue saturated brand• Substitute another less intensively distributed

• Discontinue entire product category• Carry the brand but convert customers to another

brand• Bait-and-switch

Efforts to Sustain Intensive DistributionEfforts to Sustain Intensive Distribution

• Problems• Defection of downstream channel members• Lackluster sales support• Bait and switch tactics

• Possible approaches• Contractual

• Expensive• Requires documentation• Alienate other channel members• Legal or muscular routes cause negative publicity

• Pull strategy• Brand equity• Advertising and promotion• Expensive• Channel stuffing

Efforts to Sustain Intensive DistributionEfforts to Sustain Intensive Distribution

• Possible approaches (continued)• Resale price maintenance (RPM)

• Set a retail price floor• Allows channel members to have acceptable margins

• Use more selective distribution• Generally most applicable solution• Able to target desired channel members• Better working relationships

Category ExclusivityCategory Exclusivity

• Downstream channel member’s decision• How many brands to carry in a product category• Length of product assortment

• Very broad (all brands)• Narrower• Exclusive• Manufacturers want exclusive dealing• Reseller wants assortment of brands

• Meet assortment demands of customers• Benefit from inter-brand competition

• Importance of assortment

• Conflicts• Manufacturer wants to Blanket a trading area but

outlets prefer the reverse• Downstream member prefer multiple brand but

upstream members prefer the reverse• Manufacturer wants downstream members to support

their brands and take low margins, but the channel members prefer lower costs and higher margins

Striking a deal: How much selectivity to Striking a deal: How much selectivity to trade away trade away

• Threat of Complacency• The nature of product category

• Service output demand• Amount of search by consumer• Right outlets

• Brand Strategy• Positioning and Premium Pricing• Target market

• Matching channel members with brand’s intended image

• Theme of Scarcity

Striking a deal: How much selectivity to Striking a deal: How much selectivity to trade awaytrade away

• Balancing selectivity through:• Unusually demanding contracts• Agreement to meet demanding goals

Bargaining for Influence on Channel Bargaining for Influence on Channel MembersMembers

• Desire to have inordinate control on downstream channel members

• Purchase of cooperation by skillful use of Selective Distribution


• Desired Coordination• Manufacturer Specific investment by downstream

member• Dependence Balancing: Trading Territory Exclusivity

for Category Exclusivity• Reassurance: Using Selectivity to Stabilize Fragile

Relationship• The Price of Concession: Factoring in opportunity

Costs


• Desired Coordination• Upstream Member requirement

• Merchandising• Prices• Stock level• Selling effort• Customer choice

• Downstream Member concerns:• Interference• Resistance

• Solution• Use of selectivity as reward power


• Manufacturer Specific investment by downstream member• Idiosyncratic Knowledge• Unusual handling or storage• Brand specific parts and know how• Customer training• Mingling the identity of buyer and seller


• Dependence Balancing: Trading Territory Exclusivity for Category Exclusivity• Selectivity as a strategic tool to overcome

reseller resistance• Selectivity for Selectivity• Market exclusivity• Category exclusivity


• Upstream Member requirement• Product display with right assortments

• Downstream Member concerns:• Selective availability in market

• Conclusion• For differentiated categories only low cost, low price

resellers can do well with intensively distributed brands• For reseller support manufacturer has to limit coverage


• Reassurance: Using Selectivity to Stabilize Fragile Relationship• Fears of vulnerable party

• Pull by manufacturer• Direct selling by manufacturer• Selectivity


• The Price of Concession: Factoring in opportunity Costs

• Crucial factors• Importance of market area• Competitive intensity of the product category

Price of ConcessionPrice of Concession

• Opportunity cost• Manufacturer’s costs are greater when:

• Important market area• Competitive product category

• Downstream channel member’s costs are greater when:• Major product category in their assortment• Competitive product category

Simulating the benefits of selectivity while Simulating the benefits of selectivity while maintaining intensive coveragemaintaining intensive coverage

• Brand Equity• New products with information sharing• Brand Variants• Mitigating the buyers cost of selective

distribution

Limit Trading partners—Save MoneyLimit Trading partners—Save Money

• Associated costs with each account• Master Distributors

More Trading Partners for More Revenue?More Trading Partners for More Revenue?

• Generally, brands that are more widely available have higher sales and greater market share• Is it because of the intensive distribution?• Correlation but not causality

• Revenues or profits• Remember opportunity costs

Multiple ChannelsMultiple Channels

• Different channels for the same goods• Intended to serve different target markets• Watch out for

• Conflict• Cannibalization• Free-riding

Dual DistributionDual Distribution

• Manufacturer sells direct, competes with its resellers

• Conflict is common• Value for demonstration

Carrier-Rider RelationshipsCarrier-Rider Relationships

• One manufacturer (carrier) handles sales and distribution for another (rider)• Piggybacking

• Works better between complementary products• Reciprocal piggybacking

marketing channel

Documents

channel memberslegal

channel designchapter

desired channel membersbetter

downstream members

intensive distributionthe

upstream members

reversedownstream member

multiple brand