Hi everyone and welcome to marketing channel strategy. I'm Sandy Jap and I look forward to getting to know you this semester. Now this course is about marketing channels, and for most people marketing channels is a black box. The average person on the street has no idea how products get to market, nor have they ever thought about it, or would they even care, but for those of us in business, we should care. Why? Well because the table stakes are enormous. Consider that of all the sales transactions that take place in the world, more than half those transactions are business to business, and consider too that in the US, wholesale distribution revenues account for as much as 30 percent of our nominal gross domestic product or GDP. Retail sales alone account for 27 percent, and together the two account for more than half of our GDP. Another reason why we should care is because of the sheer magnitude of the money involved in distribution. This money is easily more than three times what firms spend on advertising. So as much as marketers like to talk about the cost of SuperBowl commercials, the reality is that those price tags are dwarfed by the cost of distribution, and finally, it's worth remembering that every B2C transaction occurs because of underlying B2B activities as shown in this graphic here. I like to use this graphic as a reminder that there's a lot that takes place below the surface, that is just what we see in stores. Moving on, let's turn to the question of what a marketing channel is. Now when I ask this in class, I get lots of different responses that run the gamut of possibilities. For now, let's use this working definition. A channel is a set of interdependent organizations involved in making a product or service available for consumption or use at the right place and time. Now a couple of important aspects to note is the term interdependence, which means that the organizations in a marketing channel are dependent on each other. The decision and choices of any firm, whether the supplier, wholesaler or distributor, will impact the others. Now this is good, because if everyone does their part to make the system work efficiently, then everyone will share in the expanded pie, but when they don't, everyone comes up short. So all boats rise and fall together. The second aspect to note is consumption or use, and what you will learn this semester is that how consumers use or want to buy the product is more important than the product itself, and you heard that right. This implies that it is possible to sell marginal or commodity products simply by creating value in how customers want to buy. Creating value is both a logistic and information challenge, but is at the core of how to make products and services available at the right time and place. Now together, these aspects of channel strategy management allow firms to create novel value in terms of time savings, placement, or ease of consumption. Channel members take ownership and possession of products. They store them and then they sell them in the quantity configuration and the size that consumers demand. So let's unpack the channel a bit further. Here we see a company that makes lots of stuff, and like most manufacturers, their main skills are in making large quantities at a profit, but here's the problem, all that stuff has to get to you and me. In this black box, in between is what makes this happen, and this is the channel. This black box is the purview of this course. So what needs to happen? Now the manufacturer may not have the skills in transporting, and the reality is that all this stuff needs to be transported to a distributor or a warehouse location, and then the products need to be mixed in with other products from the same or different manufacturers in order to provide the end user a customized solution, and the end user also needs to be educated on how to best use the product or reduce its life cycle costs. A salesperson may also be needed to close and execute the sale. So finally, what's the role of the consumer in all of this? You guessed it. It's to inject money. It's consumer money that makes this whole system run. I'm often asked, how's the channels class different from a B2B marketing or a supply chain course? Well a business to business marketing class is about the marketing mix to firms. In other words, how the marketing four Ps should be used to sell to organizational customers, but a channels class is about one P and that is the placement P. So this course is all about that one P, and you'll see that sometimes, that's all we really need to make a whole lot of money. A supply chain course often focuses more on the logistics of moving boxes and stuff efficiently. So there are lots of models and algorithms to help avoid what they call the bullwhip effect. Now the focus is typically on cost reduction, but in a channels class, our focus is on value expansion. So instead of how to improve our margins, the question we ask is, how can we grow the revenue overall by offering something that consumers will pay more for. Now revenue growth just also happens to be what markets demand. This is not to say that cost reduction is not important, it's just not our only focus in a channels course. Another big differentiator from a supply chain management course is the creation and use of incentives to get all the channel players to work together. Now none of these intermediaries really care about whether the supplier's products move downstream at the most cost-effective rate, but channel strategy is as much about motivation and incentives as it is about designing the route to market. So let's apply what we already know so far with the challenge. I always say that if you're going to do channels, then let's do it big. So here's a problem for you.
