Chapter 8Chapter 8

Target Markets & Channel Design Strategy

• Channel manager decisions regarding the design of the firm’s marketing channel…

– MUST be a function of the firm’s target markets’ needs and wants

– Remember customer value is the driver of design.

Market VariablesMarket Variables88Objective 1:

Framework for Framework for Market AnalysisMarket Analysis

88Objective 2:

• Market Geography The Four

• Market Size Dimensions

Of All

• Market Density Markets

• Market Behavior

Market GeographyMarket Geography88Objective 3:

• Market Geography– Refers to the geographical extent of markets and

where they are located.

• Channel Manager’s Task…– To evaluate market geography relative to channel

structure to ensure that the structure is able to serve the markets effectively and efficiently.

Locating MarketsLocating Markets88

• Channel managers ascertain the geographical locations of target markets through the use of…– The Bureau of Census (http://www.census.gov)

• Regions, States, counties, MSAs (x > 50k*), secondary markets (x < 50k)*, etc.

– Postal Zip Codes– GIS*

• Computerized systems that combine physical geography with cultural geography* (Dunne, Lusch, & Carver 2010)

Tracking ChangesTracking Changesin Market Geographyin Market Geography

88

• In the U.S.– A high degree of mobility means markets

change frequently

• Globally– Southeast Asian countries & former Eastern

Bloc countries of Europe have become key locations

• Market Size– Refers to the number of buyers or potential buyers

in a given market• Can be either end-users or industrial buyers

• Bucklin’s

Model of

Channel

Structure

Market SizeMarket Size88Objective 4:

Cost per unit

Number of Buyers (U)Ue

Cd

Cm

Market SizeMarket Size88

• Channel Manager’s Task…– When using Bucklin’s model for market size

data, it is important to consider the particulars of certain situations

– For Example:• Will an increase in buyers increase or decrease

average cost of serving customers?• If an increase in average cost is likely, can channel

structure be changed to reduce costs before market reaches its increased size?

Market DensityMarket Density88Objective 5:

• Market Density– Refers to the number of buyers or potential buyers

per unit of geographical area.

• Efficient Congestion– Congested, high-density, markets can promote

efficiency in the performance of several basic distribution tasks (e.g., transportation, storage, communication, and negotiation.)

Strategic Implication of Strategic Implication of Density Density

88

• “Density offers efficiency”– Opportunity to achieve high levels of customer

contact at lower average costs

• Manufacturers often seek out intermediaries (wholesalers & retailers) operating in dense markets

Market BehaviorMarket Behavior88Objective 6:

• “Market Behavior” is characterized by, or encompasses…

1.When the market buys

2.Where the market buys

3.How the market buys, and

4.Who buys

When the Market BuysWhen the Market Buys88

Buying Patterns

• Seasonal

• Weekly

• Daily

Implications• Variance creates peaks

and valleys in production• Should seek members

who are in tune with changes in patterns

• How could a “Category Killer” help the manufacturer?*

Where the Market BuysWhere the Market Buys88

A “Function” of:• The types of

intermediaries from which buyers make a purchase

• The location of these intermediaries

Implications• Particular types of

products are typically purchased where?

• What product categories align well with one’s product(s)?

• Are these patterns likely to change?

How the Market BuysHow the Market Buys88

• Large vs. Small Quantities?

• Self-Serve vs. Assisted Shopping?

• One-Stop vs. Multi-Store Shopping?

• Impulse vs. Planned Purchases?

• Cash vs. Credit?

• Shop at home vs. Prefer Traditional Store?

• Shopping vs. Non-Shopping Good– (i.e., search level)

Who BuysWho Buys88

• Who makes the actual purchase?– Affects type of retailer chosen– May alter channel members

for industrial goods

• Who decides whether to purchase?– Who in “family unit”– Buying centers for industrial goods

Buying CentersBuying Centers

• Definition:– a set of people who

participate in industrial buying decisions & who are responsible for the consequences resulting from those decisions.

• Typical Participants (or Roles Performed):– Users– Influencers– Deciders– Approvers– Buyers– Gatekeepers

Note: Individuals may perform more than one.

88

Changes in Market Changes in Market BehaviorBehavior

88Objective 8:

• Channel Managers must be attune to:

1. Changes likely to occur in the targeted markets’ shopping behavior

2. Whether these changes are likely to remain (i.e., permanent) or are more likely fleeting (i.e., short-term)

Implications of ChangesImplications of Changesin Market Behavior in Market Behavior

88

• Increased demand for…– Knowledgeable & helpful sales assistance:

• Increase in personal selling in department/specialty stores

– Minimum service with very low prices• Increase in retailers w/ sparse surroundings & aesthetics

(e.g., warehouse clubs like Sam’s)

– Convenience & no crowds of shoppers• Increase in firms offering mail order & catalog services

to avoid crowds & shop from home

Implications of ChangesImplications of Changesin Market Behavior in Market Behavior

88

• Increased demand for…– Efficiency in information gathering &

purchasing• Increase in Internet shopping, especially for B2B

– Innovation in service, selection, or effectiveness• Department stores featuring different layouts (e.g.,

the “loop” vs. “free flow”), kiosks, and specialty stores adopting “fast turn” (e.g., Zara)*