Lecture 1
A marketing channel: a set of organizations that work
together to make goods (FMCG/CPG) available for end
users.
! Customer = Retailer in CPC jargon
Every link is a channel.
Why Channel Management is important:
Channels are universal; behind every product, one or more channels
Total sales through channels: 1/3 of worldwide annual GDP
Channel can be a source of competitive advantage
Walmart is the largest company in the world in terms of sales.
Power shift from manufacturers to retailers. - Why is that?
Mergers separate companies merged to one big company (Ahold with Delhaize)
Multi-channel operations more complex businesses, more ways to reach
consumers. More contact points.
Retailers becoming brands: Private labels develop their own brand
Access to consumer data big data available, personalization
However, the outlook is not all rosy. Some shifts are giving retailers a hard time
The Retail Apocalypse; brick and mortar shops are going bankrupt;
- The Great Recession
- The shift to online biggest reason that caused it
- The shift to experience
- The C-19 pandemic accelerated this shift to online
! 19.6% of 2021 retail sales were online
Their business model is causing the apocalypse.
more traffic, more sellers on amazon, more products available
lower costs lower price. = This leads to Growth
Consumers got a lot of demands everything right now, right
here at the lowest costs. = CONSUMER 2.0
,Webclips Module 2
2.1 Why go (in)direct?
Indirect = use a middle man (retailers). The middle man can be B&M or online.
- Independent/third parties: buy&own products, hold inventory and set consumer price
- Physical or Digital: always combination of B&M and online
Direct = Manufacturer cutting out the middle man and sells directly to consumers
- Company-owned: manufacturer holds inventory and set consumer price
- B&M or webstore
Why go direct? higher profit margin for
manufacturer. Also at a lower consumer price!
Why go indirect? Middleman may add value:
- Bulk Breaking: allow buying in small lots. Consumer
can buy preferred quantity
- Assortment convenience: offer a wide variety of
goods
- Time convenience: reduce waiting time (holding
inventory)
So don’t focus only at gross margin, but also costs
Distribution costs: with a
middlemen, the middleman makes
the distribution less costly,
because there are less contact
lines and cost of contact line is
less costly
2.2 3P Marketplaces: third party marketplaces. 3P marketplace sellers are growing
Bring together manufacturers and consumers
Marketplace agent
- doesn’t own products
- doesn’t hold inventory
- doesn’t set price
The blended model = online retailer & 3P
Marketplace (Amazon as retailer that sells Levi’s
trousers and holds inventory etc. and as marketplace
for Levi’s it only is a marketplace)
, Profit generation
Why sell on marketplaces?
1. Huge consumer traffic:
- Long-tail products: nice products where demand is relatively low
- cross-border selling: reach broad audience
2. Quick Launch:
- Low set-up costs
- no digital worries
Amazon learns from its marketplace & includes best-selling models in its own (retailer)
assortment.
Pitfalls for retailers when expanding marketplaces
- No control over prices (retailers asking $25 for 1 mask on Amazon)
- No control over fulfillment (inconsistent delivery times, fees, return policy)
- No controller over product presentation (misleading info)
2.3 Multichannel – as a manufacturer you want enough channels possible = distribution
Avoid under-distribution: less convenient to consumer to find your products & retailers may
exploit their monopoly position.
But, more channels is not always better. chances of a price war, so lower prices
Freeriding = try out everything in store (guitar or shoes) and they buy somewhere else
Avoid over-distribution: more convenient for consumer to find you product & fierce intra-
brand price competition, resellers set lower price and lower selling support
! So minimize conflict while maximizing coverage regain price control by reducing price
transparency by: 1. offering exclusives, 2. different bundles for different channels,
3. different products variants through different channels.
2.4 Grey markets: when products are sold through non-authorized
retailers. Not authorized by the manufacturer.
- Grey markets are legal = real products
- Black markets are illegal = fake products
! 20-50% of authorizes sales is sold through grey markets.
Grey markets often occur when there is overstock
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