Chapter Objectives

Channel strategy refers to the broad principles by which the firm expects to
achieve its distribution objectives for its target markets. It focuses on the “place”
variable in the four Ps of marketing. 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 channels,
4) the selection of channel members,
5) management of the channel, and
6) evaluation of channel member performances.
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 using
superior channel design.
Managing the marketing channel calls for the channel manager to answer three
strategic questions: How close a relationship should be developed with channel
members?
How should channel members be motivated? How should the marketing mix be
used to enhance channel member cooperation?
 Learning objectives
1) Understand the meaning of channel strategy.
2) Be able to describe the six basic distribution decisions that firms face.
3) Have an awareness of the potential for channel strategy to play a major role in
the overall corporate objectives.
4) Recognize the relationship of distribution to the other variables in the marketing
mix and the role of channel strategy.
5) Be alerted to the conditions that tend to favor an emphasis on distribution
strategy in developing the marketing mix.
6) Appreciate the role of channel strategy in creating a differential advantage
through channel design.
7) Have a familiarity with the implications of the selection decision for channel
strategy.
8) Know the key strategic decisions faced by the channel manager in the
management of the marketing channel.
9) Understand the portfolio concept as it applies to motivating channel members.
10) Be aware of the main channel strategy issues involved in the evaluation of
channel members.
Marketing channel strategy: The broad
principles by which the firm expects to
achieve its distribution objectives for its
target markets.
This definition focuses on the principles or
guidelines for achieving the firm’s
distribution objectives rather than on its
general marketing objectives. Thus
marketing channel strategy is concerned
with the place aspect of marketing
strategy.
A sound approach to dealing with distribution decisions is to formulate
marketing channel strategy to provide the guiding principles for dealing
with distribution decisions on a proactive rather than a 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. The role of distribution should be
considered by the highest management levels of the organization.

When this three-cycle planning process is undertaken in a large and diversified

firm, all three levels (corporate, business, and program and functional
departments) will become involved in the strategic planning process
A) Determining the Priority Given to
Distribution
The question of how much priority to place on
distribution is one that can be answered only
by the particular firm involved.
While there are no general guidelines and no
body of empirical research to indicate when
distribution should be viewed as a critical
factor in a firm’s long-term strategic
objectives, there is however, a growing belief
among top management experts that
distribution does warrant the attention of top
management, because competition has made
the issue too important to ignore.

What is fair to say, however, is that to

automatically dismiss distribution as a
decision area for top management concern in
formulating corporate objectives and
strategies limits the firm’s ability to compete
effectively in today’s global markets.
Marketing Channel Strategy and the
Marketing Mix
The role of distribution must be considered
in the marketing mix along with price,
promotion, and product.
How much emphasis to be placed on place
has no general answer.
Each firm or marketing manager must make
that determination for his or her self.
What we do know is that a general case of
stressing distribution strategy can be made
1) Distribution Relevance to Target Market
Demand
As firms have become more orientated 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 service.

Why are marketing channels so closely

linked to customer need satisfaction?
Because it is through distribution that the firm
can provide the kinds of levels of service that
make for satisfied customers
2) Competitive Parity in Other Marketing
Mix Variables
It is increasingly more difficult for a
company to differentiate its marketing mix
from that of the competition. Price, product,
and promotional strategies can easily and
quickly be copied.

Distribution (place), the fourth variable of

the marketing mix, can offer a more
favorable basis for developing a competitive
edge because the advantages achieved in
distribution are not as easily copied by
competitors as the other three. Why is
this the case? Distribution advantages, if
manifest in a superior marketing channel
(rather than just the logistical aspects of
distribution), are based on a combination of
superior strategy, organization, and human
capabilities. This is a combination not easily
or quickly imitated by competitors.
3) 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 that can be exploited.
4) Distribution and Synergy for the Channel
By “hooking up” with the right kind of channel
members, the marketing mix can be substantially
strengthened to a degree not easily duplicated with
other variables.

The most obvious example of this is when a

channel member’s reputation or prestige is
stronger than the manufacturer’s. By securing
distribution of its products through such channel
members at the wholesale or retail levels, the
manufacturer immediately upgrades its own
credibility. In effect, the manufacturer’s products
handled by the famous retailers or well-established
wholesalers become “anointed” as superior
products to a degree beyond what the
manufacturer could have accomplished on its own.

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 partnerships, partnering, strategic
alliances or networks – can provide a substantial
strategic advantage
 Channel Strategy and
Designing Marketing Channels

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

1. Differential advantage
2. Channel position
3. Channel Strategy and the Selection of Channel Members
1. Differential advantage: Also called
sustainable competitive advantage,
this 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.
.
1. Differential advantage: con…

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.

