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McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

13

Channel Management

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Channel Management

Does it matter where you are sold?

Take a position:1. Channel images do not really affect the

brand images of the products they sell that much.

2. Channel images must be consistent with the brand image.

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Channel Management

A channel of distribution is the combination of institutions through which

a seller markets products to the user or ultimate consumer

Sets of interdependent organizations involved in the process of making a product or service available for use or consumption.

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Example: Personal Computer Distribution Channels

Manufacturers Manufacturers

End End customers customers

Retail Retail VARs,VARs,OEMs OEMs

Mail Mail MassMass

reseller reseller Internet Internet

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Channel Management

Channel systems are not fixed, rigid structures but are rather dynamic in nature.

It is a primary responsibility of the product manager to always keep abreast of changes in customer needs about how they want to purchase the product or service and then adapt the channel structure accordingly.

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Designing a Marketing Channel System

Analyze customer needs

Evaluate major channel alternatives

Identify major channel alternatives

Establish channel objectives

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Channel Management

Direct Vs. Indirect

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Direct Appears to Be Better than Indirect When:

1. Information needs (often due to technical complexity) are high.

2. Product customization is important.

3. Quality assurance matters – direct control is needed.

4. Purchase orders are large.

5. Transportation and storage are complex.

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Factors Pointing to Indirect Channels

1. One-stop shopping for many products is important.

2. Availability is important.

3. After-sales service is important.

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The Distribution Value-Added Chain

Suppliers ChannelProducer Channel Customer

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Value-Adds Versus Costs of Different Channels

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Services Provided by Channel Members

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Channel Arrangements

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Power in Channel Relationships:Channel Members Have it When

• The channel’s volume of sales of the product is large relative to the product’s total sales volume

• The product is not well differentiated from competitors

• The channel has low switching costs; it is relatively easy to find an alternative to replace the product

• The channel poses a credible threat of backward integration or competing with the product

• The channel member has better information than the product manager about market conditions

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Power in Channel Relationships:Maintaining Power Over Retailers

• Protect the brand name

• Customize products and promotions

• Innovate constantly

• Organize around the customers

• Invest in technology

• Cut costs to keep prices low

• Support smaller retailers

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Putting the Internet into Perspective

1. It is not the first new communication technology.

2. For most products, it is not a sufficient channel.

3. Its “widespread availability” is limited.

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Primary Benefits of the Internet

• It is interactive

• It is inexpensive

• It has broad scope

• It is fast

Internet Can’t:• Provide physical product

• Provide human contact

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The Direct Marketing Process

1. Set an objective

2. Determine the target market

3. Choose the medium/media

4. Get a list

5. Analyze the list

6. Develop the offer

7. Test the offer

8. Analyze the results

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Marketing Intermediaries

• Middleman – independent link between producers and consumers

• Merchant middleman – actually buys goods and takes title/ownership

• Agent – business unit that negotiates purchases and sales but does not take ownership

• Wholesaler – a merchant who primarily stores and handles goods in large quantities

• Retailer – merchant middleman who sells to final consumers

• Broker – middleman who serves as a go-between for the buyer and seller

• Manufacturer’s agent – an agent who operates by contract serving a geographic territory

• Distributor – wholesale middleman in lines with selective or exclusive distribution

• Jobber – a middleman who buys from manufacturers and sells to retailers

• Facilitating agent – a firm that performs distribution tasks other than buying, selling and transferring

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Channel Function Analysis

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Good Stuff, Inc., Sales by Channel

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PC Sales Volumes by Channel

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Percentage of Company Sales to Wal-Mart

Tandy Brands 39%

Mattel 23%

Clorox 23%

Hershey 21%

Revlon 20%

RJR Tobacco 20%

P&G 17%

Kraft Foods 12%

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Company-to-Company Contacts

Agent/ Broker rep

Indirect

Company

Direct

In person Phone Mail Electronic

Customer

Retailer/ Dealer

Wholesale/ Distributor

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Differing Perspectives between Manufacturers and Channel Members

Channel 1Channel 1 Channel 2Channel 2

FirmFirm

Channel 3Channel 3

CustomerCustomer

Firm 1Firm 1

Channel Channel

Firm 2Firm 2 Firm 3Firm 3

CustomersCustomers

Channel perspective:

Firm perspective:

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A Hybrid Marketing Channel System

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Overall Surefoot Master Contribution

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Allocation of Costs by Function

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Allocation of Functional Costs to Channels

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Direct Mail vs. Direct E-mail

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Direct Marketing Planning