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  • 1. Marketing Management MBA CP 205
  • 2. Developing Marketing Channels
  • 3.
    • Learning Objectives:
    • Know what is a marketing channel system and a value network.
    • Know what work marketing channels perform.
    • Know how channels should be designed.
    • Know what decisions companies face in managing their channels.
    • Know how companies should integrate channels and manage
    • channel conflict.
    Developing Marketing Channels
  • 4. Sets of interdependent organizations involved in the process of making a product or service available for use or consumption. Marketing Channels Developing Marketing Channels
  • 5. Channels and Marketing decisions Developing Marketing Channels Push Strategy Pull Strategy
  • 6.
    • While deciding on its intermediaries the firm may adopt a push
    • strategy , a pull strategy or a combination of both.
    • Push strategy involves the manufacturer to use its sales force and
    • trade promotion resources to induce intermediaries to carry,
    • promote, and sell the product to end users.
    • Push strategy is appropriate when there is low brand loyalty, brand
    • choice is made in the store & product benefits are well understood.
    • Push strategy is also appropriate when the product is an impulse
    • item.
    Developing Marketing Channels
  • 7.
    • A pull strategy involves manufacturer using advertising and
    • promotion to persuade consumers to ask intermediaries for the
    • product, thus inducing intermediaries to order it.
    • It is appropriate when there is high brand loyalty, people perceive
    • differences between brands and consumers choose brands before
    • they visit the store.
    • The firm must decide how much effort to devote to push or pull
    • marketing. Some firms employ both push and pull strategies.
    Developing Marketing Channels
  • 8.
    • The Role of Marketing Channels
    • The advantages of using intermediaries are:
    • Many producers do not have adequate resources to carry out
    • direct marketing .
    • Producers who do establish their own channels can often earn
    • more profits by increasing investment in their core business.
    • In some cases direct marketing is not feasible.
    • Intermediaries achieve better efficiency in making goods widely
    • available to target markets through their contacts, experience,
    • specialization and scale of operation.
    Developing Marketing Channels
  • 9. Increasing Efficiency Developing Marketing Channels
  • 10. The Channels Functions and Flows Developing Marketing Channels
    • Channel Member Functions:
    • Gather information about potential and current customers and competitors.
    • Develop and disseminate persuasive communication to stimulate purchasing.
    • Reach agreement on price and other terms so that transfer of ownership is effected.
    • Place orders with manufacturers.
    • Acquire funds to maintain inventories at different levels in the marketing channel.
    • Assume the risks connected with carrying out channel work.
    • Provide for the successive storage and movement of physical products.
    • Provide for buyers’ payment of bills through banks and other financial institutions.
  • 11.
    • Channel Flows:
    • Some functions constitute a forward flow of activity from the
    • company to the customer. These include flow of physical goods,
    • title and promotion.
    • Other functions like ordering and payment constitute a backward
    • flow from customer to the company.
    • Some like information, negotiation, finance and risk taking occur in
    • both the directions.
    Developing Marketing Channels
  • 12. Channel Flows Developing Marketing Channels Suppliers Transporters, Warehouses Manufacturer Transporters, Warehouses dealers Customers 1. Physical Flow: 2. Title Flow: Suppliers Manufacturer dealers Customers
  • 13. Developing Marketing Channels Suppliers Banks Manufacturer Transporters, Warehouses Dealers Customers 3. Payment Flow: 4. Information Flow: Suppliers Manufacturer Dealers Customers 5. Promotion Flow : Manufacturer Suppliers Transporters, Warehouses Dealers Customers Banks Banks Transporters, Banks Advertising agency Advertising agency
  • 14.
    • Channel Levels:
    • The producer and the consumers form the two ends of the
    • marketing channel. Number of intermediary levels determine the
    • length of a channel.
    • Zero-level marketing channel, also called a direct marketing
    • channel consists of a manufacturer directly selling to final customer.
    • A one level channel contains one selling intermediary usually a
    • retailer. A two level channel will have a wholesaler and a retailer.
    Developing Marketing Channels
  • 15. Consumer Marketing Channels Developing Marketing Channels 0-level 1-level 2-level 3-level Manufacturer Manufacturer Manufacturer Manufacturer Consumer Consumer Consumer Consumer Retailer Retailer Retailer Jobber Wholesaler Wholesaler
  • 16. Industrial Marketing Channels Developing Marketing Channels 0-level 1-level 2-level 2-level Manufacturer Manufacturer Manufacturer Manufacturer Industrial customer Industrial customer Industrial customer Industrial customer Industrial distributors Manufacturer’s sales branch Manufacturer’s representative
  • 17.
    • Channel Design Decisions
    • Designing a marketing channel system involves the following:
    • Analyzing customers’ desired service output levels.
    • Establishing channel objectives.
    • Identifying major channel alternatives.
    • Evaluating major channel alternatives.
    • Channels produce five service outputs: Lot size, waiting & delivery
    • time, spatial convenience, product variety and service back up .
    Developing Marketing Channels
  • 18.
    • Channel objectives should be stated in terms of targeted service
    • levels and depend on product characteristics.
    • A company can choose from many of the alternative channels such
    • as its own sales force, agents, distributors, dealers, direct mail,
    • telemarketing, and the internet to reach customers.
