Week 7: Strategy in Marketing Channels

STRATEGY IN MARKETING CHANNELS

This module presents a strategic framework for dealing with the key managerial decisions involved in
marketing channels. Subsequent chapters in this part and later parts of the text are all related to the
underlying strategic framework developed in this chapter. Hence this chapter is very important for getting
the most out of the remainder of the text because it provides strategic backdrop for most of the distribution
channel management decisions discussed in later chapters.

By the end of this module, the students should be able to:

1. Understood that behavioral processes are inherent behavioral dimensions in marketing channels.
2. Understood the major causes and effects of channel conflict;
3. Identified the concept of power as it applies to the marketing channel;
4. Understood the concept and use of roles in marketing channel; and
5. Appreciated the behavioral process in distorting the flow of communications in marketing channels.

CHANNEL STRATEGY DEFINED

Kotler defines marketing strategy as “the broad principles by which the business unit expects to achieve
its marketing objectives in a target market.” Marketing channel strategy can be viewed as a special case of
the more general marketing strategy. Hence, marketing channel can be defined as:

The broad principles by which the firm expects to achieve its distribution objectives for its target market(s).

To achieve distribution objectives, most firms will have to address six basic distribution decisions:

1. What role should distribution play in the firm’s overall objectives and strategies?
2. What role should distribution play in the marketing mix?
3. How should firm’s marketing channels be designed to achieve its distribution objectives?
4. What kinds of channel members should be selected to meet the firm’s distribution objectives?
5. How can the marketing channel be managed to implement the firm’s channel strategy and design
effectively on a continuing basis?
6. How can channel member performance be evaluated?

These six decisions are the “heart and soul” of distribution when viewed from a marketing channel
management perspective. It can be dealt with on an ad hoc or “cross that bridge when you come to it”
basis. But such an approach is shortsighted and can result in a “firefighting” mentality whereby distribution
decisions are kept in the background until a crisis arises.

Once the “fire” is put out, distribution decisions are returned to the background until the next crisis arises.
A sounder approach to dealing with distribution decisions is to formulate marketing channel strategy to
provide the guiding principles for dealing with them. Such a strategic approach forces distribution decisions
into the forefront of marketing strategy development and provides a set of guidelines for dealing with them
on a proactive rather than reactive basis.

Marketing Channel Strategy and the Role of Distribution in Corporate Objectives and Strategy

The most fundamental distribution decision for any firm or organization to consider is the role that
distribution is expected to play in a company’s long-term overall objectives and strategies. More specifically,

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it has to decide whether the achievement of specific distribution objectives is crucial to the long-run success
of the firm. If the answer is yes, then the role of the distribution should be considered at the highest
management levels of the organization, including the President and even chairman of the board in large
corporate organizational structures.

Determining the Priority Given to Distribution

The most famous and widely acclaimed management guru in the last one hundred years. Peter Ducker,
had this to say about the importance of distribution:

Changes in distributive channels may not matter much to GNP and macroeconomics. But they
should be a major concern to every business and industry … everyone knows how fast technology
is changing. Everyone knows about markets becoming global and about shifts in the work force
and in demographics. But few people pay attention to changing distribution channels.

Tom Peters, another famous management guru, makes a similar point about the importance of
distribution in the firm:

Most firms make the mistake of paying too little attention to the somewhat attenuated members of
their marketing team (marketing channel). The (relatively few) companies that mind their
distribution reap tangible rewards.

MARKETING CHANNEL STRATEGY AND THE MARKETING MIX

Whether or not the firm views distribution as worthy of top management concern when developing
overall objectives and strategies, it must still deal with the issue of the role of distribution in the marketing mix.
Developing a marketing mix of product, price, promotion, and distribution (place) strategies that meets the
demands of the firm’s target markets better than the competition is the essence of modern marketing
management. This relationship between target market satisfaction and a firm’s marketing mix can be
represented as follows:

Ts = f (P1, P2, P3, P4)

Where

Ts = degree of target market satisfaction

The job of the marketing manager is to develop the right combination of the four Ps to provide and
maintain the desired level of target market satisfactions. To do so, the marketing manager has to consider
the possible contributions of each variable in meeting the demands of the target market. Hence, the role of
distribution must be considered along with the product, price, and promotion.

This raises the question of how much emphasis should be placed on each strategic variable in the
marketing mix. There is, of course, no general answer to this question. Each firm and each situation will vary
and sometimes by a great deal.

Yet, even if the wide range of variables in the marketing mix be acknowledged that any given firm
might choose for strategic emphasis, a general case for stressing distribution strategy can still be made if any
one of certain conditions prevails:

 Distribution is the most relevant variable for satisfying target market demands.
 Parity exists among competitors in the other three variables of the marketing mix.
 A high degree of vulnerability exists because of competitor’s neglect of distribution.

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 Distribution can enhance the firm by creating synergy from marketing channels.

Distribution Relevance to Target Market Demand

Target market demand is the basis for developing an appropriate marketing mix. Hence, if customers
in the firm’s target market have demands that can be satisfied best through distribution strategy, this should
be stressed in the firm’s marketing mix. In short, distribution becomes relevant because the target market
wants it that way.

As firms have become more oriented to target markets over the past two decades by listening more
closely to their customers, the relevance of distribution has become apparent to an increasing number of
companies because it plays such a key role in providing customer satisfaction. Why marketing channels are
so closely linked to customer satisfaction? Because it is through distribution that the firm can provide the kinds
and levels of service that make for satisfied customer.

