File Name: target markets and channel design strategy .zip
Chapter 8 Target Markets and Channel Design Strategy Learning Objectives Be familiar with the framework for market analysis and its four basic dimensions. Know how market size relates to channel design strategy. Know the concept of efficient congestion as it relates to market density.
The chapter leans heavily on consumer buying behavior that students new to marketing may not be fully familiar with. As a result, perhaps a brief explanation of consumer buying behavior literature is appropriate before discussing this chapter.
Chapter Objectives Market considerations are a key determinant of channel structure because marketing channels must reflect the needs and wants of the customer — customer centric. Market variables are the most fundamental of all the variables affecting channel design. Four basic dimensions are used to analyze markets effectively for channel design purposes. These are 1 market geography, 2 market size, 3 market density, and 4 market behavior. Channel managers must understand these dimensions and subdimensions and how they operate in various markets and plan channel structures to serve these markets effectively and efficiently.
Learning objectives 1 Appreciate the importance of market variables as the most fundamental and significant variables to consider for channel design strategy. Frameworks consisting of four basic dimensions for discussing markets are: 1. Market geography Market size Market density Market behavior Figure 8.
The emphasis will be on showing how these market dimensions influence channel design strategy. Market geography: Refers to the geographical extent of markets and where they are located. The channel manager is charged with the task of evaluating market geography relative to channel structure to make sure that the structure is able to serve the markets effectively and efficiently.
Changing market locations resulting from expanding geographical boundaries or the opening up of new, more distant markets should signal the channel manager that modifications in channel structure may be needed. Table 8. What is required of the channel manager is an awareness of and sensitivity to changes in market geography reflected in the data and a willingness to examine their possible implications for channel design decisions.
Market size: Refers to the number of buyers or potential buyers consumer or industrial in a given market. Bucklin developed a model relating market size to channel structure, which provides some insight for using market size data. Figure 8. The key teaching lesson here is that when the market size reaches point Ue, the cost of the intermediary structure is equal to the direct structure.
Market density: Refers to the number of buyers or potential buyers per unit of geographical area. A useful concept that helps to illustrate the relationship is that of efficient congestion. Efficient congestion: According to this concept, congested high-density markets can promote efficiency in the performance of several basic distribution tasks, particularly those of transportation, storage, communication, and negotiation. Even though dense markets are most often located in major metropolitan areas and are the most competitive, the large number of customers in close proximity to huge assortments of products provides the greatest opportunity and highest level of efficiency.
Market Behavior and Channel Design Strategy The fourth dimension, market behavior, consists of four subdimensions: 1 when the market buys, 2 where the market buys, 3 how the market buys, and 4 who buys.
Weekly and daily variations in buyer behavior are common at the retail level and vary across different trade areas throughout the country. Two important implications for the channel manager are related to this subdimension: a. Manufacturers who experience wide seasonal variations in the purchase of their products should attempt to select channel members who are amenable to buying in the off-season to help offset carrying costs.
The channel manager should attempt to select channel members who are in tune with the changing patterns of when people buy. In other words, the channel manager should try to avoid selecting channel members who are out of touch with the time demands of the markets they serve.
Research on where consumers buy is often based on the assumption that they will behave so as to maximize their convenience in the selection of retail outlets. An increasing amount of research seeks to explain consumer store choice behavior based on factors other than a desire for locational convenience. The self-image of the consumer, his or her social status, attitudes, values, and beliefs, and the overall image of the retail store have been postulated as factors affecting consumer store choice.
Each of the eight behaviors in the table can vary across different market segments and over time for any given product category. At this point in the lecture, you may want to give an example of a product and ask the students to list their own behaviors when purchasing this product, where they purchase the product, when they purchase the product and whether or not store image affects their decision process.
One of the most profound changes in how the market buys may occur in the realm of Internet shopping. A key determinant in the potential growth of electronic shopping is whether consumers and industrial buyers find this mode of shopping and purchasing to be superior to traditional modes.
