Marketing channel reflection
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Lecture8-ChannelsMay20181slides.pdf
CHAPTER Product and Pricing Issues in Channel Management
Lecture 8
Part 2 Developing the MarkeAng Channel
Learning ObjecAves
1. The importance of New Product Planning and Channel Management
2. The Product life cycle and Channel Management
3. The importance of Strategic product management
4. The Trading down, Trading Up in Channel Management.
2
Marketing Mix Resources
By understanding how the other marketing
mix variables interface with the channel
variable, and the implications of such,
the channel manager could coordinate all
strategic components to create the synergy needed
to meet customers’ needs.
1
Product-Channel Management Interfaces
3 Major areas of product Management
New product planning & development
Strategic Product Management
The Product Life Cycle
2
New Product Planning
1. What input, if any, can channel members provide into new product planning?
2. What has been done to assure that new products will be acceptable to the channel members?
3. Do the new products fit into the present channel members’ assortments?
4. Will any special education or training be necessary to prepare the channel members to sell the new products effectively?
5. Will the product cause the channel members any special problems?
3
Encouraging Member Input
Solicit ideas for new products.
Solicit feedback during the test-marketing
or commercialization stage.
Gather feedback on product size or on packaging.
Member Acceptance of New Products
Factors that pre-determine acceptance of new products by channel partners:
• How the product will sell – “Turnover”
• Whether the product is easy to stock & display
• Whether the product will be profitable – “Margins”
Adding Products to the Assortment
Will existing channel members view the new product as
appropriate to add to their assortments?
Will channel members feel competent
to handle the new product?
Educating Channel Members
Manufacturer goal:
To sell new products successfully
Method:
Educate or train channel members in the product’s use and the
special features to emphasize in sales
presentations
10
Trouble-Free New Products
New product problems
Care in new product planning
=
Apple Product Roadmap
12
Product Life Cycle
Introduction
Growth
Sales ($)
Sales curve
Maturity
Profit curve
Time Decline
4
Introduction
1. Assure sufficient number of channel members for adequate market coverage
2. Assure adequate supply on channel
members’ shelves
Growth
1. Assure sufficient number of channel member inventories for adequate market coverage
2. Monitor the effects of competitive products
on channel member support
Maturity
1. Extra emphasis on motivating channel members to mitigate competitive impact
2. Investigate possibility for changes in channel
structure to extend maturity stage & possibly foster new growth stage
Kiwi Online
17
Kiwi Soccer Ad
18
Decline
1. Phase out marginal channel members
2. Investigate impact of product deletion on channel members
Crossing Chasm
CH A SM
Chasm Group
κ
Early Market
Bowling Alley
Tornado Main Street
κ compe;;ve advantage fix a broken business process
develop channel/opera;ons infrastructure
get beCer value
Techies Visionaries Pragma;sts Conserva;ves Scep;cs
Strategic Product Management
Successful Product Strategies: • Product quality, innovativeness, or technological
sophistication • Capabilities of managers overseeing product line • Firm’s financial capacity & willingness to provide
promotional support • Channel members’ role in implementing product
strategies
5
Product Strategies 6
Product differentiation
Product positioning
Product line expansion & contraction
Trading up & trading down
Product brand strategy
Product Differentiation
Creating a differential product involves getting consumers to perceive a difference.
Implications for channel management:
• Channel managers should try to select & help develop members who fit the product image when product differentiation strategy is
affected by who will be selling the product.
• Channel managers should provide retailers with the kind of support needed to properly present the product when this strategy is
influenced by how the product is sold at retail.
DifferenAaAon Test
24
Find your Purple Cow
25
Product Positioning The manufacturer’s attempt to have consumers
perceive the product in a particular way relative to competitive products
Implications for channel management:
• Possible interfaces between the product positioning strategy and where the product will be displayed and sold to consumers
should be considered before the strategy is implemented.
• Elicit retailer support before attempting to implement strategy.
• Maintain backup supply of retailer incentives
Brand PosiAoning
27
Product Line Expansion & Contraction Manufacturers often engage in both
expansion and contraction simultaneously.
