pg i marketing channel module 5
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Marketing ChannelsMarketing Channels
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A: Over the past three decades, theA: Over the past three decades, the
overwhelming emphasis in theoverwhelming emphasis in the
Marketing Mix has been on:Marketing Mix has been on:
Product StrategyProduct Strategy withwith
Pricing StrategyPricing Strategyandand Promotional StrategyPromotional Strategy
also being stressed.also being stressed.
But.....But.....
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Marketing Channel StrategyMarketing Channel Strategy
(Place); the fourth P in the(Place); the fourth P in the
Marketing Mix hasMarketing Mix has
been largely neglectedbeen largely neglected
But this is changing....But this is changing....
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Marketing Channel Strategy isMarketing Channel Strategy is
Growing in Importance. Why?Growing in Importance. Why?
Five ReasonsFive Reasons
(1)(1) Search for Sustainable Competitive AdvantageSearch for Sustainable Competitive Advantage
(2)(2) Growing Power of Retailers in MarketingGrowing Power of Retailers in Marketing
ChannelsChannels
(3)(3) The Need to Reduce Distribution CostsThe Need to Reduce Distribution Costs
(4)(4) The Increased Role and Power of TechnologyThe Increased Role and Power of Technology
(5)(5) The New Stress on GrowthThe New Stress on Growth
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I. The Search for SustainableI. The Search for Sustainable
Competitive AdvantageCompetitive Advantage
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Sustainable CompetitiveSustainable Competitive
Advantage:Advantage:
A competitive advantage thatA competitive advantage that
cannot be quickly and easilycannot be quickly and easily
copied by competitorscopied by competitors
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A sustainable competitiveA sustainable competitive
advantage is becoming moreadvantage is becoming more
difficult to attain through:difficult to attain through:
Product StrategyProduct Strategy- rapid technology transferrapid technology transfer
enables competitors to quickly produce similarenables competitors to quickly produce similarproductsproducts
Pricing StrategyPricing Strategy- global economy allowsglobal economy allows
competitors to find low cost production to matchcompetitors to find low cost production to matchpricesprices
Promotion StrategyPromotion Strategy- high cost, clutter, and shorthigh cost, clutter, and short
life promotional campaigns limit competitivelife promotional campaigns limit competitive
advantageadvantage
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Competitive Advantage BasedCompetitive Advantage Based
onon
SuperiorM
arketing ChannelSuperiorM
arketing ChannelStrategy is More Difficult forStrategy is More Difficult for
Competitors to CopyCompetitors to Copy
Because:Because:
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Channel Strategy is Long TermChannel Strategy is Long Term
Requires a Channel StructureRequires a Channel StructureDepends on Relationships and PeopleDepends on Relationships and People
Requires Effective InterorganizationalRequires Effective Interorganizational
ManagementManagement
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II. Growing Power of RetailersII. Growing Power of Retailers
in Marketing Channelsin Marketing ChannelsRetailersRetailers
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Retailers....Retailers....
Are Growing LargerAre Growing Larger
Enjoy Substantial Channel PowerEnjoy Substantial Channel Power
Act as Buying Agents for Customers RatherAct as Buying Agents for Customers Ratherthan Selling Agents for Suppliersthan Selling Agents for Suppliers
Often Operate on Low Price / Low MarginOften Operate on Low Price / Low Margin
ModelModel Operate in Saturated Markets and Fight forOperate in Saturated Markets and Fight for
Market ShareMarket Share
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Enjoy Substantial Channel PowerEnjoy Substantial Channel Power
Retailer
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Retailers Act as Buying Agents forRetailers Act as Buying Agents for
Customers Rather than as SellingCustomers Rather than as Selling
Agents for SuppliersAgents for Suppliers
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Retailers Often Operate on LowRetailers Often Operate on Low
Price / Low Margin ModelPrice / Low Margin Model
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Retailers Operate in SaturatedRetailers Operate in Saturated
Markets and Fight for MarketMarkets and Fight for MarketShareShare
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Power or Dominant Retailers arePower or Dominant Retailers are
therefore thetherefore the GatekeepersGatekeepers intointothe Consumer Marketplacethe Consumer Marketplace
Thus, Effective Channel StrategyThus, Effective Channel Strategy
for Dealing withfor Dealing with
Power Retailers is CrucialPower Retailers is Crucial
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III. The Need to ReduceIII. The Need to Reduce
Distribution CostsDistribution Costs
DistributionDistribution
CostsCosts
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Distribution Costs Often AccountDistribution Costs Often Account
for a Significant Percentage of thefor a Significant Percentage of theFinal Price ofProductsFinal Price ofProducts
Sometimes Distribution CostsSometimes Distribution Costs
areare HigherHigherthan the Manufacturingthan the Manufacturing
Cost or the Costs of RawCost or the Costs of RawMaterials and Component PartsMaterials and Component Parts
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IV. Increasing Role andIV. Increasing Role and
Usefulness of TechnologyUsefulness of Technology
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Technology has the power toTechnology has the power to
greatly enhance thegreatly enhance theeffectiveness and efficiency ofeffectiveness and efficiency of
Marketing Channels and couldMarketing Channels and could
potentially change the entirepotentially change the entirestructure of distribution aroundstructure of distribution around
the world.the world.
