H. Channels Issues in High-tech Marketing
1. OEMs (Original equipment manufacturers): distributors that purchase a product to
bundle together to sell as a package usually for a limited time and no brand
recognition is given to each component.
·Table 12.4 Page 364 OEM vs. Branded Marketing distinguishes the
differences in the two types of marketing.
2. VARs (Value-added resellers): distributors that purchase products to buddle
together to sell as a package.
·Usually the distributor and the product/service company and are in a
partnership type of relationship.
·Brand recognition is given to the product/service company.
·Usually VARs are longer-term relationships and the product/services are
distributed through other stand-alone distribution channels.
3. Differences between OEMs and VARs
·An OEM normally has a much larger number of suppliers
·VARs normally have a few discrete components in its system
·Selling through a VAR is more like a partnership relationship; an OEM
transaction is usually the end of the transaction until the next sale.
·With VARs there are longer-term issues such as customer service and
joint marketing
·Companies selling through VARs also have well-established markets
into which they can also sell themselves.
·Products sold through OEMs are significantly driven by derived
demand: their markets expand only to the extent that the markets for
OEM products expand
I. Global Channels Issues
1. Global considerations: important to consider in strategic plan. Factors such as
economics, politics, culture, regulations.
2. Western Europe—retail market is similar to the United States. Regulations in
Portugal and Germany put limits on retailers.
3. Russia and Other Former Soviet Bloc Countries—majority of the grocery
market is through the black market. So there are steep expenses to pay for
conducting business through the proper channels. There is also limited
disposable income in these countries. Cities like Prague and Budapest have
McDonald’s and Pizza Hut.
4. Japan—Many importation and operational laws. Little price competition due to
many independently owned retail operations. Some discount retailers are
gaining popularity.
5. China and Other Asian Markets—do not allow foreign counties to provide their
own channels of distribution. Malls are coming to larger cities.
6. Illustration: Procter & Gamble (www.pg.com ) Page 366
7. Gray Markets—Channels of distribution for trademark products that are not
sanctioned by the trademark company. Develop across country lines (parallel
importing). Gray markets may have intermediaries called diverters. Common
when there is a high monetary exchange rate or there are significant price
differences.
J. Special Topics in Channels of Distribution
1. Supermarket Issues
·Large retailers are gaining power in the grocery market.
·Category management issues are causing retailers and manufactures to
work together to meet both of their objectives through the same
customer.
·Category management is more concerned with the category than with
the particular brand.
·Retailers are increasing prices and profits through their use of category
management.
·Illustration: General Mills’ Yoplait Yogurt (www.yoplait.com) Page
368
2. Strategies for Intermediaries
·Using these ideas to create value:
·Permitting customers to schedule appointments, order parts and gain
information from the Internet.
·Offer services that others cannot or will not provide.
·Illustration: Arrow Electronics (www.arrow.com) Page 369
3. New Channels
Many new emerging channel options. Examples includes:
In-home barcodes that will order products once they are scanned by
the customer. Kiosks that allow customers to sample music, videos and
order items from within the store.
Teaching Tips and Strategies from Barbara S. Faries, MBA
CRP
The purpose of this chapter is to introduce the concepts involved with channels of
distributions
Key Terms and Concepts Introduced Include:
·Channels of distribution
·Logistics
·Push
·Pull
·Direct channel
·Indirect channel
·Disintermediation
·Multiple-channel system
·Multi-channel marketing
·Hybrid system
·Channel power
·Value-added reseller (VAR)
·Gray market
·Parallel importing
·Diverters
·Category management
·Efficient consumer response (ECR)
·Continuous replenishment program (CRP)
Note: Two recurring themes in this Instructor’s Manual are the first two items:
·Link theory to practice.
·Engage students to link work experience to the concepts demonstrated in
the text.
·Instructors are encouraged to link theory to practice by finding current examples
in the business environment that demonstrate the key concepts above.
·If your class contains those already working in the field, have them describe how
the concepts in theory match those in the actual workplace.
One of the common issues I see as both an executive and instructor is the lack of
attention and thought to channels of distribution. I have taught “short courses” or
“executive education” courses on the topic. When teaching these, I find it particularly
helpful to find case studies that help demonstrate the importance of channels, channels in
channels or distribution, and situations where the selected channels were particularly
effective and those in which they were not.
Good resources for articles and background include Harvard’s “Working
Knowledge” and Wharton’s “Knowledge @ Wharton.” These often have contemporary or
recent examples of effective channel strategies and use. One of the best sources of current
topics in emerging business strategies is FastCompany magazine. Contained in the
magazine are often “here and now” examples that can be particularly useful, especially for
classroom discussion.
When teaching about Continuous Replenishment Programs, I discuss Wal-Mart and
their key role in the origination of the concept. They developed the information technology
that permitted revolutionary changes in electronic data exchange. Their partnership with
Proctor and Gamble enabled instant inventory replenishment. It also enabled constant and
continuous collection of consumer buying habits and preferences. The company has
developed processes and methods for even small to medium-size business to do business
with it. A portion of those processes can be seen at:
http://www.edipipeline.com/Walmart.asp
Review Questions
1. Develop two examples of companies that are using other companies as distributors
(such as AT&T using Fry’s Electronics for Internet service). What benefits are the
original companies receiving in these two cases?
The answer to this question will vary.
2. Besides the illustrations in this chapter, give an example of another industry that has
witnessed substantial change in channels of distribution. What are the fundamental
reasons (e.g., consumer behavior, competition) for this change?
3. An executive at a large package delivery company has complained that by shifting
some of its business to independent channel members, the company has “lost control of
the customer.” What do you think he means by this statement? Why does he consider
this to be bad for the company?
4. Levi Strauss sells the same products, Levi’s, Dockers, and Slates, to multiple channels
of distribution, from high-image (Bloomingdale’s) to low-image (Sears, Mervyns)
outlets. What would you suggest as a distribution strategy so that the company can
better differentiate its product by channel and not suffer brand confusion problems?
5. What are the pros and cons of using the web as a distribution channel? Are there some
situations where it should not be a part of the channel mix?
not have access. In effect, for some small businesses, they can sell globally and not limited
by geography. Conversely, some small local businesses they are not prepared to sell
6. There can be considerable variation in how products are sold in different countries.
For example, cars are sold door-to-door in Japan and in retail showrooms in most of
the rest of the world. Besides institutional differences (e.g., laws), why does culture
matter with respect to global channels decisions?