    • Most companies use a mix of channels. A channel alternative is
    • described by three elements: the types of business intermediaries,
    • the number of intermediaries needed and the terms and
    • responsibilities of each channel member.
    Developing Marketing Channels
  • 19.
    • Companies need to decide on number of intermediaries at each
    • channel level. Three options can be exercised:
    • Exclusive distribution.
    • Selective distribution.
    • Intensive distribution.
    • Exclusive distribution means limiting the number of intermediaries
    • to only a few, where producer wants to have control over the
    • service level and outputs offered by the resellers.
    Developing Marketing Channels
  • 20.
    • Selective distribution involves having more than a few but less than
    • all the intermediaries who wish to carry a particular product.
    • In Intensive distribution , the producer places the goods in as many
    • outlets as possible to increase coverage and sales.
    • The producers must establish rights and responsibilities of the
    • channel members. The main elements in trade-mix relations are:
    • Price policy.
    • Conditions of sale.
    • Distributors territorial rights.
    • Mutual services and responsibilities.
    Developing Marketing Channels
  • 21.
    • Channel-Management Decisions
    • After the company has chosen a channel alternative, it must:
    • Select individual intermediaries,
    • Train channel members,
    • Motivate channel members and
    • Evaluate channel members & if required modify channel
    • arrangements.
    Developing Marketing Channels
  • 22.
    • While selecting channel members, evaluation must be based on
    • number of years in business, other lines carried, growth & profit
    • record, financial strength and service reputation.
    • Channel power may be used to alter channel members’ behavior.
    • Producer may draw on coercive, reward, legitimate, expert or
    • referent power in this regard.
    • Producers must constantly evaluate intermediaries’ performance
    • against such standards as sales quota attainment, inventory levels,
    • customer delivery times and cooperation in promotional and
    • training programs.
    Developing Marketing Channels
  • 23.
    • Channel Integration Systems
    • A conventional marketing channel consists of an independent
    • producer, wholesaler(s) and retailer(s).
    • No channel member has complete or significant control over other
    • members in a conventional marketing channel.
    • A vertical marketing system (VMS), comprises the producer,
    • wholesaler(s) and retailer(s) acting as a unified system.
    • One channel member, the channel captain , owns the others or
    • franchises them or has so much power that they all cooperate.
    Developing Marketing Channels
  • 24.
    • Channel captain can be the producer, the wholesaler or the retailer.
    • VMS arose due to strong channel members’ attempts to control
    • channel behavior and eliminate channel conflict.
    • A Corporate VMS combines the successive stages of production and
    • distribution under a single ownership.
    • An Administered VMS coordinates successive stages of production
    • and distribution through the size & power of one of the members.
    Developing Marketing Channels
  • 25.
    • A Contractual VMS consists of independent firms at different levels
    • of production and distribution integrating their programs on a
    • contractual basis to obtain more economies or sales impact than
    • they could achieve alone. These are of three types:
    • Wholesaler sponsored voluntary chains (of retailers).
    • Retailer Cooperatives ( by forming a new business entity).
    • Franchise organizations ( A franchisor links several successive
    • stages of production-distribution process, popular in retailing).
    • The traditional system is the manufacture-sponsored retailer
    • franchise. A newer system is service-firm-sponsored retailer
    • franchise.
    Developing Marketing Channels
  • 26.
    • In Horizontal marketing system, two or more unrelated companies
    • put together resources and programs to exploit a potential
    • marketing opportunity.
    • Multi-channel marketing occurs when a single firm uses two or
    • more marketing channels to reach one or more customer segments.
    • Adding more channels following benefits accrue:
    • Increased market coverage,
    • Lower channel cost and
    • More customized selling.
    Developing Marketing Channels
  • 27. Developing Marketing Channels VENDOR CUSTOMER Marketing Channels and Methods Demand-generation Tasks Hybrid marketing systems Planning Channel architecture Advertising Dealers & value added resellers Distributors Retail stores Direct mail Tele-marketing Direct sales National account management Internet Account management Post-sales service Close of sale Presales Qualifying sales Lead generation
  • 28.
    • Channel Conflict, Cooperation and Competition
    • Channel conflict is generated when one channel member’s actions
    • prevent the channel from achieving its goal.
    • Channel coordination occurs when channel members are brought
    • together to advance the goals of the channel, as opposed to their
    • own potentially incompatible goals.
    • Types of conflict and competition
    • Three types of conflicts: vertical, horizontal and multi-channel can
    • occur.
    Developing Marketing Channels
  • 29.
    • Vertical channel conflict means conflict between different levels
    • with in the same channel.
    • Horizontal channel conflict involves conflict between members at
    • the same level with in the channel.
    • Multi-channel conflict exists when the manufacturer has established
    • two or more channels that sell to the same market.
    • Causes of channel conflict
    • Causes of channel conflict are goal incompatibility, unclear roles &
    • rights, differences in perception and dependence on the producer .
    Developing Marketing Channels
  • 30.
    • Recap:
    • Know what is a marketing channel system and a value network.
    • Know what work marketing channels perform.
    • Know how channels should be designed.
    • Know what decisions companies face in managing their channels.
    • Know how companies should integrate channels and manage
    • channel conflict.
    Developing Marketing Channels