Marketing article assignment

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CHAPTER 3 The Environment of Marketing Channels

Part 1: Marketing Channel Systems

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Le ar

ni ng

O bj

ec tiv

es ① The external environment – five factors

② The economic environment

③ The competitive environment

④ Types of competition

⑤ The sociocultural environment

⑥ The technological environment

⑦ The legal environment

⑧ Legal issues in channel management

Objective

The External Environment – 5 Factors

Consists of all external uncontrollable factors within which

marketing channels exist

Affects channel members and nonmembers, such as facilitating agencies

= All channel participants

The Environment

Environment

1. Economic 2. Sociocultural 3. Competitive 4. Technological 5. Legal

Producers & Manufacturers

Intermediaries

Target Markets

Facilitating agencies

Locus of channel

management

Nonmember participants

Member participants

Objective The Economic Environment

Recession Inflation

Deflation

Major Economic

Forces

Recession

Consumer and/or

Corporate spending

Channel strategy:

Manufacturers provide channel member support by financing high inventory costs

Reduced sales volume

Reduced profitability

Firms caught with large inventories

Inflation Continued high spending

OR Drop-offs in spending, fueling a

recession

Possible channel strategies: 1. Reduce manufacturer’s product mix from higher- price to lower-price products 2. Reduce inventory burden on members with:

• Streamlined product line • Faster order processing & delivery • Higher inventory turnover through

stronger promotional support

Deflation

Prices

Challenge: Pass cost-induced price increases through channel when built-in cost pressures from labor contracts

were negotiated several years earlier

Other Economic Factors

1. Real interest rates

Demand

Costs

2. Strong U.S. Dollar

Difficult to sell products through channel members

U.S. products less competitive

Objective The Competitive Environment

Global in scope: “No longer is it realistic for domestic firms to focus only on rivals within the boundaries of their own country.”

Global marketplace, global arena, global competition; terms that describe today’s market.

Objective Types of Competition

Horizontal

Intertype

Vertical

Channel System

Horizontal Competition

R R

Intertype Competition

Vertical Competition

Channel System Competition

Objective The Sociocultural Environment 5

Influences wide variations among

channel structures worldwide

Influences both national and

international marketing channels

Pervades all aspects of a society

Sociocultural Developments

Population Age Patterns

Ethnic Mix

Educational Trends

Family or Household Structure

U.S. pop. Becoming both younger & older

# of minority-owned businesses

Levels = people more demanding

Smaller & more varied

Role of Women # = changing shopping needs

Objective The Technological Environment

Help retailers & wholesalers closely monitor success or failure of products they handle

Scanners & EDI Computerized inventory management

& Portable computers

The Technological Environment

EDI - Electronic Data

Interchange

• Links together channel information systems

• Provides real-time responses • Enhanced by Internet

= Enhanced Distribution Efficiency

The Technological Environment

Accelerating technology

“Computer sales People”

Mobile robots 3-D

modeling

Ultra-wideband technology

Objective The Legal Environment

The set of laws that impact marketing channels

• Continually evolving • Affected by changing values, norms, politics,

& precedents • Knowledge of basics helps channel manager

avoid serious & costly legal problems

Legislation Affecting Marketing Channels

Sherman Antitrust Act 1890; Fundamental antimonopoly law

Public welfare best served through competition

Clayton Act 1914; Strengthen Sherman Antitrust Act

Prohibits specific practices among competing firms

Federal Trade Commission Act 1914; Established FTC

Power to investigate & enforce

Legislation Affecting Marketing Channels

Robinson-Patman Act 1936; Amendment to Clayton Act

Prohibits price discrimination Allows price differentials to different customers

under specific circumstances

Celler-Kefauver Act 1950; Amendment to Clayton Act

Prohibits vertical mergers & acquisitions

Objective Legal Issues in Channel Management

• Dual Distribution, or multi-channel distribution Producer or manufacturer uses 2 or more different channel

structures for distributing the same product

• Exclusive Dealing Supplier requires its channel members to sell only its products or to

refrain from selling directly to competitive suppliers

• Full-Line Forcing Supplier requires channel members to carry a full-line of its

products in order to sell any particular products in supplier’s line

Legal Issues in Channel Management

• Price Discrimination Supplier sells at different prices to the same class of channel

members

• Price Maintenance Supplier dictates prices charged by channel members to their

customers

• Refusal to Deal Supplier has right to refuse to deal with whomever they want as

channel members

Legal Issues in Channel Management

• Resale Restrictions Manufacturer attempts to stipulate to whom and in what

geographical market channel members may resell the manufacturer’s products

• Tying Agreements Supplier sells a product to a channel member on condition that the

channel member also purchase another product

• Vertical Integration Firm owns and operates organizations at other levels of the

distribution channel

Almost 80 percent of chief financial officers at the 100 largest retailers say that too much inventory is the greatest risk factor to the viability of their businesses during recessionary periods. High inventories lead to heavy discounting when consumer demand is lacking. This, in turn, undermines gross margins. When demand is very weak, gross margins can disappear completely as retailers may be forced to liquidate slow moving merchandise at prices below their wholesale cost. Paradoxically, retailers also worry about having too little inventory to meet consumer demand and thus losing sales when consumers cannot find the products they are looking for on retailers’ shelves. Hence, retailers attempting to manage their inventories during a recession often feel that when it comes to stocking their shelves, they are damned if they do and damned if they don’t.

How might retailers deal with this inventory dilemma more effectively during recessionary periods? What might suppliers do to help retailers address this problem?

Discussion Question #2

Home Depot, Toys “R” Us, Staples, Best Buy and many other giant retailers (often referred to as “category killers” or “big box” retailers because of their dominance in particular merchandise categories and the sheer physical size of the stores) are fierce competitors and are frequently accused of driving small retailers out of business. Observers who have witnessed this competitive struggle take place over the past decade say the reason that small retailers go out of business is that they “can’t compete” with these giants. The verdict in most cases has been “no contest” between the retail giants and the little guys because the little guy so seldom wins or even gets to stay in business. From a competitive standpoint, is such an outcome inevitable?

Discuss. Is it really the “big guys” driving the “little guys” out of business or is there something more fundamental at work here?

Discussion Question #3

By 2009, social media services, such as Facebook and Twitter, had become a popular marketing tool for small businesses. In fact, almost 25 percent of firms with fewer than 100 employees were using social media for marketing purposes. This was more than double the percentage of the prior year. Many of these firms cite the ease of use and low cost of these social media as the main reason for using them for reaching out to and communicating with potential and existing customers.

How can the ability to communicate with customers via social media enhance channel management? Discuss.

Discussion Question #5