Designing and Managing Integrated Marketing Channels

What is a Marketing Channel?

A marketing channel system is the particular set of interdependent organizations involved in the process of making a product or service available for use or consumption.

How a Distributor Reduces the Number of Channel Transactions

Manufacturer Customer
1 2 3 4 5 6

Number of contacts without a distributor MxC=3X3=9

7 8 9

How a Distributor Reduces the Number of Channel Transactions

Manufacturer Customer

1 4 Store 2 5

Number of contacts with a distributor MxC=3+3=6

= Distribut

Definitions
Value Delivery Network
The network made up of the company, suppliers, distributors, and ultimately customers who partner with each other to improve the performance of the entire system. It include the valued relations

Information

Transfer
Payments Physical Distribution Risk Taking

Communication Negotiation

Ordering Financing

Channels and Marketing Decisions

A push strategy uses the manufacturers sales force, trade promotion money, and other means to induce intermediaries to carry, promote, and sell the product to end users. A pull strategy uses advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries.

Push Pull Strategy

HYBRID CHANNEL
Go-to-market or hybrid channels IBMs sales force sells to large accounts, outbound telemarketing sells to medium-sized accounts, direct mail sells to small accounts, retailers sell to still smaller accounts, and the Internet to sell specialty items Charles Schwab enables its customers to do transactions in branch offices, over the phone, or via the Internet Staples markets through traditional retail, directresponse Internet site, virtual malls, and 30,000 linked affiliated sites
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Channel flows
Forward flow physical, title, promotion company to consumer Backward flow- ordering and payment costumers to company Both directioninformation, negotiation, finance risk taking

Consumer Marketing Channels

0-level channel Manufacturer 1-level channel Manufacturer 2-level channel Consumer

Retailer

Consumer

Mfg

Wholesaler Wholesaler
Jobber

Retailer

Consumer

3-level channel Mfg

Retailer

Consumer

Industrial Marketing Channels

Manufacturer

Industrial distributors

Manufacturers representative

Manufacturers sales branch

Consumer

Channel design decisions

Analyzing the customer desired output levels

Establishing objectives and constraints Identifying & evaluating major channel alternatives Evaluating the major alternatives

Analyzing the customer desired output levels

Lot size Waiting & delivery time
Spatial convenience

The number of units that channel prefers to purchase on one occasion As faster delivery is needed Gather information in many channel and buy in their favorite channel Assortment variety The add on services

Product variety Service backup

Setting the Channel Objectives and Constraints

The company must decide which segments to target and the best channels to use in each segment. Here, the objective of the company is to minimize the total channel cost. Besides the target market, the companys channel objectives are influenced by;
the nature of its product, e.g. perishable products require more direct marketing to avoid delays and too much handling. company characteristics, e.g. the companys size and financial situation determine which functions it can

handle, how many channels it can use, which transportation can be used characteristics of intermediaries, intermediaries differ in their abilities to handle promotions, customer contact, storage and credit e.g. the companys own sales force is more intense in selling. competitors channel, some companies may prefer to compete in or near the same outlets that carry competitors products environmental factors, economic conditions and legal constraints affect channel design decisions e.g. in a depressed economy, producers want to distribute their goods in the most economical way, using shorter channels.

Identifying Major Alternatives

After the channel objective have been determined, the company should identify its major channel alternatives in terms of (1) types of intermediaries, (2) number of intermediaries, and (3) the responsibilities of each channel member. Types of Intermediaries A firm should identify the types of channel members that are available to carry out its channel work.

 Number of Marketing Intermediaries Companies must also determine the number of channel members to use. There are three strategies;
intensive distribution; is a strategy in which companies stock their products in as many outlets as possible. Convenience products and common raw materials must be available where and when consumers want them e.g. toothpaste, candy Procter & Gamble, Coca-Cola distributes its products in this way. Here, the advantages are maximum brand exposure and consumer convenience. exclusive distribution; is a strategy (opposite to intensive distribution) in which the producer gives only a limited number of dealers the exclusive right to

 distribute its products in their territories. Often found in new automobiles and prestige womens clothing e.g. Rolls-Royce. Here, the advantages are establishing image and getting higher markups. selective distribution; (is between intensive and exclusive distribution) is a strategy in which the company uses more than one but fewer than all of the intermediaries. Most television, furniture brands are distributed in this way. Here, the advantages are; it provides good market coverage with more control and less cost than intensive distribution + it does not spread its efforts over many outlets as in intensive distribution.

Responsibilities of Channel Members The producer and intermediaries must agree on price policies, discounts, territories, and

to be performed by each party. E.g. McDonalds provides franchisees with promotional support, training, management assistance, in turn, franchisees must meet company standards for physical facilities, buy specific food products...

Evaluating the Major Alternatives

In order to select the channel that satisfy the company objectives in the best way, each alternative should be evaluated by using; ECONOMIC CRITERIA; the company compares the projected profits and costs of each channel. CONTROL ISSUES; the company prefers to keep the channel where it has the highest control. ADAPTIVE CRITERIA; the company prefers to keep the channel which is the most flexible to the changing marketing environment.

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Channel Behavior and Organization

Channel Conflict
Occurs when channel members disagree on roles, activities, or rewards. Types of Conflict:
Horizontal conflict: occurs among firms at the same channel level Vertical conflict: occurs among firms at different channel levels

Conflict and Control in Channels

Channel conflict exists when channel members interfere with each others objectives. Horizontal conflict involves firms on same level-grocery store vs. drug store. Vertical conflict involves firms at different levels producer versus wholesaler producer versus retailer Channel Power is the ability to influence or determine behaviour of others in channel. Based on expertise, rewards and sanctions.
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Legal Considerations
Dealer Selection: Refusing to sell to some firms. Can be done carefully. Exclusive Dealing involves shutting out competitors, giving most business to one firm. Tying Contracts involves providing one item on condition other lines be carried as well. Exclusive Territories can create monopolies.

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Vertical Marketing Systems (VMS)

a tightly coordinated distribution channel designed to improve operating efficiency and marketing effectiveness. Corporate VMS: One firm owns other firms in channel or the entire channel-- Goodyear, Roots. Contractual VMS: Independents work together for much greater effectiveness: IGA, IDA. Administered VMS: Relies on economic power of one channel member-- Rolex, Kraft General Foods..
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Case Study Caterpillar

Dominates worlds markets for heavy construction and mining equipment. Independent dealers are key to success Dealer network is linked via computers
Caterpillar stresses dealer profitability, extraordinary dealer support, personal relationships, dealer performance and full, honest, and frequent communications