The changing nature of how customers buy means that the channel manager must be closely tuned in to what changes are likely to occur and determining whether such changes are temporary or long term. A Who Makes the Purchases From a channel design standpoint, who actually buys the product can affect the type of retailers to choose in the consumer market, and may also influence the kinds of channel members to use to serve the industrial market.
Product purchases should not be confused with product usage. Care should therefore be taken to distinguish between who uses the product and who makes the actual purchase. A discussion among class members at this point may elicit some interesting opinions and comments and can drive the point home between product usage and product purchase.
B Who Takes Part in the Buying Decision The more difficult aspect to analyze than who actually makes the physical purchase is who decides to make the purchase in the first place.
Influence on buying decisions revolves around the roles played by the husband, wife, and children. Users—those who will use the product and service.
Influencers—those who influence the buying decision often by design specifications. Technical people are especially important as influencers. Deciders—people who have the power to make a decision on the product. Approvers—people who must authorize the proposed actions of the deciders or buyers.
Buyers—people with formal authority for selecting. Gatekeepers—people who have the power to prevent sellers or information from reaching members of the buying center.
Two heuristics exist to provide the channel manager some insight for analyzing the relationship of channel structure to the ability to reach the influential parties of buying decisions: a. As the channel becomes longer, the degree of control exercised by the manufacturer is lessened.
Other than heeding these two general heuristics, the channel manager can help to assure the appropriateness of a channel structure for reaching the influential buying parties through explicit consideration of this issue when selecting channel members. Answers to Review Questions 1. The market variables are the most basic and important variables in channel design because, quite simply, the needs and wants of the target market should drive channel design.
The target market is the final adjudicator of the channel design. In general, yes, market variables should be considered before the other variables because market variables are so basic to channel design. The market variables are a four-dimensional construct for analyzing markets. The four basic dimensions are:? Market Geography: defines the market in terms of its geographic boundaries, its location and its distance.
Market Size: defines the market in terms of the number of buyers or potential buyers. Market Density: defines the market in terms of the number of buyers or potential buyers per unit of geography. Market Behavior: consists of four sub-dimensions: a. When the market buys: seasonal, weekly and daily variations in the time of purchase. Where the market buys: the types of outlets from which the buyers choose to make their purchases and the location of those outlets. Who buys: includes both the actual buyer and those partaking in the purchase decision.
The channel manager needs to be aware of and sensitive to changes in market geography because such changes can precipitate a channel design decision. The opening of new markets at a geographic distance, for example, may lead to a change in the number of levels in the channel structure. Some of the basic questions that should be raised by an increasing market size are: 1 the effect of larger markets on the average cost of serving buyers, 2 possible changes in channel structure to reduce costs of serving larger markets, and 3 the possibility of gaining a differential advantage through channel design changes in response to increasing market size.
Highly dense markets are said to be in efficient congestion because the large number of buyers per unit of geography facilitates the performance of such distribution tasks as transportation, storage, communication and negotiations.
The large number of buyers may allow the manufacturer to emphasize economies of scale rather than economies of scope in channel design and thus structure a shorter channel. However, while such market density usually supports shorter channels, there can be additional variables at work that would offset this heuristic.
This is especially true in some foreign markets. Market Behavior consists of four sub-dimensions:? When the Market Buys: seasonal, weekly and daily variations in the time of purchase.
In some cases, particularly prepared food retailing, variations are tracked hourly. Where the Market Buys: the types of outlets from which the buyers choose to make their purchases and the location of those outlets.
Who Buys: includes both the actual buyer and those partaking in the purchase decision. One person may assume any number of those roles or each may be played by a different member of the household. In the industrial market, two additional roles are found in the buying center: approvers are people who authorize the actions of the deciders and buyers, and gatekeepers are people who can block sellers and their information from reaching members of the buying center.
Both consumer and industrial buyers elect their purchase outlets both type and location based on complex motivations. It is not even understood whether changes in this election are precipitated by buyers demanding new places to purchase goods or by sellers offering new assortments of goods. Nonetheless, the channel manager must design a channel that enables targeted buyers to purchase where they want. To contend with this variable in designing the channel, the channel manager needs to determine the current pattern of where purchases are made.
