Part 5 – Delivering Value
Chapter 13 – Designing and Managing Integrated Marketing
Channels
I. Chapter Overview/Objectives/Outline
A. Overview
other elements in the marketing mix.
Middlemen typically are able to perform channel functions more efficiently than the
manufacturers. The most important channel functions and flows are information, promotion,
negotiation, ordering, financing, risk taking, physical possession, payment, and title. These
marketing functions are more basic than the particular retail and wholesale institutions that
alternatives (types and number of intermediaries, specifically intensive, exclusive, or selective
distribution), and the channel terms and responsibilities. Each channel alternative has to be
evaluated according to economic, control, and adaptive criteria.
Channel management calls for selecting particular middlemen and motivating them with a
possibly modifying the whole channel system.
Marketing channels are characterized by continuous and sometimes dramatic change,
especially with the changes brought by the growth of the Internet as a major marketing tool and
channel of distribution. For example, the new competition in retailing no longer involves
competition between individual firms but rather between retail systems. Technology advances
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co-optation, and joint membership in trade associations, diplomacy, mediation, and arbitration.
Marketers should continue to explore and respond to the legal and moral issues involved in
channel development decisions.
B. Learning Objectives
Learn how to evaluate channel alternatives.
Understand the major channel management decisions.
Develop awareness of channel dynamics in a changing marketing environment.
C. Chapter Outline
I. Introduction – notes the emergence of the value network view of the individual
II. Marketing Channels and Value Networks
A. The Importance of channels:
employed by an organization
2. Channels may absorb 30% – 50% of ultimate selling price to consumer
markets, they must also make markets
targeted.
motivation dealers need.
6. Channel decisions include relatively long-term commitments from
partners
7. Push strategy – manufacturer uses sales force and promotions to induce
services to end users
8. Pull strategy – Opposite of push strategy. Manufacturer persuades end
intermediaries
9. Many marketing progressive organizations use both push and pull
strategies
B. Hybrid Channels and Multichannel Marketing
channels to reach customer segments.
2. In multichannel marketing, each channel targets a different segment of
buyers, or different need states one for buyer, and delivers the right
products in the right places in the right way at the least cost.
3. More use today of “hybrid” channels (direct, online, and indirect)
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4. Customers expect more channel integration (e.g. order online and pickup
purchases.)
C. Value Networks – A system of partnerships and alliances that a firm creates to
source, augment, and deliver its offerings
2. Using a demand chain planning approach allows an organization to:
a) Estimate optimal profit areas within the chain, which can provide
input into integration strategies
activity within the chain
III. The Role of Marketing Channels
A. Organizations may relinquish control over some functions to other channel
intermediaries when:
cost effectively
b) Opportunity costs are high, that is, the organization may be better
investing their financial or other resources elsewhere
3. Stern says intermediaries can “smooth the flows of goods and services,”
among a large variety
functions)
1. Main function is to overcome time place and possession gaps that
who need want and demand them
2. All channels have three things in common:
a) They use up scarce resources
b) They demonstrate better performance by specialization
c) They can shift functions among members
delivery, title, promotion)
payment, returns)
5. Interactive flow – simultaneous exchange of physical, transactional or
communication (e.g., negotiation, risk taking, information)
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marketing channels)
1. Zero-level (or direct marketing channel) – sell direct to end user with no
intermediary
2. One-level or one intermediary such as a retailer
3. Two-level or two intermediaries – jobber and retailer
more of these functions
D. Service-sector channels – Focus on location and minimizing levels. Adapting to
new channels such as the Internet
IV. Channel-Design Decisions
A. Analyzing Customers Needs and Wants – Channels produce five service
outputs:
time
2. Waiting and delivery time – average time customers wait for delivery of
goods in respective channel
3. Spatial convenience – ease of purchase
4. Product variety – large variety increases chances of consumer filling
need
channel
B. Establishing Objectives and Constraints based on:
1. Targeted service output levels
2. Markets chosen to serve
3. Product characteristics as service levels will vary, for example
4. Strengths and weaknesses of intermediaries
5. Competition’s channels
6. Environmental changes
7. Legal regulations and restrictions
C. Identifying Major Channel Alternatives
1. Types of intermediaries – some examples:
a) Merchants – wholesalers and retailers
b) Agents – brokers, manufacturer representatives, sales agents for
customers
c) Facilitators – transportation companies, independent warehouses,
banks, ad agencies.
2. Number of intermediaries
a) Exclusive distribution – one or a select few. Appropriate when
producer wants to control resellers’ service level and outputs.
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b) Selective distribution – more than a few, less than all. Gains
adequate market coverage with more control and less cost than
intensive distribution
c) Intensive distribution – as many outlets as possible. Appropriate
for frequently purchased items ( usually convenience goods) that
consumers will buy in a variety of locations..
3. Terms and Responsibilities of Channel Members – trade relations mix
a) Price policies – must be equitable and efficient
b) Conditions of sale – terms and guarantees
c) Territorial rights of distributors
d) Mutual services and responsibilities
D. Evaluate Major Channel Alternatives
1. Economic criteria – sales versus costs (Figure 13.3 illustrates sales
versus costs in six different channels)
2. Control – especially important for channels that are not direct. (e.g. sales
agents may concentrate on customers who buy the most and not
necessarily those who buy the manufacturer’s goods)
3. Adaptive criteria – degree of intermediary commitment
V. Channel-Management Decisions
B. Training and Motivating Channel Members –
1. Prepare the channel member employees to perform more effectively and
efficiently. This may also provide a competitive advantage…………………..
