Marketing Channels & Economic Environment

Environment of Marketing Channels

• A monopoly is present when one company is the sole provider of a particular product or service
• "Strategic implications" refer to the effects a decision will have on a company's future direction and success
• "Interstate" refers to the buying, selling, or trading of goods and services between different states
• "Cherry picking" involves selecting only the best or most popular products and ignoring the rest

Economic Environment Factors

• The economic environment significantly influences the marketing channel by impacting consumer behavior, manufacturer decisions, and overall market performance
• In addition to concepts like recession, inflation and deflation, the economic environment is influenced by other factors

Recession

• A recession is defined as two consecutive quarters of decline in the GDP
• Key impacts:
  • Consumer spending declines
  • A shift towards lower-priced products
  • Business investments decrease

Inflation

• Measured by the Consumer Price Index (CPI), inflation reflects the annual rate of price increases
• Over the past two decades, inflation has remained relatively low, averaging below 5%
• Effects on consumer behavior:
  • Price sensitivity increases
  • Consumers substitute products
  • Psychological pricing thresholds influence decisions

Deflation

• Deflation is characterized by a sustained decline in prices
• Can significantly impact economic growth and consumer behavior
• It Presents challenges for businesses as companies struggle to pass on cost increases due to weakened pricing power

Key Economic Factors

• Federal Budget Deficit & National Debt:
  • Rising deficits and debt increase capital demands
  • This leads to raising interest rates and inflation, which strains channel operations
• Trade Deficit:
  • Greater imports than exports can lead to job losses and reduced consumer income
  • Weaken demand and affect supply chains

Real Interest Rates and Exchange Rates

• Real Interest Rates:
  • When inflation falls but nominal rates remain steady, real interest rates rise, increasing borrowing costs
• Exchange Rates:
  • A strong U.S. dollar makes American products more expensive globally and less competitive domestically

Channel Management Implications

• Economic pressures like high interest rates and currency fluctuations can:
  • Reduce consumer demand
  • Increase operational costs for manufacturers, wholesalers, and retailers
  • Shift preferences toward cheaper foreign goods

Competitive Environment

• Competition is a critical factor for all members of the marketing channel

Types of Competition

• Horizontal Competition:
  • Involves the same types of firms at the same channel level competing with each other
  • Commonly referred to as "competition"
• Intertype Competition:
  • Involves different types of firms at the same channel level competing with each other
• Vertical Competition:
  • Channel members at different levels compete with each other
  • Manufacturer of national brand vs private brand (private label)
• Channel System Competition:
  • Complete channel systems compete with other complete channels
  • “Vertical marketing systems” involve cooperation of distribution channels to meet customer needs

Types of Vertical Marketing System

• Corporate: production and marketing facilities are owned by the same company
• Contractual: independent channel members are connected by contractual agreements
• Administered: firm control by one of the channel members over others

Sociocultural Environment

• Examines how societal values, lifestyles, and demographics affect consumer behavior and business practices
• Key Points:
  • Cultural values and consumer behavior
  • Demographic shifts
  • Lifestyles and trends
  • Globalization and cultural sensitivity
  • Impact on business strategies

Factors Affecting Marketing Channels

• Globalization:
  • Described as the interconnectedness and interdependence of countries worldwide
  • Impacts marketing channels by requiring world-class strategies and creating challenges due to regional complexities
• Consumer Mobility and Connectedness:
  • Emphasizes how advancements in technology and infrastructure have transformed consumer lifestyles and purchasing behaviors
  • Includes high mobility, mobile commerce (M-commerce), and constant connectivity
• Social Networking:
  • Refers to the interaction between individuals or organizations sharing common interests
  • Highlights the shift in consumer trust toward peer-to-peer recommendations and interactions
  • Businesses leverage social platforms for authentic engagement and brand visibility
• The Green Movement:
  • Emphasizes sustainability and public health
  • Drives business to adopt eco-friendly practices and innovate to meet the growing demand for green products

Technological Environment

• Technology is rapidly transforming marketing channel operations
• Retail inventory systems automate replenishment and improve communication

Electronic Data Interchange (EDI)

• EDI enables real-time communication between channel participants

Scanning Systems

• Drastically reduces labor and paperwork in inventory management
• Provides real-time actionable data for merchandising decisions

Digital Revolution and Smartphones

• Smartphones transform shopping experiences with instant online access

Radio Frequency Identification (RFID) and Cloud Computing

• RFID tracks product details in real time, enhancing supply chain efficiency
• Cloud computing offers on-demand internet-based computing services

Legislation Affecting Marketing Channels

• Sherman Antitrust Act (1890): Fundamental antimonopoly law
• Clayton Act (1914): Strengthened the Sherman Anti-trust Act
• Federal Trade Commission Act (1914): Established the Federal Trade Commission (FTC)
• Robinson-Patman Act (1936): Allowed for price differentials under specific circumstances
• Celler-Kefauver Act (1950): Amended Section 7 of the Clayton Antitrust Act, covering agreements between different levels of the supply chain

Legal issues in Channel Management

• Dual Distribution: Manufacturer uses different channel structures for distributing the same product
• Exclusive Dealing: Supplier requires channel members to sell its products only
• Full-Line Forcing: Supplier requires members to carry a broad range of products to sell any particular ones
• Price Discrimination: Supplier sells at different prices to channel members, lessening competition
• Price Maintenance: Supplier attempts to control prices charged by its channel members
• Refusal to Deal: Suppliers may select channel members as wanted
• Resale Restrictions: Manufacturer tries stipulating to whom channel members may resell and in what areas
• Tying Agreements: Selling a product on condition that the channel member also purchase another product