Channel design, though just one

component of this attempt to gain a
differential advantage should
nevertheless be viewed as a very
important part.

A differential advantage based on the

design of a superior marketing channel
can yield a formidable and long-term
advantage because it cannot be copied
easily by competitors.
2. Channel position: “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: “What the firm
does with its channel planning and
decision making to attain the channel
position.”
2. Channel position: con..
“The key 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.
By thinking in terms of channel
positioning, the channel manager takes
a longer-term strategic view of channel
design and is more likely to ask the
question: How can I design the channel
so that channel members will view my
firm as having done a better job than the
competitive manufacturers they
represent?
3. Channel Strategy and the Selection of
Channel Members
The approach taken to channel member
selection and the particular types of
intermediaries chosen to become channel
members should reflect the channel
strategies the firm has developed to
achieve its distribution objectives.
Moreover, the selection of channel
members should be consistent with the
firm’s broader marketing objectives and
strategies and may also need to reflect the
objectives and strategies of the
organization as a whole.
.
3. Channel Strategy and the Selection of
Channel Members con…..

This follows because channel members,

thought independent businesses, are from
the customer’s perspective an extension of
the manufacturer’s own organization.
A firm such as Rolex can be selective in
choosing its channel members. On the
other hand, if a manufacturer’s products
are “middle of the road” in quality and
aimed at the mass market, its distribution
strategy should stress broad coverage of
the market.
 Channel Strategy and
Managing the Marketing
Channel
Channel management from the manufacturer’s perspective involves all of the
plans and actions taken by the manufacturer aimed at securing the
cooperation of the channel members in achieving the manufacturer’s
distribution objectives.
The channel manager attempting to plan and implement a program to gain the
cooperation of channel members is faced with three strategic questions:

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

2) How should the channel members be motivated to cooperate in achieving the

manufacturer’s distribution objectives?

3) How should the marketing mix be used to enhance channel member

cooperation?
1) Closeness of Channel Relationships
How close a channel relationship any
given manufacturer should develop with
its channel members is really a question
of strategy.

If a channel member believes that a close

working relationship will help him or her
do a better job of managing the channel
and achieve the distribution objectives,
then closeness should be emphasized.

On the other hand, if the channel

manager believes that closeness is not
necessary for effective management of
the channel, then it is probably a waste of
time and money to do so.
1) Closeness of Channel Relationships
Con…
As a rough strategic guide for dealing with
the closeness question, the channel
manager can relate it to the degree of
distribution intensity needed for the
manufacturer’s products.

Distribution intensity is not, of course, the

only factor to consider in deciding how
close a relationship the manufacturer
should develop with the channel
members. Many other factors, such as
markets being targeted, products,
company policies, middlemen,
environment, and behavioral dimensions
can play a role.
2) Motivation of Channel Members
When motivating channel members, whether
at the wholesale or retail levels, the strategic
challenge is to find the means to secure
strong channel member cooperation in
achieving distribution objectives. Channel
strategy in this context involves whatever
ideas and plans the channel manager can
devise to achieve that result.

From the diverse array of channel tactics

shown, the channel manager must decide
which to use to effectively motivate the
channel members.

The distribution portfolio analysis (DPA) has

been borrowed from finance and applied in
the context of marketing channels. While DPA
provides a comprehensive method for
categorizing channel members, the essence
of DPA is that it can help the channel
manager focus more insightfully on the
channel members by viewing all of the
channel structures and/or channel members
2) Motivation of Channel Members
Con….
The essential idea behind the portfolio
approach to channel member motivation
is that different types and sizes of
channel members participating in various
channel structures may respond
differently to various motivational
strategies.

Although the channel portfolio concept

provides a useful framework for
determining which motivational
approaches might be useful for various
classes of channel members, the channel
manager should not lose sight of the final
customer which, after all, is the real
reason for developing an appropriate mix
of channels and strategies in the first
place!
3) Use of the Marketing Mix in
Channel Management
Optimizing the marketing mix to meet
the demands of the target market
requires not only excellent strategy in
each of the four strategic variables of the
marketing mix, but also an
understanding of the relationships or
interfaces among them.

From the standpoint of distribution and

particularly of managing the marketing
channel, the channel manager should
keep the strategic concept of developing
synergy clearly in mind.
Channel Strategy and the
Evaluation of Channel Member
Performance
At this point in the text, we are
concerned only with the underlying
strategic significance of channel
member performance evaluation,
which in practice is concerned with
one overriding question: Have
provisions been made in the design
and management of the channel to
assure that channel member
performance will be evaluated
effectively?

This question will direct the channel

manager’s attention toward viewing
performance evaluation as an
integral part of the development and
management of the marketing
channel rather than as an
afterthought.