Chapter 20

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Chapter 20

  1. 1. Place Managing marketing channels Chapter 20
  2. 2. Managing the marketing channels <ul><li>Firms are increasingly paying greater attention to how they manage their marketing channels, so that products and services are delivered at the right time, right place and the right price. </li></ul><ul><li>The marketing channel participants are vital partners in the value delivery network. </li></ul>
  3. 3. Supply chains and the value delivery network <ul><li>Upstream partners are the suppliers of raw materials, components, parts, information, finance and expertise to the organisation. </li></ul><ul><li>Downstream partners are the wholesalers and retailers who connect the firm with the customer. </li></ul>
  4. 4. The nature and importance of marketing channels <ul><li>The marketing or distribution channel is comprised of a set of interdependent organisations involved in the process of making a product or service available for use or consumption by the consumer or an industrial user. </li></ul><ul><li>The new forms of marketing channels have evolved based on robust partnerships, with long-term commitment to each other and the customer. </li></ul>
  5. 5. How channel members add value <ul><li>Transactional value : </li></ul><ul><ul><li>Risk moves to the intermediary, who also gets to know the specialist market. </li></ul></ul><ul><li>Logistical value : </li></ul><ul><ul><li>Intermediaries assemble an assortment that is compatible with the needs of the ultimate customers. </li></ul></ul><ul><li>Facilitating value : </li></ul><ul><ul><li>Intermediaries often offer credit to customers, may offer training in the use of products, and collect and deliver marketing information. </li></ul></ul>
  6. 6. Figure 20.1  How a marketing intermediary reduces the number of channel transactions and raises economy of effort Channel interactions
  7. 7. Key value adding functions <ul><li>Information </li></ul><ul><li>Promotion </li></ul><ul><li>Contact with prospective buyers </li></ul><ul><li>Matching the offer to meet the needs of the customer </li></ul><ul><li>Negotiation </li></ul><ul><li>Physical distribution </li></ul><ul><li>Financing </li></ul><ul><li>Risk taking </li></ul>
  8. 8. Figure 20.2  Consumer and business marketing channels
  9. 9. Channel behaviour <ul><li>All participants dependent upon each other. </li></ul><ul><li>Each channel member has a specialised role </li></ul><ul><li>Co-operation to achieve overall channel objectives may sometimes conflict with internal organisational goals and objectives, resulting in channel conflict . </li></ul><ul><ul><li>Horizontal conflict </li></ul></ul><ul><ul><ul><li>Conflict with firms at the same level of the channel. </li></ul></ul></ul><ul><ul><li>Vertical conflict </li></ul></ul><ul><ul><ul><li>Conflict at different levels e.g. between wholesaler and retailer. </li></ul></ul></ul>
  10. 10. Channel organisation <ul><ul><li>Historically channels have followed the conventional distribution channel format: </li></ul></ul><ul><ul><ul><li>comprised of independent producers, wholesalers and retailers, with separate businesses and seeking to maximise their own profit individually, even at the expense of the entire channel. </li></ul></ul></ul><ul><ul><li>Modern channel management has evolved to develop vertical marketing systems (VMS) that provide channel leadership. </li></ul></ul>
  11. 11. Figure 20.3  A conventional marketing channel versus a vertical marketing system
  12. 12. Vertical marketing systems <ul><li>Vertical marketing systems (VMS) are structured, interdependent producers, wholesalers and retailers that act as a unified system. </li></ul><ul><li>There are also different constructs of VMS for various types of industries. </li></ul>
  13. 13. Figure 20.4  Main types of vertical marketing system
  14. 14. Corporate VMS <ul><ul><ul><ul><li>Combines successive stages of production and distribution under single ownership. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Breweries and petrol stations are examples. </li></ul></ul></ul></ul>
  15. 15. Contractual VMS <ul><ul><ul><ul><ul><li>Independent firms at different levels join contractually to create efficiencies and economies of scale that could not be achieved alone. 3 types: </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Wholesaler-sponsored voluntary chains of independent retailers organised to help compete against large organisations. </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Retailer co-operatives </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Franchise </li></ul></ul></ul></ul></ul>
  16. 16. Franchise VMS <ul><ul><ul><ul><ul><li>Reduced set-up costs </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Contractual relationship </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Proven system and established brand name </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Centralised buying power </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Expertise in operational, managerial, legal matters </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Forfeit some control </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Performance against exacting standards </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Aggressive targets </li></ul></ul></ul></ul></ul>
  17. 17. Administered VMS <ul><ul><ul><ul><ul><li>VMS that co-ordinates successive stages of production and distribution through the size and power of one of the parties. </li></ul></ul></ul></ul></ul>
  18. 18. Other channel variations <ul><ul><ul><li>Horizontal marketing systems </li></ul></ul></ul><ul><ul><ul><ul><li>Channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity. </li></ul></ul></ul></ul><ul><ul><ul><li>Hybrid marketing systems </li></ul></ul></ul><ul><ul><ul><ul><li>Multi channel distribution targeting different market segments. </li></ul></ul></ul></ul><ul><ul><ul><li>Changing channel organisation </li></ul></ul></ul><ul><ul><ul><ul><li>Major trend to disintermediation through elimination of intermediaries and traditional sellers and replacement by radically new types of intermediaries. </li></ul></ul></ul></ul>
  19. 19. Channel retailing trends <ul><li>New retail forms and shortening of the retail life-cycles </li></ul><ul><ul><li>‘ Wheel of retailing’ , new types of retailer, usually begin as low-margin, low-price, low-status operations but later evolve to higher priced, higher service operations and eventually become like the conventional retailers that they replaced </li></ul></ul><ul><li>Growth of non-store retailing </li></ul><ul><ul><li>‘ click and brick’ retailers </li></ul></ul><ul><ul><li>Retail convergence </li></ul></ul><ul><ul><li>Rise of mega-retailers </li></ul></ul><ul><ul><li>Growing importance of retail technology </li></ul></ul><ul><ul><li>Global expansion of retailers </li></ul></ul>
  20. 20. Channel wholesaling trends <ul><li>Face considerable challenges </li></ul><ul><li>Formation of hybrid operators such as the cash and carry concepts. </li></ul>

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