Summary Marketing Channel Management - Lectures
Contents
Module 1 – Setting the Scene ......................................................................................................................... 2
Module 2 – Channel Design ............................................................................................................................ 2
Webclip 2.1 Why go (in)direct? ................................................................................................................... 2
Webclip 2.2 Marketplaces........................................................................................................................... 3
Webclip 2.3 Multichannel ........................................................................................................................... 3
Webclip 2.4 Grey markets ........................................................................................................................... 4
Webclip 2.5 Omnichannel ........................................................................................................................... 4
Module 4 – Partnerships ................................................................................................................................. 5
Webclip 4.1 Definition ................................................................................................................................ 5
Webclip 4.2 Power ...................................................................................................................................... 6
Webclip 4.3 Partnerships between unequals ............................................................................................. 7
Module 6 - Assortment ................................................................................................................................... 7
Webclip 1 Assortment size .......................................................................................................................... 7
Webclip 2 Which SKUs to (de)list ................................................................................................................ 8
Webclip 3 Online assortments .................................................................................................................... 8
Webclip 4 Assortments: Category Captains ................................................................................................ 9
Module 8 - Private Label ............................................................................................................................... 10
Webclip 8.1 Private labels – State of affair ............................................................................................... 10
Webclip 8.2 How retailers can boost private label success ...................................................................... 11
Webclip 8.3 How NB manufacturers can fight PLs.................................................................................... 12
Module 10 - Price and Promotion ................................................................................................................. 12
Webclip 10.1 Pricing and Consumer Promotions ..................................................................................... 12
Webclip 10.2 Trade promotion ................................................................................................................. 14
Webclip 10.3 Everyday Low Pricing .......................................................................................................... 15
Module 12 - Value retailers ........................................................................................................................... 16
Webclip 12.1 Hard discounters as value disruptors.................................................................................. 16
Webclip 12.2 Brand manufacturers’ reaction to hard discounters .......................................................... 17
Webclip 12.3 Conventional retailer’s reactions to hard discounters........................................................ 18
1
,Module 1 – Setting the Scene
Marketing channel: A set of organizations that work together to make goods available for end users.
These goods can be Fast Moving Consumer Goods / Consumer Packaged Goods (The same thing, FMCG is
European, CPG is USA), consumer durables, industrial products or services. The distribution channel can
be split up into two parts:
• Upstream: The relationship between the manufacturer and the middlemen
• Downstream: The relationship between the middlemen and the consumer
Three reasons why channel management is important:
1) Behind every product/service is one or more channels
2) Sales through channels consists of 1/3 of worldwide annual GDP
3) Channels are hard to replicate for competitors. Hence, it can be a source of competitive
advantage
Retailer: The retailer is the customer for the manufacturer. Retailers has risen in power, relative to
manufacturers, over the last few decades. Retailers are now much larger (revenue-wise) than
manufacturers, whereas in the 60s and 70s manufacturers were more powerful. This is due to mergers,
multi-channel operations, retailers becoming brands (private labels) and the access to consumer data.
Despite the fact that, as of 2020, only 18% of the sales is online, more and more brick-and-mortar shops
are closing due to the greediness of the consumer. They want more and more the lowest price with the
most convenience, because they can easily compare it via the internet (Amazon is the biggest cause)
Module 2 – Channel Design
Webclip 2.1 Why go (in)direct?
Direct channel: The manufacturer sells his goods directly to the consumer, either digitally or physically.
