Chapter 2
Marketing Strategy and
Channel Design
Major Topics for Ch. 2
1. Major Decisions to Make
2. When to Emphasize Channel strategy?
3. Channel Design: Value Chain and
Value Chain Analysis
4. Three Strategic Questions
5. Segmentation: Service Output Demand
I. Major Decisions To Make*
1. The role of distribution in the firm’s overall
objectives & strategies (Strategy Level Issue)
2. 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
4. The management of the marketing channel
-The evaluation of channel member
performance
II. When to Emphasize Distribution Strategy
IF
:
• Distribution is the most relevant variable
or
• Parity exists among competitors in the other
three variables of the marketing mix.
or
• A high degree of competitive vulnerability
exists
or
• Distribution can create synergy among
marketing channels.
THEN:
The firm should choose distribution
strategy for strategic emphasis
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
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
6
The Value Chain
Firm infrastructure
Support
Activities
Human resource management
Technology development
Human resource management
Inbound
logistics
Operations
Outbound Marketing
logistics
& sales
Primary Activities
Service
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?
Question1: Closeness of Channel
Relationships
Factors to consider
•
•
•
•
•
•
•
Distribution intensity*
Targeted markets*
Products*
Company policies*
Middlemen
Environment
Behavioral dimensions
5
Number of Intermediaries at Each Level
Outlet
Use as many
outlets as possible
Outlet
Outlet
Intensive
Distribution
Outlet
Outlet
Use as few outlets
(intermediaries) as
possible
Exclusive
Distribution
Intermediaries
Outlet
Not all available
intermediaries are
Selective used
Distribution
Intermediaries
©McGraw-Hill Companies, Inc. 2002
Intermediaries
10
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
11
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
12
Changes in PLC and Channels: The
Case of Designer Apparel
ValueAdded
addedbyby
channel
Utility
Channel
High
Introductory
Stage
Low
Exhibit 3.4
Declining/
Death
Boutique
(e.g., service utility)
Offprice Outlets
(e.g., convenience utility)
Growth
Stage
Mature
Stage
Better Department Stores
(e.g., selection utility)
Merchandisers
(e.g., lot size utility)
Market
Growth Rate
High
Low
©McGraw-Hill Companies, Inc. 2002
13
Question 2: Marketing Mix in
Channel Management
5
Product
Strategy
(Quality/Branding)
Distribution
strategy
Marketing
Mix
Pricing
Strategy
(Wholesale/Retail/Consumer)
Promotion
Strategy
(Push/Pull)
Question 3: Motivation of Channel
Members
Promotion
Portfolio concept:
A set of tools for motivating different types
and sizes of channel members
Question: What makes a distributor work for you?
5
Evaluation of Channel Member
Performance
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
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
Lowest Total
Cost/ Pre-Sales
Info Segment
Responsive
Support/ PostSales Segment
Full-Service
Relationship Segment
References and
Credentials Segment
References and Credentials
5
4
6
25
Financial Stability and
Longevity
4
4
5
16
Product Demonstrations &
Trials
11
10
8
20
Proactive Advice &
Consulting
10
9
8
10
Responsive Assistance
During Decision Process
14
9
10
6
4
1
18
3
Lowest Price
32
8
8
6
Installation and Training
Support
10
15
12
10
Responsive Problem Solving
After Sale
8
29
10
3
Ongoing Relationship with a
Supplier
1
11
15
1
100
100
100
100
16%
13%
61%
10%
Possible Service
Output Priorities
One-Stop Solution
Total
% Respondents
Source: Reprinted with permission of Rick Wilson, Chicago Strategy Associates, 2000.
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
Pre-Sales
Dealers
Sales
VARs
Internal Support
- Install, Training &
Service Group
Post-Sales
Segment
TeleSales/
TeleMktg
Full-Service
Responsive
Support
References/
Credentials
Source: Reprinted with permission of Rick Wilson, Chicago Strategy Associates, 2000.
ThirdParty
Supply
Outsource
Lowest
Total
Cost
FIGURE 2-2: ADVERTISING COPY FOR AN AD FOR BN.COM
Advertising Copy
Service Output Offered
“Really free shipping”: offers free shipping if 2 or more
items are purchased. “We make it easy and simple.”
