978-0130387752 Chapter 9 Market-Based Strategic Thinking

Unlock access to all the studying documents.

View Full Document

CHAPTER9

Marketing Channels and Channel Mapping

Shopping Channel Management: The recession and its

economic challenges change the way people buy.

Customers look for the lowest possible price, daily

deals, coupons, and any other potential savings. People

also have less time to shop around. Shopping search

engines like Nextag.com, Google Product Search, and

Shopzilla.com remain popular picks for buyers who

want to simplify their shopping experience.

— Sarah V. Bundy, “The 10 Internet

Marketing

Channels Crucial to Your

Success,” www.revenews.com,

Feb. 10, 2011

Introductory Exercise

The comments above could be used to discuss how the internet and social media marketing has changed

channel management. Students could share their own behaviors and perhaps the behaviors of the parents who

are more likely to use traditional channels for buying.

Teaching Objectives

Present the importance of marketing channels in creating customer value, reaching customers, and

loweringmarketing costs.

Review the various marketing channels with a special emphasis on e-marketing as a marketing channel.

Demonstrate the profit impact (net marketing contribution) of alternative channels.

Harvard Business SchoolCase Materials

American Well: The Doctor Will E-See You Now (2011/2010). HBS Case 510061-PDF-ENG. What is next

for healthcare IT provider American Well, whose innovative Online Care technology allows physicians to

deliver care to patients over the Internet in real time? Using American Well’s platform, patients with

non-emergency health concerns can communicate with physicians online or by phone and receive advice or

even a diagnosis without having to visit the physician’s office. American Well’s co-founders, Drs. Ido and Roy

Schoenberg, believe this platform will reduce the cost of care delivery, create new revenue-earning

opportunities for providers, and contribute to a more efficient, convenient healthcare delivery system. While

the platform could benefit insurers, providers, employers, and patients alike, the company has so far only

marketed to a few health insurance companies. In November 2009, three insurers have adopted the

technology, and American Well expects several more to do so over the next 12 months.

Hulu: An Evil Plot to Destroy the World? (2010/2009). HBS Case 510005-PDF-ENG. In July 2009, Jason

Kilar, the chief executive officer of Hulu, is debating whether the online video aggregator should move away

from a purely advertising-supported model, and whether it should participate in an industry-wide initiative to

develop and test “authentication” technology that can facilitate a subscription or pay-per-view model. The

case traces the early years of Hulu, a joint venture between News Corp. and NBC Universal, that was

initially met with strong skepticism but quickly became one the most celebrated video businesses on the

Internet. The case study offers in-depth information on how the company serves content owners, users, and

advertisers. It describes the online video space in considerable detail, with economic and viewership

statistics that enable a rich discussion of viable business models.

Sixth Edition –39– Pearson Education, Inc.

Instructor’s Manual– Chapter 4 Publishing as Prentice Hall

Soren Chemical: Why is the New Swimming Pool Product Sinking? (2009). HBS Case 4188-PDF-ENG.

Topics include distribution channels, pricing, and new-product marketing. Jen Moritz, the marketing manager

for Soren, is struggling with the poor sales performance of Coracle, a new clarifier for residential swimming

pools. The performance is puzzling because Coracle is chemically similar to another Soren product that has

sold well for treatment of larger pools. Soren distributes the other product B2B through “chemical

formulators” serving the commercial pools market – but Soren uses wholesale distributors to sell Coracle.

Given the slow start in establishing Coracle as a consumer brand, Moritz suspects that the go-to-market

strategy may be flawed, but she is unsure where the problem lies.

EMC2: Delivering Customer Centricity (2011). HBS Case 511124-PDF-ENG. This case introduces the

concept of customer centricity and traces its development at EMC, the world’s leading provider ofdata

storage platforms. EMC’s customers had historically relied on EMC salespeople to guide them through the

complex, consultative buying process. With the advent of social media, however, prospective customers are

now obtaining more of the information they needduring the online purchase process. As they do so, their

physical interactions with EMC salespeople are decreasing, while their digital interactions are increasing.

