delivering value:designing & managingintegrated marketing channels

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Delivering Value:Designing & ManagingIntegrated Marketing

Channels

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Overview• Marketing Channels

• Definition and Types

• Marketing Channel Strategy

• Hybrid Channels or Multichannel Marketing

• Value Networks

• The Role of Marketing Channel

• Channel Design Decisions

• Channel Management Decisions

• Channel Integration & Systems

• E-Commerce

Classified - Highly Confidential

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Marketing Channels are sets of interdependent organizations

participating in the process of making a product or service

available for use or consumption. They are the set of pathways

a product or service follows after production, culminating in

purchase and consumption by the final end user.

Marketing Channels or Intermediaries may be following

types/categories:

• Merchants such as wholesalers and retailers buy, take title

to, and resell the merchandise.


Marketing Channels

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• Agents such as brokers, manufacturers’ representatives,

sales agents search for customers and may negotiate on the

producer’s behalf but do not take title to the goods.

• Facilitators such as transportation companies, independent

warehouses, banks, advertising agencies assist in the

distribution process but neither take title to goods nor

negotiate purchases or sales.


Marketing Channels

Marketing Channel Strategy

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Marketing Channels

Push Strategy

Producer Intermediaries Consumerinducing

Producer Intermediaries Consumerordering

Pull Strategy

A push strategy uses the manufacturer’s sales force, trade promotion money, or other means to induce intermediaries to carry, promote, and sell the product to end users.

In a pull strategy the manufacturer uses advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries, thus inducing the intermediaries to order it.

demand

sell

6 Classified - Highly Confidential

Hybrid Channels or Multichannel Marketing occurs when a

single firm uses two or more marketing channels to reach

customer segments.

PRODUCER INTERMEDIARIES CONSUMER

Marketing Channels

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Value Networks


Value Network

A system of partnerships and alliances that a firm creates to

source, augment and deliver its offerings.May include:

• Suppliers

• Customer

• Consumer

• Media

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The Role Of Marketing Channel


A marketing channel performs the work of moving goods from

producers to consumers. It overcomes the time, place, and

possession gaps that separate goods and services from those

who need or want them. Members of the marketing channel

perform a number of key functions such as:

• Forward flow functions:

– From company to customers

– Develop / disseminate communication

– Store and move the physical products

– Oversee transfer of ownership

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• Backward flow functions:

– From customers to company

– Place orders with manufacturers

– Facilitate payment of bills

• Forward and backward flow functions:

– Gather information

– Negotiate price and transfer of ownership

– Finance inventories

– Assume risk


Consumer Marketing Channel Levels(fig a)

• A zero-level channel, also called a direct marketing channel,

consists of a manufacturer selling directly to the final customer.

Examples are door-to-door sales, mail order, telemarketing ,etc.

• A one-level channel contains one selling intermediary, such as a

retailer.

• A two-level channel contains two intermediaries such as a

wholesaler and a retailer.

• A three-level channel contains three intermediaries. In the

meatpacking industry, wholesalers sell to jobbers, essentially

small-scale wholesalers, who sell to small retailers.




Industrial Marketing Channel Levels (fig b)

• Zero level channel: manufacturer-customer

• One level channel: manufacturer-distributor-customer

• Two level channel: manufacturer-manufacturer’s

representative OR sales branches-customer

• Three level channel: manufacturer-manufacturer’s

representative OR sales branches-distributor-customer

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Channel Design Decisions


Designing a Channel System requires:

– Analyzing Consumer Needs

– Setting Channel Objectives

– Identifying Major Channel Alternatives

– Evaluation

Analyzing Consumer Needs


Lot Size - the number of units the channel permits a typical customer

to purchase on one occasion.

Waiting And Delivery Time - the average time customers wait for

receipt of goods. costumer increasingly prefer faster delivery

channels.

Spatial Convenience - the degree to which the marketing channel

Makes It Easy For Customers To Purchase The Product.

Product Variety - the assortment provided by the marketing channel.

Service Backup - add on services (Credit, delivery, installation,

repairs) provided by the channel. the greater the service backup, the

greater the work provided by the channel.

Setting Objectives and Constraints


– In order to develop channel structure, manager should decide

on some goals to be achieved.

– These goals must be in line with some other component of

marketing mix, to anticipate collision among them.

– These goals must be congruent with marketing and other

general objectives and strategies of the firm

Identifying Major Channel Alternatives


• Types Of Intermediaries . Identifying what alternatives are

available and best suited for the purpose.

