Part 6 : Delivering Value Chapter 15 – Designing and Managing Value Networks and Channels

The Importance of Channels Most producers do not sell their goods directly to final users. Between producers and final users stands one or more marketing channels (intermediaries) such as merchants (wholesaler and retailer), agents (broker and sales agent), and facilitator (banks and transportation co) Companies use intermediaries as advantages when they lack the financial resources to carry out direct marketing, and when direct marketing is not feasible Intermediaries normally achieve superior efficiency in making goods widely available and accessible to target market through their contacts, experience, specialization, and scale of operation

Most producers do not sell their goods directly to final users. Between producers and final users stands one or more marketing channels (intermediaries) such as merchants (wholesaler and retailer), agents (broker and sales agent), and facilitator (banks and transportation co)

Companies use intermediaries as advantages when they lack the financial resources to carry out direct marketing, and when direct marketing is not feasible

Intermediaries normally achieve superior efficiency in making goods widely available and accessible to target market through their contacts, experience, specialization, and scale of operation

The Importance of Channels In managing its intermediaries, the firm must decide how much effort to devote to push versus pull marketing 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 users. A pull strategy involves the manufacturer using advertising and promotion to persuade customers to ask intermediaries for products, thus inducing the intermediaries to order A push strategy is appropriate where there is low brand loyalty and products benefits are well understood e.g. impulse items. While a pull strategy is appropriate when there is high brand loyalty and people perceive differences between brands, and when people choose the brand before they go to the store

In managing its intermediaries, the firm must decide how much effort to devote to push versus pull marketing

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 users.

A pull strategy involves the manufacturer using advertising and promotion to persuade customers to ask intermediaries for products, thus inducing the intermediaries to order

A push strategy is appropriate where there is low brand loyalty and products benefits are well understood e.g. impulse items. While a pull strategy is appropriate when there is high brand loyalty and people perceive differences between brands, and when people choose the brand before they go to the store

Value Networks Value network is a system of partnership and alliances that a firm creates to source, augment, and deliver its offerings. A value network includes a firm’s supplier and its suppliers’ suppliers (this can be achieved by B2B Web sites), and its immediate customers and their end customers (this can be achieved by marketing channels) so that a firm can deliver superior value

Value network is a system of partnership and alliances that a firm creates to source, augment, and deliver its offerings.

A value network includes a firm’s supplier and its suppliers’ suppliers (this can be achieved by B2B Web sites), and its immediate customers and their end customers (this can be achieved by marketing channels) so that a firm can deliver superior value

Channel Design Decisions Manufacturers have many alternatives for reaching a market. They can sell direct or use one-, two-, or three-level channels. Deciding which types of channel to use calls for: Analyzing Customers’ Desired Serviced Output Levels: Lot size: The number of units the channel permits a typical customer to purchase on one occasion Waiting and delivery time: customers prefer faster and faster delivery channels Spatial convenience: customers prefer widely delivery channels with the market decentralization to help customers Product variety: customers prefer a greater assortment because more choices increase the chance of finding what they need Service backup: the greater the service backup (credit, delivery, installation, repairs), the greater the work provided by the channel Establishing channel objectives: vary with product characteristics e.g. perishable products require direct marketing, non standard products such as machineries are sold by sales representatives

Manufacturers have many alternatives for reaching a market. They can sell direct or use one-, two-, or three-level channels. Deciding which types of channel to use calls for:

Analyzing Customers’ Desired Serviced Output Levels:

Lot size: The number of units the channel permits a typical customer to purchase on one occasion

Waiting and delivery time: customers prefer faster and faster delivery channels

Spatial convenience: customers prefer widely delivery channels with the market decentralization to help customers

Product variety: customers prefer a greater assortment because more choices increase the chance of finding what they need

Service backup: the greater the service backup (credit, delivery, installation, repairs), the greater the work provided by the channel

Establishing channel objectives: vary with product characteristics e.g. perishable products require direct marketing, non standard products such as machineries are sold by sales representatives

Channel Design Decisions Identifying major channel alternatives for reaching customers: Types of intermediaries e.g. poor sales in machine with spare parts can be solved by expanding direct sales force, finding distributors, hire manufacturer’s agents in different regions Number of intermediaries. There are three strategies to cover the potential market: exclusive distribution (the producer wants to maintain control over the service level and outputs offered by the reseller); selective distribution (the producer with too many outlets to gain adequate market coverage with more control and less cost); intensive distribution (the consumer requires a great deal of location convenience) Evaluating the major alternatives upon economic and control criteria

Identifying major channel alternatives for reaching customers:

Types of intermediaries e.g. poor sales in machine with spare parts can be solved by expanding direct sales force, finding distributors, hire manufacturer’s agents in different regions

Number of intermediaries. There are three strategies to cover the potential market: exclusive distribution (the producer wants to maintain control over the service level and outputs offered by the reseller); selective distribution (the producer with too many outlets to gain adequate market coverage with more control and less cost); intensive distribution (the consumer requires a great deal of location convenience)

Evaluating the major alternatives upon economic and control criteria

Channel Management Decisions Effective channel management calls for Selecting channel members with growth and profit record, financial strength, cooperatives and reputation Training channel members Motivating channel members The goal is to build a long term partnership that will profitable for all channel members Three of the most important trends in marketing channels’ dramatic change are: Vertical marketing systems: producer, wholesaler and retailer acting as unified system to control and eliminate conflict. One channel member, the channel captain, owns the others or franchises them or has so much power that they all corporate e.g. Coca cola with soft drinks Horizontal marketing systems: two or more unrelated companies put together resources to exploit marketing opportunity e.g. supermarkets with local bank Multi channel marketing systems: a single firm uses two or more marketing channels to reach one or more customer segments

Effective channel management calls for

Selecting channel members with growth and profit record, financial strength, cooperatives and reputation

Training channel members

Motivating channel members

The goal is to build a long term partnership that will profitable for all channel members

Three of the most important trends in marketing channels’ dramatic change are:

Vertical marketing systems: producer, wholesaler and retailer acting as unified system to control and eliminate conflict. One channel member, the channel captain, owns the others or franchises them or has so much power that they all corporate e.g. Coca cola with soft drinks

Horizontal marketing systems: two or more unrelated companies put together resources to exploit marketing opportunity e.g. supermarkets with local bank

Multi channel marketing systems: a single firm uses two or more marketing channels to reach one or more customer segments