Marketing Channels: External Environmental Factors

• Marketing channels are influenced by external, uncontrollable factors.
• These external factors affect both channel members and nonmembers.
• Understanding these factors helps businesses anticipate challenges.
• Businesses can adjust strategies and maintain a competitive edge by understanding these external factors.
• The marketing channel environment involves forces impacting the operation and effectiveness of marketing channels, which then shapes how businesses distribute products and services.

Environmental Factors

• Economic factors
• Sociocultural factors
• Competitive factors
• Technological factors
• Legal factors

Economic Environment

• This consists of consumer purchasing power
• The cost of goods and transportation are key
• Global trade conditions also affect marketing channels

Economic Environment Examples

• Recessions may reduce consumer spending and can cause companies to minimize inventory and optimize supply chains.
• Inflation can lead to increased transportation, production, and logistics costs, influencing pricing strategies.
• Currency fluctuations impact international trade and pricing in global markets.
• The major economic forces include recession, inflation, and deflation.
• Economic conditions affect how businesses distribute products.

Competitive Environment

• The competitive environment is defined as the external conditions where businesses compete for market share.
• It is influenced by factors such as pricing, innovation, and customer preferences.
• Key aspects include market structure (monopoly, oligopoly, competition).
• Key aspects include pricing strategies and innovations in distribution models.

Types of Competition:

• Direct Competition: Businesses selling similar products to the same target market, (e.g., McDonald's vs. Burger King).
• Indirect Competition: Businesses offering different products but competing for the same consumer spending, (e.g., Movie theaters vs. Streaming services).
• Monopolistic Competition: Many businesses sell similar but slightly differentiated products, (e.g., Coffee shops offering unique blends and branding).
• Oligopoly: A few dominant firms control the majority of the market, (e.g., Airlines like Delta, United, American Airlines).
• Pure Monopoly: A single company dominates the entire market with no direct competitors, (e.g., Google in search engines).

Porter's Five Forces Model

• Threat of New Entrants: How easy it is for new competitors to enter the market.
• Bargaining Power of Suppliers: How suppliers influence pricing and quality and how suppliers influence pricing and quality, (e.g., Apple relying on specific chip manufacturers, giving suppliers leverage).
• Bargaining Power of Buyers: How customers can demand better pricing and quality, (e.g., Supermarket chains negotiating lower prices from suppliers due to bulk purchases)
• Threat of Substitutes: The risk of alternative products replacing existing ones, (e.g., Streaming services replacing cable TV).
• Industry Rivalry: The intensity of competition among existing firms, (e.g., Samsung vs. Apple in the smartphone industry).

Sociocultural Environment

• The sociocultural environment pervades all aspects of a society.
• It influences both national and international marketing channels.
• It influences wide variations among channel structures worldwide.
• Cultural trends, demographics, and social changes influence marketing channels.
• An increasing rise of health-conscious consumers affect distribution choices.

Sociocultural Factors in Distribution Management

• Social structures
• Cultural values
• Consumer lifestyles
• Demographic factors

Sociocultural Factors Include

• Consumer preferences and buying habits
• Cultural influences on product distribution
• Social structures affecting market access
• Demographic trends such as population growth and urbanization

Consumer Behavior and Cultural Preferences

• How Filipino culture affects purchasing decisions
• The role of "tingi-tingi" (sachet culture) in product distribution
• The influence of Filipino family values on bulk buying and brand loyalty
• A preference for trusted and familiar brands

Sociocultural Example

• An increasing demand for sustainable and eco-friendly packaging in the food industry.
• The growth of online shopping among Gen Z and Millennials leading to an emphasis on digital marketing channels and doorstep delivery services.
• Lifestyle changes leading to increased demand for convenience stores and quick commerce services.

Technological Environment

• Scanners, computerized inventory management & portable computers help retailers & wholesalers closely monitor success or failure of products they handle.
• Highlights the role of technology in shaping marketing channels, such as e-commerce and logistics innovations.
• The adoption of Electronic Data Interchange (EDI) systems enhances communication between manufacturers and retailers.
• The technological Environment in distribution management refers to the advancements, innovations, and digital tools that influence how goods and services are transported, stored, and delivered to consumers.
• Links together channel information systems
• Provides real-time responses
• Enhanced by Internet

Technological Environment

• Automation & Robotics is warehouse automation, conveyor belts, AI-driven sorting.
• Artificial Intelligence (AI) & Machine Learning enable predictive analytics, demand forecasting, and smart inventory management.
• Internet of Things (IoT) & Smart Logistics: GPS tracking, RFID technology, and real-time fleet monitoring.
• Blockchain Technology: Secure transactions and transparent supply chains.
• Cloud Computing & Big Data Analytics enables data-driven decision-making and remote access to distribution networks.
• Drones & Autonomous Vehicles innovates last-mile delivery. E-commerce and Digital Platforms in the Philippines
• A growing number of Lazada, Shopee, Zalora, and other e-commerce platforms.
• There is an impact of social commerce (Facebook Marketplace, Instagram Shops).
• Online payment systems are important (GCash, PayMaya, digital banking).
• Smart Warehousing and Inventory Management utilize warehouse Management Systems (WMS) and digital tools for monitoring stock levels.
• AI-based inventory prediction reduces overstocking and understocking.
• The use of drones and robots in warehouses improves efficiency.
• Fleet management software is used for route optimization and fuel efficiency tracking.
• Ride-hailing & delivery apps include Lalamove, GrabExpress, J&T, Ninja Van.
• Green logistics uses electric delivery vehicles and aims for carbon footprint reduction.

