Relationship between channel management and the marketing mix
The marketing mix is a combination of all the marketing functions managed through the marketing channel. The five main elements of the marketing mix are products, prices, people, programs, and physical distribution. The marketing channel is the entire continuum of activities used to move the ownership of goods along the production stages to the final consumer. In some cases, the marketing channel is also called the distribution channel because many of the activities covered are the ones that occur within the distribution functions of marketing.
The marketing channel considers two different activities that take place in marketing. One of the activities involves the setting up of a physical distribution system, while the other activities involve the management of a set of objectives that deal with the elements of the marketing mix. Therefore, in essence, the marketing mix is part of the marketing channel. On the other hand, marketing channel management involves the marketing mix because it entails market planning and channel actions that take place in the four elements of the marketing mix; namely, price, product, people, and promotion.
Channel managers fulfill the obligations of the product source. They provide marketing programs and manage the pricing of the product. They also motivate members of the organization to perform their tasks effectively. A marketer accomplishes the marketing mix activities within the marketing channel through communicating to, selling through, and providing for the availability of the services needed by all other channel members.
Also, the channel management handles physical distribution actions that involve intermediaries in the distribution process of the goods. Under physical distribution, shipping, storing, and handling activities occur, and they rely on inventory control, order processing, record keeping, and other services performed at the same level. Thus, channel managers handle shipping, storing, handling, and order processing of products at various levels in the channel.
The marketing mix is specific to a particular market situation, and a business will use the strategy to meet its marketing objectives. Therefore, variations in the marketing mix are calculated efforts by channel managers to gain an advantage over their competition. Another motivation of the strategy is to find the best way to serve the interests of the target market segments. The marketing mix offers the manager a range of choices to manipulate as a way of fine-tuning the overall structure of a marketing channel for an organization (Lamb and Hair 46).
Marketing channels can be short, such that they link producers and consumers directly. The channels can also belong, involving intermediaries; all in the distribution channel. Thus, marketing channel management will involve decision making within the four forms of distribution channels or about the four channels. These forms include direct selling, selling through intermediaries, dual distribution, and reverse models. This discussion has shown that the various concepts of marketing channels are related. Moreover, many marketing channel managers will deal with the same range of activities and issues of marketing, but use different names such as trade channel, distribution system, channels of distribution, and place.
Examines the methods and processes used in the distribution of consumer and industrial products and services
Firms begin by finding the location and sales potential or business prospects of existing and prospective customers in their respective market segments. They proceed to learn about their customers by collecting market and competitor information, which is used for sales analysis and determining the appropriate distribution opportunities for goods and services. Industrial products and services present a few buyer options and the selling organization would be interested in the identification of customers to deal with them in an intimate way. On the other hand, the consumer products and services do not offer homogenous buyer characteristics, have many buyers, and often do not need close relationships other than what is already covered in other marketing strategies.
The nature of the company will also affect the process and methods selected for distribution of goods and services. Some companies will show little interest, while others will see the same process as a core business function for their profitability. Overall, the main processes in the distribution involve the movement of goods to the consumer and are handled by a manager or a management team. The selected channels are the ones that offer time, place, and ownership utility of the process. The avenues allow goods to be presented where and when they are needed at the sizes suitable for consumers as expressed by demand information. There are logistics and physical distribution functions that help to sustain the efficient flow of goods to the customer. The efficiencies arise by the reduction in the number of transactions that would be necessary for goods to pass through the distribution channel.
Emphasizes the ways in which certain basic distribution functions are carried out in the integrated channel system
Integrated channel systems have several businesses operating as one entity for the distribution of a particular good or service. On the other hand, they retain their independence in other organizational functions. Integration can be vertical or horizontal. In an integrated channel system, the manufacturer does the market analysis and makes decisions regarding the retailers to use based on their sales, market share, their contribution to overhead, rate of return on investments, and the existing consumer attitudes and preferences.
Resellers are allocated functions for distribution based on the manufacturer’s coverage ratio, the amount and location of their stores or displays, and their market development activities. Retailers offer goods to consumers and carry out the distribution policies of the manufacturer. The policies include price concessions and protective provisions. The distribution of functions depends on those offering price concessions to channel members, those offering financial assistance, and those offering protection for the members of the channel.
