LEARNING OBJECTIVES
In this chapter, we will address the following questions:
1. What is a marketing channel system and a value network?
2. What work marketing channels perform?
3. How should channels be designed?
4. What decisions companies face in managing their channels?
5. How companies should integrate channels and manage channel conflict?
6. What are the key issues with e-commerce and m-commerce?
SUMMARY
1. Most producers do not sell their goods directly to final users. Between producers and
3. Companies use intermediaries when they lack the financial resources to carry out direct
marketing, when direct marketing is not feasible, and when they can earn more by doing
4. Manufacturers have many alternatives for reaching a market. They can sell direct or
use one-, two-, or three-level channels. Deciding which type(s) of channel to use calls for
5. Effective channel management calls for selecting intermediaries and training and
6. Marketing channels are characterized by continuous and sometimes dramatic change.
C H A P T E R
15
DESIGNING AND
MANAGING INTEGRATED
MARKETING CHANNELS
7. All marketing channels have the potential for conflict and competition resulting from
8. Channel arrangements are up to the company, but there are certain legal and ethical
9. E-commerce has grown in importance as companies have adopted “brick-and-click”
10. An emerging new area is m-commerce and marketing through cell phones and PDAs.
OPENING THOUGHT
Most students are not familiar with channels of distribution, except, perhaps, from the
retailer in which they have bought products. Therefore, the instructor has to ensure that
they clarify the various channels of distribution during this chapter lecture. Examples of
the various channels for products familiar to the students can help illustrate the
complexity of the process.
TEACHING STRATEGY AND CLASS ORGANIZATION
PROJECTS
1. At this point in the semester-long project, students should present their channel
2. Progressive companies have begun developing a value network system to get
products in the hands of consumers. A value network includes a firm’s suppliers, its
3. Sonic PDA Marketing Plan: Manufacturers need to pay close attention to their
marketing channels. By planning the design, management, evaluation, and
modification of their marketing channels, manufacturers can ensure their products are
available when and where customers want to buy.
At Sonic, you have been asked to develop a channel strategy for Sonic 1000. Based
on the information you previously gathered and the decisions you have already made
about the target market, product, and pricing, answer the following:
• What decisions must Sonic make to develop the five marketing flows (physical
product, title, payment, information, and promotion) for Sonic 1000?
Document your recommendations about marketing channels and strategy in a written
marketing plan or type the recommendations into the Marketing Mix and Channels
sections of Marketing Plan Pro.
ASSIGNMENTS
Top marketing companies are employing both a “push” and a “pull” strategy to deliver
advertising is increasing the demand by increasing the “awareness of” certain medical
conditions.
In the Marketing Insight article entitled, Trasforming Your Go-to-Market Stratgey: The
Three Disciplines of Channel Management, V. Kasturi Rangan Boston, MA: Harvard
Business School Press, 2006 identifies new opportunities for marketing products through
multiple channels by crafting a “channel steward.” Ask the students to read this article
and comment on its practicality in light of the changes posed by Internet shopping.
END–OF–CHAPTER SUPPORT
MARKETING DEBATE—Does It Matter Where You Sell?
Some marketers feel that the image of the particular channel in which they sell their products
does not matter—all that matters is that the right customers shop there and the product is
displayed in the right way. Others maintain that channel images—such as a retail store—can
be critical and must be consistent with the image of the product.
marketers benefit from extensive distribution channels, as their products are impulse items,
last minute decision items, or cater to consumer habits. For marketers of these items, it is
important for them to be available when the consumers’ desires strike.
Marketing Excellence: AMAZON. COM
1) Why has Amazon.com succeeded online when so many other companies have
failed?
Suggested Answer: One key to Amazon.com’s success in all these different ventures is
its willingness to invest in the latest Internet technology to make shopping online faster,
2) Will the Kindle revolutionize the book industry? Why or why not?
Suggested Answer: Student’s answers will vary—Apple fans will disagree stating that the
3) What’s next for Amazon.com? Is cloud computing the right direction for the
company? Where else can it grow?
Suggested Answer: Student answers will be mostly speculative in nature but one area that
they’d like, from wherever they’re at!
Marketing Excellence: COSTCO
1) What is unique about Costco’s channel management process? What components
can other retailers borrow or implement?
Suggested Answer: Costco buys its merchandise directly from the manufacturer.
Products are shipped directly to Costco warehouses or to a depot, which reallocates the
shipments to Costco warehouses within 24 hours.
2) Where can Costco improve? Should it offer more products or advertise more?
