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Marketing Channel Concepts

Part 1: Marketing Channel Systems. Marketing Channel Concepts. The growing importance of marketing channels The definition of marketing channels How marketing channels relate to strategic variables in the marketing mix

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Marketing Channel Concepts

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  1. Part 1: Marketing Channel Systems Marketing Channel Concepts

  2. The growing importance of marketing channels • The definition of marketing channels • How marketing channels relate to strategic variables in the marketing mix • The flows in the marketing channels and their relationship to channel management • The principles of specialization, division of labor, and contactual efficiency • The difference between the concepts of channel structure and of ancillary structure

  3. Why the growing importance of marketing channels? 1 • The explosion of information technology and E-commerce • A greater difficulty in gaining a sustainable competitive advantage • The growing power of distributors, especially retailers in marketing channels • The need to reduce distribution costs

  4. The explosion of information technology and E-commerce • A greater difficulty in gaining a sustainable competitive advantage • The growing power of distributors, especially retailers in marketing channels • The need to reduce distribution costs The prediction: Disintermediation – reduction of number of intermediaries The reality: Reintermediation– evolution of a new type of intermediary Yahoo! eBay Amazon.com

  5. The explosion of information technology and E-commerce • A greater difficulty in gaining a sustainable competitive advantage • The growing power of distributors, especially retailers in marketing channels • The need to reduce distribution costs Place (distribution), or Marketing Channel Strategy Potential for gaining competitive advantage because place is more difficult for competitors to copy Sustainable competitive advantage

  6. The explosion of information technology and E-commerce • A greater difficulty in gaining a sustainable competitive advantage • The growing power of distributors, especially retailers in marketing channels • The need to reduce distribution costs Power retailers as of consumer markets Gatekeepers Act as buying agents for customers rather than as selling agents for manufacturers

  7. The explosion of information technology and E-commerce • A greater difficulty in gaining a sustainable competitive advantage • The growing power of distributors, especially retailers in marketing channels • The need to reduce distribution costs Marketing channels are the most recent target for reducing distribution costs. The focus is on channel structure and management.

  8. What is a marketing channel? 2 Outside the firm Firm involved in negotiatory functions Management’s involvement in the process External contactual organization that management operates to achieve its distribution objectives Goals that change, causing variations in contactual organization & the way in which management operates it

  9. What is a channel manager? Anyone in a firm or organization who is involved in marketing channel decision making

  10. How does marketing channel strategy relate to the rest of the marketing mix? 3

  11. The change of focus to channel strategy • Creates competitive advantage with long-term viability • Builds strong relationships between manufacturers and channel members • Based on trust, confidence, and people power

  12. Channel Strategy and Logistics Management Part of distribution variable • Concerned with entire process of starting and operating contactual organization • Formulated before logistics management Focused specifically on providing product availability at appropriate time & place

  13. Marketing Channel Flows 4 Product Flow Negotiation Flow Ownership Flow Information Flow Promotion Flow

  14. Product Flow Manufacturer Transportation Company Wholesalers Retailers Consumer

  15. Negotiation Flow Manufacturer Wholesalers Retailers Consumer

  16. Ownership Flow Manufacturer Wholesalers Retailers Consumer

  17. Information Flow Manufacturer Transportation Company Wholesalers Retailers Consumer

  18. Promotion Flow Manufacturer Advertising Agency Wholesalers Retailers Consumer

  19. Distribution through intermediaries 5 Factors that determine the role of intermediaries Technology The Internet Economic Specialization & Considerations Division of Labor Contactual Efficiency

  20. Specialization & Division of Labor Distribution Tasks Production Tasks Distributed Inter-organizationally Distributed intraorganizationally

  21. Contactual Efficiency Granada Guitar Co.

  22. Channel Structure v. Ancillary Structure 6 Channel Structure The group of channel members to which a set of distribution tasks has been allocated Why are single-channel structures currently the exception? Ancillary Structure The group of institutions that assist channel members in performing distribution tasks Why is managing the ancillary structure most likely to be less complex than managing the channel structure?

  23. Discussion Question #1 ROCKAUTO.COM is a leading online auto parts store that prides itself for offering a huge selection of auto parts, everyday low prices, fast shipping, and an easy-to-use Web site. Some ROCKAUTO.COM advertisements have even claimed that this online auto parts store is “head and shoulders” above any brick and mortar auto parts store. The company’s slogan, “All The Parts Your Car Will Ever Need,” suggests that customers have all the choice they could possibly want from ROCKAUTO.COM and that they need look no further than this online auto parts store to satisfy all their needs. Do you agree with ROCKAUTO.COM’s claim? Might customers seeking auto parts need other channel options? Explain.

  24. Discussion Question #3 Growth in online retail sales has been outstripping conventional sales in retail stores. This online sales growth might be enhanced significantly by the latest online sales phenomenon of mobile commerce—shopping via mobile smart phones such as Apple’s iPhone, Research in Motion’s Blackberry, or Google’s NexusOne. But so far, of the almost 50 million smart phone users that have access to the Internet, only about 7 million (under 15%) have actually bought something through their phones during the course of a year. Do you think mobile commerce via smart phone will grow rapidly in the future? Why or why not?

  25. Discussion Question #5 One of the major themes presented in this chapter is the need for choice as to how products and services are made available to customers. Thus, multi-channel strategies that provide a wide range of channels including an Internet based online channel option have become imperative. Yet there are very successful firms that take a virtually opposite view by purposely limiting choice. A case in point is Edward Jones, a financial services company with the largest network of brokerage offices in the U.S.—more than 10,000 and still growing. Edward Jones has a Web site that its customers can visit but it does not offer its customers the option of trading online. Instead, all transactions must take place through an Edward Jones broker. Even with this single channel strategy, the company is still growing and is very profitable. Why do you think Edward Jones has been able to “buck the trend” toward multi-channel strategy that would include an online channel as a key option?

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