Marketing Channel

Chapter 4
Supply-Side Channel
Analysis:
Channel Structure and
Intensity
Presenters:
Umair Rasheed
Saqib Imran
Zulqarnain
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L1S15MBAM0082
Shafiq

Channel Structure and

Intensity

Channel structure summarizes

The types of channel members
The intensity or numbers of members of each
type that coexist in the market
The number of distinct channels that coexist in
the market
Channel Design Posses three Challenges
The level of intensity needed: How much
coverage should the producer have?
How many different channel types / combination
should the producer have?
Should the producer use its own channels or via

Channel Structure and

Intensity
Description of Channel Structure
Types

of members in channel

Intensity

/ number of members of each type that

coexist in market

Number

of distinct channels that coexist in market

Intensive distribution: is that a brand can be

purchased through many of the possible outlets in
a trading area.
Exclusive distribution is that a brand can be
purchased only through one vendor in a trading

Channel Structure and

Intensity

Comparison of Distribution Channels

Channel Structure and

Intensity

Comparison tells us that channel intensity vary by

product category, frequency of purchase & volume
and need for reach.
The more intensively a manufacturer distributes its
brand in the market, the less influence the
manufacturer can have over the channel
members.
The upstream members (manufacturers) consider
how many outlets to pursue (degree of

Channel Structure and

Intensity

Why intensive distribution is better for manufacturers

of convenience goods?
Availability: the more is always better
Why downstream channel members dislike intensive
distribution?
Limited members high margins (spend on ads by
self to promote brand)
Distributors may;
Discontinue saturated brand & substitute less
intensively distributed brand
May carry the brand by offering nominal stock
but attempt to convert prospective customers to

FIGURE 4- 1: SAMPLE REPRESENTATIONS OF THE COVERAGE/MARKET

SHARE RELATIONSHIP FOR FAST MOVING CONSUMER GOODS
D

100%

Brand
MarketShare

40%

15%

normal
expectation

100%
ExtentofDistributionCoverageforaBrand
(%ofallPossibleOutlets)

30%

50%

FunctionAisanexampleofthetypeofrelationshipthatwouldordinarilybeexpectedbetweendistributioncoverageandmarketshare.
FunctionsB,CandDareconvexandareexamplesofapproximaterelationshipsoftenfoundinFMCGmarkets.
Abrandcanachieve100%marketshareatlessthan100%coveragebecausenoteverypossibleoutletwillcarrytheproduct
category.Forexample,conveniencestoressellfoodbutnoteverycategoryoffood.

Based on Reibstein, David J., and Paul W. Farris (1995), "Market Share and Distribution: A Generalization,
A Speculation, and Some Implications," Marketing Science, 14 (3), G190-G202.

Channel Structure and

Intensity

Royal Canin
Dog & Cat food (All ages / types)
Leading position in Europe with 18% market
share
Premium quality and premium price
Problem: when they were using Intensive
distribution strategy, brand was displayed with
inexpensive competitors and line was not
properly presented
Solution: Limiting Distribution through Specialty
outlets
Providing counseling on product selection /

Channel Structure and

Intensity

Can the manufacturer sustain intensive distribution?

(four Solutions)
Contract: Demand certain standards of conduct,
but it is expensive route and require
documentation & legal resources
Create Brand Equity: Invest in pull strategy:
consumer demands for a certain product to be
carried in store. Requires massive investments in
advertising & promotion.
Legally set Price-Floor: Resale Price Maintenance
RPM:
Selective Distribution: limiting the market coverage

Channel Structure and

Intensity

Degree of Category Exclusivity; The Downstream

Channel Members Decision:
For simplicity, distributor might prefer to carry one
brand/category, however it is likely to carry many
more, partly to get benefit from competitors
(whatever the buyer wants should be in stock
however increases inventory cost)
Distributor must decide how large its brand
assortment will be, very broad (all brands) or
narrower, even single (category exclusivity).
Broad Category Channel Conflicts;
Manufacturer wants to blanket trading area with
outlets, distributor prefers reverse

STRIKING A DEAL: HOW MUCH

SELECTIVITY TO TRADE AWAY

The Threat of Complacency:

When a brand is Highly Selective Brand
Small set of members intra brand
competition low and insufficient as members do
not devote vigorous efforts to brand Quassi
monopoly Complacency Inadequate
performance
Intra brand competition is beneficial for
manufacturers as members compete on nonprice basis
Best buy: electronic retailer acquired
FUTURE SHOP doesnt changed name
neither shut it down instead they use

Channel Structure and

Intensity

The Nature of Product Category

Convenience goods:
Intensive distribution
Low price / everyday goods, low involvement
Shopping goods:
Intermediate degree of selectivity
Consumer do some comparison across outlets
Specialty goods:
Exclusive distribution / through specialty stores
High involvement / High price / premium
products

