D E S IG N IN G A N D M A N A G IN G M A R K E T IN G C H A N N E LS A N D V A LU E N E T W O R K SBy: Fredrick Justin V. Gatchalian

Marketing Channels and Value NetworksMarketing channels are sets

of interdependent organizations involved in the process of making a product or service available for use or consumption

The Importance of Channels A marketing channel system

are sets of marketing channels by a firm. Marketing channels must not serve markets, they must also make markets.

In managing its intermediaries, the firm must decide how much effort to devote to push versus pull marketing.

Push strategy involves the manufacturers

using its sales force and trade promotion money to induce intermediaries to carry, promote , and sell the product to end users. Pull strategy involves the manufacturing using advertising and promotion to induce customers to ask intermediaries for the product , thus inducing the intermediaries to order it.

Channel DevelopmentA few manufacturers sales

agents, a few wholesalers, several establishment retailers, few trucking companies, and a few warehouses.

Hybrid ChannelsThe channel is a three-tier model involving

selling directly to large accounts and large resellers, and through three distributors for smaller accounts. To allow customers request products

shipped directly from its factory. Customers still have to make such orders with the channels. Customers can also buy directly from SIA

over the phone (called Electronic

Channel Integration:

The ability to order a product online and

pick it up convenient retail location, The ability to return an online-product to

a nearby store of the retailer. the right to receive discounts based on

total online and offline purchases.

Understanding Customer Needs1.Habitual Shoppers 2.High value deal seekers 3.Variety-loving shoppers 4.High-involvement shoppers

This view has been called demand chain

Value Networks

planning. A demand chain manage approach does not push things through the system. It emphasizes what solutions consumers are looking for, not what products we are trying to sell them. That the traditional marketing four Ps be placed by a new acronym , SIVA, which stands for solutions, information, value and access. An even broader view sees a company at the center of a value networks-a system of

Managing value networks has required

companies to make increasing investments in information technology (IT) and software. They have invited such software firms as SAP and Oracle to design comprehensive Enterprise Resource Planning (ERP) systems to manage cash flows, manufacturing, human resources, purchasing, and other major functions within the unified network. They hope to break up development silos and carry out core business processes more seamlessly.

The Role of Marketing ChannelsThey may lack the financial

resources to carry out direct marketing.

They can often earn a greater return by increasing investment in their main business. In some cases direct marketing simply is not feasible.

Channel member functions: Gather information about potential and current customers, competitors, and other actors and forces in the marketing environment. Develop and disseminate persuasive communications to stimulate purchasing. Reach agreements on price and other terms so that the transfer of ownership or possession can be effected. Place orders with manufacturers. Acquire funds to finance inventories at a different levels in the marketing levels in the marketing channel. Assume risk connected with carrying out channel work. Provide for the successive storage and movement of physical products. Provide buyers payment of their bills through banks and other financial institutions. Oversee actual transfer of ownership from one organizations

Channel functions and flows

Channel Functions and Flows 1

M2 3 4 M 5 6

C

M 1 4

C

C

M

2

D

5

C

7 M 8 9

C

M

3

6

C

( a ) Number of Contacts M x C =3 x 3=9

( b ) Number of Contacts M + C = 3+3 =6

M = manufacturer C = Customer D = Distributor

Figure 15 . 1 How a distributor Increases Efficiency

1. Physical Flow

Suppliers

Transporters Warehouses

Manufacturers Transporters, warehouses Dealers

Transporters

Customers

2. Title FlowSuppliersManufacturers

Dealers

Customers

3. Payment flowSuppliers

Banks

Manufacturers

Transporters, Warehouses, Banks

Dealers

Banks

Customers

Fig. 1 Five MarketingTools for the Marketing Channel of Forklift Trucks 5.2

4. Information Flow

Suppliers

Transporters, Warehouses, Banks

Manufacturers

Transporters, Warehouses, Banks

Dealers

Transporters banks

Customers

5. Promotion Flow

Suppliers

Advertising agency

Manufacturers

Advertising agency

Dealers

Customers

Fig. 15.2 Five Marketing Tools for the Marketing Channel of Forklift Trucks (cont.)

