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7/29/2019 Wed Yiu Tosakusee

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Channels

The Most Exciting Topic in

Business EVER!


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Agenda

A Marketing Moment

The Need for Channels

Historical Approaches to the Market The Competitive Thrusts of Channels

Cost control

Differentiation New Markets in a Financially Viable Manner


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Agenda- Continued

Building a Channel

Coverage Issues

Building Value in Later Stages


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Marketing Overview

3 CsCustomer Competitor Company

S(Segment)

T(Target)

P(Position)

Market Research

4 PsProduct Price PlacePromotion


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Memaska Steel

Manufacturer

Distributors Outfitters

Customer


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Historical Market StrategiesWhat is the Marketing

Focus?

1950s: Production Orientation

1960s: Product Orientation1970s: Market Orientation

1990s: Zero Sum/Channel Orientation

2000s: Integrated financially viableplatforms for value delivery


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Marketing Mix Strategies

Marketing Channels1960s: Suppliers/Distributors as

Adversaries

1980s: Suppliers as Cost Centers/Distributors as Customers

1990s: Suppliers/Distributors as Partners

2000s: Integrated financially viable platformsfor value delivery


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2000s

Covering new markets, in a financially viablemanner using the resources of our partnerfirms to exceed customer expectations

Competition at the level of business systemversus business system---NOT product versusproduct

Channels have become cooperative systemsthat are extremely market focused!


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Why Have Channel Strategies

had To Be Market Focused?NO CHOICE!

Mature markets

Demographic trends - Parity productscoming out with new products

Rising customer expectations

Proximity of worldwide competition

Increasing market fragmentation


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Market Focus (continued)

Decreased effectiveness of mass media

Increase in specialization

Rapidly changing technologies Shorter product lifecycles

Changing distribution patterns


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Competitive Thrust of

Channels

Cost control

Market differentiation

Market expansion


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Cost Control


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Cost Control

Reduced system inventory

Enhanced turns

Reduced Capital expenditures Increased GMROI---ROOA

Reduced cost of similar good

Reduce redundancyApply core understanding


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Finance Questions

How much does it cost?

When will I get it back?

How much risk is there? How much variability do I expect?


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Why do Intermediaries Exist?Financial Control- Leverage

GMROI

Avg. Gross Margins X Turns

ROOA

Return on Operating Assets

Inventory + Receivables minus Payables


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Market Differentiation- The

Second Thrust


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Building Points of Differentiation

Value added services

Customer support

Channel differentiation


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VAR= Value Added?

Treat you channel partner as someone youdivide labor with

These distribution partners are the caretaker ofyour brands

Think in terms of the support you need and thatyou can provide them

How do we translate our differentiation through

this channel and ensure that this effort isrecognized!


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New Channels?- Why?

New Customers

New Efficiencies

New Technology New Financial models


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Channels- Justification


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Why Do Intermediaries Exist?

Cost Justification:

Improve the efficiency of the exchange

process

Adjust for discrepancies in assortment Provide for the routinization of transactions

Facilitate the search process


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1

3

2

4

5

Decentralized Exchange

Closed Economy


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Centralizing Exchange

Closed EconomyREDUCE NO OF INTERMEDIARY1

3

2

4

5Intermediary


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Separation of Supply and

Demand

Selling Directly

Retailers

(10 Contact Lines)

Manufacturers


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Separation of Supply and

Demand

Selling Through One WholesalerManufacturers

Retailers

(7 Contact Lines)

Wholesaler


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Cost Justification:


process




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Cost Justification:

Discrepancies of Assortment

Sorting

Build bulk

Break bulk

Develop assortments


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Cost Justification:


process




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Cost Justification

Routinization of Transactions Each transaction requires -Valuation, payment, services, transfer of

possession and title ...

Must routinize

- lot size, payment, frequency of delivery,

communication...

Note: Bargaining reducesefficiency. Loseefficiency


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Cost Justification:


process




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Cost Justification

Aiding the Search Process

Buyer and seller are engaged in search

simultaneously. By organizing on line of

trade it facilitates the search process


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Marketing Flows and

ChannelsPhysicalPossessionOwnership

Promotion

Negotiation

Financing

Risking of

Ordering

Payment

Producers Wholesalers Retailers

Consumers(Industrial

andHousehold)

Commercial Channel Subsystem

Source: R.S. Vallie, appearing in Stern, Louis and Adel El-Ansary,

Marketing Channels, 4th ed., Prentice Hall, Englewood Cliffs NJ. pp. 12.

=

o ac a e ransac ons


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o ac a e ransac ons Channels Must be Constructed

to Deliver:

Lot Size

Assortment

Waiting Time

Market Decentralization


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Dupont

Manufacturer

Customer


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Building a Channel?


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Picking Channel Actors:

Things to Remember Competence of actors personnel Actors orientation toward compliance

The ability to influence the actor

Actors ability to adapt

Actors growth prospects

Scope of services offered by the Actor

Actors alternatives

Actors efficiency

ow o e et ngs


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ow o e et ngsDone?

