Lesson 3_Distribution Management.docx

**CHAPTER 3** **THE ENVIRONMENT OF DISTRIBUTION CHANNELS** **INTRODUCTION** Marketing channels operate in a continually changing environment, therefore, channel manage must be vigilant to the environment and the possible changes in order to plan effective and efficient marketing strategies for su...

**CHAPTER 3** **THE ENVIRONMENT OF DISTRIBUTION CHANNELS** **INTRODUCTION** Marketing channels operate in a continually changing environment, therefore, channel manage must be vigilant to the environment and the possible changes in order to plan effective and efficient marketing strategies for successfully addressing these changes. To do so, the channel manager needs to understand the environmental factors that can affect marketing channel systems. ***The Marketing Channel and the Environment*** ***The environment consists of myriad external, uncontrollable factors within which marketing channels exist. To give some order to this huge array of variables, we will categorize them into the following:*** 1. ***Economic environment*** 2. ***Competitive environment*** 3. ***Sociocultural environment*** 4. ***Technological environment*** 5. ***Legal environment*** A. ***The Economic Environment*** ***The economic environment plays a critical role in marketing channels. The external economic factors that influence buying habits of consumers and businesses affect the performance of a company. These factors can influence a business, such as how it operates and how successful it might become. The economic environment consists of different things for different people. For example, for a farmer, the weather and price of fertilizers are important factors. For a TV channel, the growth in Internet advertising matters a great deal, but not the weather. The economic environment consists of microeconomic and macroeconomic factors.*** ***Microeconomic factors refer to things that happen at the individual company or consumer level. They do not affect the whole economy. Some microeconomic factors that may influence a business include competitors, demand, market size, suppliers, supply, and how goods are supplied (e.g., through retail stores, distributors, or the Internet)*** ***On the other hand, macroeconomic factors refer to things that affect the entire economy. They are concerned with general or large-scale economic factors such as unemployment, inflation, interest rates, GDP growth (i.e., whether the economy is in recession or booming), taxes, exchange rates, discretionary income consumers have after paying tax and social security, levels of consumer confidence, savings rates.*** ***Marketing campaigns are often affected by external economic factors such as consumer confidence and unemployment rates. Businesses need to factor in the economy of their target market to ensure they prepare for the ramifications of an economic downturn. Demand and supply are the biggest economic factors that affect marketing. When demand is high, the price of a product can also be high, increasing profitability for a business. When demand is low, the price lowers too.*** B. ***Competitive environment*** ***A competitive environment in marketing channels refers to a system where different businesses compete with each other by using various marketing channels, promotional strategies, pricing methods, and other factors. The competitive environment encompasses all the external factors that compete with the services or products of a business.*** ***The terms global marketplace, global arena and global competition are not just international business jargon, but realistic descriptions of the competitive environment as it exists today in an increasing number of industries. Further, new technologies have substantially changed the competitive landscape.*** **Figure 2: *Types of Competition*** ***Types of Competition*** ***Along with the broadened scope of competition and new forms of competition driven by new technologies, channel managers must also consider the major types of competition that can affect channel strategy. In particular, they need to focus on the following four types:*** 1. ***Horizontal competition: This type of competition occurs between businesses that offer similar products or services and operate at the same level of the marketing channel. For example, two supermarkets that sell groceries in the same area are in horizontal competition.*** 2. ***Intertype competition: This type of competition occurs between businesses that offer different products or services but target the same customer group. For example, a movie theater and a bowling alley may be in intertype competition because they both target young adults.*** 3. ***Vertical competition: This type of competition occurs between businesses that operate at different levels of the marketing channel and offer complementary products or services. For example, a car manufacturer and a car dealership may be in vertical competition because they both contribute to the sale of cars.*** 4. ***System competition: This type of competition occurs between businesses that offer different products or services but compete for the same consumer spending. For example, a restaurant and a clothing store may be in system competition because they both compete for the same disposable income of consumers.*** C. ***Sociocultural environment*** ***The socio-cultural environment is an important aspect of marketing channels. It consists of the influence of religious, family, educational, and social systems in the marketing system. Marketers who intend to market their products overseas may be very sensitive to foreign cultures. While the differences between our cultural background in one country and those of foreign nations may seem small, marketers who ignore these differences risk failure in implementing marketing programs. Failure to consider cultural differences is one of the primary reasons for marketing failures overseas. The socio-cultural environment affects marketing channels in various ways. Some of the key factors include:*** - ***Values, beliefs, and attitudes: These factors can vary between community groups and can impact consumer behavior and preferences. Marketers need to understand the values, beliefs, and attitudes of their target market and develop strategies that resonate with their customers\' cultural backgrounds.