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IF View - Issue No. 13

BRANDING
AND MARKETING
CHANNEL
STRATEGIES

Issue No 13

Marketing Channel Strategy Consultants
USA - EUROPE - AUSTRALIA - BRAZIL - HONG KONG
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An organisation’s overall marketing mix seeks to combine the elements of produce, price, promotion and place, so that all elements lead towards consistent product positioning and a competitive advantage.

However, branding is not just an issue of promotion; as with all aspects of the marketing mix, distribution and branding may impact each other.  Indeed branding may be a powerful component of a distribution strategy.

Most companies see the interrelation between branding and distribution as a means of product positioning.  For example, Brand X may be positioned as a “quality” product and distributed through exclusive “tied” channels whereas Brand Y, a fast moving consumer good, would usually be channelled through mass market resellers.  Its distribution channels will influence the impact of the brand.  As “exclusive” products are distributed through wider channels, their brand power is eroded.

Brand Strategies

Companies may seek competitive advantage by better utilizing their channels of distribution.  This advantage is often more sustainable than other marketing mix elements.  By reducing its number of brands, a company’s sales force may be better placed to support their products.  For example, resellers may become more loyal to their suppliers as sales efforts become more focused.  A reduction in the number of brands allows for economies of scale to be achieved through stronger, more concentrated promotion, production and packaging costs.  (Central costs, such as inventory, administration and overheads are no longer duplicated).

In some industries, highly successful brand strategies have begun with wide product distribution.  As the new brand gains strength, greater margin may be achieved by later “narrowing” the distribution channels, to position the brand as an exclusive product, with exclusive supply channels.

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Marketing Channels Strategy for an Exclusive Brand

Having more brands allows a company to better tailor its products to the needs of particular market segments.  However, with more brands, resellers are less likely to be loyal to any particular brand.  A broader distribution network potentially provides greater market coverage and a wider variety of product for consumers.  On the negative side, broader distribution inevitably leads to some loss of product control.

Channel Conflict

Channel conflict will often be an issue for multi-branded companies.  While inter-brand competition may be healthy, channel conflict (where different marketing channels compete for the same customers) can occur.  The level of conflict will be largely determined by market targeting and coverage. 

  • Channel members in the same category (eg agents), may compete with each other – this is not channel conflict.
  • Channel conflict occurs where one channel (eg agents), competes for the same customer as another channel (eg direct sales force)

Channel conflict can lead to: 

i)                    End-user confusion – if this product is as good as it purports to be why is it being sold direct from a factory outlet?

ii)                   Damage to a supplier’s image – channel members may resent the supplier selling an alternative brand direct to their customers

iii)                 Reduced reseller profitability – different resellers compete for the same customer, to the detriment of all (cannibalisation)

iv)                 Reduced reseller motivation – why should a reseller remain loyal to the supplier when other channels sell the same product; resellers are more likely to devote sales effort to what is their “exclusive” brand

v)                  Reduced customer support – with multiple brands, resellers become less focused

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When considering branding, the following marketing channel strategy guidelines should be considered: 

·         Develop appropriate brands for each market segment

·         Determine “positioning” or each brand

·         Determine desired level of control over brands

    Direct distribution provides greatest control whiles third party resellers provide the least

  Determine desired level of coverage for each brand

    Direct distribution limits market coverage while third party resellers may provide access to the largest market share

·         Determine which marketing channels will support the brands’ position.  Distribution through exclusive “tied” distribution arrangements best supports a product positioned at the higher end of a market.

Multiple brands need net necessarily be distributed through the different channels.  Branding can be an effective way of differentiating product for different channels.  Distributing several brands through the same channel is often warranted.  However, there is a risk of channel members splitting loyalty between the two brands.

The power of a brand name and a supplier’s corporate resources can be used to create tightly tied distribution relationships with independent resellers, while the supplier gains increased loyalty and commitment, resulting in increased sales.  For the reseller, the benefits include the added resources of promotion, training, systems and service.

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