MODULE FIVE in

DISTRIBUTION
MANAGEMENT

| INSTR. REVENLIE G. GALAPIN |

 MODULE 5
MARKETING CHANNEL

Learning Outcomes:

- Appreciate the importance of the marketing channel concept;

- Explain the components of the marketing channel participants in the distribution
process;
- Discuss the environment of marketing channels in the different enterprise;
- Apply the various process in marketing channels especially in sales enterprise;
- Prepare the strategy in implementing the marketing channel activity; and
- Design marketing channel appropriate to the type of enterprise engaging in
distributing products.

MARKETING CHANNEL CONCEPT

Marketing channels are defined as the internal or external organization that management
operates to accomplish its distribution goals and objectives. It is a set of interdependent
organizations involved in the process of developing a goods or services intended for use or
consumption.

Role of the producer and end-user in the marketing channel:

1. The manufacturer is the creator of the product or service and can also be the
originator of the service. For example, if one leg of the distribution network is the
company sales or service network, the manufacturer is also providing the customer
service output. In the case of financial institution like banks and insurance
companies, the product and service roles of the producer are performed by him
giving the impression that he is also a channel member
2. The consumers may buy these larger quantities at a time for various reasons like:
(a) the manufacturer is offering a bargain on the product which normally is not
available, and (b) the product or commodity is available at the best price as it
is a seasonal product (like food grains, edible oil or spices for example).
3. Manufacturers or end-users cannot be considered as part of the marketing
channel. It is appropriate to only call the intermediaries as the marketing or
distribution channel members and understand their role properly.

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MARKETING CHANNEL PARTICIPANTS

Channel participants are defined as participants that engage in negotiator functions

linked together by the flows of negotiation or ownership.

The three basic distinctions of the marketing channel are: producers and manufacturers,
intermediaries and consumers. Producers, manufacturers and intermediaries are further
broken down into wholesale, retail, intermediaries, consumer and industrial users. Final
users are defined as target markets or consumer.

Producers and Manufacturers

Producers and manufacturers consist of firms or enterprise that are involved in
conceptualizing developing, or making of products. For the needs of the
Consumers to be satisfied products must be made available to consumers when, where
and how they needed them.

Intermediaries
Intermediaries are independent businesses that help producers and manufacturers in the
performance of negotiation and other distribution tasks.

Wholesalers
They consist of businesses that are involved in selling goods for resale or business use to
retail, industrial, commercial, institutional, professional, or agricultural firms, even to
other wholesalers.

Types and Kinds of Wholesalers

Three major types of wholesalers as defined by the Census of Wholesale Trade. These are

1. Merchant Wholesalers are firms engaged primarily in buying, taking title to,
usually storing, and physically handling products in relatively large quantities and
then reselling the products in smaller quantities to others. They have different
names such as: wholesaler, jobber, distributor, industrial distributor supply house,
assembler, importer, exporter, and supplier.
2. Agents, brokers, and commission merchants are independent middlemen who do
not take title to the goods in which they deal, but who are actively engaged in the
buying and selling functions on behalf of others. They are usually compensated in
the form of commissions on sales or purchases. They also go under other names
such as selling agents, import and export agents.

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 3. Manufacturer's sales branches and outlets are owned and operated by
manufacturers but are physically separated from the factories.

Distribution tasks performed by merchant wholesalers’ modern well- managed merchant

wholesalers perform the following types of distribution tasks for producers and
manufacturers:

1. Market coverage is performed because the market for products consists of many
customers spread across large geographical areas.
2. Making sales contact is a valuable service provided because the cost of maintaining
an outside sales force for many firms is prohibitively high.
3. "Holding" inventory is when the wholesaler takes title to and possession of the
producer and manufacturer's products.
4. Processing orders is very helpful to producers and manufacturers because many
customers purchase in small quantities.
5. Gathering market information: Wholesalers are close to their customers through
frequent sales contacts. As such, they are in a good position to learn about a
customer's product or service requirements. Such information then can aid
producers and manufacturers in their product planning, pricing, and the
development of new products.
6. Customer support is the final distribution task performed for producers and
manufacturers on their behalf. Products may need to be assembled, set up or
require technical assistance. This allows the wholesaler to provide "value added
services" to the customer thus increasing the competitive advantage of one
wholesaler over another. This extra support plays a crucial role in making
wholesalers vital members of the marketing channel from the standpoint of both
the producers and manufacturers and the customers they serve.

