MARKETING CHANNEL MANAGEMENT MODULE 1
Marketing channel= a set of organizations that work together to make
goods available (corporate to achieve common goal) for end users
(consumers or business consumers).
Types of goods: FMCG/CPG (fast moving consumer goods, consumer
packaged goods), consumer durables, industrial products and services.
Retailers are customer from brand manufacturers
In this course focus on middle men. in the first part only business
involved and in second part learn on consumers.
Channel management is important because:
Channels are universal; so are channel decisions, behind every product/service: one or more channels
Channels are important in economic terms (they add value), total sales through channels:
1/3 of worldwide annual GP
Channels can be a source of competitive advantage, creation of entry barriers
Single largest company in the world (in terms of sales) is Walmart, second is Amazon.
There is a huge power shift from manufacturers to retailers. Manufacturers were much bigger than
retailers, but now retailers are much bigger. It went from manufacturers telling the retailers what to
do, to the other way around. The manufacturers are being bossed around by the retailers. (pay for promotion)
Which forces fuel rising retailer power?
Mergers: separate companies merged and became much bigger companies. Big retailers are still
merging and becoming bigger and bigger.
Multi-channel operations: retailers were simple businesses and used one way to sell products (single-
channel operations) and now they have multiple contact points. (pick-up points, delivery etc.)
Tesco now delivers groceries when they come back from holiday and their fridge is empty, when
people leave the airport, they start the road to the house of the client.
Walmart has managed to let others do shared groceries for other people in the neighborhood.
Retailers becoming brands: Private labels. The retailer owns the product, they sell the same products
as the manufacturers and therefore compete with them. Not only in grocery shopping.
Access to consumer data, this is done by the client cards (loyalty programs). They know which types of
promotion works and they also know what is happening when a competitor changes their price.
Retailers also have a hard time, it’s not all rosy.
- Retail apocalypse= to denote the fact that retailers are struggling and retailers become bankrupt with
a lot of empty stores. This is due to The Great Recession, the shift to online (main reason, caused by
this), the shift to experience and the covid-19 pandemic. The rest reinforces this. What is the % of
retail sales occurring online? 19,6% of 2021 retail sales.
, - The reason is the business model of the biggest online retailers. Like Amazon
more companies want to sell their products on Amazon and it reinforces their
selves. Their goal is that people are looking for what they are looking for on
Amazon first. This causes the retail apocalypse
KNOWLEDGE CLIP 2.1 WHY GO
(IN)DIRECT?
If you use an indirect channel you will first sell your products to a middle man (can be online or offline). The
middle men are independent firms/third parties (buy & own products, hold inventory and they set the
consumer price), the retailer now owns the product.
In a direct channel the manufacturer sells the product directly to consumers. The manufacturer stays the
owner, it holds their own inventory and sets the consumer price. It can be online or offline.
The manufacturer gross profit margin is higher for going direct. Even a lower consumer price can lead to a
higher gross profit margin possible, a lower price can lead to higher sales.
Manufacturer’s net total profit = (gross profit margin x sales) – distribution costs
The sales can depend on value added by the middlemen. A middleman can lead to higher sales than the
manufacturer because they add value for the consumer and then the sales and gross profit will be higher.
Middlemen allow buying in small lots by the quantities the consumer wants instead of a whole pallet or six-
pack.
Middlemen allow assortment convenience and offer a wide variety of goods. They sell the whole package.
Middle also reduce waiting time so it gives time convenience because you go to the shop and you can
immediately buy the product.
The distributions costs lower the number of contacts because the middle men contact the consumers. And
also, the cost of contact line, if the middle men buy from the manufacturer it is a routine transaction and
otherwise it’s a non-routine transaction. This is less expensive because in a routine everyone knows how it goes
and there are less questions.
It’s a matter of finding the right mix and making that mix work. It’s not choosing for indirect or direct but a mix.
, KNOWLEDGE CLIP 2.2 MARKETPLACES
A 3P marketplace (third party), is an indirect online channel. However, unlike the middle men in the prior clip,
they are an agent. The agent does not buy/own products, do not hold inventory and do not set the price. They
facilitate for the manufacturer. There are businesses who are an online retailer but are also a 3P marketplace.
As a marketplace, it virtually shows the products and handles the check-out. The manufacturer pays the 3P
marketplace. The difference between the direct channel is that the 3P marketplace helps the manufacturer and
in a direct channel the manufacturer has to do it all by himself.
Profit generation:
Online retailer:
Gross margin x units sold
Inventory costs, it has to stock the products
Fulfillment costs, it has to send the products to the buyer.
Why sell on a marketplace?
Huge consumer traffic, long-tail products (products for which demand is rather low, niche products)
and cross-border selling (possible to reach an international audience)
Quick launch, low set-up costs and no digital worries.
Companies ‘learns’ from its marketplace & includes best-selling models in its own (retailer) assortment to earn
a profit margin instead of the commission fee. For example, Amazon has also started competing with its own
clients by creating private labels for the bestselling products.
Pitfalls for retailers when expanding marketplaces: consumers satisfaction can be lower with the retailer and
lowers the equity for the retailer when using 3P marketplaces.
