International Burch University Marketing Management

International Burch University Marketing Management

Assoc. Prof. Dr. Teoman Duman STRATEGIC MARKETING PROBLEMS BY Roger A. Kerin and Robert A. Peterson (12-th edition) LECTURE NOTES

Presented by: Iskra Handukic, Nedzma Begic, Azra Muratovic Chapter 7: Marketing Channel Strategy and Management

The role of marketing channel  Marketing channel play an important integral role in an organization’s marketing strategy.  A marketing channel contains of individuals and organizations included in the process of marketing a product or service available for consumption of use by consumers and industrial users.  Channels not only link a producer of goods to the good’s buyers but also provide the means through which an organization implements its marketing strategy.  The effectiveness of a communication strategy is determined by the ability and willingness of channel intermediaries to perform sells, advertising and promotions activities.  An organization’s prices are affected by the markup and discount policies of intermediaries.  To sum up product strategy is affected by the intermediaries branding policies, willingness to stock and customize offerings and ability to argument offerings through installation or maintenance services the extension of credit etc. The channel – selection decision Making the channel selection decision is not so much a single act as it’s a process of making various component decisions.

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The process of channel selection includes specifying the type, location, density, and functions of intermediaries if any in the marketing channel. The marketing manager must answer few basic questions such as the following: Who are potential customers? Where do they buy? When do they buy? How do they buy? What do they buy? The design of marketing channels It signifies the number of levels in a marketing channel, which is determined by the number of intermediaries between the producer and the ultimate buyers or users. Direct versus indirect distribution The first decision which facing a manager is whether the organization need a) To use intermediaries to reach target markets or b) Contact ultimate buyers directly using its own sales force or distribution outlets or even the Internet through a marketing Web site or electronic storefront.  Indirect distribution use intermediaries to achieve market target of the type, location, density and the number of channels must be defined. -

Organizations often elect to contact ultimate buyers directly rather than through intermediaries when the following conditions exist.

 Indirect distribution must be considered when: Intermediaries can perform distribution functions more efficiently and less expensively, customers are hard to reach directly and when organization does not have resources to perform distribution function.  Direct distribution is usually employed when target market are composed of easily identifiable buyers, when personal selling is important element of the organization’s communication program when the organization has different offerings for the target market and when sufficient resources are available to satisfy target market requirements that would basically be handled by intermediaries such as (credit, technical assistance, delivery and post sale service). 2|Page

 Direct distribution contact ultimate buyers directly using its own sales force or distribution outlets or even the Internet through a marketing Web site or electronic store front. Electronic marketing channels: Employ some form of electronic communication, involving the Internet to make products and services available for consumption or use by consumers and industrial users. Disintermediation is identified as the elimination of traditional intermediaries and direct distribution through electronic marketing channels.

Channel Selection at the Retail Level Recognizing that the numerous routes to buyers exist there are three questions that need to be answered when choosing a marketing channel and intermediaries such as: 1. Which channel and intermediaries will provide the best coverage of the target market? 2. Which channel and intermediaries will best satisfy the buying requirements of the target market? 3. Which channel and intermediaries will be the most profitable? Target market coverage Achieving the best coverage of the target market requires attention to the density and type of intermediaries to be used at the retail level of distribution. Hence there are three degrees of density as following: 1. Intensive distribution means that a manager attempts to distribute the organization’s through as many retail outlets as possible. The intensive distribution is often chosen because when the offering is purchased frequently and when buyers wish to expend minimum effort in its acquisition. 2. Exclusive distribution is the opposite of the previous distribution in that typically one retail outlet in a geographical area or one retails carries the manufacturer’s line.

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3. Selective distribution is in the middle these two extremes. This strategy calls for a manufacturer to select a few retail outlets in a geographical area or authorize a few chains to carry its offerings.

Effective distribution means that a limited number of outlets are at the retail level account for a significant fraction of the market potential.

Satisfying Buyer Requirements Consist of four broad categories:  Information is an important requirement when buyers have limited knowledge or desire of specific information’s about a product or service.  Convenience has multiple meanings for buyers such as proximity or driving time to a retail outlet.  Variety reflects buyer’s interest in having numerous competing and complementary items from which to choose.  Attendant services provided by intermediaries are basic buying requirement for products such as huge household appliances that require delivery, installation and credit. Profitability -

is determined by the marginal earnings revenue minus costs for each channel member and for the channel as a whole. Is a critical determination of profitability These costs include distribution, advertising and selling expenses associated with different types of marketing channel.