Implications for channel management:
• Difficult to balance channel member satisfaction & support for reshaped product lines
• Channel members are making increasing demands on manufacturers to have the right mix of products
Trading Down, Trading Up!
Adding lower-priced products or product lines, or higher-priced products or product lines,
to a product mix
Implications for channel management:
• Whether existing channel members provide adequate coverage of high-end or low-end market segments to which trade-up or
trade-down product is aimed
• Whether the channel members have confidence in the manufacturer’s ability to successfully market the trade-up or
trade-down product.
When manufacturers sell under both national and private brands, direct competition with channel
members may result
Product Brand Strategy
Implications for channel management:
• Do not sell both national & private brand versions of products to the same channel members.
• Sell national and private brand versions in different geographical territories.
• Physically vary products enough to minimize direct competition
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Power of Brands
33
Product Service Strategy
It is the role of the marketing channel to provide necessary service along with the
product to the final user
Manufacturers should provide after-sale service:
• by offering it directly at the factory • through their own network of service centers • through channel members • through authorized independent service centers • by some combination of the above
7
Summary
• Effective Channel management requires that the channel manager be aware be aware of how channel management interfaces with the other variables of the marketing mix.
• Examined the strategic interface between product management and channel management
• Product life-cycle implications for channel manager important
• Strategic viability of product lines important to remain viable and profitable
35
CHAPTER Pricing Issues in Channel Management
Lecture 8
Part 2 Developing the MarkeAng Channel
Learning ObjecAves 1. The importance of pricing to channel strategy
2. Anatomy of channel pricing structure
3. Influencing pricing strategy
4. Channel pricing guidelines
5. Caveat to pricing guidelines
6. Other channel pricing issues
37
The Importance of Pricing
Pricing decisions cause top-level marketing executives more concern than any other
strategic marketing decision area.
Pricing is viewed as having a more direct
link to the firm’s bottom line.
1
Anatomy of Channel Pricing Structure
Channel participants each
want a part of the total price
sufficient to cover their
costs and provide a
desired level of profit.
2
The “Golden Rule” of Channel Pricing
It is not enough to base pricing decisions solely on
the market, internal cost considerations, and competitive factors. Rather, for those firms using
independent channel members, explicit consideration of how pricing decisions affect channel member behavior is an important part of pricing strategy.
Pricing decisions can have a substantial impact
on channel member performance.
Gross Margin
41
Difference Between Margin and Markup
42
Example
43
Influencing Pricing Strategy
The major challenge for the channel manager:
To help foster pricing strategies that
promote channel member cooperation and minimize conflict
3
Channel Manager’s Role Major areas of
consideration in a manufacturer’s pricing
decision
Internal cost
considerations
Channel considerations
Competitive considerations
Target market
considerations
Channel manager must focus
on the channel considerations
and work to incorporate them
into the firm’s pricing decisions
Channel Manager’s Role
To find out about channel member views
and to appraise their
effects on channel
member performance
Channel Manager’s Role Have
channel members’ viewpoints on pricing issues included as an integral part of the manufacturer’s
price-making process
Such action anticipates and hopefully avoids problems
that may arise after pricing decisions have taken effect
Market Leader DistribuAon in place Price main weapon Premium price
Variety of opAons
Market Niche Stay with markets
Add niches Premium price
SelecAve distribuAon
Market Challenger Focus on flanks
Direct or indirect a\ack
Market Follower ‘Cloning’
Set lower prices
Price and Distribution Strategies
Channel Pricing Guidelines
1. To help those involved in pricing decisions to focus more clearly on the channel implications of their pricing decisions
2. To provide general prescriptions on how to formulate pricing strategies that will help promote channel member cooperation and minimize conflict
4
Profit Margins
Guideline #1: Each efficient reseller must obtain unit profit margins in excess of unit
operating costs.
Channel members who believe that the
manufacturer is not allowing them sufficient margins are likely to seek out other suppliers or establish and promote their own private
brands.
Different Classes of Resellers
1. Do channel members hold inventories? 2. Do they make purchases in large or small quantities? 3. Do they provide repair services? 4. Do they extend credit to customers? 5. Do they deliver? 6. Do they help train the customers’ sales force?