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Some Examples...Some Examples...
The InternetThe Internet
Wireless CommunicationsWireless Communications
B2C and B2B EB2C and B2B E--CommerceCommerce
Cell PhonesCell Phones
Global TelecommunicationsGlobal Telecommunications
Robotics & Automated WarehousingRobotics & Automated Warehousing
Computerized SalespeopleComputerized Salespeople
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Firms that make effective use ofFirms that make effective use of
these technologies in their channelthese technologies in their channelstrategy can gain astrategy can gain a substantialsubstantial
competitive advantagecompetitive advantage
CompetitionCompetition
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V. The New Stress on GrowthV. The New Stress on Growth
StrategyStrategy
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Bottom LineBottom Line
Marketing Channel Strategy HasMarketing Channel Strategy Has
Become Critically ImportantBecome Critically Important
For Most BusinessesFor Most Businesses
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Strategy in Marketing ChannelsStrategy in Marketing Channels
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Channel StrategyChannel Strategy
The broad principles by which aThe broad principles by which a
firm expects to achieve itsfirm expects to achieve itsdistribution objectives fordistribution objectives for
satisfying its customerssatisfying its customers
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The Relationship between customerThe Relationship between customer
satisfaction and the companyssatisfaction and the companys
marketing mix can be represented as:marketing mix can be represented as:
CCss = f (P= f (P11, P, P22, P, P33, P, P44))
where:where:
CCss= degree of customer satisfaction= degree of customer satisfaction
PP11
= product strategy= product strategy
PP22= pricing strategy= pricing strategy
PP33= promotional strategy= promotional strategy
PP44= place (channel strategy)= place (channel strategy)
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Classic Marketing ChannelClassic Marketing Channel
Strategies Still Relevant TodayStrategies Still Relevant Today
Dual DistributionDual Distribution
Exclusive DealingExclusive Dealing
FullFull--Line ForcingLine Forcing
Price DifferentiationPrice Differentiation
Price MaintenancePrice Maintenance
Refusal to DealRefusal to Deal
Resale RestrictionsResale Restrictions
Tying AgreementsTying Agreements
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The Most Basic Questions in theThe Most Basic Questions in the
Design of Marketing ChannelsDesign of Marketing ChannelsWhen 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 decision?Who takes part in the buying decision?
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Supply Chain ManagementSupply Chain Management
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QUESTIONQUESTION
Is this just anotherbuzzwordIs this just anotherbuzzword
for logisticsfor logistics -- getting the rightgetting the right
product in the right quantity, atproduct in the right quantity, atthe right time and right place?the right time and right place?
ORORIs there something moreIs there something more
substantive to this term?substantive to this term?
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ANSWERANSWER
ThereThere isis something more thansomething more than
semantics here:semantics here:
Supply Chain Management takes aSupply Chain Management takes a
broader perspective by viewingbroader perspective by viewing
logistics as an integral part of thelogistics as an integral part of themarketing channelmarketing channel relationshiprelationship
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Supply Chain Management CanSupply Chain Management Can
Therefore be Defined as:Therefore be Defined as:A longA long--term partnership among marketingterm partnership among marketing
channel participants aimed at reducingchannel participants aimed at reducing
inefficiencies, costs, and redundancies in theinefficiencies, costs, and redundancies in the
logistical system in order to provide high levelslogistical system in order to provide high levelsof customer serviceof customer service
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Common Issues in Supply Chain ManagementCommon Issues in Supply Chain Management
1.1. Order Processing TimeOrder Processing Time
2.2. Order Assembly TimeOrder Assembly Time3.3. Delivery TimeDelivery Time
4.4. Inventory ReliabilityInventory Reliability
5.5. Order Size ConstraintsOrder Size Constraints
6.6. Consolidation StipulationConsolidation Stipulation
7.7. Consistency of DeliveryConsistency of Delivery
8.8. Frequency of Sales VisitsFrequency of Sales Visits
9.9. Ordering ConvenienceOrdering Convenience
10.10. Order Progress InformationOrder Progress Information
11.11. Inventory Backup DuringInventory Backup During
PromotionPromotion
12.12. Invoice FormatsInvoice Formats
13.13. Physical Condition of GoodsPhysical Condition of Goods
14.14. Claims ResponseClaims Response
15.15. Billing ProceduresBilling Procedures16.16. Average Order Cycle TimeAverage Order Cycle Time
17.17. Order Cycle Time VariabilityOrder Cycle Time Variability
18.18. Rush ServiceRush Service
19.19. Product AvailabilityProduct Availability
20.20. Competent Technical RepsCompetent Technical Reps
21.21. Equipment DemonstrationsEquipment Demonstrations
22.22. Availability of LiteratureAvailability of Literature
23.23. Accuracy in Filling OrdersAccuracy in Filling Orders
24.24. Terms of SaleTerms of Sale
25.25. Protective PackagingProtective Packaging
26.26. Degree of CooperationDegree of Cooperation
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Strategic Alliances andStrategic Alliances and
Partnerships in MarketingPartnerships in MarketingChannelsChannels
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Definition:Definition:
