Marketing Channel Relationships

Competitive Priorities in Marketing Channels

A marketing channel is a set of practices necessary to transfer the ownership of goods from producer to consumer.

Learning Objectives

Describe the different types of marketing distribution channels

Key Takeaways

Key Points

  • When developing distribution strategies, companies assess how marketing channels link producers to buyers, affect advertising and promotion, and influence pricing.
  • Alternative terms for marketing channel include ‘ distribution channel ‘ or ‘route-to- market ‘.
  • A marketing channel can be short, extending directly from the vendor to the consumer; or may include several interconnected (usually independent but mutually dependent) intermediaries such as wholesalers, distributors, agents, retailers.
  • To sway channel intermediaries to stock their product over other brands, companies engage in promotional tactics including higher profit margins, special deals, premiums and allowances for advertising or display on store shelves.

Key Terms

  • intermediaries: An intermediary is a third party that offers an intermediation service between two trading parties.
  • supply chain: A system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer.

Competitive Priorities In Marketing Channels

One of the ways companies gain a competitive advantage in the market is through successful incorporation and management of marketing channels. A marketing channel is a set of practices or activities necessary to transfer the ownership of goods, and to move goods from production to consumption. This process typically consists of all the institutions and marketing activities involved in the promotion and distribution of goods. Management teams must evaluate competitive pressures to assess whether their marketing strategies are effective and profitable, or ineffective and costly to the organization. Sales remains the most popular way to measure performance.

People shopping in a supermarket isle.

Competition: Rebates and higher profit margins are tactics used by brands to gain favor with channel intermediaries and preference on store shelves.

When developing, implementing and measuring the effectiveness of marketing channels, businesses should consider:

  • The link from producers to buyers
  • Sales, advertising and promotion performance
  • The company’s pricing strategy
  • Product strategy through branding, policies, willingness to stock
  • The Impact the attitudes of channel intermediaries have on the product
  • Competition from other intermediaries and other product lines

All of these factors influence the positioning of products against their competitors in the marketplace.

Role and Design in the Marketing Mix

Distribution–one of the primary elements in the marketing mix –is key in determining how and when to respond to competitive pressures in the promotion of goods and services. An alternative term is distribution channel or ‘route-to-market’. It is a path or pipeline through which goods and services flow in one direction (from vendor to the consumer), and the payments generated by them flow in the opposite direction (from consumer to the vendor).

A marketing channel can be short, extending directly from the vendor to the consumer; or may include several interconnected (usually independent but mutually dependent) intermediaries such as wholesalers, distributors, agents, retailers. For example, merchants are intermediaries that buy and resell products. Agents and brokers are intermediaries that act on behalf of the producer but do not take title to the products. Each intermediary receives the item at one pricing point, and moves it to the next highest pricing point until it reaches the final buyer. This grouping of organizations is often referred to as the supply chain of a company.

Choosing Marketing Channels

Cost, flexibility and quick adaptation to changing markets and demand are usually the top factors sellers consider when assess and choosing distribution channels. The types vary and heavily depend on product category and target market. These distribution types include:

  • Intensive distribution – this channel allows the producer’s products to be stocked in major, mainstream outlets. This strategy is common for basic supplies, snack foods, magazines and soft drink beverages.
  • Selective distribution – producers rely on a few intermediaries to carry their product. This strategy is commonly observed for more specialized goods that are carried through specialist dealers. For example, brands of craft tools, or large appliances would fall into this marketing channel.
  • Exclusive distribution – producers select only very few intermediaries. Exclusive distribution is often characterized by exclusive dealing where the reseller carries only that producer’s products at the exclusion of other products. This strategy is typical of luxury goods retailers.

Managing and Motivating Marketing Channels

During the marketing planning stage, marketers must choose and incorporate the most suitable channels for the firm’s products, as well as select appropriate channel members or intermediaries. Ensuring these intermediaries are trained and motivated to sell the firm’s products is crucial to a brand’s competitive strategy; i.e., its accessibility and availability to buyers. Monitoring the channel’s performance over time and modifying the channel to enhance performance is also imperative for organizations looking to remain competitive in the market. Promotional tactics are often used by companies use to motivate channel intermediaries to stock their brand over other products. These techniques include higher profit margins, special deals, premiums and allowances for advertising or display on store shelves.

Channel Power, Control, and Leadership

Channels perform better if a party is in charge, providing a level of leadership to coordinate goals and efforts.

Learning Objectives

Describe why manufacturers, wholesalers and retailers take the lead in channel partnerships

Key Takeaways

Key Points

  • In a type of business cold war, manufacturers and retailers are constantly trying to match each other in size.
  • The manufacturer should lead if the design and redesign of the channel is best done by the manufacturer and if control of the product —merchandising, repair, etc.—is critical.
  • The wholesaler should lead where the manufacturers and retailers have remained small in size, large in number, relatively scattered geographically, financially weak, and lacking in marketing expertise.
  • The retailer should lead when product development and demand stimulation are relatively unimportant, and when personal attention to the customer is important.