Given the changing business environment, William “BJ” Jenkins, senior vice president of global marketing,

faces significant challenges as he tries to maintain EMC’s culture of customer centricity. These include (1)

modifying EMC’s platinum-servicelevels, originally designed to appeal to the world’s largest companies, so

that they will alsoappeal to small businesses and B2C customers;(2) understanding how the replacement of

physical interaction with digital interaction in the consultative selling process affects EMC’s business; and (3)

managing a VAR sales model which distances EMC from its customers.

IKEA Invades America – 2004. HBS Case 504094 (13 pages). In 2002, the IKEA Group is the world’stop

furniture retailer, with 154 stores worldwide. In the United States, IKEA operates 14 stores, all

enormouslypopular despite their self-service requirements. The company’s goal is to have 50 stores

operating in the U.S.by 2013. This case study explores various options for managing the company’s growth

strategy.

Edmund’s – www.edmunds.com. HBS Case 9-397-016. A firm that publishes an automobile priceguide

(over 600,000 books sold annually) shifts to the Internet and draws 16,000 users daily. Edmund’straditionally

makes its money selling books, but over the Internet the firm also makes money on referrals toAuto-By-Tel,

an online car shopping service, and FEICO, an auto insurer. Students are expected to analyzethe

development of new channels and the roles they play in the marketing of products.

Callaway Golf Co. HBS Case 9-501-019 (23 pages). After a decade of sales growth, Callaway

facesdeclining sales and profits. New competition and new channels have changed the competitive

landscape, andCallaway must respond so it can again experience profitable growth. Supplement: HBS

9-502-803, a videothat features a 10-minute interview with Callaway’s chairman and CEO.

Arrow Electronics Inc. HBS Case 9-598-022. Arrow Electronics is a valued-added reseller of commodity

and differentiated electronics. An online distributor is now allowing Arrow to sell its commodityelectronics on

the distributor’s e-marketing site. This move threatens Arrow’s overall business model if manycustomers

switch to the e-marketing channel. Arrow needs to develop a marketing strategy that meetscustomer needs

and is more cost efficient while growing sales and profits.

BizRate.com. HBS Case 9-501-024. BizRate is a market research firm that collects point-of-purchasedata

from retail merchants and makes the data available to consumers on its Web site in the form of BizRatestar

ratings. The primary source of sales is detailed customer feedback reports that BizRate sells to vendors.In

October 1999, the company introduced a number of e-marketing programs that have now outpaced

themarket research product that launched the company. The case revolves around ways to maintain the

feedbackreports along with the new e-marketing programs. It raises the question whether the company

shouldfocus all its efforts on the newer, more growth-oriented e-marketing products.

Note on Marketing and the Internet. HBS Case 9-597-037 (16 pages). This case reviews direct marketing

and e-marketing with respect to delivering services and products. It examines the structure of theindustry

that is emerging to support e-marketing, using Site-Specific and Rogers Cable Systems as examples.

Sixth Edition –40– Pearson Education, Inc.

Instructor’s Manual– Chapter 4 Publishing as Prentice Hall

Market-Based Strategic Thinking

1. Why would HP use more than one marketing channel?

As shown in Figure 9-6, companies like HP use several marketing channels to reach different types of

customers. B2C channels go directly to large retailers like Best Buy and Costco, and through distributors to

smaller retailers. HP also sells direct to consumers who prefer to buy online. To reach the business

2. Dell relies mostly on direct marketing in the consumer market, so why would Dell use VARs in the

business market?

VARS are unique in the function they provide in bundling software and hardware into a business customer

3. Why is the purchase amount for Apple computers different in different marketing channels?

At the retail level, most purchases are for a single computer. At the enterprise level (large businesses and

4. Why would the pocket price for commercial printers (large printers sold to businesses) be lower in

one market channel than another, even when the end-user list price is the same?

Each marketing channel has a different cost structure and cost of doing business. A direct sales approach

may include customer discounts for the volume purchased and cash discounts based on time of payment.

5. Why would Rolex pay higher channel costs and receive a lower pocket price? Wouldn’t it always be

better for Rolex to use a direct marketing channel?

Rolex wants to use high-end, exclusive retailers that have an image that matches the Rolex brand image.