Continuing and mutually supportiveContinuing and mutually supportive
relationship between the manufacturer andrelationship between the manufacturer and
its channel members in an effort to provideits channel members in an effort to providea more highly motivated team, network,a more highly motivated team, network,
and alliance of channel partnersand alliance of channel partners
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Traditional usTraditional us--againstagainst--themthem
mentality is replaced with a newmentality is replaced with a new
cooperative perception ofus incooperative perception ofus inan effective channel partnershipan effective channel partnership
or strategic allianceor strategic alliance
Thus, partnerships or strategicThus, partnerships or strategic
alliances go well beyond the adalliances go well beyond the ad--
hoc, onhoc, on--again / offagain / off--againagaininteractions typical of traditionalinteractions typical of traditional
relationships among channelrelationships among channel
membersmembers
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Requirements for Partnerships orRequirements for Partnerships or
Strategic Alliances in MarketingStrategic Alliances in Marketing
ChannelsChannels
(1)(1) Recognition of interdependence of channelRecognition of interdependence of channel
membersmembers(2)(2) Close cooperation between channel membersClose cooperation between channel members
(3)(3) Careful specification of roles, rights, andCareful specification of roles, rights, and
responsibilities in the relationshipresponsibilities in the relationship(4)(4) Coordinated effort focused on common goalsCoordinated effort focused on common goals
(5)(5) Good communications and trust betweenGood communications and trust between
channel memberschannel members
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RelationshipM
arketingRelationshipM
arketingvia the Marketing Channelvia the Marketing Channel
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Relationship MarketingRelationship Marketing
The practice of building longThe practice of building long--term relationsterm relations
with key partieswith key parties -- customers, suppliers,customers, suppliers,
distributorsdistributors-- in order to retain their longin order to retain their long--term preference and businessterm preference and business
Because of the importance of channels ofBecause of the importance of channels ofdistribution, building good relationships indistribution, building good relationships in
the marketing channel is key to successfulthe marketing channel is key to successful
relationship marketingrelationship marketing
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Building Relationships with ChannelBuilding Relationships with Channel
MembersMembers
Find Out the Needs and Problems of ChannelFind Out the Needs and Problems of Channel
MembersMembers
--informal information system (grapevine)informal information system (grapevine)--research studies of channel membersresearch studies of channel members
--research studies by outside partiesresearch studies by outside parties
--marketing channel auditmarketing channel audit--distributor advisory councilsdistributor advisory councils
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Offer Support to Channel Members thatOffer Support to Channel Members that
is Consistent with Their Needs and Helpsis Consistent with Their Needs and HelpsSolve their ProblemsSolve their Problems
--cooperative arrangementscooperative arrangements
--partnerships and strategic alliancespartnerships and strategic alliances
--distribution programmingdistribution programming
Provide Leadership to Motivate ChannelProvide Leadership to Motivate Channel
MembersMembers
--use power effectivelyuse power effectively
--recognize causes of conflictrecognize causes of conflict
--resolve conflictsresolve conflicts
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Causes ofMarketing ChannelCauses ofMarketing Channel
ConflictConflict
Role IncongruitiesRole Incongruities
Resource ScarcitiesResource Scarcities
Perceptual DivergenciesPerceptual Divergencies
Expectational DifferencesExpectational Differences
Decision Domain DisagreementsDecision Domain DisagreementsGoal IncompatabilitiesGoal Incompatabilities
Communication DifficultiesCommunication Difficulties
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Ten Trends in Marketing ChannelsTen Trends in Marketing Channels
as We Move into the Next Millenniumas We Move into the Next Millennium
1.1. Growing Emphasis on Marketing ChannelGrowing Emphasis on Marketing Channel
StrategyStrategy
2.2. More and More Stress on TechnologyMore and More Stress on Technology3.3. Focus on Efficiency and Reducing DistributionFocus on Efficiency and Reducing Distribution
CostsCosts
4.4. Shortening and Flattening of DistributionShortening and Flattening of DistributionChannels (Disintermediation)Channels (Disintermediation)
5.5. Development of New Types of IntermediariesDevelopment of New Types of Intermediaries
in Channels (Reintermediation)in Channels (Reintermediation)
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Trends Continued...Trends Continued...
6.6. Continued Growth in Partnerships andContinued Growth in Partnerships andAlliances (Relationship Marketing)Alliances (Relationship Marketing)
7.7. Increasing Power for Retailers andIncreasing Power for Retailers and
Wholesalers (Gatekeepers)Wholesalers (Gatekeepers)8.8. Mergers and Acquisitions to GainMergers and Acquisitions to Gain
Distribution CloutDistribution Clout
9.9. Flexible and Focused Distribution to MatchFlexible and Focused Distribution to MatchMicro, Niche, and Database MarketingMicro, Niche, and Database Marketing
10.10. Attention to the Behavioral Dimensions ofAttention to the Behavioral Dimensions of
Distribution to Augment TechnologyDistribution to Augment Technology