Part 3: Managing the Marketing Channel

10
CHAPTER

Product Issues in
Channel
Management

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 ① The growing importance of marketing channels
② The definition of marketing channels
Learning Objectives

③ How marketing channels relate to strategic

variables in the marketing mix

④ The flows in the marketing channels and their

relationship to channel management

⑤ The principles of specialization, division of labor,

and contactual efficiency

⑥ The difference between the concepts of channel

structure and of ancillary structure

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Objective
Marketing Mix Resources
1

By understanding how the other marketing

mix variables interface with the channel
variable, and the implications of such,
the channel manager could coordinate all
strategic components to create the synergy needed
to meet customers’ needs.

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Objective Product-Channel
2 Management Interfaces
New product planning
& development

The Product Life Cycle

3
Major
areas of
Strategic Product
product
Management
Management

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Objective

3 New Product Planning

1. What input, if any, can channel members provide

into new product planning?
2. What has been done to assure that new products
will be acceptable to the channel members?
3. Do the new products fit into the present channel
members’ assortments?
4. Will any special education or training be necessary
to prepare the channel members to sell the new
products effectively?
5. Will the product cause the channel members any
special problems?

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 Encouraging Member Input

Solicit ideas for

new products. Gather feedback
on product size
or on packaging.

Solicit feedback
during the test-marketing
or commercialization stage.

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 Member Acceptance of
New Products

Factors that pre-determine acceptance of new

products by channel partners:

• How the product will sell – “Turnover”

• Whether the product is easy to stock & display
• Whether the product will be profitable – “Margins”

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 Adding Products to the Assortment

Will existing channel members view the new product as

appropriate to add to their assortments?

Will channel members feel competent

to handle the new product?

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 Educating Channel Members

To sell new products

Manufacturer successfully
goal:

Educate or train
channel members in the
Method: product’s use and the
special features to
emphasize in sales
presentations

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 Trouble-Free New Products

Care in new product

planning

=
New product problems

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Objective
Product Life Cycle
4

Sales
($)
Sales curve

Introduction Profit curve

Time
Growth Maturity Decline
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 Introduction

1. Assure sufficient number of channel

members for adequate market coverage

2. Assure adequate supply on channel

members’ shelves

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 Growth

1. Assure sufficient number of channel member

inventories for adequate market coverage

2. Monitor the effects of competitive products

on channel member support

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 Maturity

1. Extra emphasis on motivating channel members

to mitigate competitive impact

2. Investigate possibility for changes in channel

structure to extend maturity stage & possibly
foster new growth stage
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 Decline

1. Phase out marginal channel members

2. Investigate impact of product deletion

on channel members

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Objective
Strategic Product Management
5

Successful Product Strategies:

• Product quality, innovativeness, or technological
sophistication
• Capabilities of managers overseeing product line
• Firm’s financial capacity & willingness to provide
promotional support
• Channel members’ role in implementing product
strategies

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Objective
Product Strategies
6

Product differentiation
Product positioning
Product line expansion & contraction
Trading up & trading down
Product brand strategy

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 Product Differentiation
Creating a differential product involves getting
consumers to perceive a difference.

Implications for channel management:

• Channel managers should try to select & help develop members

who fit the product image when product differentiation strategy is
affected by who will be selling the product.

• Channel managers should provide retailers with the kind of support

needed to properly present the product when this strategy is
influenced by how the product is sold at retail.

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 Product Positioning

The manufacturer’s attempt to have consumers

perceive the product in a particular way relative to
competitive products

Implications for channel management:

• Possible interfaces between the product positioning strategy

and where the product will be displayed and sold to consumers
should be considered before the strategy is implemented.

• Elicit retailer support before attempting to implement strategy.

• Maintain backup supply of retailer incentives

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 Product Line Expansion & Contraction

Manufacturers often engage in both

expansion and contraction simultaneously.

Implications for channel management:

• Difficult to balance channel member satisfaction & support for

reshaped product lines

• Channel members are making increasing demands on manufacturers

to have the right mix of products

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 Trading Down, Trading Up
Adding lower-priced products or product lines,
or higher-priced products or product lines,
to a product mix

Implications for channel management:

• Whether existing channel members provide adequate coverage

of high-end or low-end market segments to which trade-up or
trade-down product is aimed

• Whether the channel members have confidence in the

manufacturer’s ability to successfully market the trade-up or
trade-down product.

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 Product Brand Strategy

When manufacturers sell under both national and

private brands, direct competition with channel
members may result

Implications for channel management:

• Do not sell both national & private brand versions of products to

the same channel members.

• Sell national and private brand versions in different geographical

territories.

• Physically vary products enough to minimize direct competition

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Objective
Product Service Strategy
7
It is the role of the marketing channel to
provide necessary service along with the
product to the final user

Manufacturers should provide after-sale service:

• by offering it directly at the factory

• through their own network of service centers
• through channel members
• through authorized independent service centers
• by some combination of the above

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 Discussion Question #1
With the widespread use of e-books, such as [Link]’s
Kindle, book publishers are faced with a tough channel decision:
should they introduce the conventional hardcover and the ebook
versions simultaneously or delay release to the e-book channel until
after the hardcover has had a chance to generate sales through the
conventional channels? HarperCollins, the publisher of former vice
presidential candidate Sarah Palin’s book, Going Rogue: An American
Life, opted for the delay strategy. The publisher chose to wait over a
month after the release of the hardcover before making the book
available via e-book. The publisher had produced 1.5 million copies of
the hardcover version, which were available for sale in book stores
and online in mid-November. But the e-book version was not made
available until December 26, the day after Christmas. Apparently
HarperCollins was worried about the ebook cannibalizing sales from
the hardcover version.

Do you think HarperCollins made the right channel decision? Why

or why not?
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 Discussion Question #2
RadioShack, with over 6,500 locations worldwide, has been
struggling for a number of years with an image of being “old-
fashioned” or “out of touch” with new technologies. RadioShack
was viewed by tech-savvy consumers as a place to buy odds-and-
ends electrical items, such as adaptors and cables, but not the
place to buy smartphones. But by the latter part of the first
decade of the twenty-first century, RadioShack, which started to
refer to itself in advertisements as “The Shack,” began selling what
is arguably the most iconic example of high-tech, cool products—
the Apple iPhone. Apple Inc., which is known for being very
selective about who qualifies to sell its products, nevertheless
decided to let RadioShack sell the iPhone.

Why do you think Apple decided to use RadioShack as a

channel member for selling iPhones? Do you think the product life
cycle played a role in Apple’s decision?

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 Discussion Question #3
Toddler University Inc. is the name of a shoe company
that makes children’s footwear. The company grew from
almost nothing to sales exceeding $25 million. The secret of
Toddler University’s success, according to some industry
observers, is a unique product design that can
drastically reduce retailers’ inventory requirements. In
regular children’s shoes, there are 11 sizes and 5 widths—so,
to have a complete selection, retailers would have to stock
55 pairs of shoes for each particular model. But Toddler
University has patented a shoe that allows the use of a one-
width shoe with five shoe inserts of varying widths, thus
drastically reducing the retailer’s inventory requirements.

Comment on this development in light of what you

believe to be the relevant product strategy and channel
management strategy interface.
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