2. Motivating Channel Members – coercive, reward, legitimate, expert, or
referent power.
3. Producers vary in channel power
Channel Members” insert.)
D. Modifying Channel Design and Arrangements – system will require periodic
modification to
1. Correct inefficiencies
2. Adapt to change in consumer buying patterns
3. Manage market expansion
4. Thwart new competition
5. Implement innovation
E. Global Channel Considerations
1. Tailor image to local needs and wants when entering a new market.
2. Get close to customers.
3. Channel structure may need to be different than in Home country
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VI. Channel Integration and Systems
Conventional Marketing Channel comprises an independent producer,
wholesaler(s) and retailer (s).
A. Vertical Marketing Systems (VMS)
VMS: Corporate, Administered, and Contractual.
1. Corporate VMS – combines successive stages of production and
distribution under one owner.
2. Administered VMS – Coordinates successive stages of production and
distribution through one member’s size and power, i.e. big brand secures
strong reseller cooperation and support.
a) Wholesaler-sponsored voluntary chains
b) Retailer cooperatives
c) Franchise organizations
(1) Manufacturer-sponsored retailer franchise (Ford dealers)
or manufacturer-sponsored wholesaler franchise
(Coca-Cola bottlers)
(2) Manufacturer-sponsored wholesaler franchise (Coca-Cola
and its bottlers)
(3) Service-firm-sponsored retailer franchise (McDonald’s
and its franchises)
B. Horizontal Marketing Systems
1. Two or more unrelated firms put together resources or programs to
exploit an emerging market opportunity
2. Each firm lacks the capital, technology, marketing resources or
other variables to take on the venture alone. Can be temporary or
permanent
c. Can be permanent or temporary
C. Integrated Multi-Channel Marketing Systems
2. Benefits include:
a) Increased market coverage
b) Lower channel cost
c) More customized selling
3. Must decide on appropriate marketing mix for each channel
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VII. Conflict, Cooperation, and Competition
A. Types of Conflict and Competition
1. Horizontal channel conflict – occurs between channel members at the
same level (e.g. Sears and J.C. Penny)
2. Vertical channel conflict – occurs between different levels of the channel
(e.g. Wal-Mart exerts price reduction pressure on its suppliers)
B. Causes of Channel Conflict
1. Goal incompatibility – e.g. mfg may want to lower prices to achieve
rapid market penetration but retail wants higher margins for short-ru
profitability
2. Unclear roles and rights – e.g. territory boundaries and credit for sales
economic forecasts
4. Intermediary dependence on manufacturer – e.g. economic profits of
dealers affected by manufacturer decisions on product and price
C. Managing Channel Conflict – healthy conflict leads to better strategies but too
much conflict creates dysfunctional environment. Some mechanisms that can be
utilized to create balance:
1. Strategic justification
2. Dual compensation
3. Superordinate goals
4. Employee exchange –between channel levels
5. Joint memberships – in trade-groups
6. Co-optation
7. Diplomacy, mediation, or arbitration
8. Legal recourse – if nothing else proves effective
D. Dilution and Cannibalization
1. Major problem for luxury brands whose image may rest on exclusivity
and personalized service
2. Monitor and minimize “fakes” sold online
E. Legal and Ethical Issues in Channel Relations
1. Exclusive Dealing – with exclusive distribution a manufacturer requires
dealers to not carry competitor’s products
2. Exclusive arrangements are legal as long as they are voluntary and do
not substantially lessen competition or tend to create a monopoly
3. Tying agreements
a) Manufacturer sells to dealer only of dealer will agree to sell other
products (also called full-line forcing)
b) Not necessarily illegal but are illegal if they lessen competition
substantially.
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VIII. E-Commerce and M-Commerce Marketing Practices
b) Delivery
c) Ability to address problems when they occur
B. E-Commerce and Pure-click companies
1. Types of Pure-click companies
a) Search engines (e.g., Google)
telecommunication companies, individual employers,
stand-alones such as Earthlink and NetZero)
c) Commerce sites (e.g., Amazon, eBay, Expedia, buy.com)
d) Transaction sites
e) Content sites (e.g, news, blogs)
f) Enabler sites
a) Supplier Web sites
b) Infomediaries -3rd parties that add value
c) Market makers – 3rd parties that link buyers and sellers
d) Customer communities – (e.g., blogs, organization-sponsored
chat rooms)
C. E-Commerce and Brick-and-Click Companies
1. Original brick entity incorporating click
a) Offer different brands
impact on sales
c) Take order on Web but have retailer deliver and collect payment
2. Original click entity incorporating brick
a) Provide consumer with channel option
b) Facilitate building and growth of brand awareness
D. M-Commerce Marketing (m for mobile)……………………………………………………….
…………………………………………………………………………………………………………………
than from their PCs
3. Mobile marketing taking new forms:
a) Target people who need to book travel while on the move
b) Use text messaging to alert consumers to special promotions
4. Mobile marketing, with its GPS capability, is raining privacy concerns
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IX. Executive Summary
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