Key Terms

  • retailer: one who purchases goods or products in large quantities from manufacturers directly or through a wholesale, and then sells smaller quantities to the consumer for a profit
  • dictatorial: In the manner of a dictator, usually with callous disregard for others.

Channel Power, Control, and Leadership

Power is our willingness to use force in a relationship. It is often the means by which we are able to control or influence the behavior of another party. In the channel mechanism, power refers to the capacity of a particular channel member to control or influence the behavior of another channel member. For instance, a large retailer may want the manufacturer to modify the design of the product, or perhaps be required to carry less inventory. Both parties may attempt to exert their power in an attempt to influence the other’s behavior. The ability of either of the parties to achieve this outcome will depend upon the amount of power that each can bring to bear.

Channels usually perform better if a party is in charge, providing some level of leadership. Essentially, the purpose of this leadership is to coordinate the goals and efforts of channel institutions. The level of leadership can range from very passive to quite active—verging on dictatorial. The style may range from very negative, based on fear and punishment, to very positive, based on encouragement and reward. In a given situation, any of these leadership styles may prove effective. Given the restrictions inherent in channel leadership, the final question is “who should lead the channel?” Two important trends are worth noting, since they influence the answer.

First, if we look at the early years of marketing, the role of the wholesaler (to bring the producer and consumer together) was most vital. Consequently, during this period, the wholesaler led most channels. This is no longer the case. A second trend is the apparent strategy of both manufacturers and retailers to exert power through size. In a type of business cold war, manufacturers and retailers are constantly trying to match each other in this respect. The result has been some serious warfare to gain channel superiority.

Large bundles of products stacked on shelves in a warehouse.

Channel Control: Wholesalers and retailers undertake size competition in order to gain channel control.

Under which conditions should the manufacturers lead? The wholesaler? The retailer? While the answer is contingent upon many factors, in general, the manufacturer should lead if the design and redesign of the channel is best done by the manufacturer and if control of the product—merchandising, repair, etc.—is critical. The wholesaler should lead where the manufacturers and retailers have remained small in size, large in number, relatively scattered geographically, financially weak, and lacking in marketing expertise. The retailer should lead when product development and demand stimulation are relatively unimportant and when personal attention to the customer is important.

Channel Partnering

Channel partners can potentially fulfill needs along an organization’s value chain by enhancing the efficiency of distribution and/or access to new markets.

Learning Objectives

Recognize the value channel partners can add via co-branding, distribution and/or efficiency

Key Takeaways

Key Points

  • Channel partnerships are strategic collaborations between organizations that can potentially provide reciprocal value for both organizations.
  • Channel partners can add value through fulfilling certain needs along a value-chain, as well as providing unique access to an established market or brand.
  • Co-branding is the opportunity for channel partners to represent both of their brands on a given product. In these situations, both organizations can benefit from the brand equity of the other.
  • Value-added resellers are another example of a channel partnership. Value-added resellers not only resell the product or service, but also add a unique benefit for potential consumers. This justifies the mark up.
  • Overall, the management of channel partnership relationships as well as the acquisition of new partners is critical to success in most industries in the modern economy.

Key Terms

  • co-branding: The combination of two or more well-known brands for marketing purposes, to strengthen one another’s preference or purchase intentions, or to reach a broader audience.

Channel Partners

As organizations build relationships across various channels within the industries in which they operate, the importance of partners within those channels can be a central concern. A channel partner is simply a company that works in collaboration with a organization in a way that assists the sale, distribution, storage, and/or production process.

As a result of the varying roles a channel partner can play, it’s useful to understand the value chain, co-branding, value-added resellers and the general distribution of marketing channels for a given product or service.

The Value Chain

Channel partners will fulfill some need along an organization’s value chain. A value chain simply visualizes the process a product or service will go through, from the initial sourcing of raw materials, product design, manufacturing, marketing, selling, paying, distributing and delivering customer support for existing customers. There are a number of critical inputs along the value chain, and most organizations are not equipped to fulfill each role. As a result, channel partners can fulfill a number of key responsibilities in marketing, sales, distribution, storage and customer support.

A diagram that shows Porter's value chain - primary activities (inbound logistics, operations, outbound logistics, marketing and sales, and service) and support activities (firm infrastructure, human resource management, technology, and procurement).

Value Chain: Porter’s value chain is a useful way to visualize where various channel partners may be in the overall organizational process.

This could be in the form of vertical integration, where a company creates an alliance with an organization that assists in some aspect of the production process (through strategic alliances, such as partnerships, joint ventures, mergers and acquisitions). Whether a formal alliance is established or not, managing the relationships between the organization and the various channel partners along the value chain is an important aspect of controlling costs, communicating to consumers, and building a reliable production channel.

Co-branding

Another useful idea in channel partnerships is the concept of co-branding. To understand co-branding, the easiest thing to do is consider a few examples. Right now, you’re likely reading this on a device. It may be a laptop, where the laptop manufacturer (let’s say Dell, for the sake of discussion) may be co-branded with Intel (for your processor). You’re smartphone may be a Sony, with a built in Google Android OS. This is another example of co-branding.

