Company
Capabilities
Resources
Strengths
1.
2.
1.
2.
1.
2.
1.
2.
Opportunities
Customers
Collaborators
Competitors
Context
Weaknesses
Threats
Characteristics of well-written objectives:
• Lists a quantified standard of performance.
• States goal in measurable terms.
• Should be challenging but realistic.
• Designates a clear time frame.
Forecast Method 3:
Ideal target (overweight females, 35-65,
college-educated)
% who might purchase Metabical in
Year 1 & after
4,300,000 4,300,000 4,300,000 4,300,000 4,300,000
30% 5% 1,290,000 1,505,000 1,720,000 1,935,000 2,150,000
% who will buy a second package
60%
774,000
903,000 1,032,000 1,161,000 1,290,000
% of these who will buy a third package
20%
154,800
180,600
Sales
206,400
232,200
258,000
2,218,800 2,588,600 2,958,400 3,328,200 3,698,000
Year 1:
Revenue Objective: 2,000,000 monthly packs at $125:
Current Market Size = $3,740,000,000
Market Share Objective:~7%
$250,000,000
Metabical Takeaways
• Economic Value Analysis, Price Elasticity of
Demand, and Positioning are intimately related.
• Identifying a company’s competitive advantage
and external opportunities simplifies marketing
mix decisions.
• Clear Objectives and Positioning Statements
simplify marketing mix decisions, especially
price.
Marketing Channels (Place & Promotion)
Key Learning Points
• Marketing Channel Functions & Push vs. Pull
• Key factors affecting channel structure &
distribution intensity decisions.
• Channel leadership, complexity & conflict.
• Channel margin arithmetic – revisited.
Any intelligent fool can make things bigger, more complex, and more violent. It
takes a touch of genius -- and a lot of courage -- to move in the opposite direction.
Albert Einstein
5
Natureview Case
Key Issues:
• What type of product-market growth strategy do the options
represent? Do they require pull versus push strategies? Are
competitors, retailers and customers the same?
• What are or should be the objectives for each option? How
do the three options compare with respect to those possible
objectives – e.g., revenue, gross margin, required
investment, and potential profit?
• What are the critical marketing mix capabilities required for
each option? Does Natureview possess these capabilities?
• How realistic are the sales forecasts for the three options?
• What are the strategic pros & cons for each option? What
channel management & conflict issues are involved?
6
Marketing Channel Functions
Communication, Transaction,
Distribution, Service
 Communication
 Relationship




Management
Marketing Research
Assortment Matching/
Customizing
Negotiation
Financing
 Physical Distribution
 Product Assembly/

Installation
Service
7
One-to-one
marketing
Market
segmentation
Customer-centric
Marketing
Differentiation
Product
Differentiation
Brand-centric
Marketing
Differentiation
Mass
marketing
Cost
Leadership
Company
Direct Distribution
Exclusive-Selective
Distribution
Selective-Intensive
Distribution
Intensive
Distribution
Retailers
Consumers
8
Push Strategy
• Persuade wholesalers and retailers to carry brands (sales
force).
• Give brand shelf space & end of aisle displays.
• Promote brand in coop advertising with trade promotion &
allowances
Producer
Wholesaler
Retailer
End Customer
At the extreme, Producer has little or no contact with end customer;
wholesalers &/or retailers are the target customers who then manage the
channel functions. Most consistent with
Product Differentiation (Exclusive Distribution) or
Cost Leadership (Intensive Distribution) advantage.
Tablet makers will also have a tough sell differentiating brands at stores such as
Best Buy, where devices sit on shelves with similar models…
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Pull Strategy
• Entice customers to try/prefer your product.
• Lure customers from competitive products (e.g.,
promotional messages & coupons).
• Hold & reward loyal customers through advertising
reminders, price & quantity discounts, coupons and rebates
Producer
Wholesaler
Retailer
End Customer
Producer attempts to establish “relationship” with end customer and
wholesalers & retailers are collaborators who manage some channel
functions. Consistent with Brand-centric Marketing Differentiation
(Selective-Intensive Distribution) advantage. Firms pursuing
Customer-Centric Marketing Differentiation use direct channels.
