Chapter 2

Marketing Strategy and

Channel Design

Major Topics for Ch. 2

1. Major Decisions to Make

2. When to Emphasize Channel strategy?
3. Channel Design: Value Chain and
Value Chain Analysis
4. Three Strategic Questions
5. Segmentation: Service Output Demand

I. Major Decisions To Make*

1. The role of distribution in the firms overall
objectives & strategies (Strategy Level Issue)
2. The role distribution should play in the
marketing mix (Program Level Issue)
3. -The design of the firms marketing channels
-The selection of channel members
4. -The management of the marketing channel
-The evaluation of channel member
performance

II. When to Emphasize Distribution Strategy

IF
:

Distribution is the most relevant variable

or

Parity exists among competitors in the

other three variables of the marketing mix.

or A high degree of competitive vulnerability

exists

or

Distribution can create synergy among

marketing channels.

THEN:

The firm should choose distribution

strategy for strategic emphasis

III. Marketing Strategy

& Channel Design

Differential advantage occurs when a firm

attains a long-term, advantageous position
in the market relative to competitors.

Caterpillar Versus Komatsu

Channel Design
What is channel design?
Decisions associated with forming new or
altering existing channels.

Why are channel design decisions critical?

They directly influence all other marketing
decisions.
Key external resource for many manufacturers.

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The Value Chain

Firm infrastructure
n
rgi
Ma

Support
Activities

Human resource management

Technology development
Human resource management

Inbound
logistics

Operations

Outbound Marketing
logistics
& sales

Primary Activities

Service

in
g
r
Ma

IV. Three Strategic Questions*

How close a relationship
should be developed
with the channel
members?

3
Strategic
Questions

How should the

marketing mix be used to
enhance channel
member cooperation?

How should the channel

members be motivated to cooperate
in achieving the manufacturers
distribution objectives?

Question1: Closeness of Channel

Relationships
Factors to consider

Distribution intensity*
Targeted markets*
Products*
Company policies*
Middlemen
Environment
Behavioral dimensions

Number of Intermediaries at Each Level

Outlet

Use as many
outlets as possible
Outlet

Outlet

Intensive
Distributi
on
Outlet
Outlet

Outlet

Use as few outlets

(intermediaries) as
possible
Exclusive
Distributi
on
Intermediaries

Not all available

intermediaries are
Selectiveused
Distributio
Intermediaries
Intermediaries n
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Analyzing Target Market Behaviors

Current and potential buyer behaviors:
Who is doing the buying?
Where,when and how end-users buy:
Seasonal
Shopping from home
Knowledge of industry (and its language)
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Analyzing Product
Characteristics
Product Characteristics
Unit value: length
Standardization: length, intensity
Bulkiness: length
Complexity: length, intensity
Stage of Product Life Cycle: intensity,
ownership
Implications for Channel Design
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Changes in Life Cycle and Channels:

The Case of Designer Apparel
ValueAdded
added
by channel
Utility
by Channel
High
Introductory
Stage

Low

Declining/
Death

Boutique
Offprice Outlets
(e.g., service utility) (e.g., convenience utility)

Market
Growth Rate

Exhibit 3.4

Low

Growth
Stage
High

Mature
Stage

Merchandisers
Better Department Stores
(e.g., selection utility) (e.g., lot size utility)

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Question 2: Marketing Mix in

Channel Management

Product
Strategy
(Quality/Branding)
Distribution
strategy

Pricing
Marketing
Strategy
Mix
(Wholesale/Retail/Consumer)
Promotion
Strategy
(Push/Pull)

Question 3: Motivation of Channel

Members

Portfolio
concept:

A tool for motivating different types

and sizes of channel members
Question: What makes a distributor work for you?

Evaluation of Channel Member

Performance

Channel managers involvement

in evaluating member performance is integral to
developing & managing channel

Have provisions been made in the design and

management of the channel to assure that
channel member performance will be
evaluated effectively?
Ex) Measurement and Reward of Channel Performance

TABLE 2-3: BUSINESS-TO-BUSINESS CHANNEL SEGMENTS FOR A

NEW HIGH-TECHNOLOGY PRODUCT
Respondents allocated 100 points among the following supplier-provided service outputs according to their importance to their company:

= Additional Important Attributes

= Greatest Discriminating Attributes

Possible Service
Output Priorities

Lowest Total
Cost/ Pre-Sales
Info Segment

Responsive
Support/ PostSales Segment

Full-Service
Relationship
Segment

References and
Credentials Segment

References and Credentials

25

Financial Stability and

Longevity

16

Product Demonstrations &

Trials

11

10

20

Proactive Advice &

Consulting

10

10

Responsive Assistance
During Decision Process

14

10

18

Lowest Price

32

Installation and Training

Support

10

15

12

10

Responsive Problem
Solving After Sale

29

10

Ongoing Relationship with a

Supplier

11

15

100

100

100

100

16%

13%

61%

10%

One-Stop Solution

Total

% Respondents

Source: Reprinted with permission of Rick Wilson, Chicago Strategy Associates, 2000.