The idea is fairly simple. Various organizations function better together, and in many situations they may both have strong brands. In these situations, both companies can list their brand on a given product, allowing each organization in the channel partnership to gain access to a new, loyal targeted customer base (i.e. that of their partner).

Value-added Resellers

Another strong example of a channel partner is a reseller, which should in some way add value in the process. For example, consider the sale of a new tablet with internet connection. More often than not, an individual will go to a mobile device carrier outlet to browse for new devices. When purchasing a tablet from a reseller that also offers mobile data services, a consumer will receive a SIM card that is a value add to the initial tablet. This SIM card will provide data on the go, a nice additional benefit for the user. This reseller is taking a product, adding value to that product, and reselling at a higher price.

Conclusion

Channel partnerships are, in conclusion, essentially a strategic alliance or contract between organizations that enable a producer of a given product or service to access markets and provide value to consumers through collaboration. These collaborations should add value during the distribution process, whether that value is simply access to retail space, shipping resources, digital marketplaces, established brands, or other more specialized examples.

Maintaining a strong relationship with various channel partners, and identifying opportunities in the competitive environment for new partnerships, is a central facet of a modern marketer’s responsibilities. Channel marketing should be at the forefront of most marketing strategies in the digital era, as distribution and simply being noticed by consumers can be greatly enhanced through strategic partnership selection.

Channel Integration

The integration of marketing channels to varying degrees is known either as multi-channel or omni-channel retailing.

Learning Objectives

Describe omni-channel marketing as it relates to the retail industry

Key Takeaways

Key Points

  • Omni- channel retailing is concentrated on a seamless approach to the consumer experience through all available shopping channels, like mobile internet devices, computers, bricks-and-mortar, television, catalog, and so on.
  • The omni-channel consumer wants to use all channels simultaneously, and retailers using an omni-channel approach will track customers across all channels, not just one or two.
  • With omni-channel retailing, marketing is made more efficient with offers that are relative to a specific consumer determined by purchase patterns, social network affinities, website visits, loyalty programs, and other data mining techniques.
  • A consistent and convenient brand exposure from an omni-channel retailer will create better top of mind awareness from consumers.

Key Terms

  • e-commerce: Commercial activity conducted via the Internet.
  • retailing: selling goods directly to the consumer

Channel Integration

The integration of marketing channels involves a process known as multi-channel retailing. Multi-channel retailing is the merging of retail operations in such a manner that enables the transacting of a customer via many connected channels. Channels include: retail stores, online stores, mobile stores, mobile app stores, telephone sales, and any other method of transacting with a customer. Multi-channel retailing is said to be dictated by systems and processes, when in fact it is the customer that dictates the route they take to transact. Systems and processes within retail simply facilitate the customer journey to transact and be served. The pioneers of multi-channel retail built their businesses from a customer centric perspective and served the customer via many channels long before the term multi-channel was used.

Omni-channel retailing is very similar to, and an evolution of, multi-channel retailing. Omni-channel retailing is concentrated more on a seamless approach to the consumer experience through all available shopping channels like mobile internet devices, computers, bricks-and-mortar, television, catalog, and so on. The omni-channel consumer wants to use all channels simultaneously and retailers using an omni-channel approach will track customers across all channels, not just one or two. Omni-channel retailing with the connected consumer uses all shopping channels from the same database of products, prices, promotions, etc. Instead of perceiving a variety of touch-points as part of the same brand, omni-channel retailers let consumers experience the brand, not a channel within a brand. Merchandise and promotions are not channel specific, but rather consistent across all retail channels. The brick-and-mortar stores become an extension of the supply chain in which purchases may be made in the store, but are researched through other channels of communication. With omni-channel retailing, marketing is made more efficient with offers that are relative to a specific consumer determined by purchase patterns, social network affinities, website visits, loyalty programs, and other data mining techniques.

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Omni-Channel Retailing: Omni-channel retailing requires constant integration across all marketing channels.

A move to omni-channel retailing can create a more knowledgeable consumer, so store employees need to be more knowledgeable about merchandise carried and production processes. Omni-channel retailers carry merchandise that is customer-centric and is not specific to any channel(s). Research has shown that omni-channel shoppers spend up to 15% to 30% more than multi-channel shoppers and exhibit strong brand loyalty, often influencing others to patronize a brand. Real-time data may be necessary when moving towards an omni-channel approach. As socially connected consumers move from one channel to another, they expect their stopping point to be bookmarked, allowing them to return through a different channel to finish browsing or purchasing where they left off. A consistent and convenient brand exposure from an omni-channel retailer will create better top of mind awareness from consumers.

Preparing for an omni-channel presence will require a heavy investment of both time and money. Communications between the IT department, marketing department, and sales staff will need to be as smooth as possible with little confusion about goals and strategies. A clear and thorough understanding of the customer, or target market, is required to be able to make appropriate decisions about channel integration and usability. Because brick-and-mortar sales influenced by online search are four times higher than total e-commerce sales, omni-channel retailers need to be informative, personable, always connected, and allow channel transparency.