2nd revised mark man v57 prof. de ungria chap15 designing and managing integrated marketing channels by raymund c. piñon

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  • 1. Chap. 15Designing and Managing Integrated Marketing Channels Raymund C. Piñon Marketing Management V57 Prof. Bong De Ungria
  • 2. Outline 6th Task of Marketing – Delivering Customer Value Marketing channels: definition, importance, examples Functions of marketing channels Flows and levels of marketing channels Value networks – a broader view of customer value delivery How to design marketing channels Challenges in managing channels Integrated marketing channels – a new development Channel conflicts and how they are managed Key issues with e-commerce
  • 3. Recall: Marketing is… A system of profitably creating, DELIVERING and communicating superior VALUE to satisfy customers’ needs, wants and demands better than competition.
  • 4. To achieve this,the 6th Task of Marketing is… Developing marketing strategies and plans Capturing marketing insights and performance Connecting with customers Building strong brands Shaping the marketing offer Delivering and communicating value Creating successful long-term growth
  • 5. 1st some definitions Marketing Channels, Trade Channels, Distribution Channels  A set of interdependent organizations involved in the process of making products or services available for use or consumption  A set of pathways a product or service follows after production, culminating in purchase and use by the final end-user  Intermediaries performing a variety of functions Value-delivery network  A company’s supply chain and how it partners with specific suppliers and distributors to make products and bring them to markets Value-delivery system  All the expectancies the customers will have on the way to obtaining and using the offering Value networks  A system of partnerships and alliances that a firm creates to source, augment and deliver its offerings
  • 6. Examples of Intermediaries Merchants  Wholesalers and Retailers  Buy, take title to goods, resell Agents  Brokers, manufacturers’ representatives, sales agents  Look for customers, negotiate for producer, don’t take title to goods Facilitators  Transportation companies, warehouses banks, advertising agencies  Assist in the distribution process but don’t take title to goods nor negotiate on purchases or sales
  • 7. Why are Channels Important?Channel functions and flows Gather marketing information Develop and disseminate persuasive communications Reach agreement on prices and terms to effect transfer of ownership or possession of goods Place order with manufacturers Acquire funds to finance inventory Assume risks for carrying out channel functions Provide for storage and movement of physical products Provide for buyers’ payment of bills through banks Oversee actual transfer of ownership of goods Convert potential buyers into profitable customers
  • 8. Why are Channels Important?Marketing channel system Choice of particular set of marketing channels a firm employs is critical  They account for 30% to 50% of SRP  They can convert potential buyers to profitable customers  Channel decisions affect all other marketing decisions  Pricing  Sales force and advertising decisions  Involve long-term commitments with other firms as well as a set of policies and procedures  Channel decisions must align with overall strategy
  • 9. So (again) Step #1 is…Understanding Customer NeedsConsumers choose where to buy based on: Price Product assortment Convenience Personal shopping goals Marketers using different channels must be aware that different consumers have different needs during the buying process
  • 10. There are 5 marketing flows in a marketing channelPhysical Flow Transporters, Transporters, Suppliers Manufacturer Dealers Transporters Customers Warehouses WarehousesTitle Flow Suppliers Manufacturer Dealers CustomersPayment Flow Suppliers Banks Manufacturer Banks Dealers Banks CustomersInformation Flow Transporters, Transporters, Transporters, Suppliers Warehouses, Manufacturer Warehouses, Dealers Customers Banks Banks BanksPromotions Flow Advertising Advertising Suppliers Manufacturer Dealers Customers agencies agencies