Why or why not?
Suggested Answer: Student answers will vary but students should evaluate the success of
Costco to date in executing their marketing strategy—“to continually provide our
MARKETING DISCUSSION
Think of your favorite retailers. How have the retailers integrated channel systems? How
would you like to see channels integrated? Do you use multiple channels from the retailers?
Why?
Student answers will differ depending upon their favorite retailers. However, all answers
should include the definition of channel integration:
Customers expect channel integration characterized by the following features:
1. The ability to order a product online and pick it up at a convenient retail location.
DETAILED CHAPTER OUTLINE
Successful value creation needs successful value delivery. Holistic marketers are increasingly
taking a value network view of their businesses. Instead of limiting their focus to their
immediate suppliers, distributors, and customers, they are examining the whole supply chain
MARKETING CHANNELS AND VALUE NETWORKS
Most producers do not sell their goods directly to the final users; between them stands a
set of intermediaries performing a variety of functions.
A) These intermediaries constitute a marketing channel (also called a trade channel or
distribution channel).
The Importance of Channels
A marketing channel system is the particular set of marketing channels employed by a firm.
A) Decisions about the marketing channel system are among the most critical facing
management.
motivation dealers need.
F) In managing its intermediaries, the firm must decide how much effort to devote to
push versus pull marketing.
1) A push strategy involves the manufacturer using its sales force and trade
promotion money to induce intermediaries to carry, promote, and sell the product
to end user.
2) A pull strategy involves the manufacturer using advertising and promotion to
induce consumers to ask intermediaries for the product, thus inducing the
intermediaries to order it.
Hybrid Channels and Multichannel Marketing
Today’s successful companies are also multiplying the number of “go–to–market” or hybrid
channels in any one market area.
Hybrid channels or multichannel marketing occurs when a single firm uses two or more
marketing channels to reach customer segments.
A) Companies that manage hybrid channels must make sure these channels work well
together and match each target customer’s preferred ways of doing business.
Value Networks
A supply chain view of a firm sees markets as destination points and amounts to a linear view
of the flow. The company should first think of the target market, and then design the supply
chain backward from that point.
A) This view has been called demand chain planning.
D) A company needs to orchestrate these parties to enable it to deliver superior value to
the target market.
E) Demand chain planning yields several insights:
1) The company can estimate whether more money is made upstream or
downstream.
THE ROLE OF MARKETING CHANNELS
Why would a producer delegate some of the selling jobs to intermediaries, relinquishing
control over how and to whom the products are sold?
Through their contacts, experience, specialization, and scale of operation, intermediaries
Channel Functions and Flows
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 and want them.
A) Members of the marketing channel perform a number of key functions.
A manufacturer selling a physical product and services might require three channels:
1) A sales channel
C) All channel functions have three things in common:
1) They use up scarce resources.
Channel Levels
The producer and the final consumer are part of every channel.
A) A zero-level channel (also called a direct–marketing channel) consists of a
manufacturer selling directly to the final consumer.
Channels normally describe a forward movement of products from source to user.
A) One can also talk about reverse-flow channels.
B) Reverse-flow channels are important in the following cases:
1) To reuse products or containers
C) Several intermediaries play a role in reverse-flow channels.
Service Sector Channels
As Internet and other technologies advance, service industries are operating through new
channels.
A) Marketing channels also keep changing in “person” marketing.
CHANNEL-DESIGN DECISIONS
To design a marketing channel system, marketers analyze customer needs, establishing
Analyzing Customers’ Desired Service Output Levels
Consumers may choose the channels they prefer based on price, product assortment, and
convenience, as well as their own shopping goals (economic, social, or experiential).
The marketing-channel designer knows that providing greater service outputs means
increased channel costs and higher prices for customers.
Establishing Objectives and Constraints
Marketers should state their channel objectives in terms of targeted service output levels.
A) Channel institutions should arrange their functional tasks to minimize total channel
costs and still provide desired levels of service outputs.
Identifying and Evaluating Major Channel Alternatives
Each channel has unique strengths as well as weaknesses. A channel alternative is described
by three elements:
1) The types of available business intermediaries.
Types of Intermediaries
A firm needs to identify the types of intermediaries available to carry on its channel work.
A) Companies should search for innovative marketing channels.
Number of Intermediaries
Three strategies based on the number of intermediaries are exclusive distribution, selective
distribution, and intensive distribution.
A) Exclusive distribution means severely limiting the number of intermediaries.
1) It is used when the producer wants to maintain control over the service level and
outputs offered by the resellers.