Designing and Managing Value Network and Channels Chapter 15

Marketing Process 2

Fives Themes What is a value network and marketing-channel system? What work is performed by marketing channels? Channel-design decision Channel-management decision Channel Dynamic

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

Channels and Marketing Decisions A push strategy uses the manufacturer’s 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, an other forms of communication to persuade consumers to demand the product from intermediaries

Buyer Expectations for Channel Integration 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 online and offline purchase Example: customers of online store in Taiwan can easily pick up the goods in 7-11

Categories of Buyers Habitual shoppers High value deal seekers Variety-loving shoppers High-involvement shoppers

Types of Shoppers Service/quality customers Price/value customers Affinity customers

What work is performed by marketing channels? Many producers lack the financial resources to carry out direct marketing 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

Channel Member Functions Gather information Develop and disseminate persuasive communication Reach agreements on price and terms Acquire funds to finance inventories Assume risks Provide for storage Provide for buyers’ payment of their bills Oversee actual transfer of ownership

Five Marketing Flows in the Marketing Channel

Flow Forward Flow: Activity from the company to the customer constituted by physical, title, promotion functions. Backward Flow: Activity from customer to the company constituted by ordering and payment functions.

Consumer and Industrial Marketing Channels

Channel Levels Zero-Level Channel (a.k.a. Direct Marketing Channel): consists of a manufacturer selling directly to the final customer One-Level Channel: contains one selling intermediary, such as retailer Two-Level Channel: contains two intermediaries Three-Level Channel: contains three intermediaries Multi Channel: use several level at the same time

Channel Design Decision Push Strategy: involves manufacturer using its sales force to sell the product to end user Pull Strategy: involves manufacturer using advertising and promotion to induce consumers to ask intermediaries for the product, thus inducing the intermediaries to order it Designing a Channel System involves 4 steps: 1. Analyze customers’ desired service output levels 2. Establish objective and constraints 3. Identify major channel alternatives 4. Evaluate the major alternatives

Analyze Customers’ Desired Service Output levels Lot Size: the number of units the channel permits a typical customer to purchase on one occasion Waiting Time: the average time customers of that channel wait for receipt of the goods Spatial Convenience: the degree to which the marketing channel makes it easy for customers to purchase the product Product Variety: the assortment breadth provided by the marketing channel Service backup: the add-on service provided by the channel

Identify Major Channel Alternatives Types of Intermediaries: - Company sales force - Manufacturer’s Agency - Industrial Distributor Number of Marketing Intermediaries: - Exclusive Distribution: giving a limited number of dealers the exclusive right to distribute the company’s products in their territories - Selective Distribution: the use of more than one, but fewer than all, of the intermediaries who are willing to carry the company’s products - Intensive Distribution: stocking the product in as many outlets as possible

Terms of Responsibilities of Channel Members Price Policy: calls for the producers to establish a price list and schedule of discounts and allowances that intermediaries see as equitable and sufficient Conditions of Sale: payment terms and producer guarantees Distributors’ Territorial Rights: the distributors’ territories and the terms under which the producer will enfranchise other distributors

Channel Management - Coercive Power - Reward Power - Legitimate Power - Expert Power - Referent Power

Channel Value Added and Market Growth Rate

Types of Conflict and Competition: -Vertical channel Conflict: conflict between different levels within the same channels -Horizontal channel Conflict: conflict between members at the same level within the channel -Multi channel Conflict: exist when the manufacturer has established two or more channels that sell to the same market Conflict, Cooperation & Competition

The Cause: Goal Incompatibility Unclear roles and rights Differences in perception Intermediaries’ dependence on manufacturer Conflict, Cooperation & Competition

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