BRAND STRATEGY: Quality

Positioning & Premium Pricing

High Quality Brand Positioning Strategy

Premium price premium quality brand image
Need channel members that excel in handling
high end brands / matches brands intended
image
Difficult to get / Exclusive Distribution
Other wise intensive distribution will dilute
the brands positioning of superior quality
Scarcity / deliberate product shortages by
manufacturers
Intra brand competition is low
Danger of channel complacency (screen out
less supportive members)

BRAND STRATEGY: Target Market

Niche Market Strategy for Superior quality

brand

A Narrow / Specialized band of buyers for

particular brand/product
Target buyers are homogeneous group with
common shopping patterns
The more Restricted the target market, the
more selective the distribution
Difficult to get / Exclusive Distribution as
channel members are less interested in
niche than broader appeal products
Manufacturer seeks more influence over

Channel Structure and

Intensity

Bargaining for Influence Over Channel

Members: Manufacturer uses selective

distribution to bargain for;

Desired Coordination; Reduced Coverage to
Increase sales
Producer Dictates prices, promos, displays &
sales people, stock level
Distributor Resist; Reward power for intra
channel competition
Category Exclusivity; Dependence balancing;
Trading Territory Exclusivity;
Selectivity as a strategic tool to enhance
business interest

Bargaining for Influence Over Channel

Members: (Contd)
Manufacturer uses selective distribution to bargain
for;
Investments by downstream channel members
(Manufacturer Specific);
Acquire capabilities & commit resources that
have no alternate use
Idiosyncratic knowledge: training the sales
staff for brand apps / features
Unusual handling or knowledge: custom
handling / shelving / storage
Brand-specific parts and know-how: After
sale service

Bargaining for Influence Over Channel

Members: (Contd)
Manufacturer uses selective distribution to bargain
for;
Reassurance: Using Selectivity to Stabilize
Fragile Relationships
Risk of becoming dependent on a strong
channel member
More vulnerable party fears the other side
will misuse its power
Reduced channel effectiveness
Dependence balancing: Stronger partys
reassurance of its good faith by offering
selectivity to reduce dependence of the
more vulnerable party

Bargaining for Influence Over Channel

Members: (Contd)
The Price of the
Concession:
Factoring in
opportunity Cost
Opportunity Cost:
Manufacturers
cost are greater
when;
Important
market area
Competitive
product

Bargaining for Influence Over Channel

Members: (Contd)
The Price of the
Concession:
Factoring in
opportunity Cost
Downstream
channel
members cost
are greater
when;
Major product
category in
their

Back To Basics: Cutting Costs & Raising Sales

Saving money by Limiting the number of trading

partners
Associated costs with each member
Do More Trading Partners Really Mean More
Revenue?
Generally, brands that are more widely
available have higher sales and greater market
share because of intensive distribution
Revenues or profits
A caution on the issue of Limiting the number of
Trading Partners
The choice of how many trading partners turn

Simulating the Benefits of Selectivity while Maintaining

Intensive Coverage
Methods are described below; (These methods are
expensive and are not easy to duplicate)
Invest in Brand Building: Create so much brand
equity that the downstream channel member
tolerate Intra brand competition and avoid Baitand-Switch (FMCG)
Couple Information Sharing with New Products:
Products that have a low failure rate
Branded Variants: Features of product with some
variations, made available to some resellers /
selectivity inside channel, not to the entire
channel

GOING TO MARKET WITH MULTIPLE TYPES OF

CHANNELS

Different Channels for same goods

Intended to Serve Different Target Markets
Watch out for:
Channel Conflict
Diluted Brand Image (product Quality / Price)
Bait-and-Switch
Free Riding
Reduced efforts of Channel members in case
of intensive distribution

Dual Distribution

Entering market via third parties channels and via

self-owned distribution divisions
Offer valued variety, allow manufacturer readily to
match costs and benefits to each segment
Offer the manufacturer information and flexibility
Inherent Rivalry;
Channel Conflicts
Channel Cannibalization
Challenging and fraught with risk of
dysfunctional conflict
Multiple Channels tend to view each other with
some suspicious and treat each other as rivals

Carrier-Rider Relationships

One manufacturer (carrier) handles sales and

distribution for another manufacturer (rider)
Piggybacking: most appropriate channel member
to carry ones products to market is another
manufacturers owned sales force and distribution
abilities
Inherently fragile relationships
Reciprocal piggybacking: a common technique to
strengthen the fragile relationships; where each
firm sells both its own products and those of the
partners; rider in one relationship is the carrier in
another.

Thank You

BY: ZUS Consultants