In addition to the above services, merchant wholesalers are equally well suited to perform
the following distribution tasks for their customers:

1. Ensuring product availability: Ensuring that both the quantity and the variety
demanded by the customer is available to them when needed.
2. Providing customer service: services such as delivery, repairs or warranty, after
sales service through follow ups and consultation.
3. Extending credit and financial support: Wholesalers provide this service in two
ways. First by helping the customers to "open" accounts on the products they
bought and second by storing the needed inventory especially the fast-moving
products of the customer, it eliminates the financial and space usage for the
customer.

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 4. Assortment convenience: By bringing together a variety of products from
hundreds of manufacturers, the customer need only place one order for many
products.
5. Breaking bulk: Shipping costs greatly influence the shipment of many products
by rail or truckload quantities.
6. Accommodating customers with advice and technical support: This is the
value-added after sales services through follow ups and getting feedbacks.

THE ENVIRONMENT OF MARKETING CHANNEL

Evolution of Marketing Channels

According to Havaldar (2012), marketing channels make exchanges possible between
someone who has something to offer to someone who is in need of the something -
exchange of products, services or even information. The use of the word marketing
channel seems to have started to describe the trade 'intermediaries who connected
companies and the users of their products. These 'exchange relationship' have evolved
with the maturity of markets and the development of technology. To quote marketing
experts marketing channels are enduring but flexible systems. For example, the
relationships in the network today with the use of the internet are far different from all
the routine relationships in a network from the company, its carrying and forwarding
agent (C&FA), distributor, a wholesaler and retailer.

The Nature of Marketing Channels

As mentioned by Rosenbloom, marketing channels (or channel of distribution or trade

channel) is a group of interrelated intermediaries who direct products to
Customers. Merchants and agents are the two types of marketing intermediaries.
Merchants take title to merchandise and resell it, while agents receive a commission or fee
for expediting exchange. Wholesalers and retailers are both intermediaries and can be
either merchants or agents. Because of this distinction, we sometimes will distinguish
between wholesalers (when they are assumed to be merchants) and agents, who do not
take title to products. Channel members have different responsibilities within the overall
structure of the distribution system, but mutual profit and success can be attained only if
channel members cooperate in delivering products to the market. Channel decisions are
among the most critical of marketing decisions, because channels and distribution affect
product, price and promotion decisions. Channel decisions are not always made prior to
other marketing decisions, but they exercise a powerful influence on the rest of the
marketing mix. Another significant aspect of marketing channels is that relationships
among channel members (producers, wholesalers, and retailers) usually involve not just a
short but a long term commitments. While prices usually can be changed and producers

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may have considerable control over products and promotion, marketing channel are less
flexible. Sometimes there are legal commitments to intermediaries, and replacing or
bypassing an intermediary requires extra efforts or responsibilities.

The Marketing Channel and the Environment

The environment consists of all macroenvironment or external uncontrollable factors

within which marketing channels exist. These are the natural, economic, competitive,
sociocultural, technological and legal environment.

BEHAVIORAL PROCESS OF MARKETING CHANNEL

The Marketing Channel as a Social System

The system generated by any process of interaction on the sociocultural level between two
or more actors. The actor is either a concrete human individual (person) or a collectivity.
When these individuals or collectivities (firms or agencies interact as member of the
marketing channel, an inter-organizational social system exists.

Conflict in the Marketing Channel

Conflict exists when a member of the marketing channel perceives that another member's
actions impeded the attainment of his or her goals.

A. Conflict versus Competition Conflict in the marketing channel should not be

confused with competition. Competition is a behavior that is object-centered,
indirect and impersonal. Conflict, on the other-hand, is direct, personal, and
opponent-centered behavior.

