4.01 Manage channel activities to minimize costs and to determine

4.01 Manage channel activities to
minimize costs and to determine
distribution strategies
Explain the importance of coordinating
channel management with other marketing
activities (Channel Member Relationships).
 Channel Management
 Channels are the paths products follow from the
producers to the consumers (think distribution)
 Add value to the product
 Managing channels
Coordinating their efforts with each member of the channel
(producers, wholesalers and retailers) to ensure the efficient
flow of the products and maintain positive relationships
Selecting the channel members
Motivating and monitoring performance
Coordinating (Channel Member
 Coordinating the channels with other marketing
 Channel members add value to the products
 Members can offer specific services to customers
Ease of placing an order
Faster delivery
Repair or installation services
 These functions offered by the members can and should
be part of the product marketing plan
Coordinating (Channel Member
Channel members provide many of the marketing
 As a result, the focus is less on the product.
 Wholesalers focus on distribution planning.
 Retailers focus on pricing decisions and promotional
 Channel members must work cooperatively within the
channel to respond to the needs and wants of the
consumer, thus focusing on the common goal of
customer satisfaction.
 It saves time so that the consumer does not have to
directly contact the producer.
Identify ways that computers are helping to
coordinate channel management with other
marketing activities.
 Computers allow tracking of specific details
 Order date
 Shipping information and date
 Delivery date
 Changes to orders
 Supply chain management software (SCM)
 Used to collect and manage the information needed by each
channel member.
 Data collected by the company can be processed and
analyzed to improve channel performance
 Competitive advantages can be exploited (Wal-Mart)
Describe aspects of channel management
that should be coordinated with other
marketing activities.
 Provide Marketing information
 Talking with the customer
 Promote the products
 It is important that a business coordinate the distribution and
promotion of a new product to make sure it is available when
customers want it.
 Customers associate the unique aspects of a product with
distribution to a few or many locations
 Negotiate with customers
 Provide sales people
 Handle sales process
 Reduce discrepancies and waste
 Handle products quickly, safely and efficiently
 Financial risk taking
 Loans to the customers
Explain procedures for coordinating channel
management with other marketing
 The dominant member(s) of the channel often control
the channel
 e.g. Wal-Mart determines product design, shipping
dates and pricing
 Selecting what and how items will be promoted falls on
the most powerful members
 It is all about the communication between the
members and with the customers
 Common goals (ie. Customer satisfaction)
 Required performance
Demonstrate procedures for coordinating
channel management with other marketing
 Set goals for the channel members
 Ensure the goals support the common objective of
selling the products at a profit for all members
 Monitor performance
 Offer incentives
 Positive
 Negative
 Set up communication policies and procedures
Define the terms horizontal conflict and
vertical conflict.
 Horizontal Conflict
 Problems that occur between channel members at the
same level of the channel (wholesalers)
Can cause a disruption in the flow of products
Can cause customer dissatisfaction
 Vertical Conflict
 Problems that occur between channel members at the
different level of the channel (wholesalers and retailers)
Same kinds of problems as horizontal
Describe the bases of power within a
distribution channel
Channel power, which refers to the influence one party
within a channel has over other channel members.
When power is exerted by a channel member they are
often in the position to make demands of others. For
instance, they may demand better financial terms
(e.g., will only buy if prices are lowered, will only sell if
price is higher) or demand other members perform
certain tasks (e.g., do more marketing to customers,
perform more product services). Channel power can
be seen in several ways:
Describe the bases of power within a
distribution channel.
 Producer
 Controls the manufacturing and the supply of the products
 Wholesalers
 Controls the mid-level distribution of products
 Between the producer and retailers
 Retailers
 Controls the selling to the customer
 Agents
 Puts buyers and sellers together but don’t own the product
Describe the bases of power within a
distribution channel
 Channel power can be seen in several ways:
 Backend or Product Power – Occurs when a product manufacturer or
service provider markets a brand that has a high level of customer demand.
The marketer of the brand is often in a power position since other channel
members have little choice but to carry the brand or risk losing customers
 Middle or Wholesale Power – Occurs when an intermediary, such as a
wholesaler, services a large number of smaller retailers with products
obtained from a large number of manufacturers. In this situation the
wholesaler can exert power since the small retailers are often not in the
position to purchase products cost-effectively and in as much variety as
what is offered by the wholesaler.
 Front or Retailer Power – As the name suggests, the power in this situation
rests with the retailer who can command major concessions from their
suppliers. This type of power is most prevalent when the retailer commands
a significant percentage of sales in the market they serve and others in the
channel are dependent on the sales generated by the retailer.
Describe the bases of power within a
distribution channel
 Sources of power
 Reward power involves a channel member being able to positively reinforce
another’s performance—Coca Cola may be able to give a price break or pay
a fee for additional shelf space. A retailer that meets a certain goal— the
sale of 50,000 cases per month—may receive a bonus.
 Coercive power involves the threat of a punishment. A large retailer, for
example, may tell a small manufacturer that no further orders will be
processed unless a price discount is offered.
 Expert power includes knowledge. Wal-Mart, for example, because of its
heavy investment in information technology, can persuasively argue about
likely sales volumes at different price levels.
 Legitimate power involves government or other regulations—e.g., auto
dealers have a great deal of power over auto makers because only they are
allowed to sell to end customers in the continental U.S. under most
 Referent power involves the desire of the other side to be associated—most
manufacturers of upscale merchandise want to ensure that their
merchandise is available at Nordstrom’s.
Explain channel leadership.
 Who controls the channel?
 Sets the goals
 Monitors performance
 Offers incentives
 Decides on what will be promoted and when
 Often the biggest economic power in the channel
 Some marketing channels are determined by
consensus; whereas, some are organized and
controlled by a dominant member, or channel captain
(also called a channel leader), which may be a
producer, wholesaler, or retailer. A strong leader has
the authority to demand cooperation which will help
to avoid conflict.
Explain types of channel conflict.
 Horizontal and vertical
 Missing deadlines
 Lack of performance in meeting assigned goals
 Priorities
 Severe or prolonged conflict, however, can disrupt
channel effectiveness and cause lasting harm to
channel relationships.
Describe ways to achieve channel
 Careful selection of channel partners
 Goals set by consensus of the members
 Clear and achievable performance goals
 Agreed upon measurements
 Clear communication channels and procedures for
addressing issues
Describe ways to achieve
channel cooperation
 If the channel does not appear to compete against
other channel members, the members will be more
 Channel members collectively focus their efforts on
the goals of all involved rather than individual goals.
 Define the roles/responsibilities of each channel