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