FIGURE 2-1: IDEAL CHANNEL SYSTEM FOR BUSINESS-TO-BUSINESS SEGMENTS

BUYING A NEW HIGH-TECHNOLOGY PRODUCT

Manufacturer
(New High Technology Product)
Associations,
Events,
Awareness
Efforts

Pre-Sales
Dealers

Sales

VARs

Internal Support
- Install, Training &
Service Group

Post-Sales

Segment

TeleSales/
TeleMktg

Full-Service

Responsive
Support

References/
Credentials

Source: Reprinted with permission of Rick Wilson, Chicago Strategy Associates, 2000.

ThirdParty
Supply
Outsource

Lowest
Total
Cost

FIGURE 2-2: ADVERTISING COPY FOR AN AD FOR BN.COM

Advertising Copy

Service Output Offered

Really free shipping: offers free shipping if 2 or more

items are purchased. We make it easy and simple.

Customer service

Fast & easy returns: end-user can return unwanted books

to a bricks-and-mortar Barnes & Noble bookstore. Just try
and return something to a store that isnt there.

Quick delivery (for returns), spatial convenience; note

implicit comparison with amazon.com, the pure-play online
bookseller

Books not bait: promises no additional sales pitches to

buy non-book products.

Assortment/variety: just books (targeting the book lover).

Again, note implicit comparison with amazon.com.

Same day delivery in Manhattan: delivery by 7:00 p.m. on

any item(s) ordered by 11:00 a.m. that day. No other
online bookseller offers that.

Quick delivery: the offer is possible because of Barnes &

Nobles warehouses in New Jersey, near Manhattan. Note
direct comparison with other online booksellers (notably,
amazon.com)

The gift card that gives more: can be used either online
or in the bricks-and-mortar bookstores, nationwide.

Spatial convenience, assortment/variety: when buying a

gift for a friend, this provides virtually limitless assortment,
and does so anywhere the recipient lives in the United
States.

bn.com 1,000,000 titles; amazon.com 375,000 titles

Assortment/variety: direct comparison with amazon.com,

offering a broader assortment of titles to the consumer

Source: advertisement for bn.com in Wall Street Journal, November 20, 2002, p. A11.

TABLE 2-5: THE SERVICE OUTPUT DEMANDS (SOD) TEMPLATE

SERVICE OUTPUT DEMAND:*
SEGMENT NAME/
DESCRIPTOR

BULK BREAKING

SPATIAL
CONVENIENCE

DELIVERY/
WAITING TIME

ASSORTMENT/
VARIETY

CUSTOMER
SERVICE

INFORMATION
PROVISION

1.
2.
3.
4.
5.

INSTRUCTIONS: If quantitative marketing-research data are available to enter numerical ratings in each cell, this should be done. If
not, an intuitive ranking can be imposed by noting for each segment whether demand for the given service output is high, medium, or low.

TABLE 1-1: SERVICE OUTPUT DEMAND DIFFERENCES

(an example of segmentation in the book-buying market)

Browser buying best-sellers to take on vacation

Descriptor

Service Output
Demand Level

Student buying textbooks for fall semester at

college
Descriptor

Service Output
Demand Level

Bulkbreaking

Im looking for some good

read paperbacks to enjoy.

Medium

I only need one copy of my

Marketing textbook!

High

Spatial
convenie
nce

I have lots of errands to run

before leaving town, so Ill be
going past several
bookstores.

Medium

I dont have a car, so I cant

travel far to buy.

High

Waiting
and
delivery
time

Im not worried about getting

the books now I can even
pick up a few when Im out of
town if need be.

Low

I just got to campus, but

classes are starting
tomorrow and Ill need my
books by then.

High

Assortme
nt and
variety

I want the best choice

available, so that I can pick
what looks good.

High

Im just buying whats on

my course reading list.

Low

Customer
service

I like to stop for a coffee when

book browsing.

High

I can find books myself,

and dont need any special
help.

Low

Informatio
n
provision

I value the opinions of a wellread bookstore employee; I

cant always tell a good book
from a bad one before I buy.

High

My professors have already

decided what Ill read this
semester.

Low

TABLE 2.1: SERVICE OUTPUT DEMAND DIFFERENCES

(an example of segmentation in the soft drink market)
SERVICE
OUTPUT

FAMILY
SERVICE OUTPUT
DESCRIPTOR
DEMAND LEVEL

Bulk-breaking

I buy groceries
weekly for my family,
and all of us like soft
drinks

Spatial
convenience

I drive to the
supermarkets in my
area to shop

Quick delivery

We usually have some

extra cans of soft drinks
in the house, so Ill just
come back the next time
if I cant find the drinks
I want on this trip

Assortment
and variety

My husband and I like

Coke and Pepsi, but our
kids arent permitted to
drink caffeinated soft
drinks. They like
caffeine-free fruitflavored soft drinks

LOW

OFFICE EMPLOYEE
SERVICE
DESCRIPTOR

OUTPUT
DEMAND
LEVEL

Im on my coffee
break and I have only
have time for one can
of soft drink

HIGH

LOW

I only have 15 minutes

for my break, so I need to
buy whatever is handy

HIGH

LOW

If I dont get my soft

drink right at 3:00
when my break starts,
Ill never have a
chance to go back later
and get one

HIGH

HIGH

I cant be too
particular about which
soft drink I pick. Its
important to me to get
one, as long as it has
caffeine

MODERATE

Trade-offs
Firm
Service Output Demands Versus Cost, Competition,
and Ease of entry

Consumers
Product Attributes
Price
Service Outputs

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