No control over prices
No control of fulfillment may lead to inconsistent delivery times, fees & return policies
No control over product presentation may lead to inconsistent & misleading information about
product characteristics & availability
Marketing channel= a set of organizations that work together to make
goods available (corporate to achieve common goal) for end users
(consumers or business consumers).
Types of goods: FMCG/CPG (fast moving consumer goods, consumer
packaged goods), consumer durables, industrial products and services.
Retailers are customer from brand manufacturers
In this course focus on middle men. in the first part only business
involved and in second part learn on consumers.
Channel management is important because:
Channels are universal; so are channel decisions, behind every product/service: one or more channels
Channels are important in economic terms (they add value), total sales through channels:
1/3 of worldwide annual GP
Channels can be a source of competitive advantage, creation of entry barriers
Single largest company in the world (in terms of sales) is Walmart, second is Amazon.
There is a huge power shift from manufacturers to retailers. Manufacturers were much bigger than
retailers, but now retailers are much bigger. It went from manufacturers telling the retailers what to
do, to the other way around. The manufacturers are being bossed around by the retailers. (pay for promotion)
Which forces fuel rising retailer power?
Mergers: separate companies merged and became much bigger companies. Big retailers are still
merging and becoming bigger and bigger.
Multi-channel operations: retailers were simple businesses and used one way to sell products (single-
channel operations) and now they have multiple contact points. (pick-up points, delivery etc.)
Tesco now delivers groceries when they come back from holiday and their fridge is empty, when
people leave the airport, they start the road to the house of the client.
Walmart has managed to let others do shared groceries for other people in the neighborhood.
Retailers becoming brands: Private labels. The retailer owns the product, they sell the same products
as the manufacturers and therefore compete with them. Not only in grocery shopping.
Access to consumer data, this is done by the client cards (loyalty programs). They know which types of
promotion works and they also know what is happening when a competitor changes their price.
Retailers also have a hard time, it’s not all rosy.
- Retail apocalypse= to denote the fact that retailers are struggling and retailers become bankrupt with
a lot of empty stores. This is due to The Great Recession, the shift to online (main reason, caused by
this), the shift to experience and the covid-19 pandemic. The rest reinforces this. What is the % of
retail sales occurring online? 19,6% of 2021 retail sales.
, - The reason is the business model of the biggest online retailers. Like Amazon
more companies want to sell their products on Amazon and it reinforces their
selves. Their goal is that people are looking for what they are looking for on
Amazon first. This causes the retail apocalypse
KNOWLEDGE CLIP 2.1 WHY GO
(IN)DIRECT?
If you use an indirect channel you will first sell your products to a middle man (can be online or offline). The
middle men are independent firms/third parties (buy & own products, hold inventory and they set the
consumer price), the retailer now owns the product.
In a direct channel the manufacturer sells the product directly to consumers. The manufacturer stays the
owner, it holds their own inventory and sets the consumer price. It can be online or offline.
The manufacturer gross profit margin is higher for going direct. Even a lower consumer price can lead to a
higher gross profit margin possible, a lower price can lead to higher sales.
Manufacturer’s net total profit = (gross profit margin x sales) – distribution costs
The sales can depend on value added by the middlemen. A middleman can lead to higher sales than the
manufacturer because they add value for the consumer and then the sales and gross profit will be higher.
Middlemen allow buying in small lots by the quantities the consumer wants instead of a whole pallet or six-
pack.
Middlemen allow assortment convenience and offer a wide variety of goods. They sell the whole package.
Middle also reduce waiting time so it gives time convenience because you go to the shop and you can
immediately buy the product.
The distributions costs lower the number of contacts because the middle men contact the consumers. And
also, the cost of contact line, if the middle men buy from the manufacturer it is a routine transaction and
otherwise it’s a non-routine transaction. This is less expensive because in a routine everyone knows how it goes
and there are less questions.
It’s a matter of finding the right mix and making that mix work. It’s not choosing for indirect or direct but a mix.
, KNOWLEDGE CLIP 2.2 MARKETPLACES
A 3P marketplace (third party), is an indirect online channel. However, unlike the middle men in the prior clip,
they are an agent. The agent does not buy/own products, do not hold inventory and do not set the price. They
facilitate for the manufacturer. There are businesses who are an online retailer but are also a 3P marketplace.
As a marketplace, it virtually shows the products and handles the check-out. The manufacturer pays the 3P
marketplace. The difference between the direct channel is that the 3P marketplace helps the manufacturer and
in a direct channel the manufacturer has to do it all by himself.
Profit generation:
Online retailer:
Gross margin x units sold
Inventory costs, it has to stock the products
Fulfillment costs, it has to send the products to the buyer.
Why sell on a marketplace?
Huge consumer traffic, long-tail products (products for which demand is rather low, niche products)
and cross-border selling (possible to reach an international audience)
Quick launch, low set-up costs and no digital worries.
Companies ‘learns’ from its marketplace & includes best-selling models in its own (retailer) assortment to earn
a profit margin instead of the commission fee. For example, Amazon has also started competing with its own
clients by creating private labels for the bestselling products.
Pitfalls for retailers when expanding marketplaces: consumers satisfaction can be lower with the retailer and
lowers the equity for the retailer when using 3P marketplaces.
No control over prices
No control of fulfillment may lead to inconsistent delivery times, fees & return policies
No control over product presentation may lead to inconsistent & misleading information about
product characteristics & availability
