1. Chap. 15Designing and Managing Integrated Marketing Channels Raymund C. Pion Marketing Management V57 Prof. Bong De Ungria

2. Outline 6th Task of Marketing Delivering Customer Value Marketing channels: definition, importance, examples Functions of marketing channels Flows and levels of marketing channels Value networks a broader view of customer value delivery How to design marketing channels Challenges in managing channels Integrated marketing channels a new development Channel conflicts and how they are managed Key issues with e-commerce

3. Recall: Marketing is A system of profitably creating, DELIVERING and communicating superior VALUE to satisfy customers needs, wants and demands better than competition.

4. To achieve this,the 6th Task of Marketing is Developing marketing strategies and plans Capturing marketing insights and performance Connecting with customers Building strong brands Shaping the marketing offer Delivering and communicating value Creating successful long-term growth

5. 1st some definitions Marketing Channels, Trade Channels, Distribution Channels A set of interdependent organizations involved in the process of making products or services available for use or consumption A set of pathways a product or service follows after production, culminating in purchase and use by the final end-user Intermediaries performing a variety of functions Value-delivery network A companys supply chain and how it partners with specific suppliers and distributors to make products and bring them to markets Value-delivery system All the expectancies the customers will have on the way to obtaining and using the offering Value networks A system of partnerships and alliances that a firm creates to source, augment and deliver its offerings

6. Examples of Intermediaries Merchants Wholesalers and Retailers Buy, take title to goods, resell Agents Brokers, manufacturers representatives, sales agents Look for customers, negotiate for producer, dont take title to goods Facilitators Transportation companies, warehouses banks, advertising agencies Assist in the distribution process but dont take title to goods nor negotiate on purchases or sales

7. Why are Channels Important?Channel functions and flows Gather marketing information Develop and disseminate persuasive communications Reach agreement on prices and terms to effect transfer of ownership or possession of goods Place order with manufacturers Acquire funds to finance inventory Assume risks for carrying out channel functions Provide for storage and movement of physical products Provide for buyers payment of bills through banks Oversee actual transfer of ownership of goods Convert potential buyers into profitable customers

8. Why are Channels Important?Marketing channel system Choice of particular set of marketing channels a firm employs is critical They account for 30% to 50% of SRP They can convert potential buyers to profitable customers Channel decisions affect all other marketing decisions Pricing Sales force and advertising decisions Involve long-term commitments with other firms as well as a set of policies and procedures Channel decisions must align with overall strategy

9. So (again) Step #1 isUnderstanding Customer NeedsConsumers choose where to buy based on: Price Product assortment Convenience Personal shopping goals Marketers using different channels must be aware that different consumers have different needs during the buying process

10. There are 5 marketing flows in a marketing channelPhysical Flow Transporters, Transporters, Suppliers Manufacturer Dealers Transporters Customers Warehouses WarehousesTitle Flow Suppliers Manufacturer Dealers CustomersPayment Flow Suppliers Banks Manufacturer Banks Dealers Banks CustomersInformation Flow Transporters, Transporters, Transporters, Suppliers Warehouses, Manufacturer Warehouses, Dealers Customers Banks Banks BanksPromotions Flow Advertising Advertising Suppliers Manufacturer Dealers Customers agencies agencies

11. Channel Levels (Paths) There are different levels of marketing channels in consumer and industrial markets Consumer Marketing Channels Industrial Marketing Channels 0-level 1-level 2-level 3-level 0-level 1-level 2-level 3-levelManufacturer Manufacturer Manufacturer Manufacturer Manufacturer Manufacturer Manufacturer Manufacturer Wholesaler Wholesaler Manufacturers Manufacturers Representative Sales Branch Jobber Industrial distributor Retailer Retailer Retailer Industrial Industrial Industrial Industrial Consumer Consumer Consumer Consumer customers customers customers customers

12. A broader view of delivering customer value:Value NetworksPartnerships created to source, augment & deliver offerings From a linear view -> Supply Chain See markets as destinations To a customer-centric view -> Demand Chain Planning Emphasize what customers are looking for instead of what we are selling SIVA 4-Ps Solutions Product Information Promotions Value Price Access Placement To a broad view of customer value delivery -> Value Networks Seeing the company at the center of a value network Include suppliers, suppliers suppliers, immediate customers and their end customers A company needs to orchestrate these parties in order to deliver superior value to the target market Managing value chains require increased investments in IT and software SCM SAP, Oracle ERP CRM

13. Channel Design DecisionsWhat are key issues in designing channels?1. Analyzing customer needs2. Establishing channel objectives3. Evaluating major channel alternatives

14. In Channel Design, Step #1 isAnalyze customers desired service output levelThere are 5 channel service outputs Lot size customers prefer lot size of one Waiting and delivery time fast delivery channels Spatial convenience ease of purchase Product variety greater assortment Service back-up credit, delivery, service, repair, training, consultingNote: increased service output = increased channel costs, and increased prices to consumers. Some customers are willing to accept smaller service outputs if they could save on costs