Guideline #2: Each class of reseller margins should vary in rough proportion to the cost of
the functions the reseller performs.
Guideline #3: At all points in the vertical chain (channel levels), prices charged must be in line with those charged for comparable rival brands.
Channel managers should attempt to weigh any margin
differentials between their own and competitive brands in terms of what kind of support their firms offer and what
level of support they expect from channel members.
Rival Brands
The margin structure should reflect any changes in
the usual allocation of distribution tasks between the manufacturer and the channel
members.
Special Arrangements Guideline #4: Special distribution arrangements, variations in functions performed or departures from the usual flow of merchandise should be accompanied by corresponding variations in
financial arrangements.
Exceptions are possible if they can be justified in the
eyes of the channel members. However, it is the job of the channel manager to attempt to explain to the channel members any margin changes that
deviate downward from the norm.
Conventional Norms in Margins
Guideline #5: Margins allowed to any type of reseller must conform to the conventional
percentage norms unless a very strong case can be made for departing from the norms.
Channel members are often amenable to accepting
the lower margins associated with promotional products so long as they are convinced of the promotional value of the product in building
patronage.
Margin Variation on Models
Guideline #6: Variations in margins on individual models and styles of a line are permissible and expected. However, they must vary around the
conventional margin for the trade.
Price points are specific prices, usually at the retail
level, to which consumers have become accustomed. Failure to recognize retail price points can create problems for the manufacturer as well as its channel members if consumers expect to find products at particular price points and such
products are not offered.
Price Points
Guideline #7: A price structure should contain offerings at the chief price points, where such
price points exist.
Amazon Pricing Model – Why Amazon Hide its Cheapest Price
57
If the price differences are not closely associated with visible or identified product features, the
channel members will have a more difficult selling job.
Product Variations
Guideline #8: A manufacturer’s price structure must reflect variations in the attractiveness of
individual product offerings.
Guideline Caveat
Particular circumstances and situations exist
in which the prior guidelines will not apply or
will be irrelevant.
5
Other Channel Pricing Issues
Exercising control in channel pricing
Changing price policies
Passing price increases through the channel
Using price incentives in the channel
Dealing with the gray market & with free riding
6
Exercising Control in Pricing Because channel members typically view pricing as the area over which they have total control. . .
First: Rule out any type of coercive approaches to controlling channel member pricing policies.
Second: The manufacturer should encroach on the
domain of channel member pricing policies only if the manufacturer believes that it is in his or her vital long-term strategic interest to do so.
Third: If the manufacturer believes that it is necessary to
exercise some control over member pricing, he or she should do so through “friendly persuasion.”
Channel members fear such changes because they have become accustomed to the strategy, or their own pricing strategies may be closely tied to those of the manufacturer.
Changing Price Policies
Changes in
manufacturer pricing policies
or related terms of sale cause
reactions among
channel members.
First: Manufacturers should consider the long- and the short-term implications of such increases versus maintaining the current prices.
Second: Manufacturers should do whatever possible if passing on the price increase is unavoidable. Third: Manufacturers could change their strategies in other areas of the marketing mix to help offset the effects of such increases.
Passing Price Increases Through the Channel
Strategies for channel members to use in order to avoid simply passing along price increases
through the channel:
Possible Solutions: • Make pricing promotions as simple and
straightforward as possible. • Design price-promotion strategies to be at least as
attractive to retailers as they are to consumers.
Manufacturers face difficulties gaining strong retailer acceptance and follow-through on
pricing promotions.
Using Price Incentives in the Channel
Channel design decisions that result in closely controlled channels and selective distribution as well as changing buyer preferences may help limit the growth
of the gray market and free riding.
Gray Market The sale of brand-name products at
very low prices by unauthorized distributors or dealers
Gray Market & Free Riding
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Summary
• Pricing Strategy should not only incorporate not only internal cost, target market and compeAAve consideraAons but also channel consideraAons.
• SomeAmes the manufacturers pricing strategy is overlooked.
• Manufacturers pricing strategy must be congruent with channel members interests to achieve a high level of cooperaAon.
• Channel manager must ensure channel members are rewarded for channel flows they perform.
• Adequate margin for channel members is important 67
