MARKETING CHANNEL MANAGEMENT
MODULE 1: SETTING THE SCENE
A marketing channel is a set of organisations that work together to make goods available for end
users.
Goods (FMCG, Consumer Packaged Goods, consumer durables, industrial products, services)
End users (consumers, business consumers)
The simplest distribution channel
MODULE 2: CHANNEL DESIGN
2.1 WHY GO (IN)DIRECT?
Apple Example (70% Indirect: Mediamarkt Store, Coolblue. 30% Direct: Apple Store, Apple Website)
Why go direct?
Even at a lower consumer price, higher (gross) profit margin is possible.
So why do not all manufacturers go direct?
,Why go indirect? Middleman may add value:
Bulk breaking: allow buying in small lots
Assortment convenience: offer a wide variety of goods
Time convenience: reduce waiting time
Impact on sales
Distribution costs will not be the same without middle men:
1) Without middle men every manufacturer would have to
interact with every potential consumer
= middle men reduce the number of contact lines
2) Less contact lines means less costly for manfacturer
2.2 3P MARKETPLACES (THIRD PARTY)
(Indirect online middle men)
They bring together manufacturers & consumers (facilitate transactions between them)
The blended model Amazon: online retailer / Amazon: 3P Marketplace
Similarities & Differences
,Profit Generation:
Why do manufacturers sell on marketplaces?
1. Quick Launch
- low set-up costs
- no digital worries
2. Huge consumer traffic
- long-tail products: demand is rather low (niche products)
- cross-border selling: able to reach a bigger audience
But the pitfalls…:
Amazon ‘learns’ from its marketplace & includes best-selling models in its own (retailer) assortment.
it becomes a competitor.
Pitfalls for retailers (who only facilitate transaction) when expanding marketplaces
No control over prices
No control over fulfillment ‒ May lead to inconsistent delivery times, fees, & return policies
No control over product presentation ‒ May lead to inconsistent & misleading information
about product characteristics & availability
damaged retailer equity: consumer satisfaction with the retailer may decrease & equity will get
damaged. (See sheets for examples)
, 2.3 MULTICHANNEL: THE MANUFACTURER’S PERSPECTIVE:
Multiple channels compete with each other
Avoid under-distribution
Less convenient for consumers to find your products
– lower (volume) sales
Retailers may exploit their monopoly position
– set higher prices
– lower selling support (= lower sales?)
So: more channels = more (volume) sales = better?
More channels: effect on price and selling support
Bose’s price (€399) is the advised price, but retailers own the products so they can set the price they
like/want. Competing for sales: more channels means more price competition.
Avoid over-distribution
More convenient for consumers to find your product
– higher (volume) sales
Fierce intra-brand price competition
– resellers set lower prices
– resellers lower selling support
Manufacturer objectives (want to want best of both worlds)
Maximize market coverage
Minimize channel conflict (minimize price competition, maximize selling support)
MODULE 1: SETTING THE SCENE
A marketing channel is a set of organisations that work together to make goods available for end
users.
Goods (FMCG, Consumer Packaged Goods, consumer durables, industrial products, services)
End users (consumers, business consumers)
The simplest distribution channel
MODULE 2: CHANNEL DESIGN
2.1 WHY GO (IN)DIRECT?
Apple Example (70% Indirect: Mediamarkt Store, Coolblue. 30% Direct: Apple Store, Apple Website)
Why go direct?
Even at a lower consumer price, higher (gross) profit margin is possible.
So why do not all manufacturers go direct?
,Why go indirect? Middleman may add value:
Bulk breaking: allow buying in small lots
Assortment convenience: offer a wide variety of goods
Time convenience: reduce waiting time
Impact on sales
Distribution costs will not be the same without middle men:
1) Without middle men every manufacturer would have to
interact with every potential consumer
= middle men reduce the number of contact lines
2) Less contact lines means less costly for manfacturer
2.2 3P MARKETPLACES (THIRD PARTY)
(Indirect online middle men)
They bring together manufacturers & consumers (facilitate transactions between them)
The blended model Amazon: online retailer / Amazon: 3P Marketplace
Similarities & Differences
,Profit Generation:
Why do manufacturers sell on marketplaces?
1. Quick Launch
- low set-up costs
- no digital worries
2. Huge consumer traffic
- long-tail products: demand is rather low (niche products)
- cross-border selling: able to reach a bigger audience
But the pitfalls…:
Amazon ‘learns’ from its marketplace & includes best-selling models in its own (retailer) assortment.
it becomes a competitor.
Pitfalls for retailers (who only facilitate transaction) when expanding marketplaces
No control over prices
No control over fulfillment ‒ May lead to inconsistent delivery times, fees, & return policies
No control over product presentation ‒ May lead to inconsistent & misleading information
about product characteristics & availability
damaged retailer equity: consumer satisfaction with the retailer may decrease & equity will get
damaged. (See sheets for examples)
, 2.3 MULTICHANNEL: THE MANUFACTURER’S PERSPECTIVE:
Multiple channels compete with each other
Avoid under-distribution
Less convenient for consumers to find your products
– lower (volume) sales
Retailers may exploit their monopoly position
– set higher prices
– lower selling support (= lower sales?)
So: more channels = more (volume) sales = better?
More channels: effect on price and selling support
Bose’s price (€399) is the advised price, but retailers own the products so they can set the price they
like/want. Competing for sales: more channels means more price competition.
Avoid over-distribution
More convenient for consumers to find your product
– higher (volume) sales
Fierce intra-brand price competition
– resellers set lower prices
– resellers lower selling support
Manufacturer objectives (want to want best of both worlds)
Maximize market coverage
Minimize channel conflict (minimize price competition, maximize selling support)
