Deck 8: Target Markets and Channel Design Strategy

Question 1

There is an old saying that predates the marketing concept by perhaps 100 years: "The customer is king." This is usually interpreted to mean that businesses should remember that the only reason they are in business is to serve the customer, because without customers there would be no business. This expression is seldom related to the design of marketing channels. Yet, in the long run, is it not the "customer king" who decrees the structure of the marketing channels that ultimately develop?
Do you agree or disagree? Discuss the statement using several examples for or against.

Answer 1

Structure of a marketing channel entirely depends on the requirements of customers. Therefore, the mentioned statement is not correct. A channel manager designs the entire marketing channel in order to fulfill the demands of its target market (its customer). Therefore, channel design strategies reflect the changing demands as well as expectations of consumers.
A channel manager decides the structure of marketing channel according to the dimensions including geography, market size, and density and well as the market behavior. It helps them to design their strategies reflecting the demands of the targeted customers. For example, For instance, in India potato, chicken, fish and lamb are used in McDonalds' products. Pork and beef are completely avoided there, due to religious reasons.

Question 2

The category of market variables was cited in Chapter 6 and the present chapter as one of fundamental importance to channel design. Explain why this is so.

Answer 2

Market variables have been cited as an important aspect in designing a channel because it takes care of the buying behavior of customers in regards to
a) How they are buying - whether they are buying in
• Large quantities from a departmental store or a super store as done by middle class consumer or small quantities bought by lower class at nearby stores,
• Self service or with assistance
• One stop buying or buying from several stores
• Buying through cash/credit/debit cards/credit cards
• Shopping at home through online/direct marketing/catalog marketing
• Through comparison shopping/ convenience shopping with little effort
• demanding excess service/ little service
• Using smart phone to check prices or doing comparison pricing in shops/ through laptop/computers to comparison shopping out of store
• Using self service/self checkout versus check out by cashier.
b) When they are buying - timing of purchase, daily/weekly/ monthly. Even the buying could be seasonal. Then in this case the company will add more intermediaries in the channel because it must also have storage facilities to take care of the seasonal demand.
c) Where they are buying -whether buying at supermarkets/departmental store as done by middle classes, even women shop more at super markets and men less.
d) Who is involved in the buying process - whether the buyer buying the product is buyer/consumer. He/she might be buying the product for himself/herself or he/she is buying for his/her son/daughter, mother/father, wife/husband, sister /brother.
The channel manager must therefore take care of these variables while designing the marketing channels, so that it is more effective in costs as well as efficiency. This will then help the company to market its products better and also enhance the satisfaction of their consumers.

Question 3

The number of consumers subscribing to cable television services in the U.S. had declined significantly by the end of the first decade of the twenty-first century. In the third quarter of 2010 alone, almost 120,000 consumers discontinued their cable subscriptions and the pace of decline is expected to not only continue, but to accelerate as well. This pattern of what some industry observers refer to as "cord-cutting" is being driven by a shift from cable to web-based channels provided by such firms as Hulu, Walt Disney, NBC, Universal and Netflix. Not only are the monthly subscription charges typically charged by these firms lower than those charged by channels also seem to fit better with modern consumer lifestyles.
What do you think is the cause of this dramatic shift from cable channels to web-based channels for delivery of home entertainment?

Answer 3

Traditionally, people in the U.S. used to take subscription of cable television services to get home entertainment. This trend has declined eventually in the end of the twenty-first century. Presently, people give more preference to the web-based channels rather than the traditional cable.
Major cause of this dramatic shift from cable channels to web-based channels for delivering home entertainment includes its simplicity and good quality. Monthly subscription of web-based channels is relatively low as compared to the cable channels. Thus, it is affordable by a large audience. Picture and sound quality of web-based channels are much better than tradition cables.
Due to these reasons, web-based channels became more popular than the traditional cables.

Question 4

Should market variables be examined before other variables when designing the channel? Explain.

Question 5

By the end of the first decade of the twenty-first century, the anti-junk food movement had really begun to take hold in the U.S. Of particular concern was the sale of junk food through vending machines in schools. The easy availability of salty snacks, candy and sodas made easily available from the machines provided a level of temptation that was just too enticing for many students to resist. But could vending machine channels that worked so effectively to sell junk food in schools work just as well for selling healthier foods? This is the question that Stonyfield Farm, a Londonderry, New Hampshire maker of organic yogurt, is seeking the answer to by putting health-food vending machines in a number of New England high schools. Stonyfield is betting that attractive displays of healthy snacks and the convenience provided by vending machines will prove to be just as effective in enticing students to buy healthy foods as they were in getting them to buy junk foods.
Do you think the vending machine channel will work for healthy foods as well as this channel worked to sell junk food to students? Why or why not?

