Marketing Channel Management – Knowledge Clips
Knowledge clip 2.1: Why go (in)direct?
Knowledge clip 2.2: 3P Marketplaces
Knowledge clip 2.3: Multichannel
Knowledge clip 2.4: Grey markets
Knowledge clip 2.5: Omnichannel – The retailer’s perspective
Knowledge clip 4.1: Partnerships – Definition
Knowledge clip 4.2: Partnerships – Power
Knowledge clip 4.3: Partnerships between unequals
Knowledge clip 6.1: Assortment size
Knowledge clip 6.2: Assortments: Which SKUs to (de)list
Knowledge clip 6.3: Online assortments
Knowledge clip 6.4: Category captainship
Knowledge clip 6.5: Consumer promotions
Knowledge clip 6.6: Trade promotions
Knowledge clip 6.7: EDLP (= everyday low pricing)
Knowledge clip 8.1: Private labels – State of affairs
Knowledge clip 8.2: How retailers can boost private label success
Knowledge clip 8.3: How brand manufacturers can fight PL success
Knowledge clip 10.1: Hard discounters as value disruptors
Knowledge clip 10.2: Brand manufacturers’ reactions to hard discounters
Knowledge clip 10.3: Conventional retailers’ reactions to hard discounters
1
,Knowledge clip 2.1: Why go (in)direct?
You can reach consumers through two types of channels.
Indirect channels:
• Independent/third parties
o Buy & own products
o Hold inventory
o Set consumer price
• Physical or digital
• Manufacturer sells a product to one or more middlemen
(intermediaries/resellers/retailers) who will then move your products to the consumer
• Middlemen can be brick and mortar retailers, physical retailers, shops in the street or
they can be online retailers
• Middlemen are independent firms; they are not owned by the manufacturer
• When middlemen buy a certain number of products from the manufacturer, they own
these products, hold these products in inventory and they set the consumer price for
these products!
• So the retailer sets the consumer price (because they own the product now)
Direct channels:
• Company-owned
o Manufacturer holds inventory
o Manufacturer sets consumer price
• B&M (brick and mortar), physical or web store
• Je gebruikt geen andere partijen, het bedrijf verkoopt het zelf aan klant
• Manufacturer sells its products directly to consumers, is the owner of the products,
holds the inventory and sets the consumer price
• No middlemen
Example: Apple
• Indirect channel: brick and mortar such as Mediamarkt and online retailers such as
CoolBlue
o 70% of the sales
• Direct channel: Apple stores and website
o 30% of the sales
Advantages direct channels:
• Higher (gross) profit margin for manufacturer
• De middlemen hoeft geen wholesale price te betalen voor het product aan de
manufacturer om die prijs vervolgens weer op te hogen
• However, the manufacturer hoeft niet dezelfde prijs te bepalen als de retailer. Ze
kunnen zelf de prijs bepalen dus kunnen ze het lager doen dan de retailer en hebben
ze nog steeds winst en ze verkopen wss ook nog meer
o Even at a lower consumer price, higher (gross) profit margin possible
o So here the manufacturer still earns a higher profit margin compared to using
middlemen
Why do manufacturers then use middlemen at all if they make more profit without them? à
higher (gross) profit margins do not always translate into higher total net profits. A
manufacturer may sell more by going indirect if the middlemen he uses add value for
consumers.
2
,Disadvantages direct channels:
• The sales depend on the value added by the middlemen
• Apple example where the middlemen add a lot of value
• Distribution costs are higher when you don’t use middlemen
• Manufacturers produce a limited variety of goods
Advantages indirect channels:
• Bulk breaking: allow buying in small lots
o Bij manufacturers kan je producten vaak niet per stuk kopen, maar in grote
hoeveelheden. Bij retailers kan je gewoon per stuk kopen
• Assortment convenience: offer a wide variety of goods
• Time convenience: reduce waiting time between ordering and receiving the goods
o Middlemen do so by holding inventory so that consumers can buy the product
at any point in time
• Distribution costs lower
o The number of contact lines to reach the market can be reduced which makes
it less costly for the manufacturer to reach the market
• The transaction between a retailer and the consumer is a routine for both parties
which makes it less expensive
à Impact on sales!
