Chapter 17 Designing and Managing Value Networks and Marketing Channels by

1. Chapter 17 Designing and Managing Value Networks and Marketing Channelsby

2. Kotler on Marketing Establish channels for different target markets and aim for efficiency, control, and adaptability.

3. Chapter Objectives • In this chapter, we focus on the following channel questions from the viewpoint of the manufacturers: • What is the value network and marketing channel system? • What work is performed by marketing channels? • What decisions do companies face in designing, managing, evaluating, and modifying their channels? • What trends are taking place in channel dynamics? • How can channel conflict be managed?

4. What is a Value Network and Marketing-Channel System? • Value Network • Marketing channel

5. What is a Value Network and Marketing-Channel System? • Channel integration characteristics: • Ability to order a product online, and pick it up at a convenient retail location • Ability to return an online-ordered product to a nearby store • Right to receive discounts based on total of online and off-line purchases

6. How a Distributor Reduces theNumber of Channel Transactions 1 B. Number of contacts with a distributor M x C = 3 + 3 = 6 4 Store 2 5 6 3 = Manufacturer = Distributor = Customer

7. Distribution Channel Functions Information Transfer Communication Payments Negotiation Physical Distribution Ordering Risk Taking Financing

8. What Work is Performed by Marketing Channels? • Acquire funds to finance inventories at different levels in the marketing channel • Assume risk connected with carrying out channel work • Provide for the successive storage and movement of physical products • Provide for buyers’ payment of their bills through banks and other financial institutions • Oversee actual transfer of ownership from one organization or person to another

9. Channel-Design Decisions • Push strategy • Pull strategy • Designing a channel system involves four steps: • Analyzing customer needs • Establishing channel objectives • Identifying major channel alternatives • Evaluating major channel alternatives

10. Manufacturer Consumer 0-level channel Manufacturer Retailer Consumer 1-level channel  Mfg Wholesaler Retailer Consumer 2-level channel   Mfg Wholesaler Jobber Retailer Consumer 3-level channel     Consumer Marketing Channels

11. Industrial distributors Consumer Manufacturer Manufacturer’s representative Manufacturer’s sales branch Industrial Marketing Channels

12. Channel-Design Decisions • Analyze Customers’ Desired Service Output Levels • Lot size • Waiting time • Spatial convenience • Product variety • Service backup

13. Channel-Design Decisions • Establish Objectives and Constraints • Identify Major Channel Alternatives • Types of Intermediaries • Number of Intermediaries • Exclusive distribution • Exclusive dealing • Selective distribution • Intensive distribution

14. Channel-Design Decisions • Terms and Responsibilities of Channel Members • Price policy • Conditions of sale • Distributors’ territorial rights • Evaluate the Major Alternatives • Economic Criteria

15. Figure 17.4: The Value-Adds versus Costs of Different Channels

16. Manufacturer’s sales agency Company sales force Selling costs (dollars) SB Level of sales (dollars) Break-Even Cost Chart

17. Selecting Training Motivating FEEDBACK Evaluating Channel Management Decisions

18. Corporate Common Ownership at Different Levels of the Channel Types of Vertical Marketing Systems Administered Leadership is Assumed by One or a Few Dominant Members Contractual Contractual Agreement Among Channel Members

19. Wholesaler Retailer Consumer Consumer Conventional Distribution Channel vs. Vertical Marketing Systems Vertical marketing channel Conventional marketing channel Manufacturer Manufacturer Wholesaler Retailer

20. Channel Dynamics • Conflict, Cooperation, and Competition • Types of Conflict and Competition • Vertical channel conflict • Horizontal channel conflict • Multichannel conflict • Causes of Channel Conflict • Goal incompatibility • Unclear roles and rights • Differences in perception

21. Channel Dynamics • By adding new channels, a company faces the possibility of channel conflict which may include: • Conflict between the national account managers and field sales force • Conflict between the field sales force and the telemarketers • Conflict between the field sales force and the dealers

22. Channel Dynamics • Managing Channel Conflict • Diplomacy • Mediation • Arbitration • Legal and Ethical Issues in Channel Distribution • Exclusive distribution • Exclusive dealing • Tying agreements

23. Chapter 18 Managing Retailing, Wholesaling, and Market Logisticsby

24. Kotler on Marketing Successful “go-to-market” strategies require integrating retailers, wholesalers, and logistical organizations.