Question 6

In this chapter, a four-dimensional framework was used for analyzing markets in relation to channel design strategy. Define each of these dimensions.

Question 7

Airports may be where the real action is in retailing. At least this is the impression one might get by observing some recent developments. Bloomingdale's was one of the first major retailers to open a branch in an airport when its clothing and gift boutique opened at JFK International Airport in New York. Now FAO Schwartz, a famous toy retailer, has opened branches in several airports, while McDonald's and Burger King are also moving in. A number of other major retailers may follow in airports throughout the United States.
Does this make sense? Discuss in terms of the relevant market dimensions that might underlie such developments.

Question 8

In this chapter it was pointed out that market geography is subject to changes. Why should the channel manager be concerned with such changes?

Question 9

Goya Foods Inc. produces and markets Hispanic foods sold mainly through supermarkets throughout the U.S., especially those that serve markets with large Hispanic populations. The company, based in Secaucus, New Jersey, has enjoyed strong sales growth in recent years. What is so different about the way Goya sells its wide range of food products, such as Spanish olive oil, beans, Caribbean fruit juices, soft drinks and desserts, is the company strategy for using shelf space in supermarkets: Goya displays all of its diverse food products together in one section rather than by category of product as is done for most food producers. Goya does this because the food brokers it uses to get placement for its products in the supermarkets have learned by working closely with store managers that this all-in-one section approach is consistent with how consumers shop. Some observers believe that Goya's shelf strategy causes the company to lose the so-called crossover market. That is, customers who are shopping for a particular product will not have the opportunity to compare the Goya product to competitors' products. But Goya is sticking to its guns, arguing that its store within- a-store strategy has worked so well that it has never had to pay slotting fees to keep its products on store shelves. If many of Goya's products represent high quality and excellent value, as the company claims, wouldn't a strategy of spreading the products all over the supermarket open up more opportunity for sales growth than confining all of Goya's products to one place in the store? Discuss.

Question 10

If information indicates that the market size is increasing, what kinds of questions should this pose for the channel manager?

Question 11

For decades, giant big-box retailers like Walmart supercenters, Best Buy, Home Depot, Staples, Target and many others emphasized building bigger and bigger stores with broader assortments of merchandise and low prices to attract customers. But in recent years, customers pressed for time and having easy access to an extensive array of online channels are becoming frustrated with the difficulties of navigating their way through these giant retail stores, especially when they cannot find all of the items they have on their shopping lists. One study by Walmart, for example, found that an average shopper at a Walmart supercenter spends 21 minutes in the store but finds only 7 of the 10 items on her or his shopping list. There is growing concern among big-box retailers that the consumer's desire for a convenient and efficient shopping experience could undermine the big-box retail channel in the future.
Do you think that the days of giant, big-box retailers are numbered? Why or why not?

Question 12

What is efficient congestion? How does this relate to market density? Is this relationship as straightforward as it seems?

Question 13

Avijit Mohan was really upset about the poor job the three department stores were doing with his line of fine brass products from India. "They just put the stuff out on the floor as though they were cheap trinkets that the customer buys on impulse. Don't they realize that this merchandise has to be sold by knowledgeable salespeople who can show the fine details, the artistic engraving and the hand hammering?" he remarked to his wife in frustration. "These are supposed to be top-notch retailers but they don't seem to know a thing about selling these products," he lamented.
Is Avijit Mohan being fair with his criticism? Discuss in terms of consumer buying patterns, the constraints on the department stores and Mohan's choice of channel structure to sell these products.

Question 14

The market behavior dimension was broken down into four sub-dimensions in this chapter. Define each of these sub-dimensions.

Question 15

Discuss the major issues facing the channel manager with respect to where buyers make their purchases.

Question 16

Identify any changing patterns of how consumers (or industrial buyers) purchase goods with which you are familiar. Trace the effects that these changes may have on the channel structure.

Question 17

The sub-dimension of who participates in buying decisions may be of importance to the channel manager. Under what conditions might this be the case?