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Marketing Management MBA CP 205

Learning Objectives: Know what is a marketing channel system and a value network. Know what work marketing channels perform. Know how channels should be designed. Know what decisions companies face in managing their channels. Know how companies should integrate channels and manage channel conflict. Developing Marketing Channels

Sets of interdependent organizations involved in the process of making a product or service available for use or consumption. Marketing Channels Developing Marketing Channels

Channels and Marketing decisions Developing Marketing Channels Push Strategy Pull Strategy

While deciding on its intermediaries the firm may adopt a push strategy , a pull strategy or a combination of both. Push strategy involves the manufacturer to use its sales force and trade promotion resources to induce intermediaries to carry, promote, and sell the product to end users. Push strategy is appropriate when there is low brand loyalty, brand choice is made in the store & product benefits are well understood. Push strategy is also appropriate when the product is an impulse item. Developing Marketing Channels

A pull strategy involves manufacturer using advertising and promotion to persuade consumers to ask intermediaries for the product, thus inducing intermediaries to order it. It is appropriate when there is high brand loyalty, people perceive differences between brands and consumers choose brands before they visit the store. The firm must decide how much effort to devote to push or pull marketing. Some firms employ both push and pull strategies. Developing Marketing Channels

The Role of Marketing Channels The advantages of using intermediaries are: Many producers do not have adequate resources to carry out direct marketing . Producers who do establish their own channels can often earn more profits by increasing investment in their core business. In some cases direct marketing is not feasible. Intermediaries achieve better efficiency in making goods widely available to target markets through their contacts, experience, specialization and scale of operation. Developing Marketing Channels

Increasing Efficiency Developing Marketing Channels

The Channels Functions and Flows Developing Marketing Channels Channel Member Functions: Gather information about potential and current customers and competitors. Develop and disseminate persuasive communication to stimulate purchasing. Reach agreement on price and other terms so that transfer of ownership is effected. Place orders with manufacturers. Acquire funds to maintain inventories at different levels in the marketing channel. Assume the risks connected with carrying out channel work. Provide for the successive storage and movement of physical products. Provide for buyers’ payment of bills through banks and other financial institutions.

Channel Flows: Some functions constitute a forward flow of activity from the company to the customer. These include flow of physical goods, title and promotion. Other functions like ordering and payment constitute a backward flow from customer to the company. Some like information, negotiation, finance and risk taking occur in both the directions. Developing Marketing Channels

Channel Flows Developing Marketing Channels Suppliers Transporters, Warehouses Manufacturer Transporters, Warehouses dealers Customers 1. Physical Flow: 2. Title Flow: Suppliers Manufacturer dealers Customers

Developing Marketing Channels Suppliers Banks Manufacturer Transporters, Warehouses Dealers Customers 3. Payment Flow: 4. Information Flow: Suppliers Manufacturer Dealers Customers 5. Promotion Flow : Manufacturer Suppliers Transporters, Warehouses Dealers Customers Banks Banks Transporters, Banks Advertising agency Advertising agency

Channel Levels: The producer and the consumers form the two ends of the marketing channel. Number of intermediary levels determine the length of a channel. Zero-level marketing channel, also called a direct marketing channel consists of a manufacturer directly selling to final customer. A one level channel contains one selling intermediary usually a retailer. A two level channel will have a wholesaler and a retailer. Developing Marketing Channels

Consumer Marketing Channels Developing Marketing Channels 0-level 1-level 2-level 3-level Manufacturer Manufacturer Manufacturer Manufacturer Consumer Consumer Consumer Consumer Retailer Retailer Retailer Jobber Wholesaler Wholesaler

Industrial Marketing Channels Developing Marketing Channels 0-level 1-level 2-level 2-level Manufacturer Manufacturer Manufacturer Manufacturer Industrial customer Industrial customer Industrial customer Industrial customer Industrial distributors Manufacturer’s sales branch Manufacturer’s representative

Channel Design Decisions Designing a marketing channel system involves the following: Analyzing customers’ desired service output levels. Establishing channel objectives. Identifying major channel alternatives. Evaluating major channel alternatives. Channels produce five service outputs: Lot size, waiting & delivery time, spatial convenience, product variety and service back up . Developing Marketing Channels

