Transcript Chapter 7

Chapter 7
Marketing Channel
Strategy and Management
BY Roger A. Kerin and Robert A.
Peterson
Assoc. Prof. Dr. Teoman Duman
Students: Iskra Handukic, Nedzma
Begic and Azra Muratovic
What is a marketing channel?
A marketing channel consists of
individuals and firms involved in the
process of making a product or
service available for consumption or
use by consumers and industrial
users.
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Role of the channel in marketing
strategy
● Links a producer to buyers
● Performs sales, advertising, and promotion
● Influences the firm’s pricing strategy
● Affects product strategy through branding
policies, willingness to stock and customize
offerings, install, maintain, offer credit, etc.
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The Channel-Selection Decision
Fundamental Questions
The marketing manager must
answer the following questions:
● Who are potential customers?
● Where do they buy?
● When do they buy?
● How do they buy?
● What do they buy?
- Avon Cosmetics example
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Traditional Marketing Channel Designs
Producer
Brokers or Agents
Distributors or Wholesalers
Retailers or Dealers
Ultimate Buyers
The Design of Marketing Channels
INDIRECT DIST.
Use intermediaries to
reach target market
type
location
density
number of channel
levels
vs.
DIRECT DIST.
Contact ultimate buyers
directly
using its own sales
force or distribution
outlets
using the Internet
through a
marketing Web site
or electronic
storefront
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The Design of Marketing Channels
Direct distribution is typically used
when:
● Buyers are easily identifiable
● Personal selling is a major component of
the communication mix
● Organization has a wide variety of
offerings for the target market
● Sufficient resources are available
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The Design of Marketing Channels
Direct distribution must be considered
when:
● Intermediaries are not available for
reaching target markets
● Intermediaries do not possess the
capacity to service the requirements
of target markets
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The Design of Marketing Channels
Indirect distribution must be considered
when:
● Intermediaries can perform
distribution functions more efficiently
and less expensively
● Customers are hard to reach directly
● Organization does not have resources
to perform distribution function
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The Design of Marketing Channels
Electronic marketing channels employ
some form of electronic communication,
including the Internet, to make products
and services available for consumption or
use by consumers and industrial users.
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Representative Electronic Marketing Channels
Amazon.com
Autobytel.com
Book Publisher
Auto
Manufacturer
Book
Distributor
Auto Dealer
Amazon.com
Auto-By-Tel
(Virtual Retailer)
(Virtual Broker)
Travelocity.com
Airline
Travelocity
(Virtual
Agent)
Ultimate Buyers
Dell.com
Dell Computers
The Design of Marketing Channels
Disintermediation is the elimination
of traditional intermediaries and
direct distribution through electronic
marketing channels.
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Channel Selection at the Retail Level
Channel Selection Decisions
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?
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Channel Selection at the Retail Level
Target Market Coverage
Exclusive
Rolex
Faberge
Selective
Levi’s
Sony
Intensive
Wrigley’s
Coke
Channel Selection at the Retail Level
Effective Distribution occurs when a limited
number of retail outlets account for a
significant fraction of the market potential.
Example: A marketer distributes the product
through 40% of available outlets, but these
outlets account for 80% of the market.
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Channel Selection at the Retail Level
Satisfying Buyer Requirements
● Information
● Convenience
● Variety
● Attendant services
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Channel Selection at the Retail Level
Profitability
● Margins = Revenues – Channel Costs
● Channel costs are:
- Distribution costs
- Advertising costs
- Selling costs
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Channel Selection at Other Levels of
Distribution
Types of Wholesaler
● Specialty wholesaler
– Limited line of items within a product line
● General-merchandise wholesaler
– Wide assortment of products
● General-line wholesaler
– Complete assortment of items in a single
retailing field
Combination
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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
● the main consideration is whether it will
provide incremental sales revenue or cannibalize
existing sales
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Dual Distribution
When is it used
● own brand and private store brand
● distribution to large and small retailers
● multiband strategy
● geographic factors
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Dual Distribution
Example
Hallmark
● Sells Hallmark brand cards through Hallmark
stores and selected department stores
● Sells Ambassador brand cards through
discount drugstore chains
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Multi-Channel Marketing
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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Multi-Channel Marketing
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)
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Multi-Channel Marketing
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
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Satisfying Intermediary Requirements
and Trade Relations
Intermediary Requirements
● Improvements in product assortments
● Trade discounts
● Fill-rate standards
● Promotional support
● Lead-time requirements
● Product-service exclusivity agreements
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Satisfying Intermediary Requirements
and Trade Relations
Trade Relations
Channel Conflict 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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Satisfying Intermediary Requirements
and Trade Relations
Sources of Channel Conflict
● Channel member bypasses another member
and sells or buys direct
● Uneven distribution of profit margins among
channel members
● Manufacturer believes channel member is not
giving its products adequate attention
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Satisfying Intermediary Requirements
and Trade Relations
Channel Power
Channel Captain is a channel member
that takes on the role of coordinating,
directing, and supporting other channel
members.
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Satisfying Intermediary Requirements
and Trade Relations
Forms of Channel Captain Power
● Ability to reward or coerce other members
● Expertness
● Identification with a particular channel
member (Referent Power)
● Legitimate right to dictate the behavior of
other members
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Channel-Modification Decisions
Reasons
● Shifts in the geographical concentration
of buyers
● Inability of existing intermediaries to
meet the needs of buyers
● Costs of distribution
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Channel-Modification Decisions
Basic Objectives
1. Provide the best coverage of the
target market sought
2. Satisfy the buying requirements
of the target market
3. Maximize revenue and minimize
cost
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Channel-Modification Decisions
Qualitative Factors
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?
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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Case Study Analysis: Swisher Mower
and Machine Company
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MARKETING PROBLEM DEFINITION
• In early 1996, Wayne Swisher,
president and chief executive
officer (CEO) of Swisher Mower
and Machine Company (SMC)
received a certified letter from a
major national retail merchandise
chain inquiring about a private
brand distribution arrangement for
SMC line of riding mowers.
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MARKETING PROBLEM DEFINITION
• The national retail merchandise
chain expected to make an annual
order of approximately 8200 units.
The chain wanted to purchase the
mowers at a price 5 percent lower
than SMC manufacturer’s list price
for its standard model. The chain
wanted that the mower be different
from SMC Ride King
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COMPANY OVERVIEW
• -Swisher Mower and Machine Company
was formed in 1945 by Max Swisher.
• -He received his first patent for a gearbox
drive assembly when he was 18-years
old, he develop a self-propelled push
mower utilizing this drive assembly.
• -He began selling these mowers to
neighbors after converting his parent’s
garage
into
small
manufacturing
operation
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COMPANY OVERVIEW
• SMC produced limited but differentiated
products. SMC’s flagship product, the
Ride King, was credited with the first
zero-turning-radius riding mower.
• SMC also produced a trail-mower called
T-44 with a cutting width of 44 inches.
SMC planed to broaden SMC product
line in 1996 by introducing a high-wheel
string trimmer product, Trim-Max, a
high-wheel, walk-behind product.
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COMPANY OVERVIEW
• About 75% of sales of SMC were made
in non-metropolitan areas.
• SMC sold 30% through wholesalers,
25% through direct-to-dealer, 40% as
private-label, and the rest 5% as
exports.
• It sold the Ride King through
wholesalers, who located throughout the
country, focusing on farm dealers
situated in the south central and
southeastern US.
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INDUSTRY OVERVIEW
• Riding lawn mowers are classified
as lawn and garden equipment with
two basic configurations, the frontengine lawn tractors and rear
engine riding mowers.
• However there are some midengine riding mowers on the
market, such as those produced by
SMC.
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INDUSTRY OVERVIEW
• Competition in riding lawn mower
market
was
fierce
with
ten
manufacturers
comprising
major
competitors in 1995, while SMC only
occupied around 0.3%, based on sales
units.
• All these companies made Riding
mowers under a nationally branded
name and at the same time were
engaged in private-label production.
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INDUSTRY OVERVIEW
• Each riding mower manufacturer priced
its products at price points.
• The representative retail prices for
national
and
private-label
riding
mowers typically ranged from $800 to
$5,000.
• The manufacturer’s price of Ride King
of SMC, $ 650, was quite comparative,
compared with industry average.
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CONSUMER ANALYSIS
• National retail merchandise chains 24%
• OPE/Farm Equipment & supply stores 22%
• Lawn/Garden Stores – 19 %
• Discount department stores - 13%
• Home centers – 10%
• Hardware stores – 2 %
• Others – 10%
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COMPETITION POSITIONING
• Ten manufacturers comprised the
major competitors in the riding lawn
mower market in 1995: American Yard
Products, Ariens, Honda, John Deere,
Kubota, MTD Inc, Murray of Ohio,
Snapper, Toro, and Garden
Way/Troy-Bilt. Ariens, Honda, John
Deere, Kubota, MTD Inc, Murray of
Ohio, Snapper, Toro, and Garden
Way/Troy-Bilt
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POSITIVE
STRENGTHS
INTERNAL FACTORS
SWOT ANALYSIS