The manufacturer holds the inventory and sets the consumer price. The manufacturer controls all aspects
of the distribution. There’s no 3rd party involved
• Advantages
o Higher profit margin
o Can set the consumer price (e.g. it can increase its revenue by lowering the price)
• Disadvantages:
o The middle men could add value
▪ Bulk breaking: Middle men allow buying in small lots, whereas manufacturers
sell large bulks. This allows consumers to select the quantity they wish, instead
being limited to a minimum number of products when bought directly
▪ Assortment convenience: Middle men offer a wide variety of goods
▪ Time convenience: Thanks to the middle men’s inventory, consumers can buy
products without having to wait
o Higher distribution costs: The contact lines decrease, since not every manufacturer has
to contact every consumer individually. Besides, transactions are less expensive since the
distribution between the middle man and the consumer is more routine
Indirect channel: The manufacturer sells his goods to the middleman/reseller/retailer, who in turn sells
the goods to consumer, either physically or digitally. The middle men are independent/third parties who
buy and owns the product, hold inventory and sets the consumer price. However, the interaction with the
customer can still be direct, since it only refers to how the channel is organized
2
, Hybrid channel: Having both direct and indirect channels becomes increasingly popular. It’s a matter of
finding the right mix
Net total profit: (gross profit margin * sales) -/- distribution costs
Webclip 2.2 Marketplaces
3p marketplace: A third party marketplace. Becomes increasingly popular (from 30 to 60% in the last 10
years). The marketplace purely acts as an agent. It does not buy/own products, does not hold inventory
and does not set a price. The retailer helps with payments and logistics. Its gross profit is a commission for
each item sold (variable, using 5 to 7%), as well as a step-in fee (fixed, only a few euros). Its costs are only
administrative costs
• Advantages (for manufacturers)
o Huge consumer traffic
▪ Long-tail products: Amazon is the most used platform for product searches
▪ Cross-border selling
o Quick launch
▪ Low set-up costs
▪ No digital worries
• Disadvantages (for retailers): It could tarnish the retailers equity, e.g. Amazon’s negative reviews
has rapidly increased over the years
o No control over prices: High prices also damages the retailer’s image
o No control over fulfilment: It may lead to inconsistent delivery times, fees and return
policies. This might lead to frustration for the consumer
o No control over product presentation: It may lead to inconsistent and misleading
information about product characteristics and availability
Blended model: An entity that is a retailer as well as a marketplace, for example Amazon selling products
of other retailers as well as its own products. This way, the retailer can learn from its marketplace and
include its best-selling models in its own retailer assortment (since retailer assortment usually has higher
profit margins)
Online retailer: Its gross profit is its gross margin * units sold. The costs are the inventory and fulfilment
costs (all costs from receiving to distribution)
Webclip 2.3 Multichannel
Multichannel: A manufacturer has at least two of the following channels: Directly (online or brick-and-
mortar), via a marketplace, a brick-and-mortar retailer and/or online retailers. Adding a channel increases
sales if it reaches a new customer segment
Under-distribution: Not having enough outlets/channels. This has the following consequences:
• Less convenient for consumers to find your products: lower (volume) sales)
• Retailers may exploit their monopoly position:
o Setting higher prices. The retailer sets the price since they own the product. It’s illegal for
manufacturers to set a (minimum) price. They only play an advising role
o Lower selling support
Over-distribution: Having too many channels. This has the following consequences:
• Advantage: More convenience for consumers to find your product: higher (volume) sales
• Disadvantage: Fierce intra-brand price competition
3
Contents
Module 1 – Setting the Scene ......................................................................................................................... 2
Module 2 – Channel Design ............................................................................................................................ 2
Webclip 2.1 Why go (in)direct? ................................................................................................................... 2
Webclip 2.2 Marketplaces........................................................................................................................... 3
Webclip 2.3 Multichannel ........................................................................................................................... 3
Webclip 2.4 Grey markets ........................................................................................................................... 4
Webclip 2.5 Omnichannel ........................................................................................................................... 4
Module 4 – Partnerships ................................................................................................................................. 5
Webclip 4.1 Definition ................................................................................................................................ 5
Webclip 4.2 Power ...................................................................................................................................... 6
Webclip 4.3 Partnerships between unequals ............................................................................................. 7
Module 6 - Assortment ................................................................................................................................... 7
Webclip 1 Assortment size .......................................................................................................................... 7
Webclip 2 Which SKUs to (de)list ................................................................................................................ 8
Webclip 3 Online assortments .................................................................................................................... 8
Webclip 4 Assortments: Category Captains ................................................................................................ 9
Module 8 - Private Label ............................................................................................................................... 10
Webclip 8.1 Private labels – State of affair ............................................................................................... 10
Webclip 8.2 How retailers can boost private label success ...................................................................... 11
Webclip 8.3 How NB manufacturers can fight PLs.................................................................................... 12
Module 10 - Price and Promotion ................................................................................................................. 12
Webclip 10.1 Pricing and Consumer Promotions ..................................................................................... 12
Webclip 10.2 Trade promotion ................................................................................................................. 14
Webclip 10.3 Everyday Low Pricing .......................................................................................................... 15
Module 12 - Value retailers ........................................................................................................................... 16
Webclip 12.1 Hard discounters as value disruptors.................................................................................. 16
Webclip 12.2 Brand manufacturers’ reaction to hard discounters .......................................................... 17
Webclip 12.3 Conventional retailer’s reactions to hard discounters........................................................ 18
1
,Module 1 – Setting the Scene
Marketing channel: A set of organizations that work together to make goods available for end users.