Don’t just look at the benefits from the higher (gross) margins, but also look at the cost side
of the picture!
Today’s channel business model:
• Are becoming increasingly complex
• Combine direct with indirect
• Companies are using all types of channels in combination
• Increase in digital, but also in B&M
• For manufacturers it is a matter of finding the right mix and making that mix work
Knowledge clip 2.2: 3P Marketplaces
3P marketplace = third party = indirect online channel
• Do not buy/own products
• Do not hold inventory
• Do not set the price
• They bring together manufacturers and consumers and facilitate their transactions
Some companies operate at the same time as an online reseller and as a marketplace, such
as Amazon (Amazon started as a pure retailer, they bought and resold products in its own
name for a long time). From 2000, Amazon allowed third parties to sell products directly to
Amazon users using the Amazon platform à it became also a marketplace, where you buy
the products directly from other companies such as Levi’s.
Similarities and differences:
• Both a 3P marketplace and a direct channel sell directly to consumers. The difference
between them is that, in a direct channel, the manufacturer has to do everything from
scratch itself. In a marketplace, the marketplace helps the manufacturer with logistics
and payment
3
, Profit generation (who earns what?):
• Online retailer:
o Gross profit:
§ Gross margin * units sold
o Costs:
§ Inventory costs (= extremely expensive)
§ Fulfilment costs (= costs to deliver product to consumer)
• Marketplace: (Walmart)
o Gross profit:
§ Commission * units sold
• Commission = a % that varies between 5-20% on every
transaction that takes place through its marketplace
§ Step-in-fee (minimal)
o Costs: (much lower)
§ Administrative costs
How much is left for a manufacturer that sells through a marketplace
• The manufacturer has to pay the commission to the marketplace
Why do manufacturers sell on marketplaces?
• Huge consumer traffic:
o Veel mensen die vaak op Amazon zitten en daar hun zoektocht beginnen
o Long-tail products (= products with low demand / niche)
o Cross-border selling (reach international audience)
• Quick launch:
o Je kan heel snel op de site komen met grote audience
o Low set-up costs
o No digital worries
4
Knowledge clip 2.1: Why go (in)direct?
Knowledge clip 2.2: 3P Marketplaces
Knowledge clip 2.3: Multichannel
Knowledge clip 2.4: Grey markets
Knowledge clip 2.5: Omnichannel – The retailer’s perspective
Knowledge clip 4.1: Partnerships – Definition
Knowledge clip 4.2: Partnerships – Power
Knowledge clip 4.3: Partnerships between unequals
Knowledge clip 6.1: Assortment size
Knowledge clip 6.2: Assortments: Which SKUs to (de)list
Knowledge clip 6.3: Online assortments
Knowledge clip 6.4: Category captainship
Knowledge clip 6.5: Consumer promotions
Knowledge clip 6.6: Trade promotions
Knowledge clip 6.7: EDLP (= everyday low pricing)
Knowledge clip 8.1: Private labels – State of affairs
Knowledge clip 8.2: How retailers can boost private label success
Knowledge clip 8.3: How brand manufacturers can fight PL success
Knowledge clip 10.1: Hard discounters as value disruptors
Knowledge clip 10.2: Brand manufacturers’ reactions to hard discounters
Knowledge clip 10.3: Conventional retailers’ reactions to hard discounters
1
,Knowledge clip 2.1: Why go (in)direct?
You can reach consumers through two types of channels.
Indirect channels:
• Independent/third parties
o Buy & own products
o Hold inventory
o Set consumer price
• Physical or digital
• Manufacturer sells a product to one or more middlemen
(intermediaries/resellers/retailers) who will then move your products to the consumer
• Middlemen can be brick and mortar retailers, physical retailers, shops in the street or
they can be online retailers
• Middlemen are independent firms; they are not owned by the manufacturer
• When middlemen buy a certain number of products from the manufacturer, they own
these products, hold these products in inventory and they set the consumer price for
these products!
