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Roles of marketing channel in marketing strategy

1. _____ are sets of interdependent organizations involved in the process of making a product or service available for use or consumption.

“Marketing channels” are sets of interdependent organizations involved in the process of making a product or service available for use or consumption.

A marketing channel is a set of practices or activities necessary to transfer the ownership of goods, and to move goods, from the point of production to the point of consumption and, as such, which consists of all the institutions and all the marketing activities in the marketing process. A marketing channel is a useful tool for management.

Roles of marketing channel in marketing strategy:

Link producers to buyers.

It performs sales, advertising and promotion.

Influences the firm's pricing strategy.

Affecting product strategy through branding, policies, willingness to stock and customizes profits, install, maintain, offer credit, etc.

For example: Apple orchard: Apple orchard =>Transport => Processing factory => Packaging => > Final product to be sold => Apple pie eaten

2. _____ can be defined as the ability to alter channel members' behaviour so that they take actions they would not have taken otherwise.

“Channel power” can be defined as the ability to alter channel members' behaviour so that they take actions they would not have taken otherwise.

A channel can be made up of many parties each adding value to the product purchased by customers. However, some parties within the channel may carry greater weight than others. In marketing terms this is called channel power, which refers to the influence one party within a channel has over other channel members. When power is exerted by a channel member they are often in the position to make demands of others. For instance, they may demand better financial terms (e.g., will only buy if prices are lowered, will only sell if price is higher) or demand other members perform certain tasks (e.g., do more marketing to customers, perform more product services). Channel power can be seen in several ways:

Backend or Product Power – Occurs when a product manufacturer or service provider markets a brand that has a high level of customer demand. The marketer of the brand is often in a power position since other channel members have a little choice but to carry the brand or risk losing customers.

Middle or Wholesale Power – Occurs when an intermediary, such as a wholesaler, services a large number of smaller retailers with products obtained from a large number of manufacturers. In this situation, the wholesaler can exert power since the small retailers are often not in the position to purchase product cost-effectively and in as much variety as what is offered by the wholesaler.

Front or Retailer Power – As the name suggests, the power in this situation rests with the retailer who can command major concessions from their suppliers. This type of power is most prevalent when the retailer commands a significant percentage of sales in the market they serve and others in the channel are dependent on the sales generated by the retailer.

3. Some Pizza Inn franchisees complained about other Pizza Inn franchisees cheating on ingredients and hurting the overall Pizza Inn image. This is an example of _____ conflict.

Some Pizza Inn franchisees complained about other Pizza Inn franchisees cheating on ingredients and hurting the overall Pizza Inn image. This is an example of “horizontal” conflict.

The conflict between competitors of the same marketing channel, resulting in over saturation of the target population area and extreme competition. For example, if two or larger home product retailers operate in the same marketing area, smaller competitors will be at an extreme disadvantage.

The conflict that occurred between two or more different hierarchical members of a Channel of Distribution. For example, a retail distributor may refuse to carry a manufacturer's product because of low sales, further decreasing the manufacturer's total sales. This is a contrast with Horizontal Conflict.

For example, Ford dealers complain that the other dealer in city steal sales from them by pricing too low or by selling outside their territories

4. Retail store types pass through stages of growth and decline that can be described as the _____.

Retail store types pass through stages of growth and decline that can be described as the “retail life cycle”.

Retail Life Cycle is a theory of retail competition that states that retailing institutions, like the products they distribute, pass through an identifiable cycle. This cycle can be partitioned into four distinct stages:

Introduction – this stage begins with an aggressive, bold entrepreneur who is willing and able to develop a different approach to the retailing of certain products. During this stage, profits are low, despite the increasing sales level, due to amortizing developmental costs.

Growth – During the growth stage, sales, and usually profits, explode. New retailers enter the market and begin to copy the idea. For example, the rapid growth of Starbuck's cafes encourages other “gourmet” coffeehouses to enter the market and capture the growing interest in deeper assortments of coffee beverages and casual “lifestyle” eateries. Consequently, late in this stage, both market share and profitability tend to approach their maximum level.

Maturity- In this stage, market share stabilizes and severe profit declines are experienced. Industry being over expanded, competitive retailers starting a new retail format, or more efficient retailers consolidating the industry.

Decline – Sooner or later a major loss of market share will occur, profits fall, and the once promising idea is no longer needed in the marketplace. However, the retailer who can identify a small, but lucrative, customer group that insists on the traditional form (e.g. home delivery of groceries) may be able to extract a premium for its services, and extend its lifetime.

The retail life cycle is accelerating today. New and more competitive concepts now move quickly from the introduction to maturity since the leading operators have aggressive growth goals and their investors demand a quick return on equity.

5. _____, also known as cash and carry wholesalers, sell a limited line of fast moving goods to small retailers for cash.

“Limited-service wholesalers”, also known as cash and carry wholesalers, sell a limited line of fast moving goods to small retailers for cash.

Limited-service wholesalers, who offer fewer services to their customers and suppliers, emerged in order to reduce the costs of service. There are several types of limited-service wholesalers. Cash-and-carry wholesalers usually handle a limited line of fast-moving merchandise, selling to smaller retailers on a cash-only basis and not delivering goods.

