Supplemental

Notes in Distribution Management Cabalum Western College

MARKETING CHANNELS AND THE ENVIRONMENT

Marketing channels operate in a continually changing environment. So, the channel manager needs to be
sensitive to the environment and the changes occuring to plan effective marketing channel strategies for
addressing theses changes successfully. To do so, the channel nanager needs to understand the
environmental factors that can affect marketing channel systems.

The environment consists of myriad external, uncontrollable factors within which marketing channels exist.
The following are the major environments affecting the marketing channels:

1. Economic
2. Sociocultural
3. Competitive
4. Legal
5. Technological

Impact of Environment in a Marketing Channel Context:


Producers &
Manufacturers

Environment: Locus of

channel
1. Economic
Member

management
Intermediaries
2. Competitive participants

3. Sociocultural

4. Technological Target Markets

5. Legal


Facilitating
Non-member
Agencies
participants



Channel manager’s environment

impact must include all channel
participants

The Economic Environment:

The economy is probably the most obvious and pervasive category of environment variables affecting all
members of the marketing channel. Hardly a day goes by without the state of the economy drawing the
notice of consumers and executives in manufacturing, wholesaling and retailing firms. All of these parties
must pay attention to what is happening in the economy. From a manufactures raising capital for along-
term investment to a consumer buying a pound of coffee in the supermarket, all are affected by economic
variables:

Recession-
While the official defeinition of recession among professiobal economists is two consecutive quarters of
decline in the Gross Domestic Product (GDP), any period in which the GDP is stagnant or increasing very

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Supplemental Notes in Distribution Management Cabalum Western College

slowly is often referred to as “recessionary” or at least as an “economic slowdown.” [GDP is the total
monetary value of goods produced and services provided in a country during one year; Consumption +
Government Expenditures + Investment + Export – Imports].

By the close of the 20th century, many pundits were talking about the “end of the business cycle” and a
“new economy” where recessions would be a thing of the past. They argued that information technology
was so good that businesses would be forewarned of any potential slowdowns in the economy and would be
able to make the necessary adjustments, such as reducing inventories, so as to forestall the onset of a
recession.

All members of the marketing channel feel the effects of recession because sales volume levels and
profitability fall significantly during recession. Changes in consumer shopping behavior brougth on by the
recession also had a significant impact on virtually all participants in marketing channels.

Inflation-
A general increase in prices and decrease in the purchasing value of money is referred to as inflation.
Likewise, it is a quantitative measure of the value at which the average price level of a basket of selected
goods and services in an economy increases over a period of time. It is measured by the Consumer Price
Index (CPI) and the Wholesale Price Index (WPI).

The reactions of channel members at thewholesale and retail levels to high rates of inflation are in large
measure determined by the reactions of consumers or other final users. Unfortunately, consumers reactions
during the inflationary periods are not easy to predict. High spending may continue even in the face of
growing inflation, as consumers and other users follow a “buy now before the prices go higher” psychology.

Negative Effect- for people holding cash [not like for it erodes the value of their cash holding]
Positive Effect- for people with tangible assets [like to see inflation as that it raises the value of their assets].
Ideally, an optimum level of inflation is required to promote spending [to a certain extent] instead of savings,
thereby, norturing economic growth.

Causes of rising prices:
a. Demand-pull effect- rapid increase in the overall demand for goods/services
b. Cost-push effect- increase in the prices/cost of production
c. Built-in inflation- results from past event and persist in the present

In addition to the dramatic shifting in consumer spending that can occur during inflationary periods, many
more subtle changes in consumer buying patterns may occur. In the supermarket industry, consumer buying
patterns increasingly reflected such tactics as:
• Going to the supermarket without bringing along extra money
• Putting items back before checking out
• Buying only the amount needed
• Buying less meat
• Stocking up on bargains
• Buying lower-quality brands
• Buying unplanned items only if they are on special sale.

The Competitive Environment:

Competition is always a critical factor to consider for all members of the marketing channel. This is
especially the case in recent years as competition has become global in scope. No longer is it realistic for

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Supplemental Notes in Distribution Management Cabalum Western College

domestic firms to focus inly on rival within the boundaries of their own country. In addition, they need to
pay close attention to existing and emerging competitors from all over the world.

Types of Competition:

1. Horizontal Competition- competition between firms of the same type [Example: an automobile
manufacturer versus another automobile manufacturer].
2. Intertype Competition- competition between different types of firms at the same channellevel [Example:
Off-price stores versus department stores or the merchant wholesaler versus agents and brokers].
3. Vertical Competition- competition between channel members at different levels in the channel
[Example: Retailer versus Wholesaler and Wholesaler versus Manufacturer].
4. Channel Syste Competition- competition between complete channels competing with other complete
channels

The Sociocultural Environment:

The sociocultural environment pervades virtually all aspects of a society. Marketing channels [and
particularly the structure of marketing channels] are therefore also influenced by the sociocultural
environment within which they exist. Indeed, some channel analysts argue that this is a major force
affecting channel structure.

Arguably, the most importannt of theses sociocultural factors in terms of their relevance to marketing
channels are:

1. Globalization- refers to the interconnectedness and interdependence of countries around the world. In
a business rather than a political context, globalization typically focuses on the vast and complex trade
flows among countries and the international supply chains that make huge flows of products and
services across national boundaries possible.

Globalization can also be viewed as a frame-of-mind or outlook that is held by million of consumers from
all over the world. It is an outlook that does not see the matketplace as limited to one or even few
countries, but rather as a much richer and exciting tapestry of numerous countries and cultures.