Competitive Parity in Other Marketing Mix Variables

It is certainly no longer a secret that competition is increasingly fierce, especially since global
competition has become the norm in so many industries. Consequently, more and more firms are competing
with marketing mixes that are measured not only against those of strong domestic competitors but also
against foreign ones.

In such an intense competitive arena, it becomes increasingly difficult for a company to differentiate
its marketing mix from that of the competitor. In the product area, the ability to maintain a lead in product
innovation or quality is more difficult because of the rapidity of technology transfer across companies and
national borders.

Distribution Neglect and Competitive Vulnerability

Neglect of distribution strategy by competitors provides an excellent opportunity for those companies
who are willing to make the effort to develop distribution as a key strategic variable in the marketing mix. But
to pursue this approach, the channel manager has to make a conscious effort to analyze target markets to
determine if distribution has been neglected by competitors and whether vulnerabilities exist can be
exploited.

Distribution and Synergy for the Channel

Synergy through distribution goes well beyond the enhancement of the manufacturer’s image. Strong
and close working relationships between the manufacturer and channel members—which in recent years
have been referred to increasingly as distribution partnership, partnering, strategic alliances, or networks—
can provide a substantial strategic advantage.

In the B2B market, synergistic channel partnerships and alliances have also become popular. Motorola,
for instance, as part of its TQM program, has developed close, mutually beneficial relationships with suppliers
through a program the company calls Suppliers Perceptions Measurement, which helps suppliers to meet
Motorola’s stringent quality and performance standards. The program has reduced the number of suppliers
that Motorola deals with, but the relationships are closer and more mutually profitable.

CHANNEL STRATEGY AND DESIGNING MARKETING CHANNELS

Channel strategy should guide channel design so as to help the firm attain a differential advantage.

Differential Advantage and Channel Design

Differential advantage also called sustainable competitive advantage, in more recent years, refers to a
firm’s attainment of an advantageous position in the market relative to competitors—a place that enables it
to use its particular strengths to satisfy customer demands better than its competitors on a long-term
(sustainable) basis. The entire range of resources available to the firm and all of its major functional activities
can contribute to the attempt to create a differential advantage. The level of capital, the quality of
management and employees, and its overall production, financial, and marketing strategies all play a part.

Channel design, though just one component of this attempt to gain a differential advantage, can be
a very important part. Given that distribution is one of the major controllable variables of the marketing mix,

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it is no less important for the firm to seek a differential advantage in its channel design than in its product,
pricing, and promotional strategies. Indeed, a differential advantage based on the design of a superior
marketing channel can yield a formidable and long-term advantage because competitors can’t copy it.

Positioning the Channel to Gain Differential Advantage

In the channel manager’s attempt to foster differential advantage though channel design, the
concept of channel position can serve as a helpful guide. Narus and Anderson define a channel position as:

… the reputation a manufacturer acquires among distributors (channel members) for furnishing products,
services, financial returns, programs, and systems that are in some way superior to those offered by competing
manufacturers.

Channel positioning is what the firm does with its channel planning and decision making to attain the
channel position. The key ingredient, according to Narus and Anderson, is to view the relationship with
channel members as a partnership or strategic alliance that offers recognizable benefits to the manufacturer
and channel members on a long-term basis.

A well-positioned channel also means that the channel manager will have the confidence
and support of the channel members in his or her attempt to gain a differential advantage. In short,
a channel that is well-positioned with channel members should increase the manufacturer’s chances
of being well-positioned with the final customers.

The result could be the very differential advantage the manufacturer was seeking. Thus, a
good job of gaining the respect of channel members should result in the kind of channel position that
improves the odds of attaining a real differential advantage with final customers because the
channel members are positioned to be “cheerleaders” for the manufacturer who has attained the
strong channel position.

In this module, you learned:

 Marketing Channel refers to the broad principles by which the firm expects to achieve its distribution
objectives for its target market(s).

 As such, it focuses on the place variable of the four Ps of the marketing mix. Even though the focus
of channel strategy is relatively narrow, it can have a major impact on, and be of great importance
to, the firm’s general marketing strategy as well as overall objectives and strategies.

 Channel strategy is relevant to all six of the basic distribution decisions faced by firms: (1) the role of
distribution in the firm’s overall objectives and strategies, (2) the role of distribution in the marketing
mix, (3) the design of marketing channel, (4) selection of channel members, (5) management of
the channel, (6) evaluation of channel member performance.

 If the role of distribution is considered vital to the firm’s long-run success, then distribution strategy
should be considered at the highest management levels in the organization and included in the
strategic planning process.

 In terms of the design of marketing channels, channel strategy should guide the design process in
an attempt to gain a differential advantage for the firm through superior channel design.

 The channel manager should use the concept of channel positioning to position the channel so as
to elicit the efforts of channel member as “cheerleaders” to attain a differential advantage for the
manufacturer with final customers communication difficulties. It may have both negative and
positive effects on channel efficiency, and in some cases no effect.

 The management of channel conflict involves three tasks: (1) detecting channel conflict, (2)

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appraising the effects of the conflict, (3) resolving conflict if it is having negative effects on channel
efficiency.

Class Delight #6.

Go over the Google Classroom under class work section for your activity.

 Rosenbloom, B. Distribution Management. Philippine Edition

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