A Strategic Tool of Growing

Importance for the Next

Millennium

(1) Search for Sustainable Competitive

Advantage
(2) Growing Power of Retailers in
Marketing
Channels
(3) The Need to Reduce Distribution Costs
(4) The Increased Role and Power of
Technology
(5) The New Stress on Growth

A competitive
advantage that cannot
be quickly and easily
copied by competitors

 Product

StrategyStrategy rapid technology

transfer enables competitors to quickly
produce similar products
Pricing StrategyStrategy global economy
allows competitors to find low cost
production to match prices
Promotion StrategyStrategy high cost, clutter,
and short life promotional campaigns
limit competitive advantage

Competitive Advantage
Based on

Channel

Strategy is Long Term

Requires a Channel Structure
Depends on Relationships and
People
Requires Effective
Interorganizational Management

Retailers

 Are Growing Larger

Enjoy Substantial Channel Power
Act as Buying Agents for Customers

Rather than Selling Agents for

Suppliers
Often Operate on Low Price / Low
Margin Model
Operate in Saturated Markets and
Fight for
Market Share

Concentration of Sales
Among the
Top 50 Retail Firms

Kinds of Retailers Where Largest Four Firms

Account for At Least 50% of Total Sales

Conventional
Department Stores

Discount
Mass Merchandisers

Variety Stores

Misc. General
Merchandisers

Athletic Footwear

Toy Stores

Percentage Distribution of Retail Firms and Sales

by Size of Firms

Retailer

Retailers Act as Buying Agents for

Customers Rather than as Selling

Agents for Suppliers

Retailers Often Operate on Low

Price /
Low Margin Model

Retailers Operate in Saturated

Markets and Fight for Market

Share

Thus, Effective Channel Strategy

for Dealing with
Power Retailers is Crucial

Distribution
Costs

Sometimes Distribution Costs

are Higher than the Manufacturing
Cost or the Costs of Raw
Materials and Component Parts

Autos
Distribution
Manufacturing
Raw Materials
and
Components

Software

Gasoline

Fax Machines

Packaged Foods

15%

25%

28%

30%

41%

40%

65%

19%

30%

33%

45%

10%

53%

40%

26%

Disintermediati
on

 The Internet
Wireless Communications
B2C and B2B E-Commerce
Cell Phones
Global Telecommunications
Robotics & Automated

Warehousing
Computerized Salespeople

Competition

Out

Reengineering
Restructuring
Downsizing
Flat
Organizations
Lean and Mean

In

Growth
Expansion
New Markets
Market Share
Top Line
Revenue

Translation
By getting channel members to focus on your
products to a greater extent than your
competitors, you gain market share and
growth

(1) Search For Competitive

Advantage
(2) Growing Size and Power of
Retailers
(3) Need to Reduce Distribution Costs
(4) Power and Potential of
Technology
(5) Stress on Growth Instead of
Downsizing

Marketing Channel Strategy

Has Become Critically
Important For Most
Businesses

The broad principles by

which a firm expects to
achieve its distribution
objectives for satisfying
its customers

(1) What role should distribution play in the firms

overall objectives and strategies?
(2) What role should distribution play in the
marketing mix?
(3) How should the firms marketing channels be
designed to achieve its distribution objectives?
(4) What kinds of channel members should be
selected to meet the firms distribution
objectives?
(5) How can the marketing channel be managed
to implement the firms channel design
effectively and efficiently on a continuing basis?

Cs = f (P1, P2, P3, P4)

where:
Cs= degree of customer satisfaction
P1= product strategy
P2= pricing strategy
P3= promotional strategy
P4= place (channel strategy)

 Distribution

appears to be the most

relevant variable for satisfying
customers
Parity exists among competitors in the
other three marketing mix variables
High degree of vulnerability exists
because of competitors neglect of
distribution
Distribution channel strategy can foster
synergies

 Dual Distribution
Exclusive Dealing
Full-Line Forcing
Price Differentiation
Price Maintenance
Refusal to Deal
Resale Restrictions
Tying Agreements

 When Do Customers Buy?

Where Do Customers Buy?
How Do Customers Buy?
Who Buys?

