Marketing Channels- Structure and Functions • Book Name: Marketing Channels – Author: Anne T. Coughlan, Erin Anderson, Louis W. Stern, Adel I. El-Ansary • The need to learn about marketing channels – Gatekeeper role of marketing channel – Channel can act as an important differentiator – Channel experience affects end user perception – Need to create an effective channel
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Marketing Channels- Structure and Functions
• Book Name: Marketing Channels– Author: Anne T. Coughlan, Erin Anderson, Louis W. Stern, Adel
I. El-Ansary
• The need to learn about marketing channels
– Gatekeeper role of marketing channel
– Channel can act as an important differentiator
– Channel experience affects end user perception
– Need to create an effective channel
Marketing Channels- Structure and Functions
• Definition of Marketing Channel– It is a set of interdependent organizations who make a product
or service available to the end user for consumption
– Examples• Clothes (US)
– Department stores– Focused Specialty stores– Factory outlets– Online??– Difference in India ???
Marketing Channels- Structure and Functions
– Examples• Books (US)
– Book Store chains, Barnes & Noble– Online, Amazon– Discount Stores, 1 dollar store– India Example????
– Evolution of Channels
• Demand Side Factors
– Facilitation of Search (end user & seller)
– Adjustment of Assortment Discrepancy» Manufacturer : large quantity of a limited variety of goods» End User: Limited quantity of a wide variety of goods
Marketing Channels- Structure and Functions
– Demand Side Factors
• Adjustment of Assortment Discrepancy– Manufacturer : large quantity of a limited variety of goods– End User: Limited quantity of a wide variety of goods
– Assortment functions
» Sorting, breaking a heterogeneous supply into separate homogeneous stocks e.g. Wheat by quality
» Accumulation: bringing similar stocks together» Allocation: breaking down a homogeneous supply into smaller lots» Assorting: collecting related goods for resale
– Utilities created: Possession, Place and Time
Marketing Channels- Structure and Functions
• Supply Side Factors
– Routinization of Transactions• Order, value and payment
• Leads to efficiencies
• Inventory replenishment programs
– Reduction in No. of Contacts• Manufacturer only to
• Manufacturer , wholesaler and retailer
• Online – disintermediation but also leads to competing with retail chains, important in experience goods
Marketing Channels- Structure and Functions
• Role of Marketing Channel– Manages several Flows between Producers,
convenience goods, higher the coverage, better it is for the manufacturers
– For downstream, more coverage is not considered positive as it leads to intra-brand competition. Is it desirable???
– Channel members Tactics to combat intensive distribution• Go in for a substitute less intensely distributed• May discontinue a product category• Keep a token presence but Attempt to convert the customer
to another brand
Channel Structure & Intensity
• Intensive Coverage issues– Bait & Switch marketing technique– Free Riding ( a renowned store example)
– Can be combated by generating pull
Channel Structure & Intensity
• Threat of Complacency in limiting intensity• Nature of Product Category
– Convenience goods– Shopping goods like small appliances– Specialty Goods like Home Theaters
• What happens when a product category is new??
Channel Structure & Intensity
• Relationship between brand positioning on quality dimension and intensity
• Artificial Scarcity strategy (Nike)
• Can Restrictive Contracts (like ambitious goals etc.) work??
• What would a niche product require??
Channel Structure & Intensity
• How can manufacturer create influence over channel members?– Selective distribution
• Reverse influence
Channel Structure & Intensity
• Manufacturer specific investments by Channel Members– Idiosyncratic Knowledge: Unique– Unusual handling or storage– Brand specific parts and know-how– Customer Training– Installation and post warranty handling knowledge
Channel Structure & Intensity
• Dependence Balancing: Trading territory exclusivity for category exclusivity
• Influence of Web on buyers: knowledge thru web & buy at the best bargain
Gap Analysis
• Environmental bounds– Electric Supply– Malls to close on Tuesday
• Managerial bounds– Indifference of personnel to new techniques– Expertise & Knowledge levels
• Types of Gaps– Demand side
• When a service output supplied is greater than amount demanded
• When a service output supplied is less than amount demanded
Gap Analysis
• Types of Gaps– Supply side
• Cost of providing a service output is high when it can be lower (particularly in reverse logistics) , a cable manufacturer example
• Bucklin’s principle of postponement & speculation (manufacturer v/s consumer, books case, retail sale of CDs v/s downloads)
• Closing the Gaps– Demand side gaps
• Expand/ Retract the level of service output• Offer multiple/ tiered service output levels for different segments• Altering the list of segments targeted
Gap Analysis
– Supply Side Gaps• Changing the roles of current channel members• Investing in new distribution technologies to reduce cost• Improve the functioning of the channel
– Tackle managerial bounds• Managerial indifference to change (Product Returns)• bring in experts to augment expertise
Channel Power
• How to define Dependence
– B depends more heavily on A if,
• B gets some Utility (value, benefits etc.) from A
• B has fewer alternative sources for that utility
– Are both requirements essential??