• Number of Intermediaries

– Exclusive distribution means severely limiting the number of

intermediaries

– Selective distribution relies on only some of the intermediaries

willing to carry a particular product.

– Intensive distribution places the goods or services in as many

outlets as possible.

Identifying Major Channel Alternatives


• Terms and Responsibilities of Channel Members. Each channel member must be treated respectfully and given the opportunity to be profitable. The main elements in this regard are:– Price policy calls for the producer to establish a price list and

schedule of discounts and allowances that intermediaries see as equitable and sufficient.

– Conditions of sale refers to payment terms and producer guarantees.Most producers grant cash discounts to distributors for early payment. They might also offer a guarantee against defective merchandise or price declines, creating an incentive to buy larger quantities.

– Distributors’ territorial rights define the distributors’ territories and the terms under which the producer will enfranchise other distributors.

– Mutual services and responsibilities must be carefully spelled out, especially in franchised and exclusive-agency channels.

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Evaluating Major Channel Alternatives


Evaluation Criteria

• Economic criteria compares the likely sales costs and

profitability of different channel members

• Control refers to channel members’ control over the

marketing of the product

• Adaptive criteria refers to the ability to remain flexible to

adapt to environmental changes

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Channel Management Decisions


• Selecting channel members

• Training channel members

• Motivating channel members

• Evaluating channel members

• Modifying channel design and arrangements

• Global Channel Considerations

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• Selecting Channel Members. To select the appropriate channel members, producers should determine what characteristics distinguish the better intermediaries such as:– number of years in business– other lines carried, growth– profit record– financial strength– Cooperativeness– service reputation

• Training and Motivating Channel Members. Carefully implemented training, market research, and other capability-building programs can motivate and improve intermediaries’ performance. The company must constantly communicate the importance of intermediaries in a joint effort to satisfy end users of the product.

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• Evaluating Channel Members. Producers must periodically evaluate intermediaries’ performance against standards such as:– sales quota attainment– average inventory levels– customer delivery time– treatment of damaged and lost goods– cooperation in promotional and training programs

• Underperformers need to be counseled, retrained, motivated, or terminated.

• Modifying Channel Design and Arrangements. In competitive markets with low entry barriers, the optimal channel structure will inevitably change over time. The change could mean:– adding or dropping individual market channels or channel

members or – developing a totally new way to sell goods.

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• Global Channel Considerations. International markets pose distinct challenges, including variations in customers’ shopping habits, but opportunities at the same. Companies must:– Try to get close to customers in order to understand their

needs and wants.– modify and design channels to satisfy the customers.

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Channel Integration & Systems


• Vertical Marketing Systems. A conventional marketing channel consists of an independent producer, wholesaler(s), and retailer(s). Each is a separate business seeking to maximize its own profits, even if this goal reduces profit for the system as a whole.No channel member has complete or substantial control over other members. A vertical marketing system (VMS), by contrast, includes the producer, wholesaler(s), and retailer(s) acting as a unified system. There are three types:– Corporate VMS combines successive stages of production and

distribution under single ownership. – Administered VMS coordinates successive stages of production

and distribution through the size and power of one of the members. Manufacturers of dominant brands can secure strong trade cooperation and support from resellers.

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– Contractual VMS consists of independent firms at different levels of production and distribution, integrating their programs on a contractual basis to obtain more economies or sales impact than they could achieve alone.

• Horizontal Marketing Systems. Another channel development is the horizontal marketing system, in which two or more unrelated companies put together resources or programs to exploit an emerging marketing opportunity. The companies might work together on a temporary or permanent basis or create a joint venture company.

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• Integrating Multichannel Marketing Systems. An integrated marketing channel system is one in which the strategies and tactics of selling through one channel reflect the strategies and tactics of selling through one or more other channels. Adding more channels gives companies three important benefits:– increased market coverage.– lower channel cost– more customized selling

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E-Commerce


• E-Commerce uses a Web site to transact or facilitate the sale of products and services online. Online retailers can predictably provide convenient, informative, and personalized experiences for vastly different types of consumers and businesses. By saving the cost of retail floor space, staff, and inventory, online retailers can profitably sell low-volume products to niche markets. Online retailers compete in three key aspects of a transaction:– customer interaction with the Web site– Delivery– ability to address problems when they occur.


E-Commerce

• E-commerce Type– Pure click companies are those that have launched a

Web site without any previous existence as a firm.– Brick-and-click companies are existing companies that

have added an online site for information or e-commerce.


E-Commerce

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delivering value:designing & managingintegrated marketing channels

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