Marketing channel reflection

Lecture5-ChannelsFeb20181slide.pdf

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Strategy in Marke-ng Channels

Lecture 5

Part 2 Developing the Marke-ng Channel

Learning Objec-ves 1.  What is Marke-ng Channel Strategy? 2.  Distribu-on Decisions 3.  Channel Strategy – Corporate Objec-ves 4.  Channel Strategy – Marke-ng Mix 5.  Emphasis on Distribu-on Strategy 6.  Differen-al Advantage and Channel Design 7.  Channel Strategy - Selec-ng Channel Members 8.  Channel Strategy - Managing the Channel 9.  Mo-va-on of Channel Members 10. Evalua-on of Channel Member Performance

Marketing Channel Strategy

Channel Strategy: the broad

principles by which the firm expects to achieve its distribution objectives for

its target market(s)

6 Distribution Decisions for Firms to Address

1.  The role of distribution 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 channels 4.  The selection of channel members 5.  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

MARKETING CHANNEL STRATEGY AND ROLE OF DISTRIBUTION IN CORPORATE OBJECTIVES AND STRATEGY

Channel Strategy as Overall Corporate Objective

The higher the priority given to

distribution, the higher the level

at which it should be considered

in formulating the organization’s

overall objectives and strategies

Determining the Priority Given to Distribution

Distribution does increasingly warrant the attention of top management, because competition has made the

issue of distribution too important for top management to ignore.

Changes in distribu/ve channels may not ma6er much to GNP and macroeconomics. But they should be a major concern to every business and industry … Everyone knows how fast technology is changing. Everyone knows about markets becoming global and about shiBs in the work force and in demographics. But few people pay a6en/on to changing distribu/on channels. Peter Drucker

Companies that use Distribution Strategically

•  Coca Cola •  Cola-Life •  BMW •  Amazon.com •  Apple Computer •  E-Bay •  Shoes of Prey

Coca Cola – Coke On •  Coke has an intensive

distribu-on network •  It gathers purchase points

each -me a user buys a Coca- Cola beverage from a vending machine.

•  Installed communica-on devices for Coke ON in vending machines alongside app development, making exis-ng vending machines "smartphone-ready" for collec-ng purchase points. As of April 4 2016, 150,000 smartphone-ready vending machines were ac-ve.

Piggybacking - ColaLife •  ColaLife, an independent non-

profit UK-based agency with the idea to leverage the vast Coca-Cola supply chain network in African Sub-Sahara.

•  A structural, self-contained packaging for an an-- diarrhoeal kit to nestle into the unused space surrounding crated Coca-Cola bo[les.

BMW's Customer Direct

•  Our industry is fundamentally changing. Cars in the future will be autonomous, they will be connected, electric, and shared, but also the customer interface is changing massively. In the past, we were working with dealer networks to sell cars. In the future, we’ll be looking much more at the individual customer and what that customer needs during their en-re life-me. “Rainer Feurer”

Amazon - Pop Up Stores •  Amazon is popping up in

malls, Whole Foods, and Kohl’s across America.

•  Each loca-on is staffed by Amazon consultants who help you find the right devices and introduce you to Alexa. Plus, learn more about your exis-ng devices and services like Amazon Prime, Kindle Unlimited, Audible, Amazon Prime Video, and more.

Apple - Store

•  From its direct and channel pricing strategy to its retail and online storefronts, Apple sells its products like no other company in the consumer electronics space. If you know “the channel,” you know this is by no means an easy trick.

Ebay - Store

•  An eBay Store provides sellers advanced op-ons to grow sales and maximise profitability. Your own eBay Store creates a central shopping des-na-on that’s exclusively for your products and can be customised to suit your brand.

Shoes of Prey

•  Shoes of Prey is a global, mul--channel retail brand that enables shoppers to design their own shoes.