Marketing Channels

• Operate in a constantly changing environment
• Influenced by economic, competitive, sociocultural, technological, and legal factors
• Key aspects of channel strategy:
  • Understanding target market shopping patterns
  • Promoting product availability
  • Inventory storage
  • Providing product information and tryout opportunities
• Legal regulations also play a role
• Channel managers must adapt

Strategy in Marketing Channels

• Marketing channels, also known as distribution channels, are the pathways businesses use to deliver their products from production to the final consumer

Types of Marketing Channels

• Direct channels: Involve selling product directly to the customer
• Indirect channels: Involve third-party businesses who help distribute the product to customers

Factors in Channel Objectives

• Distribution in the firm’s overall objectives and strategies
• The role of distribution in the marketing mix.
• Design of the marketing channels to meet distribution goals.
• Selection of channel members
• Managing and motivating channel members
• Evaluating channel member performance

Distribution Decisions and Channel Strategy

• How to strategically distribute:
  • Planning at corporate, middle-management, and front-line staff levels
  • Channel distribution also shifts focus after strategic planning

Channel Strategy and Marketing

• Need to be aware of marketing channels competitors are using

Channel Design

• Needs to help firm attain a differential advantage
• Important to maintain capital, management qualities, good employees, etc

Channel Management

• Channel management is encompassed of all plans and actions undertaken by the manufacturer to ensure the cooperation of channel members in achieving the manufacturer's distribution objectives

Management in Marketing

• Building close channel relationships
• Motivating members: focuses on motivating retailers.
• Integrating marketing mix: highlights importance of holistic appraoch in marketing where all elements of the mix are carefully considered
• Evaluating channel member performance: importance of proactive, data approach where performance evolution isn't just a retrospective exercise but a continuous process

Improving Channel Performance

• Tracking Sales Volume and Market Share
• Analyzing Inventory Levels
• Measuring Customer Satisfaction
• Calculating Return on Investment (ROI)
• Gathering Competitive Intelligence
• Focus on Customer Experience: Providing a superior customer experience
• Sustainability and Ethical Considerations: Companies should prioritize sustainable practices
• Impact of AI: Al will revolutionize channel management by providing automation, insignts and personalization

Channel Design

• Decisions associated with making new marketing channels and modifying existing ones
• Allocation of distribution tasks to develop an efficient channel structure
• Who engages in Channel design: producers, manufacturers and retailers face channel design decisions

Channel Design Decision Paradigm

• Outlines for the channel design process:
  • Recognizing the need for channel design decision
  • Setting and coordinating distribution objectives
  • Specifying distribution tasks
• Evaluating variables that affect channel structure and choosing structure

Reasons for Developing New Products

• New launch can create a new channel. Requires an understanding between new channels, channel designs and the right adjustments for current channels
• Transitioning existing products into a similar brand through marketing. Requires a flexible design with the ability to respond to customer preferences.
• As customer preferences increase, it makes old channels marginal

Marketing Mix

• When serious problems arise in distribution, it is essential to rethink the issues through modifications. A flexible design provides options for different changes.
• Firms regular point reviews and evaluations to change needs within marketing.

Coordinate Distribution Objectives

• Make sure to communicate with everyone and to also have a grasp of everything through sales, promotion and management.
• Important to set clear cut, transparent objectives so nothing conflicts.
• Marketing, general objectives and strategies should limit the use of intermediaries

Specifying Distribution Tasks

• Specifying distribution designs and allocating task loads to different products. Channel manager and business relationships need to be aligned, to create a smoother experience.
• Importance of Amazon’s streamlined infrastructure
• Designing alternative channel
• This process aims to optimize the delivery of products to the target market based on specific goals and strategies.

Channel Dimensions and Structures

• Number of Levels: Online direct sales versus traditional retail outlets.
• Intensive Channels. Ensures products are available at numerous outlets
• Selective Distributions. Limits distribution to specific intermediaries
• Exclusive distribution Includes wholesalers, retailers, e-commerce
• Theoretical of 45 designs, that must align with market strategy

Factor Variables in Distribution

• Six Category variables based on traditional marketing
• Market Geography. Develop a channel structure that can provide markets and efficiently flow production
• Market Size. Determine market size and how effective production is
• Product can vary in price because of shipping factors and channel price factors.
• Highly technical products should go through a direct channel because consumers need assistance
• New Products needs more support through a new period

Prestigious Products

• Need to reinforce new standards. Must determine the value, size and capacity
• Make sure the market is easy to find. Marketing Strategies should limit the number of sales
• Make sure intermediaries are a cheap alternative for the services.
• Channel Communication
• Attention is a a factor to consider for behavioral problems.
• Try to maintain communication with the consumers.

Improving Channel Structures

• Increase the replacement rate of items.
• Determine the gross margins , adjustments and searching time
• Understand the customer preferences by following their time with sales to determine the best method.

Choosing Channel Structure

• Use financial factors to determine structure. This requires a clear understanding of the process of completing by a firm.
• Important to consider the most straight forward routes.
• Factor Score Appraoch must be made to quantify and structure and manage.

Selecting Retailers and Wholesalers

• Make sure products and retailers have a good alignment in design to prevent conflict
• Finding wholesalers: Field sales can recommend key members
• Trade can discover new markets and industries
• Reseller can increase the volume that reaches partners
• Channel factors need to align with marketing and value.
• Evaluative sales should go further for what the customer wants.
• Credit Score, Sales record, product lines carried, the members market and sales performance are key members.

Market Geography and Design

• Tasks need to be evaluated from product to evaluation. The market has to be well suited for efficiency. Transportation needs to be transported cheaper.
• Communications has to be clear with negotiation methods