Module 1: Setting the scene
What is a marketing channel?
A set of organizations that work together to make goods available for end users.
Upstream: manufacturer middlemen (focus of the course)
Downstream: middlemen consumer (retailer)
Why should we know about channel management?
- Channel decisions are universal
- Important in economic terms (large GDP is acquired by channels)
- Can be a competitive advantage
What forces the rise of retail power?
- Mergers Ahold Delhaize
- Multi-channel operations Online and offline channels
- Retailers become brands Private label competition
- Access to consumer data Bonuskaart
Retail apocalypse
- Great recession 2009 Economical consequences
- Shift to experience People prefer to spend money on experiences rather than products
- Shift to online People shopping on websites
- Covid 19 pandemic financial difficulties, stores are closed
However, Ecommerce percentages of sales are still relatively low: 10.3% in NL and 14.9% in US
Disruption
Consumers do not want to pay for extra services, they want the lowest price, full value and
convenience (consumer 2.0). Amazon uses 6 different keys for their success:
- Selection Make sure people can choose from a lot of products
- Consumer experience People are almost always finding something they want
- Traffic This offering provides a lot of traffic
- Seller Due to the traffic, sellers want to sell their products on the platform
- Low-cost structure Amazon can rescale and thus has lower cost structure
- Lower prices Due to the lower costs, prices can also be lower
, Module 2: Channel design
How to go to the market
- Direct Manufacturer to consumer
- Indirect Manufacturer to retailer to consumer
Indirect
- Buys and owns products
- Can set own prices
- Hold inventory of the products
Direct
- Company owned inventory
- No middlemen
- Manufacturer sets own prices
Why should you opt for a direct channel?
- No costs for the middlemen, less profits to divide in the channel
- This leads to a larger gross profit margin for the manufacturer
- Due to the larger profit margin, the manufacturer can lower prices while making more profit
However:
- High gross profit margin does not mean high net profits: inventory costs, handling costs
- The manufacturer may be able to sell more through a indirect channel
Why should you opt for an indirect channel?
- Bulk breaking Allows consumers to buy in smaller quantities
- Assortment convenience Retailers offer a wide variety of goods
- Time convenience Reduce the waiting time for consumers
- Contact lines Without retailer, a lot of contacts (no routine)
Market places
- Do not buy and own products
- Do not hold inventory
- Do not set prices
- Facilitates transactions between consumer and manufacturer
Blended model: operate as an online retailer and as a marketplace
Online retailer Marketplace
Profit = Gross margin X Units sold Profit = Commission X Units sold
Inventory costs Step in fee
Fulfillment costs Administrative costs
Why sell on marketplace?
- Huge consumer traffic
o Long-tail products: less consumed products, risky to hold inventory
o Cross border: small companies can reach bigger audience
- Quick launches
o Low set-up costs
o No digital worries
What is a marketing channel?
A set of organizations that work together to make goods available for end users.
Upstream: manufacturer middlemen (focus of the course)
Downstream: middlemen consumer (retailer)
Why should we know about channel management?
- Channel decisions are universal
- Important in economic terms (large GDP is acquired by channels)
- Can be a competitive advantage
What forces the rise of retail power?
- Mergers Ahold Delhaize
- Multi-channel operations Online and offline channels
- Retailers become brands Private label competition
- Access to consumer data Bonuskaart
Retail apocalypse
- Great recession 2009 Economical consequences
- Shift to experience People prefer to spend money on experiences rather than products
- Shift to online People shopping on websites
- Covid 19 pandemic financial difficulties, stores are closed
However, Ecommerce percentages of sales are still relatively low: 10.3% in NL and 14.9% in US
Disruption
Consumers do not want to pay for extra services, they want the lowest price, full value and
convenience (consumer 2.0). Amazon uses 6 different keys for their success:
- Selection Make sure people can choose from a lot of products
- Consumer experience People are almost always finding something they want
- Traffic This offering provides a lot of traffic
- Seller Due to the traffic, sellers want to sell their products on the platform
- Low-cost structure Amazon can rescale and thus has lower cost structure
- Lower prices Due to the lower costs, prices can also be lower
, Module 2: Channel design
How to go to the market
- Direct Manufacturer to consumer
- Indirect Manufacturer to retailer to consumer
Indirect
- Buys and owns products
- Can set own prices
- Hold inventory of the products
Direct
- Company owned inventory
- No middlemen
- Manufacturer sets own prices
Why should you opt for a direct channel?
- No costs for the middlemen, less profits to divide in the channel
- This leads to a larger gross profit margin for the manufacturer
- Due to the larger profit margin, the manufacturer can lower prices while making more profit
However:
- High gross profit margin does not mean high net profits: inventory costs, handling costs
- The manufacturer may be able to sell more through a indirect channel
Why should you opt for an indirect channel?
- Bulk breaking Allows consumers to buy in smaller quantities
- Assortment convenience Retailers offer a wide variety of goods
- Time convenience Reduce the waiting time for consumers
- Contact lines Without retailer, a lot of contacts (no routine)
Market places
- Do not buy and own products
- Do not hold inventory
- Do not set prices
- Facilitates transactions between consumer and manufacturer
Blended model: operate as an online retailer and as a marketplace
Online retailer Marketplace
Profit = Gross margin X Units sold Profit = Commission X Units sold
Inventory costs Step in fee
Fulfillment costs Administrative costs
Why sell on marketplace?
- Huge consumer traffic
o Long-tail products: less consumed products, risky to hold inventory
o Cross border: small companies can reach bigger audience
- Quick launches
o Low set-up costs
o No digital worries
