MARKETING CHANNEL MANAGEMENT
Tutorial 1 channel design 07-09-2021
CASE 1: The iPhone in its early days
iPhone was distributed through:
- The Apple stores (its own stores) direct brick and mortar channel
- AT&T stores (telecom operator) indirect channel
- Best Buy is being added as distribution channel indirect channel
Question 1:
Who sets the consumer price of the iPhone at Best Buy?
Best Buy sets the price. It is always the retailer that sets the price. Best Buy is
an independent retailer. They buy the iPhone from Apple, so they own them.
Which means that Best Buy is the owner of the iPhones it buys from Apple (there
is also a risk of being the owner). It is illegal for the manufacturer to set the price.
The owner of the products sets the price.
Question 2:
Selling through an additional channel comes with advantages and pitfalls. To what extend do
these advantages and pitfalls apply to this case?
1. What is the key advantage of selling through an additional channel? (in general)
Extra market coverage (= reach more consumers). Make it easier for more consumers to buy
your product, which can increase sales and revenues.
2. Does this advantage apply to this case?
AT&T was not able to stock enough inventory (often sold out), so definitely makes sense to
add channel because you can increase market coverage, sell more iPhones and reach more
consumers.
3. What are the two key pitfalls of selling through an additional channel?
a. Lose control over your price. If you add more channels that sell the same product, they
are going to compete with each other. This can lead to prices dropping (retailers set the
price). As manufacturer you may not be happy that your prices drop.
b. Less selling support. If there are different channels selling, they compete with each
other, set lower price, the margin they urn on your product is lower, they will be less
motivated to provide a lot of support for your product (support, providing a lot of
information, learn a lot about product). This will damage brand awareness and brand
equity.
Key pitfalls:
o Intra-brand competition on price (=prices are driven down)
o Reduced selling support by incumbent channels
4. Do these pitfalls apply to this case?
,No intra-brand competition on price going on. The price at Best Buy is the same as at the
existing distributors also reduced selling support (by the existing retailers) is unlikely, they
still urn a high margin.
Also, only 3 channels, not a lot competition. That is why there is no price competition.
5. Good idea to add Best Buy?
Yes! Positive effect of extra coverage > negative effect of channel conflict (intra-brand
competition)
There are quite some advantages, potential pitfalls don’t really set in in this case.
CASE 2: Nike starts & stops selling at Amazon
Most important channels on the left: their own brick and mortar stores. Next to this, online
direct channel of Nike. Then via Foot Locker (regular retailer). Then goat (sell more premium
versions). Sneakerstuff was started as online retailer, now also has brick and mortar stores,
only sell niche sneakers. Then in 2017 Nike decided to also sell via amazon.com, they used
amazon as an online channel. In 2019 Nike decided to stop selling through amazon.
Question 1
Selling through an additional channel comes with advantages and pitfalls. To what extend do
these advantages and pitfalls apply to this case?
Do you believe Nike made the right decision to quit selling through Amazon?
1. Advantages? Applicable?
Key advantage: extra market coverage, reach more consumers. Not applicable to this case.
They already have a huge number of channels, including their own online channel.
Consumers are looking for nike, it is a strong brand. Consumers are able to buy from their
own direct channel. Likelihood to reach more consumers is low.
, 2. Pitfalls? Applicable?
Key pitfalls:
- Intra-brand competition on price (=prices are driven down)
- Reduced selling support by incumbent channels
are applicable here.
More channels = more price competition. Thus, reduced selling support by retailers is likely.
Was ir right to quit selling to amazon for nike? Yes. The benefits were not really applicable
(no extra market coverage because Nike was already covering the market with a zillion
channels) but the pitfalls were there (price competition reduced selling support)
Random question: more grey markets price competition increases (grey markets typically
sell at much lower prices)
Question 2
Nike stopped selling to Amazon in 2019. Does this mean that consumers can no longer buy
Nike at Amazon?
No, there can be other retailers/parties that still sell via amazon.