25. Chapter Objectives • In this chapter, we focus on the following questions about each marketing intermediary: • What major types of organizations occupy this sector? • What marketing decisions do organizations in this sector make? • What are the major trends in this sector?

26. Table 18.1: Major Retailer Types See text for complete table

27. Retailing • Levels of Service • Wheel-of-retailing • Four levels of service: • Self-service • Self-selection • Limited service • Full service

28. Broad Breadth of product line Narrow Value added Low High Retail Positioning Map Bloomingdale’s Wal-Mart Tiffany Kinney Shoe

29. Classification Of Retailer Types Narrow Product Line, Deep Assortment Wide Variety of Product Lines i.e. Clothing, Home Furnishings, & Household Items Wide Variety of Food, Laundry, & Household Products Limited Line of High-Turnover Convenience Goods Broad Product Line, Low Margin, High Volume Inexpensive, Overruns, Irregulars, and Leftover Goods Large Assortment of Routinely Purchased Food & Nonfood Products, Plus Services Broad Selection, Fast Turnover, Discount Prices Store Type Length and Breadth of Product Assortment Specialty Stores Department Stores Supermarkets Convenience Stores Discount Stores Off-Price Retailer Superstores Catalog Showroom

30. Direct Selling Types of NonStore Retailing Direct Marketing NonStore Retailing Accounts for More Than 12% of All Consumer Purchases, and is trending up. Automatic Vending Buying Services

31. Wheel of Retailing Mid Price Mid Status Mid Margin Low Price Low Status Low Margin High Price High Status High Margin New Entrants

32. Wholesaler Functions Why are Wholesalers Used? Selling and Promoting Management Services & Advice Market Information Buying and Assortment Building Bulk Breaking Risk Bearing Financing Warehousing Transporting

33. Table 18.3: Major Wholesaler Types See text for complete table

34. Wholesaling • Trends in Wholesaling • Narus and Anderson identified four ways to strengthen relationships with manufacturers • Sought clear agreement about their expected function in the marketing channel • Gained insight into the manufacturers’ requirements by visiting their plants • Fulfilled commitments by meeting volume targets • Identified and offered value-added services to help their suppliers

35. Provide a Targeted Level of Customer Service at the Least Cost. • Maximize Profits, Not Sales. Higher Distribution Costs/ Higher Customer Service Levels Lower Distribution Costs/ Lower Customer Service Levels Goals of the Logistics System

36. Transportation Water, Truck, Rail, Pipeline & Air Logistics Systems Order Processing Submitted Processed Shipped Costs Minimize Costs of Attaining Logistics Objectives Logistics Functions Warehousing Storage Distribution Inventory When to order How much to order Just-in-time

37. Market Logistics • Supply chain management (SCM) • Value network • Demand chain planning • Market logistics • Market logistics planning has four steps: • Deciding on the company’s value proposition to its customers • Deciding on the best channel design and network strategy for reaching the customers • Developing operational excellence in sales forecasting, warehouse management, transportation management, and materials management • Implementing the solution with the best information systems, equipment, policies, and procedures • Integrated logistics systems (ILS)

38. Figure 18.2: Determining Optimal Order Quantity

39. Rail Nation’s largest carrier, cost-effective for shipping bulk products, piggyback Truck Flexible in routing & time schedules, efficient for short-hauls of high value goods Water Low cost for shipping bulky, low-value goods, slowest form Pipeline Ship petroleum, natural gas, and chemicals from sources to markets Air High cost, ideal when speed is needed or to ship high-value, low-bulk items Transportation Modes

40. 1. Speed. 2. Dependability. 3. Capability. 4. Availability. 5. Cost. Checklist for Choosing Transportation Modes