Channel objectives should be stated in terms of targeted service levels and depend on product characteristics. A company can choose from many of the alternative channels such as its own sales force, agents, distributors, dealers, direct mail, telemarketing, and the internet to reach customers. Most companies use a mix of channels. A channel alternative is described by three elements: the types of business intermediaries, the number of intermediaries needed and the terms and responsibilities of each channel member. Developing Marketing Channels

Companies need to decide on number of intermediaries at each channel level. Three options can be exercised: Exclusive distribution. Selective distribution. Intensive distribution. Exclusive distribution means limiting the number of intermediaries to only a few, where producer wants to have control over the service level and outputs offered by the resellers. Developing Marketing Channels

Selective distribution involves having more than a few but less than all the intermediaries who wish to carry a particular product. In Intensive distribution , the producer places the goods in as many outlets as possible to increase coverage and sales. The producers must establish rights and responsibilities of the channel members. The main elements in trade-mix relations are: Price policy. Conditions of sale. Distributors territorial rights. Mutual services and responsibilities. Developing Marketing Channels

Channel-Management Decisions After the company has chosen a channel alternative, it must: Select individual intermediaries, Train channel members, Motivate channel members and Evaluate channel members & if required modify channel arrangements. Developing Marketing Channels

While selecting channel members, evaluation must be based on number of years in business, other lines carried, growth & profit record, financial strength and service reputation. Channel power may be used to alter channel members’ behavior. Producer may draw on coercive, reward, legitimate, expert or referent power in this regard. Producers must constantly evaluate intermediaries’ performance against such standards as sales quota attainment, inventory levels, customer delivery times and cooperation in promotional and training programs. Developing Marketing Channels

Channel Integration Systems A conventional marketing channel consists of an independent producer, wholesaler(s) and retailer(s). No channel member has complete or significant control over other members in a conventional marketing channel. A vertical marketing system (VMS), comprises the producer, wholesaler(s) and retailer(s) acting as a unified system. One channel member, the channel captain , owns the others or franchises them or has so much power that they all cooperate. Developing Marketing Channels

Channel captain can be the producer, the wholesaler or the retailer. VMS arose due to strong channel members’ attempts to control channel behavior and eliminate channel conflict. A Corporate VMS combines the successive stages of production and distribution under a single ownership. An Administered VMS coordinates successive stages of production and distribution through the size & power of one of the members. Developing Marketing Channels

A 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. These are of three types: Wholesaler sponsored voluntary chains (of retailers). Retailer Cooperatives ( by forming a new business entity). Franchise organizations ( A franchisor links several successive stages of production-distribution process, popular in retailing). The traditional system is the manufacture-sponsored retailer franchise. A newer system is service-firm-sponsored retailer franchise. Developing Marketing Channels

In Horizontal marketing system, two or more unrelated companies put together resources and programs to exploit a potential marketing opportunity. Multi-channel marketing occurs when a single firm uses two or more marketing channels to reach one or more customer segments. Adding more channels following benefits accrue: Increased market coverage, Lower channel cost and More customized selling. Developing Marketing Channels

Developing Marketing Channels VENDOR CUSTOMER Marketing Channels and Methods Demand-generation Tasks Hybrid marketing systems Planning Channel architecture Advertising Dealers & value added resellers Distributors Retail stores Direct mail Tele-marketing Direct sales National account management Internet Account management Post-sales service Close of sale Presales Qualifying sales Lead generation

Channel Conflict, Cooperation and Competition Channel conflict is generated when one channel member’s actions prevent the channel from achieving its goal. Channel coordination occurs when channel members are brought together to advance the goals of the channel, as opposed to their own potentially incompatible goals. Types of conflict and competition Three types of conflicts: vertical, horizontal and multi-channel can occur. Developing Marketing Channels

Vertical channel conflict means conflict between different levels with in the same channel. Horizontal channel conflict involves conflict between members at the same level with in the channel. Multi-channel conflict exists when the manufacturer has established two or more channels that sell to the same market. Causes of channel conflict Causes of channel conflict are goal incompatibility, unclear roles & rights, differences in perception and dependence on the producer . Developing Marketing Channels

Recap: Know what is a marketing channel system and a value network. Know what work marketing channels perform. Know how channels should be designed. Know what decisions companies face in managing their channels. Know how companies should integrate channels and manage channel conflict. Developing Marketing Channels

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