3.07 Channel ManagementMarketingChart Your Channel

So What? Why learn about channel management? Isabella’s government class team has been

assigned a group presentation. She and 3 other group members have divided

up the responsibilities according to their strengths: Isabella will do the reading and create an outline Ben will take the outline and create a PowerPoint Alicia will proof the presentation for spelling and

grammar Erik will make the presentation and lead the

class discussion

So What? Isabella, Ben, Alicia and Erik have created

something similar to channels used in businesses to get their products to their customers

In this case, their “product” is their knowledge on a certain topic, and their “customers” are their teacher and the rest of their class.

They’ve worked together to deliver that knowledge in the most efficient, effective way possible.

So What? In business channels work well when:

They’re properly managed Channel members strive together to

achieve a common goal When channels are managed

successfully, each member adds value to the product as it makes its way to the final consumer.

CHANNEL MANAGEMENT The strategies and processes by which

marketers ensure that products are distributed to customers efficiently and effectively.

Who benefits? As consumers, we benefit when we are

able to purchase certain products, in certain quantities, when and where we want to.

Businesses benefit both when they buy products and when they sell them As buyers, they can get the products they

need when they need them As sellers, businesses can get their

products to final consumers more effectively and efficiently

Tasks of channel mgmt.1. Providing marketing information

1. Every producer is trying to reach and sell to a specific target market for each of its products

2. Companies rely on market research to determine their target markets’ needs and wants

3. Intermediaries are often closer to final consumers than producers themselves

Tasks of channel mgmt. Example: You have a small business

producing handmade greeting cards that you sell through a few small local retail stores. One of the store owners informs you that several customers have commented on your birthday cards and have asked if you could create anniversary cards as well. This marketing information is valuable to you, information you wouldn’t have learned if not for your fellow channel member.

Tasks of channel mgmt.2. Promoting products – promoting a

product, especially a new one, can be expensive

a) When a producer sells its products through intermediaries the costs and responsibilities associated with product promotion can be shared.

b) Retailers assume a large portion of promotion responsibilities

c) Shared promotion can lower channel members’ individual costs while producing the same results

Tasks of channel mgmt.3. Negotiating with customers

a) Producers often don’t have the time or ability to negotiate with final consumers on issues such as price, delivery, installation, etc.

b) Producer sells 10,000 flat screen TVs to a wholesaler; wholesaler sells 1,000 to 10 retailers; retailer sells to individual consumers

c) Retailer may offer deliveryd) All the channel members are profitable and

the final consumer receives the product in an efficient, effective manner.

Tasks of channel mgmt.4. Reducing discrepancies

a. Discrepancies = quantity and assortment issues that middlemen can solve

b. Wholesalers and retailers can break down large quantities into reasonable amounts for final consumers

Tasks of channel mgmt.5. Financing and risk-taking

a. Moving products through a channel costs money

b. It takes money to manufacture, to transport and to store them, to promote them, to gather information about target market needs, to extend credit to consumers, etc.

c. When channel members work together, channels will be more effective

Add Value Every channel member should add value to

the product as it moves through the channel. If a member doesn’t add value then channel managers need to reevaluate whether or not that member belongs in the channel. Retailers are point-of-sale advertising

specialists and may create exciting visual displays in their stores to promote a manufacturer’s product which should lead to higher sales volume which is a benefit to every channel member

Effective channels are important The channel must be properly manager Channel members should share a

commitment to the quality of the product and satisfying the target market’s needs and wants

Channel members must share tasks appropriately which makes it easier to cooperate and work toward their common goal

Channel Management Decisions

Setting channel objectives Meet the needs and wants of their target

markets efficiently Give their products a competitive edge in

the marketplace Indirect distribution (the use of

middlemen) Direct distribution (eliminating middlemen

in the channel and dealing with final consumers directly)

Channel Management Decisions

Determine distribution patterns Ideal market exposure – make product

available to each and every customer who might buy it, but they don’t want to over-distribute the product and waste money

This is known as distribution intensity

Distribution Intensity Intensive – selling a product through

every available wholesaler and retailer in a geographic area where consumers might look for it Reaches greatest number of consumers

possible Convenience products us this intensity Name 3 examples

Distribution Intensity Selective – selling a product through a

limited number of wholesalers and retailers in a geographic area Use middlemen who will do the best job of

promoting and selling their product May make higher profits by creating greater

sales volume through a smaller number of successful outlets

Consumer shopping goods Name 3 examples

Distribution Intensity Exclusive – selling a product through

just one middleman in a geographic area Used when there is a need to maintain

tight control over a product Used for specialty products that are

technical in nature or require specialized services such as installation or repair

Name 3 examples

Selecting channel members Determine the types of channel members

(wholesalers, retailers, etc.) Channel length (total number of channel

members) Channel member types are based on the

nature of the product Long channel may spread financial risk and

allow a product to receive more specialized attention

Short channel may allow a product to reach consumers more quickly

Selecting channel members Each middleman should:

Create product value that the producer or other middlemen cannot or are not willing to provide (shipping, promotion, etc.)

Channel the product to its desired target market(s)

Have a pricing and promotion strategy compatible with the product’s needs

Offer customer service compatible with the product’s needs

Be willing and able to work cooperatively with other members within the product’s channel

Determining channel responsibilities Some activities must take place within

the channel Products must be shipped, promoted,

and sold to final consumers before any profits can be made

Members must work together appropriately and perform tasks they are best suited for

Determining channel responsibilities Examples

Middlemen reduce discrepancies by breaking down large quantities and storing products until consumers are ready to buy them

Wholesalers work with a retailer to ensure that the retailer always has enough of a product in stock

The wholesaler and retailer work together to determine who is responsible for keeping track of product inventory

Managing, motivating and monitoring channel members Constant evaluation of the channel

members should be done to assess what is working, what isn’t, and what can be improved Should members be added or deleted? Should certain responsibilities be

reassigned?

Motivation – which is more effective? Negative

Impose sanctions (punishment) on middlemen who do not perform well

Chargebacks, financial penalties assessed for a variety of problems such as late shipments or damaged merchandise

Positive Incentives (usually financial) for reaching

certain performance goals (sales) Provide product training, sending out

product update letters, cooperative advertising, etc.

Handling conflict Horizontal conflict

Occurs between channel members on the same level. Good, old-fashioned business competition.

Vertical conflict Occurs between channel members on

different levels within the same channel Usually between producers and

wholesalers OR producers and retailers

Vertical conflict E-commerce options and opening a factory-

direct retail store conflicts with traditional middlemen

Multiple or dual-distribution – using more than one distribution channel

Conflict will happen. The goal is to recognize conflict early (anticipate) and address the conflict when and where it occurs, so the channel can continue to flow smoothly

The Gray Zone Write your answer in your notebook for

the following situation: 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 economic downturn and less spending by consumers, the manufacturer may have the right to reduce the intermediary’s wholesale discount.

Should the intermediary be punished because of an economic trend? Is this ethical? Why or why not?