BUS 113 Week 2 Channel Environment and Technology

External Environment

The external, uncontrollable factors that affect channel participants

Economic, competitive, sociocultural, technological, legal

Economic Environment (major economic forces)

Recession, inflation, deflation

An increase in interest rates can decrease demand and increase costs

A strong currency can make exported products less competitive

Recession

Leads to reduced sales volume and profitability, increased inventory

Manufacturers can support channel members by financing their inventory costs

Inflation

May cause reduced spending

Manufacturer may change product mix from high price to lower price items

May reduce inventory burden via promotional support and faster order processing or delivery

Deflation

A decrease in prices

A challenge is to pass price increase caused by cost pressures through the channel

Competitive Environment

Marketplace and competition is global

Types of Competition

Horizontal, vertical, channel system competition

Socio-Cultural Environments

Influences both national and international market channel structures

Age patterns, educational trends, family and household structure

Japanese Marketing Channel

Long channels with many small stores

Close business relationships protects inefficient channel members

Consumers prefer to shop in their neighborhood and desire fresh food, good service, social contact

Society encourages small stores to provide employment and as a retirement occupation

Technological Environment

Channel info systems linked via internet

Scanners and computerized inventory management

Legal Environment (Laws that impact channels)

Sherman antitrust act, federal trade commission act, robinson patman act

Sherman Antitrust Act

Fundamental antimonopoly law

Public welfare is best served through competition

Federal Trade Commission Act

Established FTC

Power to investigate and enforce

Robinson-Patman Act

Prohibits price discrimination in B2B except under specific circumstances

Price Fixing

Firms collude to set prices

Horizontal Price Fixing

Firms selling to the same customers

2 retailers, it is illegal

Vertical Price Fixing

When a manufacturer dictates pricing to retailer

Vertical Price Fixing (Price maintenance)

Manufacturer can suggest retail price (but coercion must be avoided)

Manufacturer can refuse to sell to retailer who hurts its brand image or neglects service

With consignment or brokerage selling, manufacturer can set price because retailer or distributor does not take title to the good

Manufacturer can use cooperative advertising to reimburse advertising material showing specified pricing info

Legal Issues

Practices may be seen as anticompetitive if seller has large market share

Exclusive Dealing

Firm requires its channel members to sell only its products and not competing products

Resale Restrictions

Firm stipulates to whom and in what locations (exclusive territories) channel members may resell its products

Tying

Firm sells product to channel member on condition that it must purchase another product

Related to full line forcing

Full Line Forcing

Firm insists channel member carry its full product line

Price Discrimination

Firm sells at different prices to different channel members

Price Maintenance

Firm dictates price charged by channel members to their customers

Refusal to Deal

Firm has right to pick or exclude channel members