Marketing Aerobics:

Marketing channel strategy for consumer goods -
applied to the example of:

OMKAFE

by

Sandra Gaessler

25/01/03

Swinburne University - Australian Graduate School of Entrepreneurship
MBA - HGM502: Strategic Marketing

Executive Summary

This report is initiated to discuss the various marketing channel strategies for consumer goods. The generic term goods refers to products as well as services. The paper is divided into part A and part B. Part A explains and discusses the general meaning of key concepts of marketing channel selection, and thus builds the foundation for part B. Part B applies the theoretical concepts to a real life company, Omkafe, and its international marketing channel selection process. The reason for choosing Omkafe, a small sized company based in Italy known for its outstanding coffee, is to demonstrate the differences in distribution patterns among countries and how the rise of the Internet and eBusiness has influenced even small companies like Omkafe. Part A concludes that a company can gain a competitive edge in deciding on an effective distributor or agent. Since there is no one right answer on how to effectively manage the flow from the manufacturer through the distribution channel to the ultimate customer, each company has to make its own decision based on its unique market, producer and product factors. Part B then enforces this conclusion, and also emphasizes the fact that even within a company, different marketing channel selections for different market targets are appropriate and necessary.

PART A

Table of Content

1 Introduction 4

2 Definition and importance of selecting a marketing channel strategy 4

3 Direct versus indirect distribution channels 5

4 Steps in channel strategy selection 5
4.1 Conventional versus vertical marketing channel 6
4.1.1 Agency theory or conventional channel 6
4.1.2 Relationship management or vertical coordination of channels 7
4.2 Distribution intensity 7
4.2.1 Intensive distribution 7
4.2.2 Selective distribution 7
4.2.3 Exclusive distribution 8
4.3 Factors influencing the channel decision 8
4.3.1 Market factor 8
4.3.2 Producer factor 8
4.3.3 Product factor 9

5 Conclusion 9

List of figures:
Figure 3.1 Channel of distribution for a consumer good
Figure 4.1 Steps in Channel Strategy selection

1 Introduction

This first part of the report is initiated to generally discuss the key concepts of implementing a marketing channel strategy. In terms of the four major elements of a marketing strategy, product, place (or method of distribution), price, and promotion, the selection of a marketing channel affects both place and promotion, because it describes the path that goods or services take in moving from producer to consumer (Scarborough, M & Zimmerer T 1996). Before selecting a channel strategy, management has to first decide upon the types of channel to be used and then determine the desired distribution intensity (Cravens 2000). To get an understanding of the different channel types available, this report will first describe the types, followed by an evaluation of the factors that may influence the choice for one of the channels or the other. The aim of this first part of the report is to provide the basic framework to concentrate on what is important when deciding the marketing channel.

2 Definition and importance of selecting a marketing channel strategy 

According to Cravens (2000), a value chain or channel of distribution is a group of vertically aligned organizations that add value to a good or service in moving from basic supplies to finished products to consumer and organizational end-users. Porter’s value chain analysis model elaborates this concept of a firm’s value chain into an even larger stream of activities, which Porter calls a value system (Porter 1980). When a company has to select a new channel strategy for a new product or market entry or aims to improve the existing strategy, a sound understanding of the entire value system is necessary. Thus, the company can find out how and through which activity value is added and which activities have the potential to be streamlined. A reflection on the value system, including the value chain of the company, its suppliers, distributors and customers is necessary to provide a framework for the systematic evaluation of a company’s position and power within a value chain system (Powe 2003).

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Part B

Table of Content

1 Introduction 11

2. Company background 11

3. Omkafe′s distribution channel 11
3.1 Direct sales and marketing channel 12
3.2 Indirect sales and marketing channel 12
3.3 Distribution and marketing through bars and restaurants 12

4. Relationship marketing 13

5. International channels 13
5.1 Channel power and conflict 14
5.2 German agents and the Internet 14

6 Conclusion 15

List of figures:
Figure 3.1 Omkafe′s simplified Italian distribution and marketing channel strategy
Figure 5.1 German channel of distribution alternatives

1 Introduction

This part of the report is initiated to transfer the concepts learned from part A into a real life scenario. By describing and commenting on the distribution channels chosen by Omkafe, a small sized company specialised in the roasting of coffee, a further understanding of the concepts will be gained. The reason for choosing this particular company is to demonstrate the differences in distribution patterns among countries and how the rise of the Internet and eBusiness can influence even small companies like Omkafe. The first section of this part of the report will compare Omkafe′s Italian with the German marketing channel strategy, which will lead into the second part of Omkafe′s new marketing opportunities evolved from the Internet.

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