Chapter 3Key Topics for Ch. 3The Business EnvironmentThe Environment*I. The Economic Environment*RecessionInflationDeflationOther Economic FactorsII. The Competitive Environment*Types of Competition in Channels*Horizontal CompetitionVertical Competition*Inter-type CompetitionChannel System CompetitionIII. The Sociocultural EnvironmentSociocultural DevelopmentsIV. The Technological EnvironmentThe Technological EnvironmentSlide 20V. The Legal Environment*Legislation Affecting Marketing ChannelsLegislation Affecting Marketing ChannelsLegal Issues in Channel ManagementSlide 25Slide 26Chapter 3Chapter 3The Environment of Marketing ChannelsKey Topics for Ch. 31. Meaning of Business Environment2. Economic Environment*3. Competitive Environment*4. Social/Cultural Environment5. Technological Environment6. Legal EnvironmentThe Business EnvironmentThe Business Environment Consists of all externaluncontrollable factors within which marketing channels existAffects channel members and nonmembers, such as facilitating agencies =All channel participantsNonmember participantsThe Environment*The Environment*Environment1. Economic (M)2. Socio-cultural (M)3. Competitive (m)4. Technological (M)5. Legal (m)Producers& ManufacturersIntermediariesTarget MarketsFacilitatingagencies MemberparticipantsFocus ofchannelmanagementA Question: “Right” boundary of a firm?I. The Economic Environment*I. The Economic Environment*Major EconomicForcesRecession InflationDeflationRecessionRecessionConsumer and/orCorporate spending =Channelstrategy: Manufacturers provide channel member support by financing high inventory costs Ex) Current U.S. Economy Reduced sales volumeReduced profitabilityFirms caught with large inventoriesInflationInflationContinued high spending  Price IncreaseOR Spending, fueling a recession Possible channel strategy:• Reduce manufacturer’s product mix from higher-price to lower-price products• Reduce inventory burden on channel members with:Streamlined product lineFaster order processing & deliveryHigher inventory turnover through stronger promotional supportDeflationDeflationPrices =\= Demand Challenge:Pass cost-induced price increases through channelwhen built-in cost pressures from labor contracts were negotiated several years earlierEx) Japan’s lost decadesOther Economic FactorsOther Economic Factors Real interest rates Demand Costs=1. 2.Strong U.S. Dollar Difficult to sellproducts throughchannel members= U.S. products become less competitiveII. The Competitive Environment*II. The Competitive Environment*Local  Regional  National  Global in scope* Opportunity and ThreatTypes of Competition in Channels*Types of Competition in Channels*HorizontalIntertypeVerticalChannel SystemHorizontal CompetitionHorizontal CompetitionMWR RWMVertical Competition*Vertical Competition*MRWInter-type CompetitionInter-type Competition MWRMWRChannel System CompetitionChannel System CompetitionMRWRWMIII. The Sociocultural EnvironmentIII. The Sociocultural EnvironmentPervades all aspects of a societyPervades all aspects of a societyInfluences both national and internationalmarketing channelsInfluences both national and internationalmarketing channelsInfluences wide variations among channel structures worldwide*Influences wide variations among channel structures worldwide*Sociocultural DevelopmentsSociocultural DevelopmentsPopulation Age PatternsEthnic MixEducational TrendsFamily or Household Structure U.S. pop. Becoming both younger & older # of minority-owned businesses Levels = people more demanding Smaller & more variedRole of WomenImportance of Time # = changing shopping needsIV. The Technological EnvironmentIV. The Technological EnvironmentHelp retailers & wholesalers closely monitor success orfailure of products they handleScannersComputerized inventory managementPortable computersEffect on Channel Structure: Unbundle and RebundleThe Technological EnvironmentThe Technological EnvironmentEDI - Electronic Data Interchange• Links together channel information systems• Provides real-time responses• Enhanced by Internet= Enhanced Distribution EfficiencyThe Technological EnvironmentThe Technological EnvironmentAcceleratingtechnology“Computer salesPeople”Mobilerobots3-D modelingUltra-widebandtechnologyV. The Legal Environment*V. The Legal Environment*The set of laws that impact marketing channels• Continually evolving • Affected by changing values, norms, politics, & precedents• Knowledge of basics helps channel manageravoid serious & costly legal problemsLegislation Affecting Marketing ChannelsLegislation Affecting Marketing Channels Sherman Antitrust Act 1890; Fundamental antimonopoly law Public welfare best served through competitionClayton Act 1914; Strengthen Sherman Antitrust Act Prohibits specific practices among competing firmsFederal Trade Commission Act 1914; Established FTC Power to investigate & enforceLegislation Affecting Marketing ChannelsLegislation Affecting Marketing ChannelsRobinson-Patman Act 1936; Amendment to Clayton Act Prohibits price discrimination Allows price differentials to different customersunder specific circumstancesCeller-Kefauver Act 1950; Amendment to Clayton Act Prohibits vertical mergers & acquisitionsLegal Issues in Channel ManagementLegal Issues in Channel Management• Dual Distribution, or multi-channel distributionProducer or manufacturer uses 2 or more different channel structures for distributing the same product•Exclusive DealingSupplier requires its channel members to sell only its products or to refrain from selling directly to competitive suppliers•Full-Line ForcingSupplier requires channel members to carry a full-line of its products in order to sell any particular products in supplier’s lineLegal Issues in Channel ManagementLegal Issues in Channel Management• Price DiscriminationSupplier sells at different prices to the same class of channel members•Price MaintenanceSupplier dictates prices charged by channel members to their customers• Refusal to DealSupplier has right to refuse to deal with whomever they want as channel membersLegal Issues in Channel ManagementLegal Issues in Channel Management• Resale RestrictionsManufacturer attempts to stipulate to whom and in what geographical market channel members may resell the manufacturer’s products•Tying AgreementsSupplier sells a product to a channel member on condition that