Marketing 324Channels Of Distribution Management Overview LectureMarketing Channels A Strategic Tool of Growing Importance for the Next Millennium by Dr. Bert Rosenbloom Rauth Professor of Marketing Management
Marketing Concept Underlying Philosophy of Modern Marketing Management (since the 1960’s) Stressing an Outward Focus on Customers as the “Center of the Universe” Captured in Terms Such as: • Customer Orientation • Customer Focused • Customer Driven • Customer Centered • Customer Satisfaction • Market Driven • Exceed Customer Expectations
Operational Model for Implementing the Philosophy of the Marketing Concept is the: Marketing Mix
The Marketing Mix Consists of Four Basic Strategic Variables (the four “P’s”) • Product Strategy • Price Strategy • Promotional Strategy • Place Strategy (Channels of Distribution)
The Role of Marketing Management is to Mix or Blend These Four Strategic Variables in Such a Way as to Achieve a Higher Level of Customer Satisfaction Than Competitors Customer Focus Optimized Marketing Mix Competitive Advantage High Profitability Shareholder Value
Question But what is different about theMarketing Mix model as we move into this millennium?
Answer Over the past three decades, the overwhelming emphasis in the Marketing Mix has been on:Product Strategy with Pricing Strategy andPromotional Strategy also being stressed.But.....
Marketing Channel Strategy (Place); the fourth “P” in the Marketing Mix hasbeen largely neglectedBut this is changing....
Marketing Channel Strategy is Growing in Importance. Why? Five Reasons (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
Sustainable Competitive Advantage: A competitive advantage that cannot be quickly and easily copied by competitors
A sustainable competitive advantage is becoming more difficult to attain through: • Product Strategy- rapid technology transfer enables competitors to quickly produce similar products • Pricing Strategy- global economy allows competitors to find low cost production to match prices • Promotion Strategy- high cost, clutter, and short life promotional campaigns limit competitive advantage
Competitive Advantage Based on Superior Marketing Channel Strategy is More Difficult for Competitors to Copy Because:
Channel Strategy is Long Term • Requires a Channel Structure • Depends on Relationships and People • Requires Effective Interorganizational Management http://www.youtube.com/watch?v=1IyLWkkjMtk
II. Growing Power of Retailers in Marketing Channels Retailers
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 Top 50 Rest
Kinds of Retailers Where Largest Four Firms Account for At Least 50% of Total Sales Variety Stores 4 Largest Rest
Percentage Distribution of Retail Firms and Sales by Size of Firms
Enjoy Substantial Channel Power Retailer
Retailers Act as Buying Agents for Customers Rather than as Selling Agents for Suppliers
Retailers Operate in Saturated Markets and Fight for Market Share
Power or Dominant Retailers are therefore the“Gatekeepers” into the Consumer Marketplace Thus, Effective Channel Strategy for Dealing with Power Retailers is Crucial
Distribution Costs III. The Need to Reduce Distribution Costs
Distribution Costs Often Account for a Significant Percentage of the Final Price of Products Sometimes Distribution Costs areHigher than the Manufacturing Cost or the Costs of Raw Materials and Component Parts
Some Examples... Autos Software Gasoline Fax Machines Packaged Foods 15% 40% 45% 25% 65% 10% 28% 19% 53% 30% 30% 40% 41% 33% 26% Distribution Manufacturing Raw Materials and Components
While terms such as “restructuring”, “flattening out”, “downsizing”, and “rightsizing” have usually been mentioned in the context of corporate organizations, they also apply to Marketing Channels. The latest term.... Disintermediation
Technology has the power to greatly enhance the effectiveness and efficiency of Marketing Channels and could potentially change the entire structure of distribution around the world.
Some Examples... • E-commerce • M (mobile)-commerce • F (facebook)-commerce • Wireless Communications • Smart phones • Global Telecommunications (Skype) • Robotics & Automated Warehousing • Computerized “Salespeople”
Firms that make effective use of these technologies in their channel strategy can gain a substantial competitive advantage Competition
Out Reengineering Restructuring Downsizing Flat Organizations Lean and Mean In Growth Expansion New Markets Market Share Top Line Revenue In American Business Circles “Growth” has Overtaken “Restructuring” as the #1 Buzzword
QUESTIONIn a relatively slow growth economy, how can an individual company selling mature products in mature markets grow?
ANSWER Share of Mind = Share of Market Translation By getting channel members to focus on your products to a greater extent than your competitors, you gain market share and growth
Summary (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
Bottom Line Marketing Channel Strategy Has Become Critically Important For Most Businesses
Channel Strategy The broad principles by which a firm expects to achieve its distribution objectives for satisfying its customers
Basic Strategic Questions (1) What role should distribution play in the firm’s overall objectives and strategies? (2) What role should distribution play in the marketing mix? (3) How should the firm’s marketing channels be designed to achieve its distribution objectives? (4) What kinds of channel members should be selected to meet the firm’s distribution objectives? (5) How can the marketing channel be managed to implement the firm’s channel design effectively and efficiently on a continuing basis?
The Relationship between customer satisfaction and the company’s marketing mix can be represented as: 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 Channel Strategy should receive especially heavy emphasis if one or more of the following conditions prevails: • 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
Classic Marketing Channel Strategies Still Relevant Today Dual Distribution Exclusive Dealing Full-Line Forcing Price Differentiation Price Maintenance Refusal to Deal Resale Restrictions Tying Agreements
The Most Basic Questions in the Design of Marketing Channels • 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?
QUESTIONIs this just another “buzzword” for logistics - getting the right product in the right quantity, at the right time and right place?ORIs there something more substantive to this term?
ANSWER There is something more than semantics here: Supply Chain Management takes a broader perspective by viewing logistics as an integral part of the marketing channel relationship
Supply Chain Management Can Therefore be Defined as: 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