B. Causes of Channel Conflict Analysis and research have pointed to many possible
causes of channel conflict. These are:

i. Misunderstood communications
ii. Divergent functional specializations and goals of channel members
iii. Failings in joint decision-making
iv. Differing economic objectives
v. Ideological differences of channel members
vi. Inappropriate channel structure

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Although there are many causes of channel conflict most can be placed into one or more
of the following seven categories:

1. Role incongruities: Members of the marketing channel have a series of roles they
are expected to fulfill. If a member deviates from the given role, a conflict situation
may result.

2. Resource scarcities: Sometimes conflict stems from a disagreement between

channel members over the allocation of some valuable resources needed to achieve
their respective goals. A common example is between manufacturers and retailers
over "house accounts". Another example involves site selection in franchised
channels.

3. Perceptual differences: Perception refers to the way an individual selects and

interprets environmental stimuli. The way such stimuli are perceived are often
quite different from objective reality.

4. Expectational differences: Various channel members have expectations about

the behavior of other channel members. These expectations are predictions or
forecasts concerning the future behavior of other channel members. Sometimes
these forecasts turn out inaccurate, but the channel member who make the
forecast will take action based upon the predicted outcomes thus channel conflict.

5. Decision domain disagreements: Channel members explicitly or implicitly carve

out for themselves an area of decision-making that they feel is exclusively theirs.
Hence, conflicts arise over which member has the right to make what decisions
The area of pricing decision has traditionally been a pervasive example of such
conflict.

6. Goal incompatibilities: Each member of the marketing channel has his or her
own goals. Situations in the organization will hardly overcome by having
differences in setting goals.

7. Communication difficulties: Communication is the creative vehicle tor all

interactions among channel members, whether such interactions are cooperative
or conflicting

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There are four generalizations regarding channel conflict:
1. Conflict is an inherent behavioral dimension in the marketing channel.
2. Given the numerous causes from which conflict may stem, it is a pervasive
phenomenon in marketing channels.
3. Conflict can affect channel efficiency.
4. Various levels of conflict may have both negative and positive effects on channel
efficiency, or possibly no effect.

Channel managers must:

1. Detect conflicts or potential conflicts every time there's an abrupt communication.
2. Appraise the possible effects of conflicts in the work environment.
3. Resolve channel conflict inside the company premises.
4. Resolving channel conflict is by arbitration.

Power in the Marketing Channel

1. Reward - a monetary way of showing excellency in the organization
2. Coercive - to punish the latter upon failure to conform to the former's influence
attempts.
3. Legitimate- it is the obligation exists to accept that influence.
4. Referent - one channel member determines the goals to be closely be the same
allied to those of another member.
5. Expert - the power based on the knowledge or technically equipped in one area of
specialization.

Behavioral Problems in Channel Communications

1. Differing goals corporate management in manufacturing firms translate into
aggressive effort to build increase or high sales volume. Channel members should
attempt to understand the goals of their channel members to learn whether they
are much different from those of their own firms.
2. Language Differences. The other basic communication problem between the
manufacturer and channel members sometimes focuses on the terminologies used
by professional corporate management. The channel manager has ensure that the
language used in channel communications is well understood and presented by all
channel members.

3. Other Behavioral Problems in Channel Communications

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Three other behavioral problems that can inhibit effective channel communications are:

A. Perceptual Differences
This happens among channel members on a wide variety of issues. It is therefore
important that channel managers spell out such issues as delivery time, margin
and discounts, return privilege, warranty provisions and so forth, so that channel
members have the same understanding as the channel manager.

B. Secretive Behavior

It is the idea on not divulging or sharing of information, such as an upcoming

promotional plan, manufacturers fail to get potentially valuable feedback from
channel members (middlemen) on whether or not the plan will be effective.

C. Inadequate Frequency of Communication

The association of infrequent communication with lower quality lower quality
communications applies. A channel manager must ensure that they communicate
as frequently as necessary with all channel members to ensure that quality of
communication is not compromised.

STRATEGY OF MARKETING CHANNEL

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.

To achieve its objectives, a firm will have to address six basic distribution decisions:
1. What role should distribution play in the firm's overall objectives and strategies?
2. What role should distribution play in the marketing mix?
3. How should the firm's marketing channels be designed to achieve its distribution
objectives?
4. What kinds of channel members should be selected to meet the firm's distribution
objectives?
5. How can the marketing channel be managed to implement the firm's channel
design effectively and efficiently on a continuing basis
6. How can channel member performance be evaluated?