2. Consumer Mobility and Connectedness- the ability to constantly be on the move while still being able to
stay in constant contact has not lost on cosumers. Indeed, buying products and services while literally
running around has become a common expectation for consumers armed with laptops and smartphones
all over the world.. This penomenon, which in recent years has generally been referred to as “mobile
commerce” or simply m-commerce, while still accounting for just a tiny fraction of total retail sales, is
expected to grow rapidly and become a mainstream and significant channel of distribution in the near
future.

The channel strategy and design implications of this mobility and connectivity are straightforward, but
not easy to address. First, virtually all channel managers, regardless of what industries they orprate in,
will need to included m-commerce channels in their channel mixes simply because highly mobile and
connected consumers expect to have such channels available to them. Second, channel managers will
need to sort out the role that m-commerce channels will play in the multi-channel mix.

3. Social Networking- this refers to interaction an networks comprised of individuals or organizations that
are linked together based on some type of common interest. Social networks and social networking
have existed for many decades. In a business context, social networking has enabled millions of

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Supplemental Notes in Distribution Management Cabalum Western College

consumers to share information and opinions about products, services and firms thet have dealt with or
are considering dealing with.

From a marketing channels perspective, social networking has not only empowered consumers to make
much more informed decisions about the products they buy, the services they use and the firms they
deal with through virtually limitless information sharing, but it has also enabled them to make better
channel choices and made them more demanding about the channels they choose. Why? Because social
networking enables consumers to share their experiences about channel choices. Good and bad
experiences associated with channel choices are quickly spread through the network.

4. The Green Movement- this is a term that has often been used to refer to a focus on preserving the
evvironment and human health.

All members of marketing channels, including producers, wholesalers, agents, brokers and consumers,
participate in activities that affect the environment and quality of life. So, whether it focuses public
attention on limiting thr adverse effects of climate change or promoting the sale of more organic foods,
the issues associated with the Green Movement provide tremendous opportunities as well as challenges
to channle managers to be full participants in developing and managing marketing channels that will
support the aspirations of the movement.

Technological Environment:

Technology is the most continuously and rapid changing aspect of the environment. In this rapidly
accelerating technology, the channel manager has to sort out theose developments that are relevant to
his/her own firm as well as the participants in the marketing channel and then determine how these changes
might affect the channel participants.

While it is not possible to present a comprehensive list of technological developments impinging on the
marketing channel, several are indicative of the kinds of advancements that should be watched carefully,
namely:

1. Electronic Data Inrechange (EDI)- refers to the linking together of channel member information systems
to provide real-time respeonses to communication between channel members.

2. Scanners, Computerized Inventory Management, and Handheld Computers- these have created a new
world in retailing and wholesaling. Not only has this technology drastically reduced the amount of labor
and paperwork involved in inventory management, ut it has also made a vast array of timely and
valuable information availabe to managers, enabling them to make better merchandising decisions.

3. Digital Revolution and Smartphones- the digital revolution is the term commonly used to describe the
huge transformation that has taken place over the past three decades from analog and mevhanical
technology to digital technology. The potential for vhannel managers to use this technology strategically
to enhance the design and management of marketing channels is practically unlimited.

4. RFID- this acronym stands for radio frequency identification. This is a relatively new technology that uses
a device called an RFID tag attached to aperson or object, such as a products, that enables that person or
product to be identified and tracjed using radio waves. By implanting this tags or chips, detailed
information including price, basic characteristics, date of manufacture, origin and current location, can
be recorded.

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Supplemental Notes in Distribution Management Cabalum Western College

5. Cloud Computing- is an internet-based technology that enables both large and small businesses and
organizations to utilize highly sophisticated computer application without having to have their own
hardware, software, office computing space and staff. From a marketing channels perspective, the
capabilities provided by cloud computing mean that virtually any firm in the marketing channel
regardless of size will find it feasible and cost effective to obtain the computing capabilities and expertise
needed to develop and support whatever channel management application they need, whether that
involves managing distributor relationships, coordinating multiple chanel services or tracking products in
the supply chain.

Legal Environment:

The legal environment refers to the set of laws that impact marketing channels. The legal structure resulting
from laws is not a static code. Rather, it is a continually evolving structre affected by changing values,
norms, politics and precedents established through court cases.

The most common legal issues in channel management, are:
1. Dual Distribution- refers to the practice whereby a producer or manufacturer uses two or more different
channel structures for distributing the same product to his target market.
2. Exclusive Dealing- an exclusive dealing arrangement exists whena supplier requires its channel members
to sell only its products or to refrain from selling products from directly competitive suppliers.
3. Full-line Forcing- a practive referred to if a supplier requires channel members to carry a broad group of
products (full line) in order to sell any particular products in the supplier’s line.
4. Price Discrimination- refers to the practice whereby a supplier, either directly or indirectly, sells at
different prices to the same class of channel members to the extent that such price differentials tend to
lessen competition.
5. Price Maintenance- or fair trade, refers to a supplier’s attempt to control the prices charged by its
channel members for the supplier’s products.
6. Refusal to Deal- in general, suppliers may select whomever they want as channel members.
7. Resale Restructions- the practice when a manufacturer attempts to stipulate to whom channel members
may resell the manufacturer’s products and in what specific geographical market areas they may be sold.
















Major Reference: Rosenbloom, Bert (2016) Distribution Management, CENGAGE Learning, OBE Philippine
Edition

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