Customer service
“Fast & easy returns”: end-user can return unwanted books
to a bricks-and-mortar Barnes & Noble bookstore. “Just try
and return something to a store that isn’t there.”
Quick delivery (for returns), spatial convenience; note
implicit comparison with amazon.com, the pure-play online
bookseller
“Books not bait”: promises no additional sales pitches to
buy non-book products.
Assortment/variety: just books (targeting the book lover).
Again, note implicit comparison with amazon.com.
“Same day delivery in Manhattan”: delivery by 7:00 p.m. on
any item(s) ordered by 11:00 a.m. that day. “No other
online bookseller offers that.”
Quick delivery: the offer is possible because of Barnes &
Noble’s warehouses in New Jersey, near Manhattan. Note
direct comparison with other online booksellers (notably,
amazon.com)
“The gift card that gives more”: can be used either online or
in the bricks-and-mortar bookstores, nationwide.
Spatial convenience, assortment/variety: when buying a gift
for a friend, this provides virtually limitless assortment, and
does so anywhere the recipient lives in the United States.
“bn.com – 1,000,000 titles; amazon.com – 375,000 titles”
Assortment/variety: direct comparison with amazon.com,
offering a broader assortment of titles to the consumer
Source: advertisement for bn.com in Wall Street Journal, November 20, 2002, p. A11.
TABLE 2-5: THE SERVICE OUTPUT DEMANDS (SOD) TEMPLATE
SERVICE OUTPUT DEMAND:*
SEGMENT NAME/
DESCRIPTOR
BULK BREAKING
SPATIAL
CONVENIENCE
DELIVERY/
WAITING TIME
ASSORTMENT/
VARIETY
CUSTOMER
SERVICE
INFORMATION
PROVISION
1.
2.
3.
4.
5.
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.
TABLE 1-1: SERVICE OUTPUT DEMAND DIFFERENCES
(an example of segmentation in the book-buying market)
Browser buying best-sellers to take on vacation
Descriptor
Service Output
Demand Level
Student buying textbooks for fall semester at
college
Descriptor
Service Output
Demand Level
Bulkbreaking
“I’m looking for some ‘good
read’ paperbacks to enjoy.”
Medium
“I only need one copy of my
Marketing textbook!”
High
Spatial
convenie
nce
“I have lots of errands to run
before leaving town, so I’ll be
going past several
bookstores.”
Medium
“I don’t have a car, so I can’t
travel far to buy.”
High
Waiting
and
delivery
time
“I’m not worried about getting
the books now… I can even
pick up a few when I’m out of
town if need be.”
Low
“I just got to campus, but
classes are starting
tomorrow and I’ll need my
books by then.”
High
Assortme
nt and
variety
“I want the best choice
available, so that I can pick
what looks good.”
High
“I’m just buying what’s on
my course reading list.”
Low
Customer
service
“I like to stop for a coffee when
book browsing.”
High
“I can find books myself,
and don’t need any special
help.”
Low
Informati
on
provision
“I value the opinions of a wellread bookstore employee; I
can’t always tell a good book
from a bad one before I buy.”
High
“My professors have already
decided what I’ll read this
semester.”
Low
TABLE 2.1: SERVICE OUTPUT DEMAND DIFFERENCES
(an example of segmentation in the soft drink market)
SERVICE
OUTPUT
FAMILY
SERVICE OUTPUT
DESCRIPTOR
DEMAND LEVEL
Bulk-breaking
“I buy groceries
weekly for my
family, and all of us
like soft drinks”
Spatial
convenience
“I drive to the
supermarkets in my
area to shop”
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”
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 fruitflavored soft drinks”
LOW
OFFICE EMPLOYEE
SERVICE
DESCRIPTOR
OUTPUT
DEMAND
LEVEL
“I’m on my coffee
break and I have only
have time for one can
of soft drink”
HIGH
LOW
“I only have 15 minutes
for my break, so I need to
buy whatever is handy”
HIGH
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
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
Trade-offs
• Firm
– Service Output Demands Versus Cost, Competition,
and Ease of Entry
• Consumers
– Product Attributes
– Price
– Service Outputs
©McGraw-Hill Companies, Inc. 2002
23