REVIEWER DISTRI

The environment consists of myriad external factors within which

the marketing channel exist these are:

1. ECONOMIC ENVIRONMENT E

2. COMPETITIVE ENVIRONMENT C

3. SOCIOCULTURAL ENVIRONMENT S

4. TECHNOLOGICAL ENVIRONMENT T

5. LEGAL ENVIRONMENT L

A. The ECONOMIC ENVIRONMENT --1. RECESSION

In a channel management context, economic factors are a critical

determinant of channel member behavior and performance.

The channel manager must therefore be aware of the influence of

economic variables on the participants in the channels of
distributions.
A RECESSION is a significant, widespread, and prolonged downturn
in economic activity.

A common rule of thumb is that 2 CONSECUTIVE QUARTERS of

negative gross domestic product (GDP) growth mean recession. Any
period in which the GCP is stagnant or increasing very slowly is
often referred to as “recessionary” or “economic slowdown”.

When consumer spending decline drastically and business

investment also decreased substantially, economist called this
“DOUBLE WHAMMY” decline in spending.

All members of the marketing channel feel the effects of recession

because = sales volume levels and profitability fall significantly
during recessions.

Changes in consumer buying behavior brought on by recession also

had a significant impact in all marketing channel participants.

HOW RECESSION AFFECTS YOU?

In recession, people may lose jobs, or find it difficult to secure new

jobs or promotions.

Fresh graduates may also find fewer employment opportunities.

The Philippines’ unemployment rate for April surged to 17.7% the
highest ever on record. After January, an additional 4.9 million
people became jobless.

A. The ECONOMIC ENVIRONMENT -- 2. INFLATION

The Consumer Price Index (CPI) is one of the most popular measures
of inflation and deflation.

The CPI report uses a different survey methodology, price samples,

and index weights than the Producer Price Index (PPI) = which
measures changes in prices received by U.S producer of goods and
services.

Even though inflation is relatively low for a time being, there is no

guarantee that they will remain at such low levels in the future, it is
prudent for the channel manager to become acquainted with the
implications of higher inflation for marketing channel strategy.

Channel members reaction always depends on the consumers

reaction and these reactions are not easy to predict.
High spending might happen even during inflation due to
consumers’ mentality “buy now before prices go higher” or “hold on
to your money” psychology when recession continues.

From the perspective of channel manager, such changes in

consumer buying behavior should be viewed in the context of how
they might affect channel member behavior and what the
implications might be for channel strategy.

Retailer reduced inventory due to higher interest rates.

Reducing the inventory burden on channel members through

“streamlined product line” = (replacing higher price product with
lower one) will result to higher inventory turnover.

They will seek more special price deals from manufacturers.

Higher channel members demand must have an effective channel

strategy to satisfy channel members.
KEY TAKEAWAYS

• Deflation is the general decline of the price level of goods and

services.
• Deflation is usually associated with a contraction in the supply
of money and credit, but prices can also fall due to increased
productivity and technological improvements.
• Whether the economy, price level, and money supply are
deflating or inflating changes the appeal of different
investment options.

A. The ECONOMIC ENVIRONMENT -- 2. DEFLATION

Most economist do not expect a deflationary environment broad

enough to cause a sustained decline in the CPI to emerge in the
foreseeable future.

But what has really happened is deflation in certain sectors of the

economy such as housing, automobiles, and equipment have
experienced deflation recently which is evident in post-pandemic.

Cost-induced price is another factor that will cause difficulties to

channel members in time of deflation.
COST-INDUCED PRICE = means that a product or service is
influenced by the costs incurred in its production, distribution, and
sale. In other words, the price at which a product is sold is set, at
least in part based on the expenses associated with making and
selling it.

OTHER ECONOMIC ISSUES

• Budget deficit and national debt make huge demands on

capital and raises interest that adds up to inflation.
• High interest rates can affect all members of marketing
channels’ sales since consumer will slow down their purchases.
• Borrowed capital with high interest rate will also have direct
impact on marketing channel members.
• Trade deficit = resulting from greater levels of imports than
exports, can cause loss of jobs, which can exacerbate
recessionary forces by reducing the level of income.
• Weaker peso would lead to higher import prices and overall
inflation, which could lead to higher prices of other affected
goods and services, or risk of second-round inflation effects,
as also triggered by higher wages and transport fares.
 B. The COMPETITIVE ENVIRONMENT

Competition as it become global in scope, is a critical factor to

consider for all members of the marketing channel.