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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.

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 to0 important to ignore.

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 him or
herself.

What we do know is that general case of stressing distribution strategy can be made if any
one of certain conditions prevails:
1. Distribution is the most relevant variable for satisfying target market demands
Distribution Relevance to Target Market Demand. As firms have become more
oriented 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.

2. Parity exists among competitors in the other three variables of the marketing mix.
Competitive Parity in Other Marketing Mix Variables. It is increasingly more
difficult for a company to differentiate its marketing mix from that of the

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 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 1s
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. A high degree of vulnerability exists because of competitors' neglect of

distribution.
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 can enhance the firm by creating synergy from marketing channels.
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.

Channel Strategy and Designing Marketing Channels

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

Differential Advantage and Channel Design Key Term and Definition

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. 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.

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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.
"The reputation a manufacturer acquires among distributors (channel members) for
furnishing products, services, financials 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."

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.

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.

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:

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 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

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. 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.

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.

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.

MARKETING CHANNEL

Marketing channels operate in a continually changing environment. Therefore, the

channel manager needs to be sensitive to the environment and the changes occurring in
order to plan effective marketing channel strategies for meeting these changes
successfully. The channel manager needs to understand the environmental factors that
can affect marketing channel systems

MARKETING CHANNEL CONCEPT

A marketing channel is a set of practices or activities necessary to transfer the ownership

of goods from the point of production to the point of consumption. It 1s the way products
and services get to the end-user, the consumer; and is also known as a distribution

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channel. A marketing channel is a useful tool for management, and is crucial to creating
an effective and well-planned marketing strategy.

Another less known form of the marketing channel is the Dual Distribution
Channel. This channel is a less traditional form that allows the manufacturer or
wholesaler to reach the end-user by using more than one distribution channel. The
producer can simultaneously reach the consumer through a direct market, such as a
website, or sell to another company or retailer that will reach the consumer through
another channel, a store. An example of this type of channel would be franchising.

The primary purpose of any channel of distribution is to bridge the gap between the
producer of a product and the user of it, whether the parties are located in the same
community or in different countries thousands of miles apart. The channel is composed of
different institutions that facilitate the transaction and the physical exchange. Institutions
in channels fall into three categories: (1) the producer of the product-a craftsman,
manufacturer, farmer, or other extractive industry producer; (2) the user of the product-
an individual, household, business buyer, institution, or government; and (3) certain
middlemen a. the wholesale and/or retail level. Not all channel members perform the
same function Heskett suggests that a channel performs three important functions:

1. Transactional junctions - buying, selling, am: risk assumption

2. Logistical junctions- assembly, storage, sorting, and transportation.
3. Facilitating junctions- post-purchase service and maintenance, financing
information dissemination, and channel coordination or leadership. These
functions are necessary for the effective flow of product and back to the customer
and payment back to the producer.

Marketing Channel Participants

Based on the book of Stigler, the three basic divisions of marketing channel are (1)
producer, and manufactures, (2) intermediaries, and (3) final users. The latter two are
broken down further into wholesale and retail intermediaries and consumer and industrial
users, respectively. The final users, though technically members of the marketing channel
because they are involved in negotiating functions, from this point on will not be viewed
as channel members in this text. In the context of the management perspective that are
using, it is more appropriate to view final users as target markets that are served by the
commercial subsystem of the channel. The commercial channel, then, by definition
excludes final users.

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TYPES OF PARTICIPANTS IN MARKETING CHANNELS
1. Direct Participants are called as such because of their straight connection with the
source or the manufacturer. They can do the whole advertising and selling of the
merchandise from the producer without having to go through other means of
doing the process. The direct channel participants can be categorized into two, the
merchants and the agents. Merchants are basically those who are not only direct
from the company but is also within the terms of the company. Sample members
are individuals from the manufacturing, producing and marketing teams.
Retailers, dealers and branches of the company also fall under this category.
Agents are those who have a direct connection with the manufacturer but could
also be outside the terms of company. Members of this category are brokers,
commission agents and other manufacturing representatives.