  • 11. Channel Levels (Paths) There are different levels of marketing channels in consumer and industrial markets Consumer Marketing Channels Industrial Marketing Channels 0-level 1-level 2-level 3-level 0-level 1-level 2-level 3-levelManufacturer Manufacturer Manufacturer Manufacturer Manufacturer Manufacturer Manufacturer Manufacturer Wholesaler Wholesaler Manufacturer’s Manufacturer’s Representative Sales Branch Jobber Industrial distributor Retailer Retailer Retailer Industrial Industrial Industrial Industrial Consumer Consumer Consumer Consumer customers customers customers customers
  • 12. A broader view of delivering customer value:Value NetworksPartnerships created to source, augment & deliver offerings  From a linear view -> Supply Chain  See markets as destinations  To a customer-centric view -> Demand Chain Planning  Emphasize what customers are looking for instead of what we are selling  SIVA 4-Ps  Solutions Product  Information Promotions  Value Price  Access Placement  To a broad view of customer value delivery -> Value Networks  Seeing the company at the center of a value network  Include suppliers, suppliers’ suppliers, immediate customers and their end customers  A company needs to orchestrate these parties in order to deliver superior value to the target market  Managing value chains require increased investments in IT and software  SCM  SAP, Oracle  ERP  CRM
  • 13. Channel Design DecisionsWhat are key issues in designing channels?1. Analyzing customer needs2. Establishing channel objectives3. Evaluating major channel alternatives
  • 14. In Channel Design, Step #1 is…Analyze customers’ desired service output levelThere are 5 channel service outputs Lot size – customers prefer lot size of one Waiting and delivery time – fast delivery channels Spatial convenience – ease of purchase Product variety – greater assortment Service back-up – credit, delivery, service, repair, training, consultingNote: increased service output = increased channel costs, and increased prices to consumers. Some customers are willing to accept smaller service outputs if they could save on costs
  • 15. Channel Design Decision Step #2 is…Establishing channel objectives and constraints State channel target service output level Arrange channel tasks to minimize total channel costs and provide desired service level output Choose market segments to serve and best channels for each In entering new markets, observe what competitors are doing Adapt channel objectives to larger environmental context  E.g. During depression – use shorter channels to maintain price  E.g. Note legal constraints – vs. monopoly
  • 16. Channel Design DecisionsIn establishing channel objectives and constraints Vary objectives to suit product characteristics  For perishables – direct marketing  For bulky (building materials) – minimize shipping distance and amount of handling  Nonstandard products (custom-built machinery) – sales force  Products needing installation or maintenance (heating or cooling systems) – sales force or franchised dealers  High-unit value products (generators of turbines) – sales force
  • 17. In Channel Design Decision, Step #3 is…Identifying and evaluating major channel alternatives Choose a mix of channels that reach different segments of buyers and delivers the right products at the least cost Channel Advantages Disadvantages Sales Force or Can handle complex products Too expensive owned branches and transactions Internet, Less expensive Not effective with complex telemarketing products Distributors Can create sales Customer contact by company is lost Manufacturer’s Able to contact customers at Selling effort per customer is less representatives low cost per customer intense than if company reps did because several clients share the selling costs
  • 18. In Evaluating ChannelsConsider 3 elements of channel alternatives1. What types of business intermediaries are available?2. How many intermediaries are needed?  Exclusive distribution – limited number of intermediaries  Maintain control of service levels and outputs offered by intermediaries  Selective distribution – few but less than all  Gain adequate market coverage, more control, less cost  Intensive distribution  Places its products in as many outlets as possible4. What are the terms, and what are the responsibilities of each channel members?