Types of Competition

1. Horizontal Competition

- Competition between firms of the same type. The most visible and
common type of competition

2. Intertype Competition

- Competition between different types of firms at the same channel

level. EX: Off-price store vs. Department store, Online retailers vs
Store-based retailers.

3. Vertical Competition

- Competition between channel members at different levels in the

channel. EX: Retailer vs. Wholesaler, Wholesaler vs. Manufacturer,
Manufacturers of national brand vs Private brand.

4. Channel System Competition

• Complete channels competing with other complete channels.

• For channels to compete as complete units, they must be
organized, cohesive organizations.
• These channels are referred to as VERTICAL MARKETING
SYSTEMS.
• In CORPORATE CHANNELS, production and marketing facilities
are owned by the same company.
• In CONTRACTUAL CHANNEL, independent channel members
are linked by a formal contractual agreement.
• Wholesaler-sponsored voluntary chains, retailer cooperatives,
and franchise systems are the 3 MAJOR FORMS OF
CONTRACTUAL MARKETING SYSTEMS.
• ADMINISTERED CHANNEL SYSTEMS = result from strong
domination by one of the channel members, frequently a
manufacturer, over the other members.
• This dominant position is monopoly of supply, special
expertise, strong consumer acceptance of its product.
• We can see that channel managers face a complex competitive
environment now only do they have to think in terms of a
broad global perspective but also worry about these 4 types
of competition.
COMPETITIVE STRUCTURE AND CHANNEL MANAGEMENT

• As competitive structure of distribution changes rapidly,

conventional ideas can quickly become obsolete.
• This changing competitive environment means that producers
and manufacturers attempting to manage marketing channels
now face a more complex management task because they are
dealing with different types of channel members.
• The management policies and strategies for dealing with one
independent channel may not always be effective with other.

C. The SOCIOCULTURAL ENVIRONMENT

• Some channel analysists argue that sociocultural environment

is the major force affecting channel members.
• Keiretsu = In Japan’s context of distribution, it links together a
manufacturer and many wholesale and retail sales outlets.
• These linkages protect may small, inefficient distributors and
retailers who participate in the keiretsu from a larger more
efficient firm.
• Japan’s channel structure is very complex and inefficient the
reason why keiretsu was established.
• Multinationals operating in the Philippines are heavily reliant
on their channel partners - more than 80% of their revenue
 comes via the indirect channel. Their success in the market,
therefore, is heavily dependent on their ability to effectively
manage channel partners.
• Philippine business culture is extremely relationship-driven.
The concept of “SUKI” or loyal customer is widespread and
works like an unwritten contractual relationship between
parties. Working with local partners who have time-honored
relationships is therefore crucial in the Philippines.

OTHER SOCIOCULTURAL FORCES

1. Globalization - it has created world-class customer expectations

that need to be satisfied through world-class channel strategy,
design and management.

• It focuses on the vast and complex trade flows among

countries and the international supply chains.
• Globalization is also viewed as a “FRAME-OF-MIND” held by
consumers were in the “the world being their marketplace”
• IKEA has chosen the Philippines as the location for its biggest
store because of the opportunities identified in the country.
These include the Philippines’ large demographic estimated at
110 million, its fast-growing middle class, rapid urbanization,
 and the large number of residential projects currently being
developed.

CHANNEL STRATEGBY AND ISSUES ASSOCIATED WITH

GLOBALIZATION CHALLENGE

1. Mobility and Connectedness - Today’s mobile generation

expects not only cover a great deal of territory but also being
able to stay in contact with consumers. Channel managers must
include both e-commerce and m-commerce (mobile commerce) in
their strategy.

2. Social Networking - refers to interaction in networks

comprised of individuals or organizations that are linked together
based on some type of common interests. In marketing context, it
enables consumers about the product and channel choices.

3. The Green Movement - refer to preserving the environment and

human health
 C. The TECHNOLOGICAL ENVIRONMENT

1. Electronic Data Interchange (EDI)

• It is the intercompany communication of business documents

in a standard format. It replaces paper-based documents such
as purchase orders or invoices. By automating paper-based
transactions, organizations can save time and eliminate costly
errors caused by manual processing.
• This technology enhances distribution efficiency that benefits
all channel members including the final customers.

2. Scanners, Computerized Inventory Management, and Handheld

Computers

• It reduces the amount of labor and paperwork involved in

inventory management.
• Provide quick response from retailers on product status.
• Effective use of this strategy is referred to by competitors as
the “INVINCIBLE FOE”

3. The Digital Revolution and Smartphones

• Digital Revolution is used to describe the huge transformation

that has taken place over the past 3 decades from analog to
digital technology.
 • The surviving members of the Beatles, Ringo Star and Paul
McCartney adhere to their policy “no-digital-download-
channels allowed”, but in November 2010, Apple announced
that download will be available in iTunes. Not even the
formidable Beatles can ignore the technological revolution.

