Chart Your Channels Channel Management LAP 2

Chart Your Channels Channel Management LAP 2

Objectives Explain key functions of channels of distribution. Discuss decisions involved in channel management.

Objective Explain key functions of channels of distribution.

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Channels of Distribution • Channels of distribution—paths businesses use to get their products to consumers • Consumers benefit by getting: Ø Certain products Ø In certain quantities Ø When and where they want them

Channels of Distribution • Businesses benefit by: Ø Getting the products they need (just like consumers) Ø Moving their own products to consumers efficiently and effectively

Important Channel Activities • Must be completed no matter how many intermediaries are involved • Providing marketing information

Important Channel Activities • Promoting products Ø Can be quite expensive Ø Costs and responsibilities are often shared.

Important Channel Activities • Negotiating with customers on issues such as Ø Price Ø Delivery Ø Installation

Important Channel Activities • Reducing discrepancies of: Ø Quantity Ø Assortment • Financing and risk-taking

Adding Value • Every channel member should add value to the product by: Ø Performing necessary channel tasks Ø Providing expertise at channel tasks • Example—retailers are often “specialists” at point-of-sale advertising.

Objective Discuss decisions involved in channel management.

Channel Effectiveness • Channels are effective when: Ø They are properly managed. Their managers: § Recognize the importance of their task § Make informed decisions regarding: ü Distribution patterns ü Selection of channel members ü Assignment of channel responsibilities

Channel Effectiveness • Channels are effective when: Ø Channel members share common goal(s)—a commitment to: § The quality of the product § Satisfying the target market’s needs and wants Ø Channel members share tasks appropriately.

Channel-Management Decisions • Setting channel objectives Ø Marketers must determine what they’re trying to achieve. Ø General channel objectives: § Efficiently meet needs and wants of target market § Give product competitive edge in the marketplace

Channel-Management Decisions • Setting channel objectives Ø May set more specific goals as well Ø May choose direct distribution over indirect distribution

Channel-Management Decisions • Determining distribution patterns Ø Goal—achieve ideal market exposure—making product available to each and every customer who might want to buy it without over-exposing it and wasting money

Channel-Management Decisions • Determining distribution patterns Ø Patterns may be: § Intensive ü Selling a product through every available wholesaler and retailer in a geographic area where consumers might look for it ü Used to reach the greatest number of consumers possible ü Often used for convenience products, such as gum

Channel-Management Decisions • Determining distribution patterns Ø Patterns may be: § Selective ü Selling a productmake more Companies may through a limited number of products money distributing wholesalers and retailers in through a smaller number of a geographic area outlets. highly successful ü Used when for consumer ü Often used marketers want to deal only with middlemen shopping goods, such as they feel will do an excellent high-end clothes job promoting and selling a product

Channel-Management Decisions • Determining distribution patterns Ø Patterns may be: § Exclusive Ø Selling a product through just one middleman in a geographic area Ø Used when marketers want to maintain tight control over a product Ø Often used for specialty products, such as airplanes

Channel-Management Decisions • Selecting channel members Ø Marketers must first determine: § Types of channel members (retailers, wholesalers, etc. ) § Channel length—total number of channel members

Channel-Management Decisions • Selecting channel members Ø Factors to consider when choosing specific channel members—each should: § Create product value that Offer customer service compatible with the producer or other product’s needs middlemen cannot or are § notwilling and able to work Be willing to provide (shipping, promoting, etc. ) cooperatively with other members within the § Channel the product to its product s channel desired ’target market(s) § Have a pricing and promotion strategy compatible with the product’s needs

Channel-Management Decisions • Determining channel responsibilities Ø Channel activities must be performed for the product to reach the consumer. Ø Each channel member should perform the activity or activities it does best.

Channel-Management Decisions • Managing, motivating, and monitoring channel members Ø Marketers should constantly evaluate the channel: § What’s working? § What isn’t? § What can be improved? § Should members be added or deleted? § Should certain responsibilities be reassigned?

Channel-Management Decisions • Managing, motivating, and monitoring channel members Ø Marketers sometimes use negative motivation: § Sanctions for middlemen who do not perform well § Chargebacks for producers for late shipments, etc. Shipment due: April 10 th Shipment delivered: April 12 th ACK GEB HAR C

Channel-Management Decisions • Managing, motivating, and monitoring channel members Ø Marketers sometimes use positive motivation (usually more effective than negative): § Incentives for reaching performance goals § Product training § Product update letters § Cooperative advertising

Channel-Management Decisions • Managing, motivating, and monitoring channel members Ø Marketers must handle channel conflict: conflict § Horizontal conflict—occurs Vertical conflict between channel members at ü Occurs between channel the same level different levels members at in the same channel ü Usually occurs between producers and wholesalers or producers and retailers ü Can also occur when marketers use e-commerce or multiple distribution

• Choose one good or service you’ve consumed today. • Consider the channel activities that occurred before this product reached you. • How do you think channel members added value to this product? • What pattern of distribution do you think was used?

• Manufacturers may impose sanctions on intermediaries who do not perform well. • If an intermediary does not meet the sales quota in its contract because of an economic downturn, the manufacturer may have the right to reduce the intermediary’s wholesale discount. • But, do you think this is ethical? • Should the intermediary be punished because of an economic trend? • What do you think?

MBAResearch Acknowledgments Original Developers Christopher C. Burke, Sarah Bartlett Borich, MBAResearch Version 1. 0 Copyright © 2010 MBA Research and Curriculum Center

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