Part 2: Channel Design Chapter 4: SupplySide Channel AnalysisChannel Structure and Intensity

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Part 2 Channel DesignChapter 4 Supply-Side
Channel AnalysisChannel Structure and Intensity

• MKTG 406 Pimentel

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Channel Analysis Framework

• CHANNEL DESIGN
• Segmentation
• Channel Structure
• Splitting the Workload
• Degree of Commitment
• Gap Analysis

• CHANNEL IMPLEMENTATION
• Channel Power Channel Conflict
• Manage/Defuse Conflict
• Channel Coordination

INSIGHTS FOR SPECIFIC CHANNEL INSTITUTIONS
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Channel Structure

• Types of channel members
• Intensity
• Number of each type of channel member
• Number of distinct channels

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Intensity of Distribution

• Manufacturers like intensive distribution
• The more outlets, the more it will sell
• True for convenience goods
• FMCG
• Like intrabrand competition
• Avoid channel complacency
• Downstream channel members dislike intensive
  distribution
• Prefer exclusive distribution
• Unable to differentiate on brands offered
• Intrabrand competition
• Price competition
• Free-riding

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Dropping a Brand

• Discontinue saturated brand
• Substitute another less intensively distributed
• Discontinue entire product category
• Carry the brand but convert customers to another
  brand
• Bait-and-switch

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Efforts to Sustain Intensive Distribution

• Problems
• Defection of downstream channel members
• Lackluster sales support
• Possible approaches
• Contractual
• Expensive
• Alienate other channel members
• Bad publicity
• Pull strategy
• Brand equity
• Advertising and promotion
• Expensive
• Channel stuffing

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Efforts to Sustain Intensive Distribution

• Possible approaches (continued)
• Resale price maintenance (RPM)
• Set a retail price floor
• Allows channel members to have acceptable margins
• Use more selective distribution
• Generally most applicable solution
• Able to target desired channel members
• Better working relationships

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Category Exclusivity

• Downstream channel members decision
• How many brands to carry in a product category
• Manufacturers want exclusive dealing
• Reseller wants assortment of brands
• Meet assortment demands of customers
• Benefit from interbrand competition

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Brand Strategies

• High quality strategy
• Premium price
• Need channel members that excel in handling
  high-end brands
• Difficult to get
• Scarcity
• Intrabrand competition is low
• Danger of channel complacency
• Contracts
• Screens out less supportive resellers
• Niche strategy

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Bargaining for Influence

• Selective distribution is the manufacturers
  currency
• Reward power

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Bargaining for Influence

• Manufacturer uses selective distribution to
  bargain for
• Desired coordination
• Manufacturer-specific investments by downstream
  channel members
• Category exclusivity
• Risk of becoming dependent on a strong channel
  member
• Direct selling

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Price of Concession

• Opportunity cost
• Manufacturers costs are greater when
• Important market area
• Competitive product category
• Downstream channel members costs are greater
  when
• Major product category in their assortment
• Competitive product category

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Limit Trading partnersSave Money

• Associated costs with each account
• Master Distributors

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More Trading Partners for More Revenue?

• Generally, brands that are more widely available
  have higher sales and greater market share
• Is it because of the intensive distribution?
• Correlation but not causality
• Revenues or profits
• Remember opportunity costs

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Multiple Channels

• Different channels for the same goods
• Intended to serve different target markets
• Watch out for
• Conflict
• Cannibalization
• Free-riding

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Dual Distribution

• Manufacturer sells direct, competes with its
  resellers
• Conflict is common
• Value for demonstration

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Carrier-Rider Relationships

• One manufacturer (carrier) handles sales and
  distribution for another (rider)
• Piggybacking
• Works better between complementary products
• Reciprocal piggybacking

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Key Terms

• Intensity
• Intensive distribution
• Exclusive distribution
• FMCG
• Channel complacency
• Saturated brand
• Channel stuffing
• Intrabrand competition
• Interbrand competition
• Scarcity
• Multiple channels
• Dual distribution

• Carrier-rider relationships
• Piggybacking
• Reciprocal piggybacking