• So the retailer sets the consumer price (because they own the product now)
Direct channels:
• Company-owned
o Manufacturer holds inventory
o Manufacturer sets consumer price
• B&M (brick and mortar), physical or web store
• Je gebruikt geen andere partijen, het bedrijf verkoopt het zelf aan klant
• Manufacturer sells its products directly to consumers, is the owner of the products,
holds the inventory and sets the consumer price
• No middlemen
Example: Apple
• Indirect channel: brick and mortar such as Mediamarkt and online retailers such as
CoolBlue
o 70% of the sales
• Direct channel: Apple stores and website
o 30% of the sales
Advantages direct channels:
• Higher (gross) profit margin for manufacturer
• De middlemen hoeft geen wholesale price te betalen voor het product aan de
manufacturer om die prijs vervolgens weer op te hogen
• However, the manufacturer hoeft niet dezelfde prijs te bepalen als de retailer. Ze
kunnen zelf de prijs bepalen dus kunnen ze het lager doen dan de retailer en hebben
ze nog steeds winst en ze verkopen wss ook nog meer
o Even at a lower consumer price, higher (gross) profit margin possible
o So here the manufacturer still earns a higher profit margin compared to using
middlemen
Why do manufacturers then use middlemen at all if they make more profit without them? à
higher (gross) profit margins do not always translate into higher total net profits. A
manufacturer may sell more by going indirect if the middlemen he uses add value for
consumers.
2
,Disadvantages direct channels:
• The sales depend on the value added by the middlemen
• Apple example where the middlemen add a lot of value
• Distribution costs are higher when you don’t use middlemen
• Manufacturers produce a limited variety of goods
Advantages indirect channels:
• Bulk breaking: allow buying in small lots
o Bij manufacturers kan je producten vaak niet per stuk kopen, maar in grote
hoeveelheden. Bij retailers kan je gewoon per stuk kopen
• Assortment convenience: offer a wide variety of goods
• Time convenience: reduce waiting time between ordering and receiving the goods
o Middlemen do so by holding inventory so that consumers can buy the product
at any point in time
• Distribution costs lower
o The number of contact lines to reach the market can be reduced which makes
it less costly for the manufacturer to reach the market
• The transaction between a retailer and the consumer is a routine for both parties
which makes it less expensive
à Impact on sales!
Don’t just look at the benefits from the higher (gross) margins, but also look at the cost side
of the picture!
Today’s channel business model:
• Are becoming increasingly complex
• Combine direct with indirect
• Companies are using all types of channels in combination
• Increase in digital, but also in B&M
• For manufacturers it is a matter of finding the right mix and making that mix work
Knowledge clip 2.2: 3P Marketplaces
3P marketplace = third party = indirect online channel
• Do not buy/own products
• Do not hold inventory
• Do not set the price
• They bring together manufacturers and consumers and facilitate their transactions
Some companies operate at the same time as an online reseller and as a marketplace, such
as Amazon (Amazon started as a pure retailer, they bought and resold products in its own
name for a long time). From 2000, Amazon allowed third parties to sell products directly to
Amazon users using the Amazon platform à it became also a marketplace, where you buy
the products directly from other companies such as Levi’s.
Similarities and differences:
• Both a 3P marketplace and a direct channel sell directly to consumers. The difference
between them is that, in a direct channel, the manufacturer has to do everything from
scratch itself. In a marketplace, the marketplace helps the manufacturer with logistics
and payment
3
, Profit generation (who earns what?):
• Online retailer:
o Gross profit:
§ Gross margin * units sold
o Costs:
§ Inventory costs (= extremely expensive)
§ Fulfilment costs (= costs to deliver product to consumer)
• Marketplace: (Walmart)
o Gross profit:
§ Commission * units sold
• Commission = a % that varies between 5-20% on every
transaction that takes place through its marketplace
§ Step-in-fee (minimal)
o Costs: (much lower)
§ Administrative costs
How much is left for a manufacturer that sells through a marketplace
• The manufacturer has to pay the commission to the marketplace
Why do manufacturers sell on marketplaces?
• Huge consumer traffic:
o Veel mensen die vaak op Amazon zitten en daar hun zoektocht beginnen
o Long-tail products (= products with low demand / niche)
o Cross-border selling (reach international audience)
• Quick launch:
o Je kan heel snel op de site komen met grote audience
o Low set-up costs
o No digital worries
4