15. Channel Design Decision Step #2 isEstablishing channel objectives and constraints State channel target service output level Arrange channel tasks to minimize total channel costs and provide desired service level output Choose market segments to serve and best channels for each In entering new markets, observe what competitors are doing Adapt channel objectives to larger environmental context E.g. During depression use shorter channels to maintain price E.g. Note legal constraints vs. monopoly

16. Channel Design DecisionsIn establishing channel objectives and constraints Vary objectives to suit product characteristics For perishables direct marketing For bulky (building materials) minimize shipping distance and amount of handling Nonstandard products (custom-built machinery) sales force Products needing installation or maintenance (heating or cooling systems) sales force or franchised dealers High-unit value products (generators of turbines) sales force

17. In Channel Design Decision, Step #3 isIdentifying and evaluating major channel alternatives Choose a mix of channels that reach different segments of buyers and delivers the right products at the least cost Channel Advantages Disadvantages Sales Force or Can handle complex products Too expensive owned branches and transactions Internet, Less expensive Not effective with complex telemarketing products Distributors Can create sales Customer contact by company is lost Manufacturers Able to contact customers at Selling effort per customer is less representatives low cost per customer intense than if company reps did because several clients share the selling costs

18. In Evaluating ChannelsConsider 3 elements of channel alternatives1. What types of business intermediaries are available?2. How many intermediaries are needed? Exclusive distribution limited number of intermediaries Maintain control of service levels and outputs offered by intermediaries Selective distribution few but less than all Gain adequate market coverage, more control, less cost Intensive distribution Places its products in as many outlets as possible4. What are the terms, and what are the responsibilities of each channel members?

19. In Channel DesignEvaluate major channel alternatives using Economic criteria Control criteria Adaptive criteria

20. Economic criteria in channel evaluationEach channel alternative will generate differentlevels of sales and costs high Sales force Value- Added partners Value-Added of Sales Direct sales Distributors channels Retail Stores Indirect channels Telemarketing Internet Direct marketing channels low low high Cost per TransactionTry to align customers and channels to maximize demand at the lowest overall cost

21. Channel Design DecisionsControl and adaptive criteria in evaluation Using sales agency poses control problems for you They are independent firms seeking to maximize profits They concentrate on customers who buy They may not master technical details of product or handle promotions effectively In rapidly changing, volatile, or uncertain product markets, producers need channel structures and policies that provide high adaptability

22. Channel Management DecisionsAfter choosing a channel system, the company must:1. Select individual channel members2. Train and motivate channel members3. Evaluate individual channel members4. Modify channel design and arrangements over time

23. Channel Management Decisions After choosing a channel system, the company must:1. Set criteria for selection of channel members Number of years in business Other lines carried Growth and profit records Financial strength Cooperativeness Service reputation Size and quality of sales force Location Type of clientele Future growth potential

24. Channel Management Decisions After choosing a channel system, the company must:1. Train and motivate channel members Understand intermediaries needs and wants Construct a channel positioning Implement capacity-building programs Training Market research Exercise channel power to compel action

25. Channel Management Decisions After choosing a channel system, the company must:1. Train and motivate channel members Types of power to elicit cooperation Coercive power Threaten to withdraw a resource or terminate a relationship Reward power Higher margins, deals, premiums, cooperative advertising allowances, display allowances, sales contest, bonuses Legitimate power Use contract agreements to force compliance Expert power Posses special knowledge the intermediary values Referent power Intermediary feels proud to be associated with producer

26. Channel Management Decisions In motivating channel members1. Forge long-term partnerships by clarifying expectations Market coverage Inventory levels Marketing development Account solicitation Technical advise and services Marketing information

27. Channel Management Decisions In motivating channel members Streamline supply chain and cut costs: ECR Efficient Consumer Response practices help organize relationship in 3 areas: Demand-side management Stimulate demand with joint sales and marketing activities Supply-side management Focus on logistics and supply chain activities to optimize supply Enablers and integrators Use IT and process improvement tools to support joint activities

28. Channel Management DecisionsAfter choosing a channel system, the company must:1. Evaluate individual channel members on Sales quota achievement Average inventory levels Customer delivery time Treatment of damaged and lost goods Cooperation in training and promotions programs Note: underperformers need to be counseled, retrained, motivated or terminated

29. Channel Management DecisionsAfter choosing a channel system, the company must:1. Modify channel design and arrangements over time when: Channel is not working as planned Consumer buying patterns change Market expands New competition arises Innovative distribution channels emerge Product moves into later stages of PLC Note: change may mean adding or dropping individual channel members, adding or dropping market channels, or developing totally new ways to sell goods

30. In managing channels, how mucheffort to devote to push or pull? Push strategy for low-involvement, impulse products Use sales force, trade promo to induce intermediaries to carry, promote and sell products to end-users Pull strategy For high-involvement, differentiated offers Use advertising, consumer promotions and other forms of communication to persuade consumers to demand the product from intermediaries

31. Channel Integration and SystemsSome of the recent developments in channels Vertical Marketing Systems Corporate VMS Administered VMS Contractual VMS New competition in retailing Horizontal Marketing Systems Integrating Multi-channel Marketing Systems