Challenges and Risks of Technology in Distribution

• The high cost of technological adoption for small businesses.
• Cybersecurity threats, data breaches, and hacking risks in digital payments.
• Workforce displacement through automation replacing human jobs.
• Poor internet connectivity in rural areas limits the infrastructure.

Legal Environment

• The legal environment is a set of laws that impact marketing channels.
• This environment is continually evolving and affected by changing values, norms, politics, & precedents.
• Knowledge of the legal basics helps channel managers avoid serious & costly legal problems.
• This refers to the system of laws, regulations, and government policies that govern how businesses operate within a country.
• Ensures fair competition, protects consumer rights, maintains ethical practices, and prevents legal disputes.
• Business Laws - Rules governing contracts, partnerships, and corporate structures.
• Ensuring adherence to government regulations, Regulatory Compliance e.g., taxation, labor laws.
• Consumer Protection Laws protect consumers from fraud, false advertising, and defective products.
• Competition Laws - Preventing monopolies, unfair trade practices, and price-fixing.
• Intellectual Property Laws - Safeguarding patents, trademarks, and copyrights.
• Trade and Customs Laws - Governing imports, exports, and tariff regulations.
• Environmental Laws - Ensuring businesses follow sustainability and waste management policies.
• In distribution management, the legal environment ensures that products move through the supply chain legally, fairly, and ethically, preventing fraud, smuggling, and unsafe trade practices.

Philippine Competition Act (RA 10667) – Anti-Trust & Competition Law

• Enacted in 2015, this act promotes fair market competition and prohibits anti-competitive agreements, monopolies, and unfair business practices.
• The Philippine Competition Commission (PCC) enforces this law, and it investigates violations and imposes penalties.
• Large distributors and manufacturers are banned from engaging in anti-competitive practices, such as price-fixing, market allocation, or exclusive dealing agreements, restricting competition.
• Companies that control distribution channels may prevent smaller businesses from accessing the market, creating monopolistic or cartel-like behavior.
• Violations of the law can result in hefty fines and legal action and disrupt distribution operations.
• Example case: A cement company was investigated for price-fixing and cartel-like behavior in 2020, which led to increased costs for distributors and consumers.
• The PCC fined the companies involved in setting cement prices.

Consumer Act of the Philippines (RA 7394) – Consumer Protection Laws

• This act protects consumers from fraudulent, unfair, and deceptive trade practices.
• It ensures product safety, proper labeling, fair pricing, and truth in advertising.
• The Department of Trade and Industry (DTI), Food and Drug Administration (FDA), and other agencies are the enforcers.
• Distributors and retailers must ensure that products meet safety and quality standards, or they face product recalls, lawsuits, or fines.
• Also there must not be mislabeling or false advertising can lead to legal complaints.
• Product returns and warranty issues must be properly handled to avoid penalties.
• Example case: A distributor of imported beauty products was fined by the DTI and FDA for selling expired and unregistered skincare products, violating consumer rights. The products were recalled, and the distributor lost its business license.

Intellectual Property Code (RA 8293) – Counterfeit & Brand Protection Issues

• It protects trademarks, copyrights, and patents from infringement.
• The Intellectual Property Office of the Philippines (IPOPHL) regulates and monitors intellectual property violations.
• Some distributors may knowingly (or intentionally) selling counterfeit products, leading to legal consequences.
• Unauthorized distribution of branded products without agreements can lead to trademark violations.
• Parallel importing (importing goods without the brand owner's consent) is a legal gray area that can cause disputes.
• Example case: A local distributor was sued for selling counterfeit luxury bags imported from China.

Contract Laws – Issues in Distribution Agreements

• Governed by the Civil Code of the Philippines and various commercial laws
• These outline the rights and obligations of distributors, manufacturers, and retailers
• Unclear contract terms result in disputes between manufacturers and distributors
• Breach of contract results in legal battles
• Termination of dealership contracts without due process leads to lawsuits.
• A beverage company unilaterally terminated its contract with a distributor without prior notice.
• The distributor sued for breach of contract, and the court awarded financial damages.

Customs Modernization and Tariff Act (RA 10863) – Import & Export Regulations

• This act governs importation, exportation, and customs duties in the Philippines.
• The Bureau of Customs (BOC) enforces these laws, ensuring compliance with tariffs, trade regulations, and import permits.
• Distributors importing products must comply with correct tariff classifications and duties; otherwise, they face seizures and fines.
• Delays in customs clearance due to improper documentation can disrupt supply chains.
• Smuggling and undervaluation of imported goods are illegal, leading to stricter enforcement actions.
• A logistics company was caught misdeclaring imported electronic goods to pay lower taxes.
• The BOC seized the goods and imposed millions in fines.

Ecological Solid Waste Management Act (RA 9003) & Extended Producer Responsibility (EPR) Act (RA 11898) – Sustainability Regulations

• Waste disposal must be done properly and harmfully environmentally-harmful distribution practices are prohibited.
• The EPR Act (RA 11898) requires companies distributing plastic-packaged goods to be responsible for recycling and waste management.
• There will be penalties if Companies fail to comply with waste management laws Plastic packaging restrictions can increase costs for distributors.
• Large companies must implement recycling programs for their packaging waste.
• A major fast-food chain was fined by the Department of Environment and Natural Resources (DENR) for failing to implement an EPR program for their plastic packaging waste.
• Summary of Legal Issues & Business Impact
• Legal Compliance Training and Contract Review - Ensure distributors and suppliers are up to date on current laws and consult legal experts.
• Consumer Protection Measures and Sustainability Programs - Use quality control avoid eco-friendly products and use eco-friendly to support the products
• Proper Customs Documentation import/export declarations should be accurate.