Channel Selection at Other Levels of Distribution Specialty wholesaler –

Limited line of items within a product line

General-merchandise wholesaler – 4|Page

Wide assortment of products

General-line wholesaler –

Complete assortment of items in a single retailing field

Combination

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An important consideration what types of wholesalers sell to the retail outlets desired.

Decisions are based on what is available. If the available wholesalers don’t meet the requirements of the manufacturer in terms of satisfying retailers requirements for delivery, inventory, assortment and volume, credit and so on then direct distribution to retailers become the only viable alternative.

Dual distribution and multi channel marketing There are two common approaches such as dual distribution and multi-channel distribution Dual distribution occurs when an organization distributes its offering through two or more different marketing channels that may or may not compete for similar buyers. It’s used when: o Dual distribution is adopted for a variety of reasons: if a manufacturer produces its own brand as well as a private store brand the store brand might be distributed directly to the particular retailer whereas the manufacturers brand might be handled by wholesaler. o Or a manufacturer may distribute directly large volume retailers whose service and volume requirements set them apart from other retailer and may use wholesaler to reach smaller retailer outlets. o The organization might use its own sales group in high volume and geographically concentrate markets but use intermediaries elsewhere.

Multi-Channel Marketing -

Involves the blending of an electronic marketing channel and a traditional channel in ways that are mutually reinforcing in attracting, retaining, and building relationships with customers.

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Justifications -

An electronic marketing channel can provide incremental revenue (Victoria’s Secret) An electronic marketing channel can leverage the presence of a traditional channel (Ethan Allen) Multi-channel marketing can satisfy buyer requirements (Clinique division of Estée Lauder)

Considerations -

Actual incremental revenue or merely cannibalization Incremental cost to launch and sustain an electronic forefront Disintermediation – a traditional intermediary member is replaced by electronic storefront

Satisfying Intermediary Requirements and Trade Relations Intermediary Requirements Intermediaries are concerned with the adequacy of the manufacturer’s offerings in improving its products assortment for its own target markets. The ability of the manufacturer to supply quantities requested by intermediaries is trade discounts and fill rate standards, the length of time from order placement to receipt is cooperative advertising and other promotional support and lead time requirements, and product service exclusively agreements each contribute to long term exchange relationships. A manager who fail this to recognize these facts of life often finds that the functions necessary to satisfy buyer requirements such as sales contacts, display, adequate inventory, service and delivery are not being preformed.

Trade relations – are one of important consideration in marketing channel management and strategy. Conflict often arises in trade relations. Channel conflicts Arises when one channel member believes another channel member is engaged in behavior that is preventing it from achieving its goals.

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Four sources of conflict: 1) Channel member bypasses another member and sells or buys direct 2) Conflict over how profit margins are distributed among channel members 3) Manufacturer believes channel member is not giving its products adequate attention Channel Power Channel Captain is a channel member that takes on the role of coordinating, directing, and supporting other channel members Channel power can take four forms: 1) Economic power arises from the ability of a firm to reward or coerce other member given its strong financial position or consumer franchise. 2) Expertness’ is another source of power. 3) Identification with a particular channel member may also bestow power on a firm. (Referent Power) 4) Power can arise from the legitimate right of one channel member to dictate the behavior of other members.

Channel-Modification Decisions The reasons for modifying an organization’s marketing channels at the base of the channelmodification decisions should lay the manager’s intent in order to a) Provide the best coverage of the target market sought b) Satisfy the buying requirements of the target market and c) Maximize revenue and minimize the costs Channel modification decisions include an assessment of both the benefits and costs of making a change. Channel-Modification Decisions The quantitative assessments of a modification decisions rests on a series of questions. These questions imply that the modification decision involves a comparative analysis of the existing and new channels: 1. Will the change improve the effective coverage of the target markets sought? How? 2. Will the change improve the satisfaction of buyer needs? How? 7|Page

3. Which marketing functions, if any, must be absorbed in order to make the change? 4. Does the organization have the resources to perform new functions? 5. What effect will the change have on other channel participants? 6. What will be the effect of the change on the achievement of long-range organizational objectives?

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