Examine the role of a variety of producers, wholesalers, and retailers as parts of this system
Wholesalers and retailers can assist manufacturers to repair and maintain the services they handle. This helps to reduce the burden on the manufacturer and inconveniences for consumers. As channel members, the retailers and wholesalers perform a risk-taking function, such that they minimize their exposure to the potential of holding dead stock and losing money in the process. Producers, wholesalers, and retailers participate in cooperative marketing activities, especially in the handling of particular elements of the marketing mix. They serve as a destination for promotional activities or may set up their promotional activities to complement what the producer is already doing (Rosenbloom 278-279).
Examines the scope of flows in marketing channels and its relation to the overall
Marketing channel flows include product, negotiation, ownership, information, and promotion. Product flow covers physical distribution across all parties making up the channel, while negotiation flow covers the organizations that deal with the exchange process, such as manufacturers and repackaging companies. Ownership flow examines the movement of the goods and services through the channel in regard to the title of ownership. Meanwhile, information flow covers all entities in the channel, exchanging data to facilitate the movement of goods and services. The promotion flow uses all the organizations that are involved in the promotional activities, including the manufacturers and the advertising agency, in addition to the consumers.
Operating the channel does not imply total control of the channel. Can you think of an example related to any Brand/ Company where the channel management does not have total control of the channel but is still able to operate it?
When designing a marketing channel, the channel manager seeks to have a channel that offers the organization the highest possible degree of control, which applies to both small and large global organizations. There are cases where channel members submit to a dominant member serving as the channel captain and being in charge of most of the distribution channel functions. The power to control a channel by a channel member arises when the firm in question gains power to reward or punish other channel members. The firm may give the member an exclusive territory for sales. It can also take away the privilege of the dealers. In such cases, the other channel members are forced to oblige by the channel captain’s strategy and decisions (Kurtz 463).
An example of the arrangement where the operating organization does not have total control of the channel is the grocery industry. There are examples of channel captains that gained their power because of the additional value aspects, but they were not producers; therefore, they did not have absolute control. Large retailers with stores in different locations and sales volumes that are considered to enable them to have concessions with manufacturers often end up controlling the rest of the marketing channel. Such retailers determine the discounts and other promotional strategies. They also work with other channel partners, such as resellers to provide them with distribution centers in their stores. The retailers are seen to manage both vertical and horizontal channel members by providing them with distribution quotas and assigning them the required volumes for sale in relation to the available shelf space, promotional budget, and other marketing mix conditions.
Thus, the retailer in the case of the grocery business earns a profit in exchange for offering services that the manufacturer would handle with respective channel members. On the other hand, the manufacturer is willing to relinquish power for controlling the marketing channel but retains majority ownership of the product and services. The main task is usually to have the efficiency of intermediaries, such that it makes no market sense to hand over operations. As such, the channel captain ends up gaining sufficient resources for marketing management to offer better services at a lower cost than the manufacturers. An example of such retailers is the online e-commerce giant, Amazon, which has managed to act as a channel captain for many goods because of its efficient systems for customer management and inventory management, as well as its wide coverage of the global market.
Amazon can achieve channel cooperation by offering leadership and providing essential services for other channel partners, such as promotion through its affiliate network and internal advertising framework (Dessler and Phillips 192). Amazon can advise manufacturers on packing that would be relevant to its customer base and have them alter the designs of some products to meet requirements for its distribution network. Therefore, Amazon can operate the channel, yet it does not produce the goods (Rosenbloom 291).
Evaluate the criteria wherein the need for intermediaries in marketing channels has gained new currency in recent years with the rise of the Internet and E-commerce
The removal of the intermediaries is a popular concept for business people seeking to increase their share of profits. The Internet offers technological breakthroughs, where it is possible to connect everyone. When this applies to the marketing channel, then the producers and customers can connect directly. However, connection in itself does not offer a compelling reason to get rid of intermediaries, which explain why there are still many intermediaries for businesses in those regions, even with the proliferation of the Internet in different parts of the world. The technology is only a platform that can be used in various ways, but it does not necessarily obviate the need for intermediaries; that is why the intermediaries continue to exist. Nevertheless, the rise of the Internet and e-commerce has created new avenues for exploring marketing channels.
There could be many firms involved in a distribution situation. Thus, specialization is hard to achieve, unless complex tasks are broken into small ones that can be allocated to different parties that specialize in accomplishing the tasks. Channel managers allocate distribution tasks, according to the specialization of the channel members. The decision to use intermediaries depends on contractual efficiency. Here, the concept relates to the efficacy of the level of negotiation efforts that occur when sellers and buyers interact as part of the process of achieving a distribution objective.