*** - ***Social class: People from different social classes can have different values that reflect their position in society. Marketers need to consider these differences when developing pricing, promotion, and distribution strategies.*** - ***Consumer lifestyles and buying habits: These factors can be influenced by cultural norms and can impact the demand for products and services. Marketers need to understand the lifestyle and buying habits of their target market and develop strategies that align with their customers\' preferences.*** - ***Tastes and preferences: Culture influences taste and preferences, and marketers need to consider these factors when developing products and services. For example, food preferences can vary widely between cultures, and marketers need to develop products that appeal to the taste buds of their target market.*** - ***Language and communication: Language and communication can be a barrier to effective marketing in foreign markets. Marketers need to consider language differences and develop communication strategies that are culturally appropriate and effective.*** - ***Customs and traditions: Customs and traditions can impact consumer behavior and preferences, and marketers need to consider these factors when developing marketing strategies. For example, holidays and festivals can be an opportunity for marketers to develop promotions and campaigns that resonate with their target market.*** D. ***Technological environment*** ***The technological environment in marketing refers to the impact of technology on marketing strategies and practices. Technological advancements have transformed marketing by changing how data is collected, analyzed, and used in business. They have also changed how products are marketed to consumers. New technology has enabled businesses to collect and analyze data in various ways, making it easier to understand businesses and consumers. It has also facilitated direct marketing through digital technologies, allowing consumers to find and research products from the comfort of their homes. Social media and the internet have played a significant role in marketing innovations, enabling location-independent companies to advertise through social media tools. Integrated marketing communications (IMCs) have allowed businesses to coordinate messages across all advertising platforms, creating a seamless customer experience.*** ***The technological environment has a significant impact on marketing channels.*** ***Here are some ways in which technology affects marketing channels:*** ***Advantages:*** - ***Increased reach: Technology allows marketers to reach a vast number of people with just a click of a button. Networked technologies give millions of people instant access to each other, and this fact is being exploited ever more actively by marketers trying to get their products into the public eye.*** - ***Quick design and production: Technology facilitates quick design and production of advertising materials. Marketers can create and distribute ads quickly and efficiently, allowing them to respond to changes in the market quickly*** - ***Improved customer relationship management: Technology enables businesses to create and maintain relationships with customers. Digital platforms have disrupted traditional distribution channels, increased the reach of social networks, and changed the way people interact. Advanced technology is enabling direct sellers to create and maintain relationships with customers*** ***Disadvantages:*** - ***Information overload: Technology has made it easier for businesses to reach customers, but it has also created an information overload. Customers are bombarded with ads and messages, making it harder for businesses to stand out.*** - ***Privacy concerns: Technology has raised concerns about privacy and data security. Customers are increasingly wary of sharing their personal information with businesses, which can make it harder for marketers to collect data and develop effective marketing strategies*** - ***Costs: Technology can be expensive, and businesses need to invest in the latest tools and techniques to stay competitive. Adopting new technologies can be costly, and businesses need to weigh the benefits against the costs*** ***Overall, technology is transforming the marketing industry, challenging traditional marketing channels, and providing digital avenues for dynamic growth. Marketers need to keep abreast of technological advances and adapt their strategies to take advantage of the opportunities and ward off threats.*** E. ***Legal environment*** ***The legal environment is an important aspect of marketing channels. Here are some key points about the legal environment in marketing channels:*** - ***Laws and regulations: The legal environment refers to the set of laws and regulations that impact marketing channels. These laws can be national or local, and they can cover a wide range of issues, such as advertising, product safety, and intellectual property.*** - ***Consumer protection: Laws and regulations are designed to protect consumers from harm and ensure that businesses operate fairl58\*y and ethically. Marketers need to be aware of these laws and regulations and develop strategies that comply with them.*** - ***Intellectual property: Intellectual property laws protect businesses\' interests and help prevent infringement of trademarks, copyrights, and patents. Marketers need to be aware of these laws and develop strategies that protect their intellectual property.*** - ***International laws: International laws and regulations can impact marketing channels for businesses operating in foreign markets. Marketers need to be aware of these laws and regulations and develop strategies that comply with them.*** - ***Legal challenges: Legal challenges can arise in marketing channels, such as lawsuits from competitors or customers. Marketers need to be prepared to handle these challenges and develop strategies that mitigate legal risks.*** - ***Evolving legal environment: The legal environment is continually evolving, and marketers need to stay up-to-date with changes in laws and regulations that impact marketing channels. Failure to comply with relevant laws and regulations can result in legal and financial consequences for businesses.*** ***It is essential for marketing managers to be aware of these laws in order to execute the marketing mix successfully and legally***