4. Radio Frequency Identification (RFID)

• RFID in the context of marketing channel management is

helpful in inventory tracking, management supply chain and
increasing the efficiency of the in-store buying process.

5. Cloud Computing

• Is an internet-based technology that enables both large and

small businesses to utilize highly sophisticated computer
applications without having to use their own hard or software,
or office computing space and staff.
• By being part of the “cloud”, the user can access the
computing capabilities needed on demand from a third-party
provider.
• Clients can pay per computing services like a utility bill or per
subscription.
• Cloud computing provides cost advantage and flexibility so
that businesses will no longer invest heavily on IT technology.
 C. The LEGAL ENVIRONMENT

• Most of the international cargo traffic is handled at ports

located in Manila, the Manila International Container Terminal
(MICT) and South Harbor.
• MICT is operated by the International Container Terminal
Services, INC. (ICTSI), a Philippine-based international port
operator with operations in 20 other countries (including the
U.S)
• South Harbor is operated by Asian Terminal, Inc. (ATI), a
Dubai-based company.
• The use of local agents or distributors greatly improves the
opportunity for market success.
• There are currently two types of importers in the Philippines:
1. STOCKING DISTRIBUTORS
2. INDENTERS

Stocking distributors = are bound by a contract to buy and sell a

prescribed number of items as stated in their agreement with the
foreign supplier.

Indenters = act as brokers between foreign suppliers and the end

user, thus saving on capital outlays for expensive equipment and
avoiding the need to stock high-priced products.
 • Several large Philippine corporations have a “vendor
accreditation process” in place.
• Only those listed as an accredited vendor are informed of
upcoming procurement projects.
• For Government projects, potential local distributors should be
knowledgeable on relevant Philippine laws, specifically,
Republic Act (RA) No. 9184 or the Government Procurement
Reform Act (GPRA)
• Agent/distributor arrangements are common in the Philippines.
• Foreign companies should work with a local firm that has
experience participating in Philippine Government bids.
• Contracts between foreign manufacturers and their Filipino
agents/distributors typically contain the following key
elements:

1. GENERAL PROVISIONS: Identification of parties to the contract,

duration of the contract, conditions for cancellation, definition of
covered goods, definition of territory or territories, and whenever
necessary, sole, and exclusive rights.

2. Rights and Obligations of Manufacturer: Condition of termination,

protection of sole and exclusive rights, sales, and technical support,
tax liabilities, conditions of sale, delivery of goods, prices, order
refusal, inspection of distributor’s books, trademark/patent
protection, information to be supplied by the distributor, marketing,
advertising and sales promotion responsibility for claims/warranties,
and inventory requirements.

3. Rights and Obligations of Distributor: Safeguarding

manufacturer’s interest, intellectual property rights, payment
arrangements, contract assignment, customs clearance, observance
of conditions of sale, after-sales service, and information to be
supplied to the manufacturer.

• There are no laws that impede termination of an

agent/distributor contract, should either wish to do so.
• Contracts usually specify that 30-day notice be given in the
event of cancellation, or as mutually agreed upon by both
parties.
• Standard agent commissions range from 5% to 10% but vary
by industry.
• Legal assistance in drafting and enforcing contracts is highly
recommended.
• Other companies wish to engage in initial non-disclosure
agreements (NDA) to start exchanging information on pricing
modeling and other project specifications.
Local agents and distributors working with foreign suppliers often
employ forward sales or indent arrangements.

FORWARD SALES ARRANGEMENT = distributors place an order

from the foreign supplier and then sell the product to the local end-
user or customer.

INDENT ARRANGEMENT = end-users or customers directly place

orders with the supplier. The indenter then receives a pre-
determined commission for each successful sale.

Corporate agents/distributors must register with the Philippines

Securities and Exchange Commission (SEC).

Sole proprietorship agents must register with the Department of

Trade and Industry (DTI)
Foreign firms selecting a Philippine representative should consider,
among other factors, the following:

(a) whether the distributor has sufficient financial strength to

maintain appropriate stock, provide effective after-sales service, or
offer competitive payment terms.

(b) whether the representative’s geographic sales area covers

strategic markets in the Luzon, Visayas, and Mindanao regions; and

(c) their experience in the sector or with similar products or services.