2. Indirect Participants are simply those groups and organizations that are part of the
process but are out of the company's full grip as well as the second hand source of
the merchandise. They are either a whole entity of their own, when as such
employed by the company but is not restricted from its own conditions, or a
partner company alongside the manufacturer. The members of these groups are
called facilitators because what they primarily do is "host" the selling of the
product by their own means approved. They are usually chosen by the
manufacturer.

MARKETING INTERMEDIARIES

1. Retailers
Retailers are the gatekeepers to the market for all other members of the sales
distribution process. The distinguishing feature that sets a retailer apart from
other members of its distribution channel is that the retailer is the person who
ultimately sells the goods to its end consumers.

2. Wholesalers
Wholesalers are intermediaries or middlemen who buy products from
manufacturers and resell them to the retailers. They take the same types of
financial risks as retailers, since they purchase the products, keep them in
inventory until they are resold to retailers, and may arrange for shipment to those
retailers. Wholesalers can gather product from around a country or region, or can
buy foreign product lines by becoming importers.

3. Agents and Brokers

Agents (occasionally called brokers) are also intermediaries who work between
suppliers and retailers, but their agreements are different, in that they do not take

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 ownership of the products they sell. They are independent sales representatives
who typically work on commission based on sales volume, and they can sell to
wholesalers as well as retailers. In B2B arrangements, this means they sell to
distributors and end consumers.

4. Resident Sales Agents

Resident sales agents are good examples in retail. They reside in the country to
which they sell products, but the products come from a variety of foreign
manufacturers. The resident sales agents represent those manufacturers, who pay
the agent on commission. A resident sales agent does not always have
merchandise warehoused and ready to sell, but he or she does have product
samples for which orders can be placed and is responsible for bringing the items
through the importation process.

The concept of resident sales agents in recent decade is getting popularity because
it is not always practical for retailers to send someone abroad to check
manufacturers offerings and place the orders. On the other side by appointing
resident sales agents in various countries, manufacturers can tap large number of
small and big retailers who otherwise are difficult to knock.

5. Buying Offices
Buying offices are also considered a type of commission agent or broker, since they
make their money pairing up retailers with product lines from various
manufacturers.

THE MARKETING CHANNELS AND THE ENVIRONMENT

The environment consists of all external uncontrollable factors within which marketing
channels exist. The following are as follows:
1. Economic environment
2. Competitive environment
3. Sociocultural environment
4. Technological environment
5. Legal environment

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THE ECONOMIC ENVIRONMENT

Economic factors are a critical determinant of channel member behavior and

performance. The channel manager must therefore be aware of the influence of economic
variables on the participants in the channels of distribution.

Recession

 Channel members-Substantial reductions in sales volume and profitability

 . Firms-heavy inventories
 Inflation =Consumer Price Index(CP)
 Buy now before the price goes higher
 Hold on to your money

Deflation
 Difficulties to pass cost induced price increases through the channel

Other economic issues

 Huge national debt, the trade deficit, the government budget deficit

THE COMPETITIVE ENVIRONMENT

Types of Competition

Horizontal competition
The same types of firms at the same channel

Intertype competition
Different types of firms at the same channel

Vertical competition
Channel members at the different levels

Channel system competition

Complete channel systems as units: Corporate, contractual, and administered

Competitive structure
Example. Scrambled merchandising

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THE SOCIOCULTURAL ENVIRONMENT

Age patterns of the population

Generation Y, N vs. Silver generation

Changing ethnic mix

Minority markets

Educational trends
Higher learning students (12 millions): information, more services

Family or household structure

Smaller families, child-free couples, single

Changing role of women

80%: 30s-40s yrs career oriented women

THE TECHNOLOGICAL ENVIRONMENT

 The Internet and electronic marketing channels

 Scanners, computerized inventory management, and portable computers
-Universal product code (UPC)
 Electronic data interchange (EDI)
 Teleshopping, computer shopping, and home shopping: Net TV
Other technological innovations
- Computer salespeople, strategic alliance

THE LEGAL ENVIRONMENT

 Legislation affecting marketing channels
 Legal issues in channel management
- Dual distribution: two different channels to his target market
- Exclusive dealing: only its products
- Full-line forcing: to carry a broad group of its full line products
- Price discrimination: books
- Price maintenance: supplier's control the prices
- Resale restriction: to stipulate specific geographical market territories
- Tying agreements: not to purchase that product from any other supplier
- Vertical integration-"Lock up": firm owns and operates all levels of
distribution channel.

