Chapter 2 Marketing Strategy and Channel Design

1. Chapter 2Marketing Strategy and Channel Design

2. Major Topics for Ch. 2 • Major Decisions to Make • When to Emphasize Channel strategy? • Channel Design: Value Chain and • Value Chain Analysis • 4. Three Strategic Questions • 5. Segmentation: Service Output Demand

3. I. Major Decisions To Make* • The role of distribution in the firm’s overall objectives & strategies (Strategy Level Issue) • The role distribution should play in the marketing mix (Program Level Issue) 3. The design of the firm’s marketing channels -The selection of channel members • The management of the marketing channel -The evaluation of channel member performance

4. II. When to Emphasize Distribution Strategy IF: • Distribution is the most relevant variable • Parity exists among competitors in the other three variables of the marketing mix. • A high degree of competitive vulnerability exists • Distribution can create synergy among marketing channels. or or or THEN: The firm should choose distribution strategy for strategic emphasis

5. III. Marketing Strategy & Channel Design Differential advantage occurs when a firm attains a long-term, advantageous position in the market relative to competitors. • Caterpillar Versus Komatsu

6. Channel Design • What is channel design? • Decisions associated with forming new or altering existing channels. • Why are channel design decisions critical? • Drectly influence all other marketing decisions. • Key external resource for many manufacturers. ©McGraw-Hill Companies, Inc. 2002

7. The Value Chain Firm infrastructure Human resource management Technology development Human resource management Margin Support Activities Inbound Operations Outbound Marketing Service logistics logistics & sales Margin Primary Activities

8. IV. Three Strategic Questions* 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?

9. 5 Question1: Closeness of Channel Relationships Factors to consider • Distribution intensity* • Targeted markets* • Products* • Company policies* • Middlemen • Environment • Behavioral dimensions

10. Outlet Use as many outlets as possible Use as few outlets (intermediaries) as possible Outlet Outlet Intensive Distribution Exclusive Distribution Intermediaries Outlet Outlet Outlet Intermediaries Intermediaries Number of Intermediaries at Each Level Not all available intermediaries are used Selective Distribution ©McGraw-Hill Companies, Inc. 2002

11. Analyzing Target Market Behaviors • Current and potential buyer behaviors: • Who is doing the buying? • Where,when and how end-users buy: • Seasonal • Shopping from home • Knowledge of industry (and its language) ©McGraw-Hill Companies, Inc. 2002

12. Analyzing Product Characteristics • Product Characteristics • Unit value: length • Standardization: length, intensity • Bulkiness: length • Complexity: length, intensity • Stage of Product Life Cycle: intensity, ownership  Implications for Channel Design ©McGraw-Hill Companies, Inc. 2002

13. Utility Added by Channel High Low Introductory Stage Declining/ Death Low Boutique (e.g., service utility) Offprice Outlets (e.g., convenience utility) Market Growth Rate Growth Stage Mature Stage High Merchandisers (e.g., lot size utility) Better Department Stores (e.g., selection utility) Changes in PLC and Channels: The Case of Designer Apparel Value added by channel Exhibit 3.4 ©McGraw-Hill Companies, Inc. 2002

14. Question 2: Marketing Mix inChannel Management 5 Product Strategy (Quality/Branding) Marketing Mix Pricing Strategy (Wholesale/Retail/Consumer) Distribution strategy Promotion Strategy (Push/Pull)

15. Question 3: Motivation of Channel Members 5 Promotion Portfolio concept: A set of tools for motivating different types and sizes of channel members Question: What makes a distributor work for you?

16. Evaluation of Channel MemberPerformance 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? Ex) Measurement and Reward of Channel Performance

17. TABLE 2-3: BUSINESS-TO-BUSINESS CHANNEL SEGMENTS FOR A NEW HIGH-TECHNOLOGY PRODUCT Respondents allocated 100 points among the following supplier-provided service outputs according to their importance to their company: = Additional Important Attributes = Greatest Discriminating Attributes Source: Reprinted with permission of Rick Wilson, Chicago Strategy Associates, 2000.

18. FIGURE 2-1: IDEAL CHANNEL SYSTEM FOR BUSINESS-TO-BUSINESS SEGMENTS BUYING A NEW HIGH-TECHNOLOGY PRODUCT Manufacturer (New High Technology Product) Associations, Events, Awareness Efforts Third-Party Supply Out-source VARs Pre-Sales Dealers TeleSales/ TeleMktg Sales Internal Support - Install, Training & Service Group Post-Sales Full-Service Responsive Support References/ Credentials Lowest Total Cost Segment Source: Reprinted with permission of Rick Wilson, Chicago Strategy Associates, 2000.

19. FIGURE 2-2: ADVERTISING COPY FOR AN AD FOR BN.COM Source: advertisement for bn.com in Wall Street Journal, November 20, 2002, p. A11.

20. TABLE 2-5: THE SERVICE OUTPUT DEMANDS (SOD) TEMPLATE INSTRUCTIONS:If quantitative marketing-research data are available to enter numerical ratings in each cell, this should be done. If not, an intuitive ranking can be imposed by noting for each segment whether demand for the given service output is high, medium, or low.

21. TABLE 1-1: SERVICE OUTPUT DEMAND DIFFERENCES (an example of segmentation in the book-buying market)

22. TABLE 2.1: SERVICE OUTPUT DEMAND DIFFERENCES (an example of segmentation in the soft drink market) FAMILY OFFICE EMPLOYEE SERVICE OUTPUT DESCRIPTOR SERVICE OUTPUT DEMAND LEVEL DESCRIPTOR SERVICE OUTPUT DEMAND LEVEL Bulk-breaking “I buy groceries weekly for my family, and all of us like soft drinks” LOW “I’m on my coffee break and I have only have time for one can of soft drink” HIGH Spatial convenience “I drive to the supermarkets in my area to shop” LOW “I only have 15 minutes for my break, so I need to buy whatever is handy” HIGH Quick delivery “We usually have some extra cans of soft drinks in the house, so I’ll just come back the next time if I can’t find the drinks I want on this trip” LOW “If I don’t get my soft drink right at 3:00 when my break starts, I’ll never have a chance to go back later and get one” HIGH Assortment and variety “My husband and I like Coke and Pepsi, but our kids aren’t permitted to drink caffeinated soft drinks. They like caffeine-free fruit-flavored soft drinks” HIGH “I can’t be too particular about which soft drink I pick. It’s important to me to get one, as long as it has caffeine” MODERATE

23. Trade-offs • Firm • Service Output Demands Versus Cost, Competition, and Ease of Entry • Consumers • Product Attributes • Price • Service Outputs ©McGraw-Hill Companies, Inc. 2002