In an existing channel, the channel manager must assess whether current channel members are appropriate for this pattern of buyer behavior. The channel manager must remain vigilant for changes in this buying behavior and forecast future patterns of where buyers will make their purchases.
A forecast of change should precipitate a channel design decision so that the channel structure and channel members remain well matched to consumer buying behavior. This question is best handled as an outside assignment. Students need not do prolonged research as most general business publications routinely report on changing purchase behavior.
To market its product effectively, the manufacturer must see that all parties with influence on the purchase decision are targeted. As the number of parties involved in the purchase decision increases, so does the complexity of this task. This is most likely to be problematic in the industrial market where the distributor or dealer is calling on the industrial customer. The channel manager will want to ensure that all the consequential influencers are being called on. However, heuristics indicate that the longer the channel, the less control the channel manager has.
Further, the more intensive the distribution, the less the channel manager can supervise the selling efforts. If such supervision and control are necessary for effective sales, the channel manager must consider this in the channel design decision. Commentaries on Issues for Discussion 1.
The purpose here is to emphasize that the design of marketing channels and the resultant channel structures should be market driven.
Could a channel strategy get you more leads and customers? Before you can answer that question, you need to understand the modern buyer journey. They want their favourite brands to understand their needs, deliver unforgettable experiences, and provide consistency from one avenue to the next. In other words, they want the perfect channel strategy. As the touch-points companies use to connect with their clients , channels are constantly changing and evolving. This means that brands need to focus on choosing the right types of channel strategy for their identity and their audience.
The chapter leans heavily on consumer buying behavior that students new to marketing may not be fully familiar with. As a result, perhaps a brief explanation of consumer buying behavior literature is appropriate before discussing this chapter. Chapter Objectives Market considerations are a key determinant of channel structure because marketing channels must reflect the needs and wants of the customer — customer centric.
When designing a product line, a manufacturer is often aware that it does not control the ultimate targeting of the products in the line to the different consumer segments. While the manufacturers can attempt to influence the target customers through communications in appropriate media, product design, and the choice of channels of distribution, the ultimate targeting is made by a retailer, which might only care about its own interests, and is fully in control of interactions with customers, including how the product is sold and displayed. This occurrence is widespread in numerous markets, for example, frequently purchased consumer products, home appliances, personal computers, automobiles, etc. The audience for this paper includes practitioners and academics who want to better understand how a manufacturer selling through an intermediary can better induce this intermediary to have a targeting strategy consistent with the manufacturer's intentions and be willing to carry the full product line. The paper attempts to find what are the main issues a manufacturer selling through a distribution channel has to worry about when designing the product line.
Channel choice involves understanding the ultimate user and how they prefer to purchase merchandise. Whether a firm be a one person operation or one that employs thousands of people and generates billions in sales, all are in business to serve the needs of markets. In order to do this, these firms must be assured that their products are distributed to their intended markets. Most producing and manufacturing firms are not in a favorable position to perform all the tasks that would be necessary to distribute their products directly to their final user markets. Other channel members can be useful to the producer in designing the product, packaging it, pricing it, promoting it, and distributing it through the most effective channels.
The primary purpose of any channel of distribution is to bridge the gap between the producer of a product and its user. Identify the types of institutions that participate in marketing channels, and the three primary functions of these channels. The primary purpose of any channel of distribution is to bridge the gap between the producer of a product and the user of it, whether the parties are located in the same community or in different countries thousands of miles apart.
Part 2: Developing the Marketing Channel. Target Markets and Channel Design Strategy. Market Geography 3 Market geography refers to the geographical extent of markets and where they are located. Postal ZIP codes. Globally A high degree of mobility within the U.
Vague and generic messages are far less likely to resonate with audiences than specific, direct communication — which is why targeting in marketing is so important. Targeting in marketing is a strategy that breaks a large market into smaller segments to concentrate on a specific group of customers within that audience. It defines a segment of customers based on their unique characteristics and focuses solely on serving them.