32. Channel Integration and SystemsSome of the recent developments in channels Vertical Marketing Systems Producer, wholesaler(s) and retailer(s) acting as a unified system Channel captain owns others or franchises them or has so much power that they all cooperate Strong channel members attempts to control channel behavior and eliminate conflict Achieve economies of scale via size, bargaining power, and elimination of duplicate services Provides extensive exchange of information

33. Channel Integration and SystemsSome of the recent developments in channels New competition in retailing Is no longer between independent business units but between whole systems of centrally-planned networks (Corporate, administered, and contractual) competing against one another to achieve the best economies and customer response

34. Channel Integration and SystemsSome of the recent developments in channels Horizontal Marketing Systems Two or more unrelated companies put together resources or programs to exploit an emerging marketing opportunity Each company lacks capital, know-how, production or marketing resources to venture alone or is afraid of the risks Arrangements may be temporary, permanent or result in joint-venture company

35. Channel Integration and SystemsSome of the recent developments in channels Integrating Multi-channel Marketing Systems Multi-channel marketing A company uses two or more channels to reach one or more customer segments Integrated marketing channel system Strategies and tactics of selling through one channel reflects the strategies and tactics of selling through other channels

36. Channel Integration and Systems3 benefits of multi-channel marketing systems Increased market coverage Customers can shop for company products in more places Multi-channel shoppers are more profitable customers Lower channel cost Selling by phone is cheaper than selling by personal visit to small customers More customized selling Adding a technical sales force to sell more complex products

37. Channel Integration and SystemsDisadvantages of multi-channel marketing systems Channel conflicts Channels competing for same customer New channels independent and makes cooperation difficult Problems with control Execution of merchandizing and promotions programs Market coverage and frequency of visits to customers Inventory levels Handling of customer complaints, returns and damaged goods Allocation of effort to other principals served by intermediaries

38. In Channel Architecture Determine which channels should perform which functions Demand-generation Tasks Better Disseminate Reach Pace Acquire Assume Facilitate Facilitate Oversee Information information price orders funds for risks product payment ownership agreement inventories storage & terms movement InternetMarketing channels and Methods National account management Direct sales Customer Tele- marketing Vendor Direct mail Retail stores Distributors Dealers and value-added resellers Advertising Multi-channel architecture optimizes coverage, customization and control, while minimizing costs and conflict

39. Conflict, Cooperation and CompetitionCauses of channel conflicts Goal incompatibility Low-price market penetration strategy vs. high-margin, short-run profitability Unclear roles and rights Territorial boundaries Sales crediting Differences in perception Optimistic vs. pessimistic views on business prospects Differences in perception about advertising strategy Intermediaries dependence on the manufacturer Exclusive dealers are at the mercy of manufacturers product and pricing policies

40. Conflict, Cooperation and CompetitionManagement of channel conflicts As companies add channels to grow sales, they risk creating channel conflicts Too much conflict is dysfunctional The challenge is not to eliminate conflicts but to manage them through Adoption of super-ordinate goals agree on goals they jointly seek Exchange of employees e.g. between manufacturer and dealer Joint membership in trade associations manufacturers and marketers Co-optation include leaders in boards, advisory councils Diplomacy, mediation, or arbitration conflict resolution methods Legal recourse

41. E-Commerce Marketing PracticesSome definitions E-business Use of electronic means and platforms to conduct a companys business E-commerce Company or site offers to transact or facilitate the selling of products and services online E-purchasing Purchase of goods, services and information from online sources E-marketing Efforts to inform buyers, communicate, promote and sell company products and services over the internet

42. E-Commerce Marketing PracticesSome advantages Provides convenient, informative and personalized experiences for different types of customers Allows online retailers to sell low-volume products to niche markets at lesser or no cost in maintaining retail floor space, staff, and inventory

43. E-Commerce Marketing Practices3 Aspects of online transactions in retailing competition Customer interaction with the Website Delivery of the product Ability to address problems when they occur

44. E-Commerce Marketing Practices2 Types of Online Competitors Pure-Click Companies Launched a website without previous existence as a company Search engines ISPs Commerce sites amazon.com, buy.com sell all types of products and services books, music, toys, stocks, clothes, insurance, financial services Transaction sites Content sites Enabler sites Brick-and-Click Companies Existing companies that have added an online site for information or e-commerce

45. E-Commerce Marketing PracticesIssues of using online channels for Brick-and-Clickand how to handle them Potential channel conflict with retailers, brokers, agents and branch outlets How to sell both to intermediaries and online? Offer different brands or products online Offer off-line partners higher commissions to offset negative impact on sales Take orders on the web but have retailers deliver and collect payment

46. M-Commerce Wireless internet-connectivity to do business Location-based services

47. Summary of Top 10 Concepts 6th Task of Marketing Delivering Customer Value Marketing channels: definition, importance, examples Functions of marketing channels Flows and levels of marketing channels Value networks a broader view of customer value delivery How to design marketing channels Challenges in managing channels Integrated marketing channels a new development Channel conflicts and how they are managed Key issues with e-commerce