Part 2Part 2

Developing the Marketing Channel

Chapter 5Chapter 5

Strategy in Marketing Channels

55Marketing Channel StrategyMarketing Channel Strategy

Objective 1:

• Channel Strategy:

– The broad principles by which the firm expects to achieve its distribution objectives for its target market(s)

55

Distribution DecisionsDistribution Decisions

Objective 2:

1. The role distribution should play in the firm’s overall objectives & strategies

2. The role distribution should play in the marketing mix

3. The design of the firm’s marketing channels4. The selection of channel members5. The management of the marketing channel in

order to implement the firm’s channel design effectively & efficiently on a continuing basis

6. The evaluation of channel member performance

55Channel Strategy as an OverallChannel Strategy as an Overall

Corporate ObjectiveCorporate Objective

Objective 3:

• Three (3) general ways to view the importance of distribution in overall corporate strategy-making:1. Who’s in charge?

• Corporate executives or functional managers?

2. Type of strategy-making• Long-range vs. short-term (i.e., tactical ~ x < 1yr.)

3. Value-Chain analysis• How pervasive is it in creating customer value?

Firm infrastructure

Human resource management

Technology development

Procurement*

Inbound Operations Outbound Marketing Service logistics logistics & sales

SupportActivities

Primary Activities

Sale

s55

The Value ChainThe Value Chain

55Determining Priority GivenDetermining Priority Given

to Distributionto Distribution

• Increasingly distribution is warranting more attention from top management because competition on the other 3Ps has become too difficult to generate any long-term differential advantage.

The essence of modern marketingmanagement:

To develop a marketing mix of product, price,

promotion, & distribution(place)

55Channel Strategy and theChannel Strategy and the

““Marketing Mix”Marketing Mix”

Objective 4:

55Emphasis Placed onEmphasis Placed on

Distribution StrategyDistribution Strategy

Objective 5:

• Firms should place a high priority on distribution when…1. Customers’ needs highlight distribution as

important

2. Homogeneity exists on other 3 Ps

3. Competitors are weak in their distribution efforts

4. Efficiency gains are possible over current efforts

Firms should stress distribution when it serves customers’ needs in the

target market.

Marketing channels are so closely linked to customer need satisfaction because it is through distribution that firms can provide the kinds and levels of service that make

for satisfied customers (remember convenience is becoming increasingly

important ~ Ch. 3).

551. Target Market Demand1. Target Market Demand

Distribution advantages are not easily copied by competitors.

Distribution advantages are based on a combination of superior strategy,

organization, and human capabilities.

552. Competitive Parity2. Competitive Parity

Competitors’ neglect of distribution strategies provides excellent

opportunities.

The channel manager must analyze target markets to determine whether

competitors have neglected distribution and whether vulnerabilities exist that can

be exploited.

553. Distribution Neglect3. Distribution Neglect

“Hooking up” with a mix of cooperative channel members will

strengthen the channel.

Because each channel member is an independent entity, rewarding

opportunities exist for channel managers to cultivate cooperation among members that possess specialized skills that would be too costly to develop or perform in-

house.

554. Synergy in Distribution4. Synergy in Distribution

55Differential Advantage &Differential Advantage &

Channel DesignChannel Design

Objective 6:

• Channel Strategy affects channel design in that…– Appropriate strategies will guide the design phase so

as to help the firm realize a differential advantage. (e.g., Zara’s corporate channel)

• Remember:– A differential advantage occurs when a firm attains

a long-term, advantageous position in the market relative to its competitors. (Ch. 1)

55Positioning the ChannelPositioning the Channel

• Channel Position*– The reputation a [member*] acquires among its other

channel participants for furnishing products, services, financial returns, programs, and systems that are in some way superior to those offered by competing [members*].

• Channel Positioning– Is what a firm does with its channel planning and

decision-making to attain the channel position it desires.

55Positioning the ChannelPositioning the Channel

• By taking a channel positioning point-of-view, the channel manager…– Asks the question, “How can I design the channel so

that members will view my firm as having done a better job than my competitors they may represent or deal with?”

– Seeks to understand the needs/wants of a firm’s “corporate” or “business” customers.

– Effective positioning is likely to lead to “cheerleading” from other members.

55Selection of Channel MembersSelection of Channel Members

Objective 7:

• As such, chosen members should…– Reflect the channel’s positioning efforts while

simultaneously assisting the firm to achieve its distribution objectives

– Reflect the objectives & strategies of the organization as a whole

• Remember a company’s image will affect its positioning efforts.

55Channel Strategy &Channel Strategy &

Managing the ChannelManaging the Channel

Objective 8:

• Three (3) strategic questions must be asked:1. How close a relationship should be developed

with the channel members?

2. How should the marketing mix be used to enhance channel member cooperation?

3. How should the channel members be motivated to cooperate in achieving the manufacturer’s distribution objectives?

55Closeness of Channel Closeness of Channel

RelationshipsRelationships

• Factors to consider:– Distribution intensity– Target markets– Products– Company policies– Middlemen– Environment– Behavioral dimensions

MarketingMix

Product strategy

Pricing strategy

Promotionstrategy

Distributionstrategy

55The “Marketing Mix” inThe “Marketing Mix” inChannel ManagementChannel Management

55Motivation ofMotivation of

Channel MembersChannel Members

Objective 9:

• Portfolio concept to motivating others…

– A tool for motivating different types and sizes of channel members participating in various channel structures who may respond differently to various motivation strategies.

55Evaluation ofEvaluation of

Channel Member PerformanceChannel Member Performance

Objective 10:

• Channel manager’s involvement in evaluating member performance is integral to developing & managing channel

• Always important to ask…– Have provisions been made in the design and

management of the channel to assure that channel member performance will be evaluated effectively?