Marketing Channels

1. Marketing Channels

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

3. Marketing Channels • Most firms ğ single link in a larger supply chain • Supply chain with “make & sell” view vs. demand chain with “sense & respond” view • A value networkğ a system of partnerships and alliances that a firm creates to source, augment, and deliver its offerings • upstream and downstream partners

4. Marketing Channels • Marketers ğ focusing on the downstream part of the supply chain --- the mktg channels that look forward toward the customer • Marketing channelsğ Sets of interdependent organizations (marketing intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or business user • called also: “distribution channels” or “trade channels”

5. Marketing Channels • Reasons to use marketing intermediaries • Lack of financial resources for direct marketing; • Direct mktg may not be feasible; • Producer’s greater return by increasing the investment in the main business. • The use of intermediaries results from their greater efficiency in making goods available to target markets.

6. Marketing Channels • Offer the firm more than it can achieve on its own, through the intermediaries’: • Contacts, • Experience, • Specialization, • Scale of operation. • Purpose: match supply from producers to demand from consumers.

7. Importance of Marketing Channels • How Channel Members Add Value • Fewer contacts • Match product assortment demand with supply • Bridge, time, place, and possession gaps that separate products from users.

8. Channel Functions Risk Taking Information Financing Promotion Contact Physical Distribution Matching Negotiation

9. Flows in the Marketing Channel

10. Consumer Marketing Channels Channel LevelğEach layer of marketing intermediaries that perform some work in bringing the product and its ownership closer to the final buyer. Manufacturer Consumer 0-level channel Direct Channel Manufacturer Consumer Retailer Indirect Channel 1-level channel Manufacturer Consumer Wholesaler Retailer 2-level channel Manufacturer Jobber Consumer Wholesaler Retailer 3-level channel

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

12. Channel Design Decisions • Push strategyğ the manufacturer using its salesforce and trade promotion money to induce intermediaries to carry, promote, and sell the product to end users • Pull strategyğ the manufacturer using advertising and promotionto induce consumers to ask intermediaries for the product, thus inducing the intermediaries to order it.

13. Channel Design Decisions • Analyzing customers’ service needs (customers’ desired service output levels) • Setting channel objectives and constraints • Identifying the major channel alternatives • Evaluating the major channel alternatives

14. Channel Design DecisionsAnalysis of Customers’ Desired Service Output Levels • Lot size • Waiting time • Spatial convenience • Product variety • Service backup

15. Channel Design DecisionsChannel Objectives and Constraints • Channel objectives should be stated in terms of: • Targeted service output levels • Product characteristics • Company policies • Intermediaries’ characteristics • Competitors’ channels and policies • Environmental factors

16. Channel Design DecisionsIdentification of Channel Alternatives • Major channel alternatives have to be identified in terms of: • Types of Intermediaries • Number of Intermediaries • Terms and Responsibilities of Channel Members

17. Channel Design DecisionsIdentification of Channel Alternatives • Types of Intermediaries • Example: A test-equipment manufacturer- alternatives: • Expand the company’s salesforce • Hire manufacturers’ agents in different regions • Find industrial distributors and give them exclusive distribution

18. Channel Design DecisionsIdentification of Channel Alternatives • Number of Intermediaries • Intensive distribution • Selective distribution • Exclusive distribution

19. Channel Design DecisionsIdentification of Channel Alternatives • Responsibilities of Channel Members • Price policy ğ to establish a price list and determine discounts for intermediaries • Conditions of sales ğ refer to payment terms and producer guarantees • Distributors’ territorial rights • Mutual services and responsibilities

20. Channel Design DecisionsEvaluation of Channel Alternatives • Each alternative needs to be evaluated against: • Economic criteria • To determine whether a company’s salesforce or a sales agency will produce more sales • To estimate the costs of selling different volumes through each channel • To compare sales and costs • Control and adaptive criteria

21. Example: Evaluation of Channel AlternativesBreak-Even Cost Chart

22. Channel Management Decisions • Selecting Channel Members • Training Channel Members • Motivating Channel Members • Producers can use: Coercive power Reward power Legitimate power Expert power Referent power • Evaluating Channel Members • Modifying Channel Arrangements

23. Channel Management DecisionsMotivating Channel Members • Coercive powerğ when a manufacturer threatens to withdraw a resource or to terminate the relationship if intermediaries fail to cooperate • Reward powerğ the manufacturer offers an extra benefit for performing specific acts or functions • Legitimate powerğ the manufacturer requests a behavior that is warranted under the contract • Expert powerğ the manufacturer has special knowledge that the intermediaries value • Referent powerğ the manufacturer is so higly respected that the intermediaries are proud to be associated with it

24. Changing Channel Organization • A major trend ğ toward “disintermediation”: • Product and service producers are bypassing intermediaries and going directly to final buyers or; • New types of channel intermediaries are emerging to displace traditional ones

25. Channel Dynamics Vertical Marketing System (VMS) Conventional Marketing Channel Manufacturer Manufacturer Wholesaler Wholesaler Retailer Retailer Consumer Consumer

26. Contractual VMS Corporate VMS Wholesaler Sponsored Voluntary Chains Franchise Organizations Retailer Cooperatives Manufacturer- Sponsored Retailer Franchise Service-Firm- Sponsored Franchise Manufacturer- Sponsored Wholesaler Franchise Channel DynamicsTypes of Vertical Marketing Systems Vertical Marketing Systems (VMS) Administered VMS

27. Horizontal Marketing System Two or more companiesat one channel level join together to follow a new marketing opportunity. e.g. banks in food retailers Multichannel (Hybrid) Marketing System A Single firm sets up two or more marketing channels to reach one or more customer segments e.g. Supermarkets, traditional stores, and sales force Channel Dynamics: Innovations in Marketing Systems

28. Channel Dynamics: Conflict, Cooperation, and Competition • The channel will be most effective when: • Each member is assigned tasks it can do best • All members cooperate to attain overall channel goals and satisfy the target market • When this doesnot happenğ“conflict” occurs • For the channel to perform well, each channel member’s role must be specified and conflict must be managed.

29. Channel Dynamics: Types of Conflict • Channel conflictğ disagreements among mktg channel members on goals and roles • Vertical conflictğ conflict between different levels within the same channel • Horizontal conflictğ conflict between members at the same level within the channel • Multichannel conflictğ conflict between two or more different channels that are used by the same manufacturer

30. Channel Dynamics: Causes of Channel Conflict • Goal Incompatibilityğ differences in expectations • Unclear Roles and Rightsğ territory boundaries, credit for sales, etc. • Differences in Perception • Dependence

31. Channel Dynamics: Managing Channel Conflict • The challenge ğ not to eliminate conflict, but to manage it! • Some mechanisms for effective conflict management: • Diplomacy • Mediation • Arbitration

32. Channel Dynamics: Legal and Ethical Issues • Exclusive distribution • Only certain outlets are allowed to carry a firm’s products • Exclusive dealing • Exclusive territorial agreements • Tying agreements