If you go into an Apple Store, the tablets are front and center, and it's an exciting
environment …
10
Discussion Question
• Why do you think such a large proportion of the
promotional budget is spent on trade promotion?
• What are the implications for Natureview… Flare?
11
Trade Relations, Channel Leadership & Conflict
• A channel leader is required to coordinate activities
in a channel system.
• Relative resources, value-added & capability
complexity determine which channel member
manages & has power in the channel relationship.
12
Complex Channels & Channel Power
R&D Lab1
FDA
R&D Lab2
GSK
Ad Agency
TV, Web…
Physician
Patient
R&D Lab3
Insurance Co.
R&D Labn
Distributor
Pharmacy
Who Manages the Greatest Complexity & Assumes the Most Valuable Channel Functions?
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Supermarket Channel
Natureview
Distributor
Supermarkets
Consumer
Natural Foods Channel
S
a
l
e
s
B
r
o
k
e
r
s
Conflict?
Natureview
Natural Foods Wholesaler
Natural Foods Distributor
Natural Foods Retailer
Consumer
14
Multiple Channels?
Conflict?
15
Trade Relations, Channel Leadership & Conflict
• A channel leader is required to coordinate activities in
a channel system.
• Relative resources, value-added & capability
complexity determine which channel member
manages & has power in the channel relationship.
• Mega-retailers and category killers have enormous
channel power due to:
– Industry consolidation.
– Limited shelf space is a key resource.
– Scanner data and technology provide a secondary resource
and capability  category management (ECR, CRP).
• Technology can create new channels.
• Conflict hurts everyone in the channel but especially
those with little power.
16
Collaborators -- Channel Margin Analysis
Cases May Require Price-Setting to Intermediaries
Planned Prices and Margins for
a Software Product
Retail Price $400
Retail Price $500
RM
40%
Wholesale Price $240
Wholesale Price $300
Manufacturer Price $240
WM 20%
GM
50%
Manufacturer Price $192
GM goes to 72/192 = 37.5%
Cost of Goods Sold $120
Cost of Goods Sold $120
COGS
50%
Or reduce COGS 20% to $96
What if you wanted a $400 MSRP?
17
Final Exam Sample Problem: Channel Pricing (K&P, Ch 2, Ex #4)
After spending $300,000 for research and development, chemists at Diversified Citrus
Industries have developed a new breakfast drink, called Zap, which provides the consumer
with twice the amount of vitamin C currently available in breakfast drinks using all natural
ingredients. Zap will be packaged in an 8-ounce container and will be introduced to the
breakfast drink market, which is estimated at 21 million 8-ounce servings nationally.
A major management concern is the lack of funds available for marketing. Accordingly,
management has decided to use newspapers (rather than television) to promote Zap in the
introductory year and distribute Zap in major metropolitan areas that account for 65 percent of
U.S. breakfast drink volume. Newspaper advertising will carry a coupon that will entitle the
consumer to receive $0.20 off the price of the first can purchased. The retailer will receive the
regular margin and be reimbursed for redeemed coupons by Diversified Citrus Industries. Past
experience indicates that for every five cans sold during the introductory year, one coupon will
be returned. The cost of the newspaper advertising campaign (excluding coupon returns) will
be $250,000. Other fixed overhead costs are expected to be $90,000 per year.
Management has decided that the suggested retail price to the consumer for the 8-ounce can
should be $0.50. The only unit variable costs for the product are $0.18 for materials and $0.06
for labor. Retailers demand a margin of 20 percent of the suggested retail price and
wholesalers a margin of 10 percent of the retailers’ cost.
At what price will Diversified Citrus Industries be selling its product to wholesalers?
What is the contribution per unit for Zap?
What is the break-even unit volume in the first year?
What is the first-year break-even share of market?
18
Review Questions
• Identify key channel functions associated with
communications, transaction, distribution & service.
• What factors affect distribution intensity & channel
structure decisions?
• Identify 3 distinguishing characteristics of a push versus a
pull strategy.
• What are the challenges associated with using multiple
channels?
• What determines which channel partner will lead the
channel?
19