Channel Power
• Approximate Methods to measure power
– %age of sales and profits retailer derives from your product
– How well you perform your role vis-à-vis competitors (utility may be missing but excellent service being rare is unique)
Channel Power
• French & Raven Approach– Five Sources of Power
• FIRST Reward Power (two conditions)
– Has the ability to reward– Will Reward and share the benefits– Requirements
» Manufacturer must offer a quality service that is valued by end user
» At a price that end user is willing to pay» Saleable in enough quantities for financial rewards to be valued» Backed by a minimum required producer reputation» And should be delivered reliably» CASE STUDY
Channel Power
• Second: Coercive Power– If B Fails to perform as per A’s requirement, A can
punish B• Slowing down of shipment• Remove exclusivity either territory or category• Reduce margins etc.• Wal Mart forces bulk breaking on its suppliers e.g. Socks• Wal Mart forces suppliers to accept EDI
– Leads generally over long run to
» Target will get less satisfied by money returns
» Target will become less satisfied by non-financial side
» Target will see relationship as conflict driven
• Should influencer care about target’s reactions?
– Short Term: Target is less cooperative– Medium Term: Target is less trusting– Long Term: Target feels less committed
– Should coercion power not be used at all• EDI??
Channel Power
Channel Power
• THIRD: Expert Power– Once expertise is transferred, this power weakens considerably
• Dole out expertise in small quantities periodically
• Invest in continually new learning
• Transmit only customized information
– Using expertise power• Channel member must be trusted
• Difficult to form relationships with experts
• Independence mindedness of channel members
Channel Power
• Legitimate Power has two sources– Law or legal legitimate power
• Patents, trademarks, franchise agreements etc.
– Norms or values, traditional legitimate power• Solidarity• Role Integrity• Mutuality
– Cost benefit analysis before enforcing
Channel Power
• Referent Power– When A can act as a standard of reference for B and hence B
may seek association with A– A shares its prestige by allowing B to carry its goods
• Balance of Power• Net Dependence• Imbalanced Dependence – Strategies
– Develop alternatives– Organize a coalition– Exit the situation
Channel Power
• Converting Latent power to exercised power– Promise Strategy– Threat Strategy– Legalistic Strategy– Request Strategy– Information exchange strategy– Recommendation strategy
Channel Conflict
• Conflict v/s Competition
• Measuring Conflict– Count the issues of relevance, car dealer– Assign importance to each issue, (Im)– Frequency of discussion & disagreement, (Fr)– Intensity of dispute, (In)
• Conflict = Im x Fr x In for each issue• Index of Conflict = Sum of Conflicts on each issue
Channel Conflict
• Conflict is desirable, Functional Conflict– Increases performance levels
– Differing Perceptions of Reality• The attributes of product/service• Applications it serves and segments• Competition• Manufacturer is away from customers and reseller is away
from manufacturing
Channel Conflict
• Major Sources of Conflict
– Clash over Domains• Market Research• Quantum of Pre & Post sales support• Inventory
Channel Conflict
• Major Sources of Conflict
– Clash over Market Domains• Intra-channel Competition
– Intensive Distribution
– Reseller representing Competitors
• Multiple Channels Clash– Biggest threat : Web
• Unwanted Channels– Gray marketing
Channel Conflict
• Dangers of Conflict
– Conflict begets More Conflict– Coercive power gets utilized
• Conflict Resolution Strategies
– Information Intensive Mechanisms– Third party mechanisms, Mediators and Arbitrators– Building relational norms
Channel Conflict
• Styles of Conflict Resolution– Avoidance– Accommodation– Competition