Exercises:

1. Explain the difference between a push and a pull strategy in marketing. Under which conditions would each be appropriate? (pg 410)

Marketing people often classify their promotion strategies into two basics categories: push or pull. Thus, they can try to “push” products through the distribution channel to the customers, or just “pull” it through.

In pull strategies, companies can try to improve their sales by setting national advertising. This can be achieved by using many kinds of media, such as magazines, radio or television. The purchases will probably influence the retailer, and the retailer will influence the wholesaler. Pull strategy is appropriate when there is high brand loyalty and high involvement in the category, when people perceive differences between brands, and when people choose the brand before they go to the store. Many companies believe that the best way to promote a product is to pull it through the distribution channel, stimulating demand at the customer level.

In push strategies, companies work together with the channels of distribution to stimulate customer sales. This means that, retailers or wholesalers often pay part of local advertising costs or implement special store display to stimulate sales. A manufacturer could cooperate with the wholesaler in order to offer retailers special price to stimulate product demand. Push strategy is appropriate where there is low brand loyalty in the category, brand choice is made in the store, the product is an impulse item, and product benefits are well understood.

In this kind of strategy, is very important to cooperate with the channel of distribution.

For example, if the seller makes his promotion by television or radio, it's impossible for the buyer to interact with. On the other hand, if the communication is made by phone or the internet, the buyer has possibilities to interact with the seller. In the first case information is just "pushed" toward the buyer, while in the second case it is possible for the buyer to demand the needed information according to his requirements.

2. After a retailer has defined the store's product assortment how might he develop a product-differentiation strategy?

The retailer’s product assortment must match the target markets shopping expectations. The retailer has to decide on product assortment breadth (number of different product lines) and depth (the variety of sizes, colors, and models offered within each product). For example, a restaurant can offer a narrow and shallow assortment (small launch counters), a narrow and

deep assortment (delicatessen), a broad and shallow assortment (cafeteria) or a broad and deep assortment (large restaurant). The real challenge begins after defining the store's product assortment, and that is to develop a product differentiation strategy. After deciding on the product-assortment strategy, the retailer must establish procurement sources, policies, and practices.

The retailer might develop a product-differentiation strategy using any one of the following possibilities. The retailer might feature exclusive national brands that are not available at competing retailers. He might decide to feature mostly private branded merchandise, or feature blockbuster distinctive merchandise events such as running a month-long show featuring the goods of another country. Another possibility is to feature surprise or ever-changing merchandise. The retailer can also feature the latest or newest merchandise first, offer merchandise customizing services, or offer a highly targeted assortment for a specific target market.

Case Study:

Questions:

1. What is one of the hottest marketing strategies for ensuring success in the highly competitive grocery industry?

One of the hottest marketing strategies to ensure success in the highly competitive grocery industry is to incorporate local lifestyles in the decisions for store location and designing of the store itself. This approach is different from the traditional grocery chains that use the same store design and layout in almost all their stores. These traditional grocery chains sell almost identical items in every store as well. The local population ethnic backgrounds, cultures and income levels are not factored in the store design or layout. To be successful in the very competitive grocery market, these factors need to be considered.

2. What does San Antonio-based H.E.B. call its approach to lifestyle marketing in the grocery industry?

San Antonio based H.E.B. call its approach to lifestyle marketing in the grocery industry as “different faces for different places”. Each of its stores catered to the needs of local community. In affluence neighbourhood, it has the upscale design such with high ceiling that let in natural light. It also features the landmark Central Market concept introduced in 1994.

Central Market also offers live music several nights a week. It offers an organic and international food selection that features gourmet to-go items, cheese shop with, for example, 54 varieties of blue cheese, over 2,000 varieties of wine and beer and a sushi and cooking demo station. Central Market deliberately limits floor space allocated to packaged products, allowing more space for fresh produce, meat and seafood, bulk products, and chef-prepared items. The produce section stocks items such as crab-apples, Meyer lemons, sweet limes, and pink lemons that are hard to find at other stores. The limited space for packaged products is devoted primarily to items that cannot be found at other supermarkets. Other aisles follow the same pattern with an emphasis on local, imported, organic, and gourmet brands rather than standard supermarket products...

Catering to Mexican/Spanish population, HEB opened “Mi Tienda”, a Latino-themed store. The various stores' performance also reflects regional differences. The Central Market unit in San Antonio, for instance, sells the most German wines in the state, reflecting the area's ample presence of military people who may have done a rotation at bases in Germany.

To compete with the discount grocery chain like Wal-Mart, Aldi, a privately own discount grocery chain from Germany, H.E.D. launch it own discount minded store called the Joe V’s. The first Joe V’s open in May 2010 in Northwest Houston. Joe V’s has fewer assortments compared to a traditional supermarket. It carries about 9,000 items compared to 37,000 items in a traditional supermarket. Aiming to compete on price on many items, a lot of time and labour are saved by putting merchandise on the aisle on the pallet they were shipped on. For example, 100 cases of canned corn which arrive by truck on pallets, is delivered by jack directly to the store aisle without being touched by an employee of H.E.B


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