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THE ENVIRONMENT OF MARKETING CHANNELS

- Marketing channels develop and operate in a complex environment that is

continually changing.

- Channel managers must therefore, have an understanding of the environment and

how it can influence channel management in order to plan effective marketing
channel strategies for meeting these changes successfully.

MAJOR ENVIRONMENT
 Economic environment
 Competitive environment
 Sociocultural environment
 Technological environment
 Legal environment

Economic Environment
The most obvious and pervasive category of variables affecting all members and
participants in the channel.

Major Economic Phenomena

 Recession: 2 consecutive quarters of decline in the Gross Domestic Product

(GDP), any period in which the GDP is stagnant or increasing very slowly is often
referred to as 'recessionary" or at least and "economic slowdown.

 Inflation: Inflation is the rate of increase in prices for goods and services. When
the price level rises, each unit of currency buys fewer goods and services.

 There are a number of different measures of inflation in use. The most frequently
quoted and most significant ones are the Consumer Prices Index (CPI) and the
Retail Prices Index (RPI).

 Deflation: When the overall price level decreases so that inflation rate becomes
negative, it is called deflation. It is the opposite of the often-encountered inflation

Other Economic Issues

 Trade deficit
 National debt/ budget deficit
 High interest rate

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Competitive Environment
A competitive environment is the dynamic external system in which a business competes
and functions. The more sellers of a similar product or service, the more competitive the
environment in which you compete. Look at fast food restaurants - there are so many to
ch00se from; the competition is high.

Types of Competition
1. Horizontal competition -competition between firms of the same type.
2. Intertype competition -Competition between different types of firms at the same
channel level.
3. Vertical competition - competition between channel members at different levels in
the channel.
4. Channel system competition complete channels competing with other complete
channels.

Socio Cultural Environment

The social environment, social context, sociocultural context or milieu refers to the
immediate physical and social setting in which people live or in which something happens
or develops. It includes the culture that the individual was educated or lives in, and the
people and institutions with whom they interact.
 age patterns of population
 changing ethnic mix
 educational trends
 family or household structure
 changing role of women

Technological Environment
External factors in technology that impact business operations. Changes in technology
affect how a company will do business. A business may have to dramatically change their
operating strategy as a result of changes in the technological environment.
 Electronic data interchange
 Scanners, Computerized inventory management and Portable computer help
retailers and wholesalers closely monitor success or failure of products they handle

Legal Environment
The legal environment facing businesses operating internationally is not simply a scaled-
up version of domestic law. Businesses are faced with legal rules derived from multiple
sources, and enforced by bodies with fragmented and overlapping jurisdictions.

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Legal Issues in Channel Management

The set of laws that impact marketing channels:

 Affected by changing values, norms, politics, & precedents
 Knowledge of basics helps channel manager avoid serious & costly legal problems

Dual Distribution, or multi-channel distribution

Producer or manufacturer uses 2 or more different channel structures for distributing the
same product.

Exclusive Dealing
Supplier requires its channel members to sell only its products or to refrain from selling
directly to competitive suppliers.

Full-Line Forcing
Supplier requires channel members to carry a full-line of its products in order to sell any
particular products in supplier's line

Price Discrimination
Supplier sells at different prices to the same class of channel members.

Price Maintenance
Supplier dictates prices charged by channel members to their customers.

Refusal to Deal
Supplier has right to refuse to deal with whomever they want as channel members.

Resale Restrictions
Manufacturer attempts to stipulate to whom and in what geographical market channel
members may resell the manufacturer's products.

Tying Agreements
Supplier sells a product to a channel member on condition that the channel member also
purchase another product.

Vertical Integration
Firm owns and operates organizations at other levels of the distribution channel.

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