•  They partner with premium retailer David Jones for distribu-on

MARKETING CHANNEL STRATEGY AND THE MARKETING MIX

Channel Strategy & the Marketing Mix

The essence of modern marketing management – to develop an appropriate and

complementary marketing mix

1.  Product Strategy e.g., quality and benefits desired)

2.  Pricing Strategy (e.g., level of pricing and/or price points)

3.  Promotional Strategy (e.g., the “right” combination of “push” & “pull” promotion to apply)

4.  Distribution Strategy (e.g., intensity of distribution)

Emphasis on Distribution Strategy

•  Distribution is the most relevant variable for satisfying target market demands.

•  Parity exists among competitors in the other three variables of the marketing mix.

•  A high degree of vulnerability exists because of competitors’ neglect of distribution.

•  Distribution can enhance the firm by creating synergy from marketing channels.

IF:

THEN:

The firm should choose distribution strategy for strategic emphasis

Target Market Demand

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.

Segmen-ng the Market by Service Output Demands

•  Service outputs clearly differen-ate the offering or different marke-ng channels

•  More important your target market will value service outputs differently

•  Market research iden-fying relevant service outputs for target market important –  Delphi technique –  Focus groups –  One –on-one exploratory interviews –  Constant sum scales - RESPONDENT is asked to divide a par-cular sum among a series of alterna-ves.

Service Outputs

•  A framework for codifying and generalising how the end-user wants to buy was proposed by Bucklin (1966)

•  Bucklin argues that channel systems exist to reduce the -me its takes for an end-user search for a product

•  Bucklin iden-fied four generic service outputs and an addi-onal two have been added

Service Outputs

q  Bucklin 1.  Bulk-Breaking 2.  Spa-al Convenience 3.  Wai-ng -me or

delivery -me 4.  Product variety

q  Addi-onal 5. Customer Service 6. Informa-on provision

These six service outputs cover the major categories for end-users’ demands for different channel systems

1.  Bulk Breaking •  Bulk breaking – refers to the end-users ability to buy their product or service in their desired number of unit or lot size

•  Differences in purchasing and consump-on pa[erns emerge

•  More bulk breaking results in smaller lot sizes and a higher price

Bulk Breaking

2. Spa-al Convenience

•  Spa-al Convenience – provided by market decentralisa-on of wholesale or retail outlets increases consumer sa-sfac-on by reducing transporta-on requirements and search costs.

3. Wai-ng -me

•  Wai-ng -me – is the -me period an end-user must wait between ordering and receiving goods or post sale service.

•  Longer wai-ng -me > inconvenience •  Longer wai-ng -me < prices

4. Product Variety

•  Greater assortment and variety leads to higher distribu-on costs i.e. Carry more inventory

•  Variety describes generically different classes of goods making a product offering

•  Assortment refers to depth of product brands or models within a generic product category

5. Customer Service

•  Customer service – refers to all aspects of erasing the shopping and purchase process for end-users as they interact with suppliers and retailers

Uber Driver Ra-ng •  Uber has said the ra-ngs

system is designed to hold its drivers accountable and protect its passengers, which sounds effec-ve in theory. But a new study from New York University found the value of ra-ngs systems like Uber’s decreases over -me because public pressure to give another person a high ra-ng con-nually pushes the average up and up un-l it becomes irrelevant.

6. Informa-on Provision

•  Informa-on provision – refers to educa-on of end-users about product a[ributes or usage capabili-es or pre-purchase and post- purchase services

•  Greater service outputs demanded by end- users will be most likely involve intermediaries

TABLE 2-5: THE SERVICE OUTPUT DEMANDS (SOD) TEMPLATE

SERVICE OUTPUT DEMAND: SEGMENT NAME/ DESCRIPTOR

BULK BREAKING SPATIAL CONVENIENCE DELIVERY/ WAITING TIME ASSORTMENT/ VARIETY CUSTOMER SERVICE INFORMATION PROVISION

INSTRUCTIONS: If quan-ta-ve marke-ng-research data are available to enter numerical ra-ngs in each cell, this should be done. If not, an intui-ve ranking can be imposed by no-ng for each segment whether demand for the given service output is high, medium, or low.

iPhone

cost structure

lifestyle brand

“High-end” “Middle” “Mass

Market” consumer

prod. & softw. design

hardware & softw. dev.

