Chapter 5 Strategy in Marketing Channels Objective 1: 5 Marketing Channel Strategy Channel Strategy: The broad principles by which the firm expects to achieve its distribution objectives for its target market(s) Objective 2: 5 Distribution Decisions 1. 2. 3. 4. 5. 6. The role of distribution in the firm’s overall objectives & strategies The role distribution should play in the marketing mix The design of the firm’s marketing channels The selection of channel members The management of the marketing channel in order to implement the firm’s channel design effectively & efficiently on a continuing basis The evaluation of channel member performance Objective 3: 5 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 5 The Value Chain Firm infrastructure Support Activities Human resource management Technology development Human resource management Inbound logistics Operations Outbound Marketing logistics & sales Primary Activities Service 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. • Rayovac Corp. • WD-40 • Coca-Cola • Procter & Gamble Company 5 Objective 4: 5 Channel Strategy & the Marketing Mix The essence of modern marketing management: To develop a marketing mix of product, price, promotion, & distribution (place) Objective 5: 5 Emphasis on Distribution Strategy IF : or or or • 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. THEN: The firm should choose distribution strategy for strategic emphasis 5 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. 5 Competitive Parity Distribution advantages are not easily copied by competitors. Distribution advantages are based on a combination of superior strategy, organization, and human capabilities. Distribution Neglect Competitors’ neglect of distribution strategies provides excellent opportunities. The channel manager must analyze target markets to determine whether competitors have neglected distribution and whether vulnerabilities exist that can be exploited. 5 5 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. Objective 6: Differential Advantage & Channel Design Differential advantage, also called sustainable competitive advantage, occurs when a firm attains a long-term, advantageous position in the market relative to competitors. • Caterpillar 5 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 • Infiniti 5 Objective 7: 5 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 Objective 8: 5 Channel Strategy & Managing the Channel How close a relationship should be developed with the channel members? How should the marketing mix be used to enhance channel member cooperation? 3 Strategic Questions How should the channel members be motivated to cooperate in achieving the manufacturer’s distribution objectives? 5 Closeness of Channel Relationships Factors to consider • • • • • • • Distribution intensity Targeted markets Products Company policies Middlemen Environment Behavioral dimensions Marketing Mix in Channel Management Product strategy Distribution strategy Marketing Mix Promotion strategy Pricing strategy 5 Objective 9: 5 Motivation of Channel Members Portfolio concept: A tool for motivating different types and sizes of channel members participating in various channel structures who may respond differently to various motivation strategies. Objective 10: 5 Evaluation of Channel Member Performance Channel manager’s involvement in evaluating member performance is integral to developing & managing channel Have provisions been made in the design and management of the channel to assure that channel member performance will be evaluated effectively?