These retailers are often jewelry stores that require higher margins due to higher costs associated with

6. How can a marketing channel with a lower marketing ROI be more profitable?

Marketing ROI is the ratio of net marketing contribution to marketing and sales expenses. A channel

7. Why would Dell add an indirect marketing channel using Wal-Mart?

Dell’s direct sales channel is highly efficient and at one time was unique. Now all major competitors offer

online sales, which has lessened this aspect of Dell’s competitive advantage. To reach more

Sixth Edition –41– Pearson Education, Inc.

Instructor’s Manual– Chapter 4 Publishing as Prentice Hall

8. What factors could cause the rate of online retail sales to rise to 20 percent of all retail sales?

More and more customers are using theInternet to look for the lowest possible price, daily deals, coupons,

and other savings. Internet shopping also appeals to people who don’t have the time to shop around.

9. What is the difference between a direct and an indirect marketing channel for gift baskets? Why

might a business use both?

In using a direct channel system, the gift basket business retains ownership of the gift baskets and has full

10. What is a mixed marketing channel? Why would Microsoft Office be marketed with a mixed channel

system to large business customers?

A mixed channel system is one in which some customers are reached with one or more direct channels

andothers with one or more indirect channels, or the same customers are served at some customer

11. Are there direct marketing channels in consumer markets? How do they differ from direct channels

in business-to-business markets?

Figure 9-13 outlines the various channel systems used in consumer markets. Direct consumer-marketing

channels rely more on direct marketing (catalogs and direct mail) and less on a direct sales approach, with

12. What role do online marketing channels play in the way individuals buy airline tickets and stocks?

Cable TV, the Internet, and other electronic systems (e.g., Mini-Tel in France) are playing an increasing

13. How does digital marketing help businesses reach customers, lower costs, and improve customer

service?

Digital marketing enables a business to reach customers in remote areas where there are no retailers. It

14. What role do VARs play in the market for computers? How do VARs enhance the customer value of

solutions they sell to business customers?

VARs play a critical role in many B2B markets. VARs specializing in chemical processing,architecture,

Sixth Edition –42– Pearson Education, Inc.

Instructor’s Manual– Chapter 4 Publishing as Prentice Hall

15. How does the use of multiple channels affect the growth of a business that sells flowers?

Every target market consists of customers with different needs and purchase-point preferences,

16. How does the use of a channel system either enhance or detract from customer value in the sale of

flowers?

Product and service availability, technical support, credit, product customization, and price are all factors

that can either enhance or detract from customer value. In selecting one channel system over another, a

17. What specific factors must a business that sells cheesecakes consider in order to select one

channel system over another?

Differences in customer reach, sales effectiveness, channel discounts, the cost to serve a channel,

inventory requirements, terms of payment, and the services provided or not provided all influence the

18. How could a channel system be a source of competitive advantage for Lexus?

A business that has a more effective and cost-efficient channel system than competitors can create greater

19. What are some of the ways that a channel system for Kia Motors could contribute to a higher

market share?

To increase its market share, Kia Motors could use a channel system that creates any one or all of the

following advantages:

customers and better serve these customers than competitors with smaller sales forces. Likewise, a business

generate more market share than a business with the same size sales force or the same number of

distributor share, they are able to build market share. In a market where distributors are necessary for reaching

20. How can improved sales force quality and sales force productivity for a pharmaceutical company

like Merck or Pfizer be a source of competitive advantage?

knowledge, and business skills can improve customer value through either increased product benefits or

Sixth Edition –43– Pearson Education, Inc.

Instructor’s Manual– Chapter 4 Publishing as Prentice Hall

service benefits. For a pharmaceutical company like Merck or Pfizer, developing a superior sales force can

competitive advantage. By improving sales force productivity over its competitors, a pharmaceutical company

like Merck or Pfizer can gain a competitive advantage.

21. How would you determine the profit impact of an alternative channel system for the sales of

iPhones?

Each channel system is likely to differ in terms of served market, market penetration, margin, and the cost of

Sixth Edition –44– Pearson Education, Inc.

Instructor’s Manual– Chapter 4 Publishing as Prentice Hall