hardware revenues

iTunes multimedia downloads

e-commerce

multimedia rights mgmt

iBook

content producers

Apple stores

dealer network

multimedia revenues

hardware suppliers

brand management

hardware distribution

content distribution content

APPLE SERVICE DEMAND OUTPUTS

SERVICE OUTPUT DEMAND: SEGMENT NAME/ DESCRIPTOR

BULK BREAKING SPATIAL CONVENIENCE DELIVERY/ WAITING TIME ASSORTMENT/ VARIETY CUSTOMER SERVICE INFORMATION PROVISION

1. High end Low Low High High High

2. Middle Low High Medium High Medium Medium

3. Mass Market Low High Low Low Low Low

High

Mee-ng Service Output Demands

•  Basic premise is that the marketer must iden-fy and meet the demands of end-users

•  In a marke-ng channel strategy context it involves: – Crea-ng and running a marke-ng channel system – Produces service outputs demanded by targeted end-user segments

Competitive Parity

Distribution advantages are not easily copied by competitors.

Distribution advantages are based on a

combination of superior strategy, organization, and human capabilities.

Caterpillar

•  Engineering excellence is not enough

•  Need “True Partnerships with your Dealers”

•  Caterpillars distribu-on network is hard to duplicate by compe-tors

Distribution Neglect

Competitors’ neglect of distribution strategies provides excellent opportunities.

The channel manager must analyse target

markets to determine whether competitors have neglected distribution and whether

vulnerabilities exist that can be exploited.

Distribution and Synergy

“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.

CHANNEL STRATEGY AND DESIGNING MARKETING CHANNELS

Differential Advantage & Channel Design 6

Differential advantage: Also called sustainable competitive

advantage, occurs when a firm

attains a long-term, advantageous

position in the market relative to

competitors.

Intensity Level Objective Number of Intermediaries

Intensive

Selective

Exclusive

Achieve mass market selling.

Convenience goods.

Work with selected intermediaries.

Shopping and some specialty goods.

Work with single intermediary. Specialty goods and industrial

equipment.

Many

Several

One

Levels of Distribution Intensity

Positioning the Channel

A firm that plans the channel and

makes decisions by viewing the

relationship with channel members as

a partnership or strategic alliance

that offers recognizable benefits to

the manufacturer & channel

members on a long-term basis

Positioning the Channel

… the reputation a manufacturer acquires among distributors [channel

members] for furnishing products, services, financial returns, programs, and systems that are in some way

superior to those offered by competing manufacturers.

Narus and Anderson

Lexus Covenant

CHANNEL STRATEGY AND THE SELECTION OF CHANNEL MEMBERS

Selection of Channel Members

Because customers perceive channel members as

an extension of the manufacturer’s own

organization, members should:

•  Reflect channel strategies the firm has developed to achieve its distribution objectives

•  Be consistent with the firm’s broader marketing objectives & strategies

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

Rolex Retailers

•  Rolex is careful about selec-ng the most reputable retail dealers

•  Use selec-ve distribu-on

•  Most be able to provide superior selec-on, service and warranty provision that customers expect

CHANNEL STRATEGY AND MANAGING THE MARKETING CHANNEL

Channel Strategy & Managing the Channel

How close a relationship should be developed

with the channel members?

How should the channel members be motivated to cooperate

in achieving the manufacturer’s distribution objectives?

How should the marketing mix be used

to enhance channel member cooperation?

3 Strategic Questions

CHANNEL STRATEGY AND THE EVALUATION OF CHANNEL MEMBER PRFORMANCE

Evaluation of Channel Member Performance

Have provisions been made in the design and

management of the channel to assure that channel member performance will be

evaluated effectively?

Channel manager’s involvement in evaluating member performance is integral to

developing & managing channel

Summary

•  Channel strategy refers to the broad principles by which the firm expects to achieve its distribution objectives to its target market

•  Channel Strategy is relevant to all six of the distribution decisions 1.  The role of distribution 2.  The role of distribution in the marketing mix 3.  The design of the marketing channel 4.  Selection of channel members 5.  Management of the channel 6.  Evaluation of channel member performance