Who makes the actual purchase?

Who uses the product?
Who takes part in the buying
decision?

Supply Chain Management takes

a broader perspective by
viewing logistics as an integral
part of the marketing channel
relationship

A long-term partnership among marketing channel

participants aimed at reducing inefficiencies, costs, and
redundancies in the logistical system in order to provide
high levels of customer service

Contrasts Between a Traditional Logistics System and Supply Chain Based System
Factor

Traditional

Supply Chain Mgmt. System

Inventory Management

Logistics System

Total Cost Approach

Independent Effort
Minimize Firm Costs
Short-Term
Limited to Needs of
Current Transaction
Transaction Based
Not Relevant

Joint Effort to Reduce

Channel Inventories
Channel-Wide Cost Efficiencies

Time Horizon
Information Sharing and
Monitoring
Joint Planning
Compatibility of Corporate
Philosophies
Channel Leadership
Sharing of Risks and
Rewards
Inventory Flow

Not Needed
Each Channel Member
on Their Own
Warehouse Mentality
Storage Safety Stocks

Long-Term
Continuous Effort to
Gather and Monitor
Ongoing
Important for Major Initiatives
Required for
Coordination and Focus
Risks and Rewards Shared
over Long-range
Distribution Center
Orientation-JIT, Quick
Response, Cross Docking

1. Order Processing Time

2. Order Assembly Time
3. Delivery Time
4. Inventory Reliability
5. Order Size Constraints
6. Consolidation Stipulation
7. Consistency of Delivery
8. Frequency of Sales Visits
9. Ordering Convenience
10. Order Progress
Information
11. Inventory Backup During
Promotion
12. Invoice Formats
13. Physical Condition of
Goods

14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.

Claims Response
Billing Procedures
Average Order Cycle Time
Order Cycle Time Variability
Rush Service
Product Availability
Competent Technical Reps
Equipment Demonstrations
Availability of Literature
Accuracy in Filling Orders
Terms of Sale
Protective Packaging
Degree of Cooperation

Continuing and mutually supportive

relationship between the
manufacturer and its channel
members in an effort to provide a
more highly motivated team, network,
and alliance of channel partners

(1) Recognition of interdependence of

channel members
(2) Close cooperation between channel
members
(3) Careful specification of roles, rights,
and responsibilities in the relationship
(4) Coordinated effort focused on common
goals
(5) Good communications and trust
between channel members

The practice of building long-term relations with key

parties - customers, suppliers, distributors- in order to
retain their long-term preference and business
Because of the importance of channels of distribution,
building good relationships in the marketing channel is
key to successful relationship marketing

 Find

Out the Needs and Problems of

Channel Members
-informal information system
(grapevine)
-research studies of channel members
-research studies by outside parties
-marketing channel audit
-distributor advisory councils

Offer Support to Channel Members

that is Consistent with Their Needs
and Helps Solve their Problems
-cooperative arrangements
-partnerships and strategic
alliances
-distribution programming
Provide Leadership to Motivate
Channel Members
-use power effectively
-recognize causes of conflict
-resolve conflicts

Reward Power
Coercive Power
Legitimate Power
Referent Power
Expert Power

Effective Channel Management Depends

on How Well These Power Bases are
Combined and Used

 Role Incongruities
Resource Scarcities
Perceptual Divergencies
Expectational Differences
Decision Domain

Disagreements
Goal Incompatabilities
Communication Difficulties

1. Growing Emphasis on Marketing Channel

Strategy
2. More and More Stress on Technology
3. Focus on Efficiency and Reducing
Distribution
Costs
4. Shortening and Flattening of Distribution
Channels (Disintermediation)
5. Development of New Types of
Intermediaries in Channels
(Reintermediation)

6. Continued Growth in Partnerships and

Alliances (Relationship Marketing)
7. Increasing Power for Retailers and
Wholesalers (Gatekeepers)
8. Mergers and Acquisitions to Gain
Distribution Clout
9. Flexible and Focused Distribution to
Match
Micro, Niche, and Database
Marketing
10. Attention to the Behavioral Dimensions
of
Distribution to Augment
Technology