Chapter 3 Chapter 3 The Environment of Marketing Channels
Chapter 3Chapter 3The Environment of Marketing Channels
Key Topics for Ch. 3
1. Meaning of Business Environment2. Economic Environment*3. Competitive Environment*4. Social/Cultural Environment5. Technological Environment6. Legal Environment
The Business EnvironmentThe Business Environment
Consists of all externaluncontrollable factors within
which marketing channels exist
Affects channel members and nonmembers, such as facilitating
agencies =
All channel participants
Nonmember participants
The Environment*The Environment*
Environment
1. Economic (M)2. Socio-cultural (M)3. Competitive (m)4. Technological (M)5. Legal (m)
Producers& Manufacturers
Intermediaries
Target Markets
Facilitatingagencies
Memberparticipants
Focus ofchannel
management
A Question: “Right” boundary of a firm?
I. The Economic I. The Economic Environment*Environment*
Major EconomicForces
Recession Inflation
Deflation
RecessionRecession
Consumer and/orCorporate
spending =
Channelstrategy: Manufacturers provide channel
member support by financing high inventory costs
Ex) Current U.S. Economy
Reduced sales volume
Reduced profitability
Firms caught with large
inventories
InflationInflationContinued high spending Price Increase
OR Spending, fueling a recession
Possible channel strategy:• Reduce manufacturer’s product mix from higher-price to lower-price products• Reduce inventory burden on channel members with:
Streamlined product lineFaster order processing & deliveryHigher inventory turnover through
stronger promotional support
DeflationDeflation
Prices =\= Demand
Challenge:Pass cost-induced price increases through channelwhen built-in cost pressures from labor contracts
were negotiated several years earlier
Ex) Japan’s lost decades
Other Economic FactorsOther Economic Factors
Real interest
rates
Demand
Costs
=
1. 2. Strong U.S. Dollar
Difficult to sellproducts throughchannel members
= U.S. products become less competitive
II. The Competitive II. The Competitive Environment*Environment*
Local Regional National Global in scope
* Opportunity and Threat
Types of Competition in Types of Competition in Channels*Channels*
Horizontal
Intertype
Vertical
Channel System
Horizontal CompetitionHorizontal Competition
M
W
R R
W
M
Vertical Competition*Vertical Competition*
M
R
W
Inter-type CompetitionInter-type Competition
M
W
R
M
W
R
Channel System CompetitionChannel System Competition
M
R
W
R
W
M
III. The Sociocultural III. The Sociocultural EnvironmentEnvironment
Pervades all aspects of a society
Influences both national and international
marketing channels
Influences wide variations among channel structures worldwide*
Sociocultural DevelopmentsSociocultural Developments
Population Age Patterns
Ethnic Mix
Educational Trends
Family or Household Structure
U.S. pop. Becoming both younger & older # of minority-owned businesses Levels = people more demanding Smaller & more varied
Role of Women
Importance of Time
# = changing shopping needs
IV. The Technological IV. The Technological EnvironmentEnvironment
Help retailers & wholesalers closely monitor success orfailure of products they handle
ScannersComputerized inventory management
Portable computers
Effect on Channel Structure: Unbundle and Rebundle
The Technological EnvironmentThe Technological Environment
EDI - Electronic Data
Interchange
• Links together channel information systems• Provides real-time responses• Enhanced by Internet
= Enhanced
Distribution Efficiency
The Technological EnvironmentThe Technological Environment
Acceleratingtechnology
“Computer salesPeople”
Mobilerobots 3-D
modeling
Ultra-widebandtechnology
V. The Legal Environment*V. The Legal Environment*
The set of laws that impact marketing channels
• Continually evolving • Affected by changing values, norms, politics,
& precedents• Knowledge of basics helps channel manager
avoid serious & costly legal problems
Legislation Affecting Marketing Legislation Affecting Marketing ChannelsChannels
Sherman Antitrust Act 1890; Fundamental antimonopoly law
Public welfare best served through competition
Clayton Act 1914; Strengthen Sherman Antitrust Act
Prohibits specific practices among competing firms
Federal Trade Commission Act 1914; Established FTC
Power to investigate & enforce
Legislation Affecting Marketing Legislation Affecting Marketing ChannelsChannels
Robinson-Patman Act 1936; Amendment to Clayton Act
Prohibits price discrimination Allows price differentials to different customers
under specific circumstances
Celler-Kefauver Act 1950; Amendment to Clayton Act
Prohibits vertical mergers & acquisitions
Legal Issues in Channel Legal Issues in Channel ManagementManagement
• Dual Distribution, or multi-channel distributionProducer or manufacturer uses 2 or more different channel
structures for distributing the same product
• Exclusive DealingSupplier requires its channel members to sell only its products or to
refrain from selling directly to competitive suppliers
•Full-Line ForcingSupplier requires channel members to carry a full-line of its products
in order to sell any particular products in supplier’s line
Legal Issues in Channel Legal Issues in Channel ManagementManagement
• Price DiscriminationSupplier sells at different prices to the same class of channel
members
• Price MaintenanceSupplier dictates prices charged by channel members to their
customers
• Refusal to DealSupplier has right to refuse to deal with whomever they want as
channel members
Legal Issues in Channel Legal Issues in Channel ManagementManagement
• Resale RestrictionsManufacturer attempts to stipulate to whom and in what geographical
market channel members may resell the manufacturer’s products• Tying Agreements
Supplier sells a product to a channel member on condition that the channel member also purchase another product
• Vertical IntegrationFirm owns and operates organizations at other levels of the
distribution channel