A Thought AboutRelationships...POWER

The ability of A to get B to do what B

otherwise would not have done


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A Thought About Relationships(Getting Things Done)

5 Relevant Bases of Power:

Coercion

Reward Expertise

Reference

Legitimacy


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Market Coverage Strategies

1960s: Random Market Coverage

1980s: Maximum Market Coverage

1990s: Selective Market Coverage


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Confidence

in

ManufacturerErodes

Dealer

Discounts

Product

Dealer

Support to

End-UserDeclines

Customer

Satisfaction

Erodes

Pitfalls of Intensive Distribution

Dealer

Profits

Decline

Marketing Channels, 4th ed., Prentice Hall, Englewood Cliffs NJ. pp. 231.

Source: Richard E Koon, appearing in Stern, Louis and Adel El-Ansary,


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Manufacturers Goals

(Nokia) Volume! Volume!

Volume! Profits which comes from more

VOLUME!

Stable Volume!

Timely Volume!

Preferably homogeneous Volume!

V l --


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Cellular Carriers

Started with Volume

Profits

Amount of profits

Timeliness of profits

Risk of profits

Summary: Lots of customers who areheavy users of the service, from day 1and pay their bills on time.


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Retail Locations

Margins

Turns

Traffic

Risk Reductions

Local Competitive Weapon

Summary: Products that customers comein the store requesting, having betterthan average margins, turns, andreduced risk.


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Pricing Over The Product Life Cycle

Increasing buyer knowledge

Increasing competitive intensity

Introduction Growth Maturity Decline

Unbundle

Cost / PriceLeadership

Differentiation

Skimming vs.Penetration

New Product Trials

or

Cost

Price

Sales

Temp. PriceReductions

Next Gen.?

Bundle

Product LinePricing

Increasing price sensitivity

Decreasing returns from technical enhancements


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Distribution Over The Product Life Cycle

Increasing buyer knowledge and price sensitivity


Intensive selling

High Mfg involvement

Tight relations

New Product Trials

Introduction

Sales

Growth Maturity Decline

Unbundle

More outlets

Less specialized

Competitive Brand promotion

Cost

Price

Temp. PriceReductions

Next Gen.?

Decreasing returns from technical enhancements


Order takers

Broad lines

Store promotion

Low Brand-Add


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Introduction Stage

Direct Selling

Intensive Selling

Customer Assurance

High Information Content

Specialized Professional Resellers

Summary High Value Added Resellers


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Mature Stages

Third Party Resellers

Order Takers

Self Service/Cash and Carry

Low Provision of Information

Broad Assortment Resellers

Summary: Reduced value added by thechannel-- especially to brands


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Channel Evolution

With Time Comes: Declining Margins

Reduced Information Needs

Changing Economies of Scale

Multiple Points of Differential Advantage

Disparate Sources of Revenue

H C th M f t Add


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How Can the Manufacturer Add

Value in Later Stages? Become Irreplaceable (Integration?)

Provide a Compelling Business Case

(P&G)

Differentiation for Competitive Advantage

(Reebok v. Nike)

By Understanding the Concurrent

Evolution of Customer and Consumer

Needs.


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Retailer A Retailer B

The Basis of Competition (Simplified)

Manufacturer BManufacturer A

Retailer A

Competition

Competition

Product Movement

Wh t D I ffi i t Ch l


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What Do Inefficient ChannelsMean?

Marketing

Manufacturing

Finance

Strategic Planning


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Suggested Readings

Levitt, Theodore (1974), Innovations in Marketing: New Perspectives, Free

Press, NY.

Hkansson, Hkan (1990), Introduction, Hkan Hkansson ed., Industrial

Technological Development: A Network Approach, Croom Helmn London pp.

3-25. Anderson, James C. and James A. Narus (1990), "A Model of Distributor Firm

and Manufacturer Firm Working Partnerships," Journal of Marketing, 54

(January),

Mitchell, Russell (1994), Virtual Worker: Any Place I Hang My Modem is

Home Business Week , October 17, 1994 pp. 96-97.

Shervani, Tasadduq and Philip Zerrillo The Albatross of New Product

Innovations, Business Horizons, January 1997.

Stern, Louis, Adel El-Ansary and Anne Coughlan, Marketing Channels, 5th

ed., Prentice Hall, Englewood Cliff NJ 1997.

Zerrillo, Philip and Dawn Iacobucci, Trade Promotions: a Call for a Rational

Approach, Business Horizons, July 1996.


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The Channel-Follow-Up

Why do we need channels?

What are the factors driving the channel?

What sort of things do you need to keep in

mind when you pick channel partners?

Why do we brand Products?

How can the channel help you build abrand?

How can channel decisions hurt your

ability to build a brand


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Channels Follow-Up

What are the potential problems of

intensive or saturated distribution?

Over the product life cycle do you expect

more or less information to be available atthe point of sale?

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