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” viewA value network ğ a system of partnerships and alliances that a firm creates to source, augment, and deliver its offeringsupstream and downstream partners
4 Marketing ChannelsMarketers ğ focusing on the downstream part of the supply chain --- the mktg channels that look forward toward the customerMarketing channels ğ 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 usercalled 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 ChannelsOffer 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 ValueFewer contactsMatch product assortment demand with supplyBridge, time, place, and possession gaps that separate products from users.
8 Channel Functions Risk Taking Information Financing Promotion Physical DistributionContactNegotiationMatching
10 Consumer Marketing Channels Channel Level ğ Each layer of marketing intermediaries that perform some work in bringing the product and its ownership closer to the final buyer.ManufacturerConsumer0-level channelDirect ChannelManufacturerRetailerConsumer1-level channelIndirect ChannelManufacturerWholesalerRetailerConsumer2-level channelManufacturerWholesalerJobberRetailerConsumer3-level channel
12 Channel Design Decisions Push strategy ğ the manufacturer using its salesforce and trade promotion money to induce intermediaries to carry, promote, and sell the product to end usersPull strategy ğ the manufacturer using advertising and promotion to 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 constraintsIdentifying the major channel alternativesEvaluating the major channel alternatives
14 Channel Design Decisions Analysis of Customers’ Desired Service Output Levels Lot sizeWaiting timeSpatial convenienceProduct varietyService backup
15 Channel Design Decisions Channel Objectives and Constraints Channel objectives should be stated in terms of:Targeted service output levelsProduct characteristicsCompany policiesIntermediaries’ characteristicsCompetitors’ channels and policiesEnvironmental factors
16 Channel Design Decisions Identification of Channel Alternatives Major channel alternatives have to be identified in terms of:Types of IntermediariesNumber of IntermediariesTerms and Responsibilities of Channel Members
17 Channel Design Decisions Identification of Channel Alternatives Types of IntermediariesExample: A test-equipment manufacturer- alternatives:Expand the company’s salesforceHire manufacturers’ agents in different regionsFind industrial distributors and give them exclusive distribution
18 Channel Design Decisions Identification of Channel Alternatives Number of IntermediariesIntensive distributionSelective distributionExclusive distribution
19 Channel Design Decisions Identification of Channel Alternatives Responsibilities of Channel MembersPrice policy ğ to establish a price list and determine discounts for intermediariesConditions of sales ğ refer to payment terms and producer guaranteesDistributors’ territorial rightsMutual services and responsibilities
20 Channel Design Decisions Evaluation of Channel Alternatives Each alternative needs to be evaluated against:Economic criteriaTo determine whether a company’s salesforce or a sales agency will produce more salesTo estimate the costs of selling different volumes through each channelTo compare sales and costsControl and adaptive criteria
21 Example: Evaluation of Channel Alternatives Break-Even Cost Chart
23 Channel Management Decisions Motivating Channel Members Coercive power ğ when a manufacturer threatens to withdraw a resource or to terminate the relationship if intermediaries fail to cooperateReward power ğ the manufacturer offers an extra benefit for performing specific acts or functionsLegitimate power ğ the manufacturer requests a behavior that is warranted under the contractExpert power ğ the manufacturer has special knowledge that the intermediaries valueReferent power ğ 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 Conventional Vertical Marketing Marketing Channel System (VMS)ManufacturerManufacturerWholesalerWholesalerRetailerRetailerConsumerConsumer
26 Channel Dynamics Types of Vertical Marketing Systems Systems (VMS)ContractualVMSRetailerCooperativesFranchiseOrganizationsWholesaler SponsoredVoluntary ChainsService-Firm-SponsoredManufacturer-Sponsored WholesalerSponsored RetailerCorporateVMSAdministeredVMS
27 Channel Dynamics: Innovations in Marketing Systems Horizontal Marketing SystemTwo or more companies at one channel level join together to follow a new marketing opportunity.e.g. banks in food retailersMultichannel (Hybrid) Marketing SystemA Single firm sets up two or more marketing channels to reach one or more customer segmentse.g. Supermarkets, traditional stores, and sales force
28 Channel Dynamics: Conflict, Cooperation, and Competition The channel will be most effective when:Each member is assigned tasks it can do bestAll members cooperate to attain overall channel goals and satisfy the target marketWhen this does not happen ğ “conflict” occursFor 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 conflict ğ disagreements among mktg channel members on goals and rolesVertical conflict ğ conflict between different levels within the same channelHorizontal conflict ğ conflict between members at the same level within the channelMultichannel conflict ğ conflict between two or more different channels that are used by the same manufacturer
30 Channel Dynamics: Causes of Channel Conflict Goal Incompatibility ğ differences in expectationsUnclear Roles and Rights ğ territory boundaries, credit for sales, etc.Differences in PerceptionDependence
31 Channel Dynamics: Managing Channel Conflict The challenge ğ not to eliminate conflict, but to manage it!Some mechanisms for effective conflict management:DiplomacyMediationArbitration
32 Channel Dynamics: Legal and Ethical Issues Exclusive distributionOnly certain outlets are allowed to carry a firm’s productsExclusive dealingExclusive territorial agreementsTying agreements