Distinct products

High quality, simple design, easy to
NEGATIVE
WEAKNESSES

Limited range of products

Perception on rear and mid engine –not
use and maintain , no significant claim
as strong and durable as front engine

Interchangeable parts

One man makes all the decision

Competitive price

Small business mentality

Personal relationship with dealer,

Insufficient attention for promotion and
distributors and end-customers

One new product on the way (Trim
advertising campaign

No national distribution network
EXTERNAL FACTORS
Max)
OPPORTUNITIES
THREATS




Limited market coverage (south
Many big competitors like Honda, John
central, southeastern). Potential
Deere, American Yard Production etc
expansion to the west
with stronger financial resources and
New target market include
economic size of capacity
consumer housing, in addition to

Cyclical industry
farms

After next year, industry may be down
Private labels business may be
growing

Possibility for automation by
technology development in long
term (production streamline, cost
reduction)
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ALTERNATIVES AVAILABLE
• Enter distribution Arrangement with
Retail Merchandise Chain:
• It could be to SMC’s advantage to
enter the arrangement because it
would provide them the chance to
reach consumers they currently do
not.
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ALTERNATIVES AVAILABLE
• Continue Current Operations:
• By continuing current operations as they
are, SMC could avoid the added costs
and put the funds toward other
expansion possibilities.
• However, if SMC rejects this proposal,
then they will be missing out on what
makes up approximately 70 percent of
industry sales.
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SOLUTION
• SMC should sign the proposal with the
retail merchandise chain.
• This proposal holds too many
opportunities for SMC to let it pass or
fall into the hands of another
competitor.
• The results of accepting the proposal
look far better than the alternative.
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Thank you for your attention!
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