Marketing Channel Management
MODULE 1
Lecture 1
Marketing channel management is about the complicated and ever-changing relationship
between brand manufacturers and retail intermediaries.
Marketing channel = the path to the consumer. It is a set of organizations that work together
to make goods available for end users.
Reseller: buys product of the brand and then sells it to other customer.
Agent: facilitates the sale between two parties.
Manufacturers are way smaller than brands.
Access to consumers is power. The retailer has data about customers which the brand does
not have (or can only access it with a delay / pay a price to the retailers)
> The power shifts from manufacturers to retailers.
> If you don’t have power in the relationship, you have to pay for everything (promotion,
data, information, etc.)
Ecommerce has disrupted retail. 20% of retail sales are online, so why has this made such an
impact?
Modus Operandi of Ecommerce
Selection (assortment size) is the crucial element is this business
model. The possibility to nd everything you need in one place is the
most important thing. Companies like amazon perform better both in
size, but also diversity (they carry a niche of brands).
Price: the pricing algorithm compares the lowest prices across the
retail sector for particular products – including those retailers selling in bulk and where
membership costs are needed. It is moving towards individual pricing.
Ful lment becomes more complex; not just deliver to distributors, but to individual
customers.
The reason ecommerce is so destructive is that ecommerce has fundamentally changed the
way consumers think: they need to have every need ful lled and do nothing themselves.
Consumers want everything, right here, right now, at the lowest cost and have zero
willingness to pay. COVID-19 has accelerated this process.
The “last mile” (bringing something from the distribution centre to an individual doorstep) is
extremely expensive. End result is an unsustainable cost structure.
Walmart sees its store estate as a key for successful e-commerce ful lment. The network of
physical stores acts as distributions centres (store personnel pulls from assortment, fast
delivery, in-store pick-up and returns).
Renaissance of conventional store operations. From online back to offline.
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,Retailer Power in the Grocery Industry – Inge Geyskens
Two sources of retailer power:
1. Growing retailer scale
2. Growing retailer sophistication
Growing retailer scale
Retailers have achieved economies of scale through setting up international operations,
engaging in mergers and acquisitions, and entering into buying groups.
> International operations
o Retailers that were formerly characterized by a local or national orientation
have increasingly developed into global players with worldwide operation.
o International operations have contributed to the remarkable shift in power from
manufacturers to retailers.
o Retailers are focusing on certain regions and withdrawing from others --> it is
not possible to be a leading player everywhere around the world, but they can
be very powerful on a more limited basis.
> Mergers and acquisitions
o When entering through green eld expansion, being early is critical to success.
This is less of an issue when opting for a merger and acquisition as the retailer
may acquire or merge with an earlier entrant that occupies the better
locations.
o Acquiring outlets with a clientele in place leads to higher store traf c levels
than the acquiring retailers could reach by opening new outlets. -->
Acquisitions increase retailer power more than organic growth does.
> Buying groups
o Buying groups are horizontal, typically cross-bordered collaborations through
which retailers purchase from suppliers.
o By pooling volume and using their clout, large buying groups can keep
suppliers on their toes and extract better buy-in prices than through individual
negotiation --> which results in higher margins but also enable retailers to
reduce retail prices, increasing retailer sales.
o However, retailers bene t less from buying group scale when the group is
more heterogeneous in terms of member size. Smaller members win the least
as they have to agree with the wishes of their larger counterpart. Retailers
should therefore look to join a buying group with rms of similar size.
o If geographic overlap of group members is high, advantages of buying group
participation are also available to direct competitors.
o The narrower the product-market scope (number of different store formats
within buying group) of the buying group, the larger the bene cial effect of the
group’s scale on its member’s performance.
o There is further pressure on suppliers as also buying group executives are
frequently switching between groups, leveraging insider knowledge of each
other’s terms, and making buying groups even more powerful.
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,Growing retailer sophistication
The better availability of customer data is contributing to retailers’ power surge, as the
retailers have become much closer to the consumer than manufacturing companies due to
these data. They have seized that opportunity to diversify different channels – to target
different consumers – and develop their own private labels – to increase consumer loyalty to
their chains.
> Format diversi cation
o Allows retailers to target different consumers and cater to different shopping
occasions.
o Provides “insulation” of their power should a certain retail format run into
dif culties.
> Private labels
o Offering a private label reinforces retailers’ bargaining position and enables
them to obtain more favourable terms from brand manufacturers than would
otherwise be expected under normal competitive conditions, as they now have
private labels as an alternative.
o Having achieved the necessary mass for investments in branding activities,
retailers turn their private labels into brands of their own.
o More retailers are trying to increase their private label’s equity by using their
store name in the name in order to signal to consumers that their product
claims are credible.
o Three-tiered private labels program: good, better, best. Inclusion of an
economy and premium label in addition to the standard.
o The vertical differentiation of private labels into these three tiers, and
increased brand equity, have contributed to retailers’ power rise.
These various sources of retailer power do not occur in isolation but may reinforce each other
in creating retailer power. For example:
Internationalization & private labels: retailers that are at the forefront of internationalization
capitalize on their strong private label base by offering their private label in overseas markets.
Internationalization & format diversi cation: many retailers are now looking to alternative
routes to gaining international presence – methods which carry less risk and provide greater
flexibility than green eld expansion or M&A. The growth of online has provided an
opportunity for smaller retailers to reach out to a wider international audience.
Buying groups & private labels: in addition to negotiating better prices, buying groups may
provide access to own-brand ranges, which may further increase the sales of their members.
Medium-sized retailers in particular are seeking to partner with a buying group for sourcing
private labels. By gaining economies of scale for sourcing private labels, retailers may further
enhance their power position.
In conclusion, the historically fragmented retail market has rapidly moved to a more
consolidated one, with a few players holding more and more of the stakes.
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, MODULE 2
Web clip 2.1
There are 2 routes to the market: indirect or direct.
Indirect channels
- Independent/third parties
o Not owned by the manufacturer.
o Buy & own products.
o Hold inventory.
o Set consumer price.
- Physical or digital
Direct channels
- Company-owned.
o Manufacturer remains the owner of the product.
o Manufacturer holds inventory.
o Manufacturer sets consumer price.
- Brick & mortar or web store.
- Higher gross pro t margin for the manufacturer, even possible at a lower consumer
price.
Manufacturer’s net total pro t = (gross pro t margin * sales) – distribution costs
Gross pro t margin – direct > indirect
Sales – direct <> indirect
- Depends on the value added by middlemen. If the middleman provides extra value
(e.g., service, convenience) to consumers, sales may be higher than in a direct
channel.
Distribution costs – direct < indirect
- If you as a manufacturer distribute the products yourselves, it may be a lot more
expensive than using a middleman.
Middlemen can add value by:
- Bulk breaking.
o Allow buying in small lots. Consumers can buy in the quantity they want.
- Assortment convenience.
o Manufacturers produce a limited variety of goods. Retailers offer a wide variety
of goods and buy from different manufacturers.
- Time convenience.
o Reduce waiting time. By holding inventory, consumers can buy products
whenever they want without a waiting time.
Without middlemen, the manufacturer would have to contact every single consumer. The
number of contact lines will increase distribution costs.
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