  • 19. In Channel DesignEvaluate major channel alternatives using… Economic criteria Control criteria Adaptive criteria
  • 20. Economic criteria in channel evaluationEach channel alternative will generate differentlevels of sales and costs high Sales force Value- Added partners Value-Added of Sales Direct sales Distributors channels Retail Stores “Indirect” channels Telemarketing Internet Direct marketing channels low low high Cost per TransactionTry to align customers and channels to maximize demand at the lowest overall cost
  • 21. Channel Design DecisionsControl and adaptive criteria in evaluation Using sales agency poses control problems for you  They are independent firms seeking to maximize profits  They concentrate on customers who buy  They may not master technical details of product or handle promotions effectively In rapidly changing, volatile, or uncertain product markets, producers need channel structures and policies that provide high adaptability
  • 22. Channel Management DecisionsAfter choosing a channel system, the company must:1. Select individual channel members2. Train and motivate channel members3. Evaluate individual channel members4. Modify channel design and arrangements over time
  • 23. Channel Management Decisions After choosing a channel system, the company must:1. Set criteria for selection of channel members  Number of years in business  Other lines carried  Growth and profit records  Financial strength  Cooperativeness  Service reputation  Size and quality of sales force  Location  Type of clientele  Future growth potential
  • 24. Channel Management Decisions After choosing a channel system, the company must:1. Train and motivate channel members  Understand intermediaries’ needs and wants  Construct a channel positioning  Implement capacity-building programs  Training  Market research  Exercise channel power to compel action
  • 25. Channel Management Decisions After choosing a channel system, the company must:1. Train and motivate channel members  Types of power to elicit cooperation  Coercive power  Threaten to withdraw a resource or terminate a relationship  Reward power  Higher margins, deals, premiums, cooperative advertising allowances, display allowances, sales contest, bonuses  Legitimate power  Use contract agreements to force compliance  Expert power  Posses special knowledge the intermediary values  Referent power  Intermediary feels proud to be associated with producer
  • 26. Channel Management Decisions In motivating channel members1. Forge long-term partnerships by clarifying expectations  Market coverage  Inventory levels  Marketing development  Account solicitation  Technical advise and services  Marketing information
  • 27. Channel Management Decisions In motivating channel members Streamline supply chain and cut costs: ECR – Efficient Consumer Response practices help organize relationship in 3 areas:  Demand-side management  Stimulate demand with joint sales and marketing activities  Supply-side management  Focus on logistics and supply chain activities to optimize supply  Enablers and integrators  Use IT and process improvement tools to support joint activities
  • 28. Channel Management DecisionsAfter choosing a channel system, the company must:1. Evaluate individual channel members on…  Sales quota achievement  Average inventory levels  Customer delivery time  Treatment of damaged and lost goods  Cooperation in training and promotions programs Note: underperformers need to be counseled, retrained, motivated or terminated
  • 29. Channel Management DecisionsAfter choosing a channel system, the company must:1. Modify channel design and arrangements over time when:  Channel is not working as planned  Consumer buying patterns change  Market expands  New competition arises  Innovative distribution channels emerge  Product moves into later stages of PLC Note: change may mean adding or dropping individual channel members, adding or dropping market channels, or developing totally new ways to sell goods
  • 30. In managing channels, how mucheffort to devote to push or pull? Push strategy  for low-involvement, impulse products  Use sales force, trade promo to induce intermediaries to carry, promote and sell products to end-users Pull strategy  For high-involvement, differentiated offers  Use advertising, consumer promotions and other forms of communication to persuade consumers to demand the product from intermediaries
  • 31. Channel Integration and SystemsSome of the recent developments in channels Vertical Marketing Systems  Corporate VMS  Administered VMS  Contractual VMS  New competition in retailing Horizontal Marketing Systems Integrating Multi-channel Marketing Systems
  • 32. Channel Integration and SystemsSome of the recent developments in channels Vertical Marketing Systems  Producer, wholesaler(s) and retailer(s) acting as a unified system  Channel captain owns others or franchises them or has so much power that they all cooperate  Strong channel members’ attempts to control channel behavior and eliminate conflict  Achieve economies of scale via size, bargaining power, and elimination of duplicate services  Provides extensive exchange of information
  • 33. Channel Integration and SystemsSome of the recent developments in channels New competition in retailing  Is no longer between independent business units but between  whole systems of centrally-planned networks (Corporate, administered, and contractual)  competing against one another  to achieve the best economies and customer response
