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Lecture 7 Designing and Managing Value Networks and Marketing Channels Prof. Mundy Gonzalez RCBC Campus August 2, 2006.

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Presentation on theme: "Lecture 7 Designing and Managing Value Networks and Marketing Channels Prof. Mundy Gonzalez RCBC Campus August 2, 2006."— Presentation transcript:

1 Lecture 7 Designing and Managing Value Networks and Marketing Channels Prof. Mundy Gonzalez RCBC Campus August 2, 2006

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

3 No. of Contacts = 3 x 3 = 9 Manufacturer-Customer Contacts Contacts MC M M C C

4 D M M M C C C No. of Contacts = 3 +3 = 6 Contacts with Distributor

5 Value Network and Marketing- Channel System Value Network Value Network Marketing channel Marketing channel

6 Value Network and Marketing- Channel System Go-to-market or hybrid channels 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 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 Charles Schwab enables its customers to do transactions in branch offices, over the phone, or via the Internet Staples markets through traditional retail, direct-response Internet site, virtual malls, and 30,000 linked affiliated sites Staples markets through traditional retail, direct-response Internet site, virtual malls, and 30,000 linked affiliated sites

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

8 Work Performed by Marketing Channels Many producers lack the financial resources to carry out direct marketing Many producers lack the financial resources to carry out direct marketing In some cases direct marketing simply is not feasible In some cases direct marketing simply is not feasible Producers who do establish their own channels can often earn a greater return by increasing their investment in their main business. Producers who do establish their own channels can often earn a greater return by increasing their investment in their main business.

9 Work Performed by Marketing Channels Channel Functions and Flows Channel Functions and Flows Key functions include: Key functions include: Gather information about potential and current customers, competitors, and others Gather information about potential and current customers, competitors, and others Develop and disseminate persuasive communications to stimulate purchasing Develop and disseminate persuasive communications to stimulate purchasing Reach agreements on price and other terms so that transfer of ownership or possession can be effected Reach agreements on price and other terms so that transfer of ownership or possession can be effected Place orders with manufacturers Place orders with manufacturers

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

11 Work Performed by Marketing Channels Forward flow Forward flow Backward flow Backward flow

12 Five Marketing Flows in the Marketing Channel for Forklift Trucks

13 Consumer Marketing Channels Manufacturer Consumer Manufacturer Consumer Retailer Wholesaler Retailer Wholesaler Jobber 0 - level 1 - level2- level 3 - level

14 Industrial Marketing Channels Manufacturer Industrial Consumer Industrial Consumer Industrial Consumer Industrial Consumer Manufacturers Representative Manufacturers Sales Branch Industrial Distributor 0 - level1 - level 2 - level3 - level core

15 Work Performed by Marketing Channels Channel levels Channel levels Zero-level channel (a.k.a. direct- marketing channel) Zero-level channel (a.k.a. direct- marketing channel) One-level channel One-level channel Two-level channel Two-level channel Three-level channel Three-level channel Reverse-flow channel Reverse-flow channel Service Sector Channels Service Sector Channels Information Highway Channels Information Highway Channels

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

17 Channel-Design Decisions Analyze Customers Desired Service Output Levels Analyze Customers Desired Service Output Levels Lot size Lot size Waiting time Waiting time Spatial convenience Spatial convenience Product variety Product variety Service backup Service backup

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

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

20 The Value-Adds versus Costs of Different Channels

21 Break-even Cost Chart Channel-Design Decisions Channel advantage Channel advantage Control and Adaptive Criteria Control and Adaptive Criteria

22 Channel-Management Decisions Selecting Channel Members Selecting Channel Members Training Channel Members Training Channel Members Motivating Channel Members Motivating Channel Members Producers can use: Producers can use: Coercive power Coercive power Reward power Reward power Legitimate power Legitimate power Expert power Expert power Referent power Referent power

23 Channel-Management Decisions Distribution programming Distribution programming Distributor-relations planning Distributor-relations planning Evaluating Channel Members Evaluating Channel Members Modifying Channel Arrangements Modifying Channel Arrangements

24 Channel Value Added and Market Growth Rate

25 Channel Dynamics Vertical Marketing Systems Vertical Marketing Systems Conventional marketing channel Conventional marketing channel Vertical marketing systems (VMS) Vertical marketing systems (VMS) Corporate and Administered VMS Corporate and Administered VMS Corporate VMS Corporate VMS Administered VMS Administered VMS

26 Channel Dynamics Contractual VMS Contractual VMS Wholesaler-sponsored voluntary chains Wholesaler-sponsored voluntary chains Retailer cooperatives Retailer cooperatives Franchise organizations Franchise organizations Manufacturer-sponsored retailer franchise Manufacturer-sponsored retailer franchise Manufacturer-sponsored wholesaler franchise Manufacturer-sponsored wholesaler franchise Service-firm-sponsored retailer franchise Service-firm-sponsored retailer franchise

27 Channel Dynamics The New Competition in Retailing The New Competition in Retailing Horizontal Marketing Systems Horizontal Marketing Systems Multichannel Marketing Systems Multichannel Marketing Systems

28 Channel Dynamics Planning Channel Architecture Planning Channel Architecture

29 The Hybrid Grid

30 Channel Dynamics Roles of Individual Firms Roles of Individual Firms Insiders Insiders Strivers Strivers Complementers Complementers Transients Transients Outside innovators Outside innovators

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

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

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


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