Tutorial 1 channel design 07-09-2021
CASE 1: The iPhone in its early days
iPhone was distributed through:
- The Apple stores (its own stores) direct brick and mortar channel
- AT&T stores (telecom operator) indirect channel
- Best Buy is being added as distribution channel indirect channel
Question 1:
Who sets the consumer price of the iPhone at Best Buy?
Best Buy sets the price. It is always the retailer that sets the price. Best Buy is
an independent retailer. They buy the iPhone from Apple, so they own them.
Which means that Best Buy is the owner of the iPhones it buys from Apple (there
is also a risk of being the owner). It is illegal for the manufacturer to set the price.
The owner of the products sets the price.
Question 2:
Selling through an additional channel comes with advantages and pitfalls. To what extend do
these advantages and pitfalls apply to this case?
1. What is the key advantage of selling through an additional channel? (in general)
Extra market coverage (= reach more consumers). Make it easier for more consumers to buy
your product, which can increase sales and revenues.
2. Does this advantage apply to this case?
AT&T was not able to stock enough inventory (often sold out), so definitely makes sense to
add channel because you can increase market coverage, sell more iPhones and reach more
consumers.
3. What are the two key pitfalls of selling through an additional channel?
a. Lose control over your price. If you add more channels that sell the same product, they
are going to compete with each other. This can lead to prices dropping (retailers set the
price). As manufacturer you may not be happy that your prices drop.
b. Less selling support. If there are different channels selling, they compete with each
other, set lower price, the margin they urn on your product is lower, they will be less
motivated to provide a lot of support for your product (support, providing a lot of
information, learn a lot about product). This will damage brand awareness and brand
equity.
Key pitfalls:
o Intra-brand competition on price (=prices are driven down)
o Reduced selling support by incumbent channels
4. Do these pitfalls apply to this case?
,No intra-brand competition on price going on. The price at Best Buy is the same as at the
existing distributors also reduced selling support (by the existing retailers) is unlikely, they
still urn a high margin.
Also, only 3 channels, not a lot competition. That is why there is no price competition.
5. Good idea to add Best Buy?
Yes! Positive effect of extra coverage > negative effect of channel conflict (intra-brand
competition)
There are quite some advantages, potential pitfalls don’t really set in in this case.
CASE 2: Nike starts & stops selling at Amazon
Most important channels on the left: their own brick and mortar stores. Next to this, online
direct channel of Nike. Then via Foot Locker (regular retailer). Then goat (sell more premium
versions). Sneakerstuff was started as online retailer, now also has brick and mortar stores,
only sell niche sneakers. Then in 2017 Nike decided to also sell via amazon.com, they used
amazon as an online channel. In 2019 Nike decided to stop selling through amazon.
Question 1
Selling through an additional channel comes with advantages and pitfalls. To what extend do
these advantages and pitfalls apply to this case?
Do you believe Nike made the right decision to quit selling through Amazon?
1. Advantages? Applicable?
Key advantage: extra market coverage, reach more consumers. Not applicable to this case.
They already have a huge number of channels, including their own online channel.
Consumers are looking for nike, it is a strong brand. Consumers are able to buy from their
own direct channel. Likelihood to reach more consumers is low.
, 2. Pitfalls? Applicable?
Key pitfalls:
- Intra-brand competition on price (=prices are driven down)
- Reduced selling support by incumbent channels
are applicable here.
More channels = more price competition. Thus, reduced selling support by retailers is likely.
Was ir right to quit selling to amazon for nike? Yes. The benefits were not really applicable
(no extra market coverage because Nike was already covering the market with a zillion
channels) but the pitfalls were there (price competition reduced selling support)
Random question: more grey markets price competition increases (grey markets typically
sell at much lower prices)
Question 2
Nike stopped selling to Amazon in 2019. Does this mean that consumers can no longer buy
Nike at Amazon?
No, there can be other retailers/parties that still sell via amazon.