The negotiation effort is the input while the distribution objective is the output. A firm seeking to get 500 stores to carry its line of product may need to negotiate with 500 independent retailers, which may involve having a sales force that contacts more than 500 stores. The costs are high as there are demands for personal visits, demonstrations, and product samples. The firm may also have to handle advertising to support the sales force. On the other hand, the company can consider using wholesale intermediaries. The move cuts the number of partners needed and the negotiations that the manufacturer has to make.
The Internet-based businesses still require traditional channel operations, such as logistics, settlement, and legal or regulatory infrastructure. Also, market transactions may require the establishment of a specific level of trust to protect sellers and buyers from opportunists seeking to exploit them. Thus, the rise of e-commerce has shifted the role of intermediaries to reduce the cost of searching for products or partners, to handle shipping, distribution, and warehousing, and to facilitate and monitor transaction settlement. The systems also alert sellers about market conditions. E-commerce has increased the personalization and customization of products to consumers and demand aggregation. Intermediaries are arising to negotiate volume purchases to offer individual buyer price discounts. The dynamics are different from traditional channels because consumers drive the demand, while intermediaries appoint themselves to pool customer preferences and search for suppliers with volume discounts (Lancaster and Withey 168).
Conduct an environmental scan for a particular retailer. Describe how each environmental variable (demographic changes, economy, etc.) affects the marketing operations at the retail level.
Walmart is a large US-based retailer with over 11,100 stores in more than 27 countries. It set up its supercenter format of stores in 1988. By 1990, Walmart had begun eyeing the international market. The company managed to segment wholesale buyers and retail buyers through its regular stores and its Sam’s Club stores (Basker 184). The company also segments its market, according to the product categories that it stocks, with the largest percentage being groceries and consumables. Increases in economic hardships for customers, leading to decreasing disposable incomes, have led Walmart to consider collaborating with credit card companies like MasterCard to offer discounts to customers. This is also an adaptation to the increase in the use of credit to fund household expenditures.
The company has also been responsive to population sizes in different areas, which affect its choice of the store. Some areas have supercenters while others have small-format stores like neighborhood markets. Small stores in areas with high population densities provide fast-moving consumer goods. Meanwhile, as a channel captain for many products, Walmart has been working on its distribution to ensure that it increases the speed from supply to delivery of products to customers. With a combination of supercenters and small stores, the company can handle large market areas for volume sales. It then competes with low-margin retailers for regular, small purchases (Jennings 536).
The company’s entry into new markets has depended on the maturity of the retail industry and existing business and consumer cultures. The retailer focuses on offering the lowest prices to appeal to mass markets, where consumers are most concerned with prices. The increase in home shopping in developed markets has also meant that the company enters into the e-commerce business. Expansion into other countries has also caused the company to co-brand or take new brand names to meet the demands of new customer segments. However, for developed markets, high levels of competition have caused prices to remain low. A strategy that Walmart is using is the use of its distribution power to force wholesalers and manufacturers to sell products with higher concessions for it to pass on the price benefits to consumers (Basker 182-185).
The company has also used its supercenters and its existing logistics network to serve as a conduit for defeating competition in the e-commerce business and offering customers trust in its brand name. Overall, Walmart has been aggressive in its adaptation to environmental changes in retail markets globally. The decreased popularity of small stores led it to develop supercenters. However, Walmart also recognized the existing potential in small stores competition and set up its version to take hold of the market. Cultural and business practice differences in other countries forced Walmart to rely on partnerships for expansion. In its e-commerce strategy, the company has focused on its existing resources to extend its services to match the changing demographic profiles of its customers. Many of the customers will transition to shopping from home.
Basker, Emek. “The Causes and Consequences of Walmart’s Growth.” Journal of Economic Perspectives 21.3 (2007): 177-198. Web.
Dessler, Gary, and Jean Phillips. Managing Now. New York: Houghton Mifflin Company, 2008. Print.
Jennings, Marianne. Business: Its Legal, Ethical, and Global Environment. Stamford: Cengage Learning, 2014. Print.
Kurtz, David L. Contemporary Marketing. 16th. Mason: South-Western Cengage Learning, 2014. Print.
Lamb, Charles W, and Joseph F Hair. Essentials of Marketing. London: Cengage Learning, 2009. Web.
Lancaster, Geoff, and Frank Withey. Marketing Fundamentals 2007-2008. Oxford: Butterworth-Heinemann, 2007. Print.
Rosenbloom, Bert. Marketing Channels: A Management View. Cincinnati: South-Western Cengage Learning, 2013. Print.