These goods can be Fast Moving Consumer Goods / Consumer Packaged Goods (The same thing, FMCG is
European, CPG is USA), consumer durables, industrial products or services. The distribution channel can
be split up into two parts:
• Upstream: The relationship between the manufacturer and the middlemen
• Downstream: The relationship between the middlemen and the consumer
Three reasons why channel management is important:
1) Behind every product/service is one or more channels
2) Sales through channels consists of 1/3 of worldwide annual GDP
3) Channels are hard to replicate for competitors. Hence, it can be a source of competitive
advantage
Retailer: The retailer is the customer for the manufacturer. Retailers has risen in power, relative to
manufacturers, over the last few decades. Retailers are now much larger (revenue-wise) than
manufacturers, whereas in the 60s and 70s manufacturers were more powerful. This is due to mergers,
multi-channel operations, retailers becoming brands (private labels) and the access to consumer data.
Despite the fact that, as of 2020, only 18% of the sales is online, more and more brick-and-mortar shops
are closing due to the greediness of the consumer. They want more and more the lowest price with the
most convenience, because they can easily compare it via the internet (Amazon is the biggest cause)
Module 2 – Channel Design
Webclip 2.1 Why go (in)direct?
Direct channel: The manufacturer sells his goods directly to the consumer, either digitally or physically.
The manufacturer holds the inventory and sets the consumer price. The manufacturer controls all aspects
of the distribution. There’s no 3rd party involved
• Advantages
o Higher profit margin
o Can set the consumer price (e.g. it can increase its revenue by lowering the price)
• Disadvantages:
o The middle men could add value
▪ Bulk breaking: Middle men allow buying in small lots, whereas manufacturers
sell large bulks. This allows consumers to select the quantity they wish, instead
being limited to a minimum number of products when bought directly
▪ Assortment convenience: Middle men offer a wide variety of goods
▪ Time convenience: Thanks to the middle men’s inventory, consumers can buy
products without having to wait
o Higher distribution costs: The contact lines decrease, since not every manufacturer has
to contact every consumer individually. Besides, transactions are less expensive since the
distribution between the middle man and the consumer is more routine
Indirect channel: The manufacturer sells his goods to the middleman/reseller/retailer, who in turn sells
the goods to consumer, either physically or digitally. The middle men are independent/third parties who
buy and owns the product, hold inventory and sets the consumer price. However, the interaction with the
customer can still be direct, since it only refers to how the channel is organized
2
, Hybrid channel: Having both direct and indirect channels becomes increasingly popular. It’s a matter of
finding the right mix
Net total profit: (gross profit margin * sales) -/- distribution costs
Webclip 2.2 Marketplaces
3p marketplace: A third party marketplace. Becomes increasingly popular (from 30 to 60% in the last 10
years). The marketplace purely acts as an agent. It does not buy/own products, does not hold inventory
and does not set a price. The retailer helps with payments and logistics. Its gross profit is a commission for
each item sold (variable, using 5 to 7%), as well as a step-in fee (fixed, only a few euros). Its costs are only
administrative costs
• Advantages (for manufacturers)
o Huge consumer traffic
▪ Long-tail products: Amazon is the most used platform for product searches
▪ Cross-border selling
o Quick launch
▪ Low set-up costs
▪ No digital worries
• Disadvantages (for retailers): It could tarnish the retailers equity, e.g. Amazon’s negative reviews
has rapidly increased over the years
o No control over prices: High prices also damages the retailer’s image
o No control over fulfilment: It may lead to inconsistent delivery times, fees and return
policies. This might lead to frustration for the consumer
o No control over product presentation: It may lead to inconsistent and misleading
information about product characteristics and availability
Blended model: An entity that is a retailer as well as a marketplace, for example Amazon selling products
of other retailers as well as its own products. This way, the retailer can learn from its marketplace and
include its best-selling models in its own retailer assortment (since retailer assortment usually has higher
profit margins)
Online retailer: Its gross profit is its gross margin * units sold. The costs are the inventory and fulfilment
costs (all costs from receiving to distribution)
Webclip 2.3 Multichannel
Multichannel: A manufacturer has at least two of the following channels: Directly (online or brick-and-
mortar), via a marketplace, a brick-and-mortar retailer and/or online retailers. Adding a channel increases
sales if it reaches a new customer segment
Under-distribution: Not having enough outlets/channels. This has the following consequences:
• Less convenient for consumers to find your products: lower (volume) sales)
• Retailers may exploit their monopoly position:
o Setting higher prices. The retailer sets the price since they own the product. It’s illegal for
manufacturers to set a (minimum) price. They only play an advising role
o Lower selling support
Over-distribution: Having too many channels. This has the following consequences:
• Advantage: More convenience for consumers to find your product: higher (volume) sales
• Disadvantage: Fierce intra-brand price competition
3
