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Chapter 5
STRATEGY IN MARKETING CHANNELS
Teaching Notes
This chapter presents a strategic framework for dealing with the managerial decisions
involved in marketing channels. This chapter is important to get the most out of it
Chapter Objectives
Channel strategy refers to the broad principles by which the firm expects to achieve its
distribution objectives for its target markets. It focuses on the “place” variable in the four
Ps of marketing. Channel strategy is relevant to all six of the basic distribution decisions
In terms of the design of marketing channels, channel strategy should guide the design
process in an attempt to gain a differential advantage for the firm using superior channel
design.
Managing the marketing channel calls for the channel manager to answer three strategic
questions: How close a relationship should be developed with channel members? How
should channel members be motivated? How should the marketing mix be used to
enhance channel member cooperation?
Learning objectives
1) Understand the meaning of channel strategy.
2) Be able to describe the six basic distribution decisions that firms face.
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Chapter Topics
1) Channel Strategy Defined
2) Marketing Channel Strategy and the Role of Distribution in Corporate Objectives
Chapter Outline
Channel Strategy Defined
Key Term and Definition
▪ Marketing channel strategy: The broad principles by which the firm expects to
achieve its distribution objectives for its target markets.
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?
A sound approach to dealing with distribution decisions is to formulate marketing
channel strategy to provide the guiding principles for dealing with distribution decisions
on a proactive rather than a reactive basis.
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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.
A) 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 too 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
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answer. Each firm or marketing manager must make that determination for his or her
self.
What we do know is that a 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.
A) Distribution Relevance to Target Market Demand
As firms have become more orientated to target markets over the past two decades by
B) Competitive Parity in Other Marketing Mix Variables
It is increasingly more difficult for a company to differentiate its marketing mix from that
of the competition. Price, product, and promotional strategies can easily and quickly be
copied.
C) Distribution Neglect and Competitive Vulnerability
Neglect of distribution strategy by competitors provides an excellent opportunity for
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D) 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.
A) Differential Advantage and Channel Design
Key Term and Definition
▪ Differential advantage: Also called sustainable competitive advantage, this refers to a
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B) Positioning the Channel to Gain Differential Advantage
Key Terms and Definitions
▪ Channel position: “The reputation a manufacturer acquires among distributors
(channel members) for furnishing products, services, financial returns, programs, and
systems that are in some way superior to those offered by competing manufacturers.”
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.
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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
A) Closeness of Channel Relationships
How close a channel relationship any given manufacturer should develop with its channel
members is really a question of strategy.
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B) 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.
Table 5.1 lists a menu of common channel tactics for motivating channel members.
From the diverse array of channel tactics shown, the channel manager must decide which
to use to effectively motivate the channel members.
C) 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.
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Channel Strategy and the Evaluation of Channel Member Performance
At this point in the text, we are concerned only with the underlying strategic significance
of channel member performance evaluation, which in practice is concerned with one
overriding question: Have provisions been made in the design and management of the
channel to assure that channel member performance will be evaluated effectively?
This question will direct the channel manager’s attention toward viewing performance
evaluation as an integral part of the development and management of the marketing
channel rather than as an afterthought.
Answers to Review Questions
1. Channel strategy is a component of marketing strategy. It focuses on the broad
2. The six basic distribution decisions most firms will need to consider are:
a. The role that distribution should play in the firm’s overall objectives and
strategies. Basically, this is the question of how important distribution is
perceived to be to the long-run success of the firm.
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3. There are virtually no “automatic” decisions in any part of business management. To
determine how vital distribution is to a firm, the firm’s management must decide if
attainment of certain distribution objectives is crucial to the firm’s long-term success.
There is no body of empirical research to indicate precisely when this will be the
4. Automatically dismissing any powerful business tool is dangerous. Distribution is no
exception. Before relegating distribution to a low priority, management should
5. Channel strategy fits under the distribution variable of the marketing mix. Thus, in
6. Four major clues should be given special attention when determining the importance
of distribution in the marketing mix:
7. Synergy is the concept that two parties together can achieve things neither could
alone. In marketing channels, the terms distribution partnerships, partnering, strategic
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8. Differential advantage, more recently called sustainable competitive advantage, is
achieved when the firm’s customers have a long-term preference for doing business
with the firm rather than its competitors. The firm is able to use its particular
9. Channel position is the reputation a manufacturer earns with its channel members for
furnishing products, services, financial returns, programs and systems that are in
some way superior to those offered by competing manufacturers. In the channel
11. In order to achieve the distribution objective with channel efficiency, the channel
manager must secure the cooperation of the channel members. To plan and
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13. Manufacturers may have multiple channel structures, and multiple types and sizes of
intermediaries within each structure. The various structures and/or channel members
14. Distribution, of course, is affected by actions in each of the other four Ps. The
challenge in managing the marketing mix is to ensure that the four Ps interact in such
15. Performance evaluation is the true test of channel design, channel management and
channel strategy. Channel member evaluation, however, cannot be an afterthought or
Commentaries on Issues for Discussion
1. Synergy through distribution goes well beyond the enhancement of the
manufacturer’s image. In this case, the Jones apparel group’s alliance with the
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2. Students’ answers should include first, that Oakley’s sales through Sunglass Hut
amounted to approximately $100 million dollars a year and that second the reduction
in orders (to less than 20%) meant a loss to Oakley of somewhere in the
neighborhood of $80 million dollars. It is important for students to calculate these
3. Milwaukee is in partnership with its distributors. It has a clear strategy that links its
success to the success of these partners.
Distribution clearly plays a key role in Milwaukee’s overall objectives and strategies
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4. Product positioning is an attempt to match the perceptions of the product with
customer expectations. The real key to creating a differentiated product is to get the
consumer to perceive there is a significant difference between a manufacturer’s
product and its competitor’s. Channel members, such as dealers, may be called upon
5. If the legal action by Nespresso against its “knock off” competitors fails, their current
distribution strategy will be in jeopardy. Having built its business model on the sale
of its exclusive coffee pods, Nespresso will be vulnerable to similar products that are
6. Procter & Gamble (P&G) differentiated itself from its competition by this change in
channel strategy. The increasing investment in trade promotions by consumer
packaged-goods manufacturers underscored how readily even the cleverest promotion
can be imitated. Manufacturers’ ability to build sustainable competitive advantage
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7. Unfortunately slotting fees have become a “way of life” in the super competitive
grocery industry, especially for consumer packaged goods such as snack foods. The
fight for shelf space is intense and firms with deep pockets such as Frito Lay are
8. Movie studios have had to decide the sequence in which they release movies to the
available distribution channels in order for them to maximize their profits. Already
studios have had to carefully balance their financial objectives with those of their first
line of distribution, movie theaters. In the early 90’s, movie and TV studios faced the
Strategy in Marketing Channels
channel members as movie theaters, they can reduce their decision to cost and
consumer behavior issues. The former is a quantitative approach based on available