  • 34. Channel Integration and SystemsSome of the recent developments in channels Horizontal Marketing Systems  Two or more unrelated companies put together resources or programs to exploit an emerging marketing opportunity  Each company lacks capital, know-how, production or marketing resources to venture alone or is afraid of the risks  Arrangements may be temporary, permanent or result in joint-venture company
  • 35. Channel Integration and SystemsSome of the recent developments in channels Integrating Multi-channel Marketing Systems  Multi-channel marketing  A company uses two or more channels to reach one or more customer segments  Integrated marketing channel system  Strategies and tactics of selling through one channel reflects the strategies and tactics of selling through other channels
  • 36. Channel Integration and Systems3 benefits of multi-channel marketing systems Increased market coverage  Customers can shop for company products in more places  Multi-channel shoppers are more profitable customers Lower channel cost  Selling by phone is cheaper than selling by personal visit to small customers More customized selling  Adding a technical sales force to sell more complex products
  • 37. Channel Integration and SystemsDisadvantages of multi-channel marketing systems Channel conflicts  Channels competing for same customer  New channels independent and makes cooperation difficult Problems with control  Execution of merchandizing and promotions programs  Market coverage and frequency of visits to customers  Inventory levels  Handling of customer complaints, returns and damaged goods  Allocation of effort to other principals served by intermediaries
  • 38. In Channel Architecture Determine which channels should perform which functions Demand-generation Tasks Better Disseminate Reach Pace Acquire Assume Facilitate Facilitate Oversee Information information price orders funds for risks product payment ownership agreement inventories storage & terms movement InternetMarketing channels and Methods National account management Direct sales Customer Tele- marketing Vendor Direct mail Retail stores Distributors Dealers and value-added resellers Advertising Multi-channel architecture optimizes coverage, customization and control, while minimizing costs and conflict
  • 39. Conflict, Cooperation and CompetitionCauses of channel conflicts Goal incompatibility  Low-price market penetration strategy vs. high-margin, short-run profitability Unclear roles and rights  Territorial boundaries  Sales crediting Differences in perception  Optimistic vs. pessimistic views on business prospects  Differences in perception about advertising strategy Intermediaries’ dependence on the manufacturer  Exclusive dealers are at the mercy of manufacturers’ product and pricing policies
  • 40. Conflict, Cooperation and CompetitionManagement of channel conflicts As companies add channels to grow sales, they risk creating channel conflicts Too much conflict is dysfunctional The challenge is not to eliminate conflicts but to manage them through  Adoption of super-ordinate goals – agree on goals they jointly seek  Exchange of employees – e.g. between manufacturer and dealer  Joint membership in trade associations – manufacturers and marketers  Co-optation – include leaders in boards, advisory councils  Diplomacy, mediation, or arbitration – conflict resolution methods  Legal recourse
  • 41. E-Commerce Marketing PracticesSome definitions E-business  Use of electronic means and platforms to conduct a company’s business E-commerce  Company or site offers to transact or facilitate the selling of products and services online E-purchasing  Purchase of goods, services and information from online sources E-marketing  Efforts to inform buyers, communicate, promote and sell company products and services over the internet
  • 42. E-Commerce Marketing PracticesSome advantages Provides convenient, informative and personalized experiences for different types of customers Allows online retailers to sell low-volume products to niche markets at lesser or no cost in maintaining retail floor space, staff, and inventory
  • 43. E-Commerce Marketing Practices3 Aspects of online transactions in retailing competition Customer interaction with the Website Delivery of the product Ability to address problems when they occur
  • 44. E-Commerce Marketing Practices2 Types of Online Competitors Pure-Click Companies  Launched a website without previous existence as a company  Search engines  ISPs  Commerce sites – amazon.com, buy.com  sell all types of products and services – books, music, toys, stocks, clothes, insurance, financial services  Transaction sites  Content sites  Enabler sites Brick-and-Click Companies  Existing companies that have added an online site for information or e-commerce
  • 45. E-Commerce Marketing PracticesIssues of using online channels for Brick-and-Clickand how to handle them Potential channel conflict with retailers, brokers, agents and branch outlets How to sell both to intermediaries and online?  Offer different brands or products online  Offer off-line partners higher commissions to offset negative impact on sales  Take orders on the web but have retailers deliver and collect payment
  • 46. M-Commerce Wireless internet-connectivity to do business Location-based services
  • 47. Summary of Top 10 Concepts 6th Task of Marketing – Delivering Customer Value Marketing channels: definition, importance, examples Functions of marketing channels Flows and levels of marketing channels Value networks – a broader view of customer value delivery How to design marketing channels Challenges in managing channels Integrated marketing channels – a new development Channel conflicts and how they are managed Key issues with e-commerce