Channel levelsA zero-level channel (also called a direct-

marketing channel) consist of a manufacturer selling directly to the final customer. The major examples are door to door sales, home parties, mail order, telemarketing, TV selling, Internet selling and manufacturer-owned stores. A one-level channel contains one selling intermediary, such as a retailer . A Two-level channelcontains two intermediaries, typically a wholesaler and retailer. A Three-level channel contains three intermediaries. In the meatpacking industry, wholesalers sell to jobbers, who sell to small retailers.

0 - Level Manufacturer

1 - LevelManufacturer

2 - LevelManufacturer

3 - LevelManufacturer

Wholesaler

Wholesaler

Jobber

Retailer

Retailer

Retailer

Consumer

Consumer

Consumer

Consumer

( a ) Consumer Marketing Channels

0-Level Manufacturer

1 -LevelManufacturer

2-LevelManufacturer

3 -LevelManufacturer

Manufacturers Representative

Manufacturers Sales Branch

Industrial Distributors

Industrial customer

Industrial customer

Industrial customer

Industrial customer

( b ) Industrial Marketing Channel

Service Sector ChannelsProducers of services and

ideas also face the problem of making their output available and accessible to target population.

Channel-Design DecisionsDesigning a marketing channel

system involves analyzing customer needs , establishing channel objectives, identifying major channel alternatives, and evaluating major channel alternatives.

Analyzing Customers Desired Service output levels1.Lot size 2.Waiting and delivery time 3.Spatial convenience 4.Product variety 5.Service backup 6.

Establishing Objectives and Constrains1.The underdevelopment of infrastructure in Asias larger emerging market. 2.Economic factors 3.Legal regulations and restrictions 4.Consumer lifestyle and population density.

Identifying Major Channel Alternatives

Types of IntermediariesExpand the companies s

direct sales force. Hire manufacturers agents Find distributors

Exclusive distributionmeans severely

Number of Intermediaries

limiting the number of intermediaries. It is used when the producer wants to maintain control over the service level and outputs offered by the resellers. Often involves exclusive dealing arguments. Selective distribution involves the use of more than a few but less than all of the intermediaries who are willing to carry out a particular product. It is used by established companies and by new companies seeking distributors. Intensive distribution consist of the manufacturers placing the goods or

Terms and Responsibilities of Channel MembersPrice policy Conditions of sale Distributors' territorial rights Mutual services and

responsibilities

Evaluating the Major Alternatives

Economic CriteriaHigh Sales Force Value-Added partners Direct Sales Channels

of

Distributors

Value - add Sale

Retail Stores

Indirect Channels

Telemarketing Direct Marketing Channels High

Internet Low Low

Cost per transaction The Value adds versus Cost of Different

Manufacturer s Sales Agency

Company Sales Force

Selling Cost ( Dollars )Break - even Cost Chart for the choice between a Company Sales Force and Manufacturer s Sales Agency

SBLevel of Sales ( dollars )

Channel Management Decisions

Selecting Channel MembersCompanies need to select

their channels members carefully. To customers , the channels are the company

Training and Motivating Channel MembersCoercive power Reward power Legitimate power Expert power Referent power

Evaluating Channel MembersProducers must periodically

evaluate intermediaries performance against such standards as sales quota attainment, average inventory levels, customer delivery time, treatment of damaged or lost goods, and cooperation in promotional and training programs.

Modifying Channel Design and ArrangementsA producer must periodically

review and modify its channel arrangements

Channel Integration and System

Vertical Marketing SystemsConvetional marketing channel

comprises an independent producer, wholesaler(s), and retailer (s). Vertical marketing sytem (VMS), by

contrast, comprises the producer, wholesaler(s), and retailer(s) acting as a unified system.

Corporate VMSCombines successful stages

of production and distribution under single ownership

Administered VMSAn VMS coordinates successive stages of

production and distribution through the size and power of one of the members. Administrative VMS involves distribution

programming, which can be defined as building a planned, professionally managed, vertical marketing system that meets the needs of both manufacturer and distributors.

Contractual VMSA contractual VMS consist of independent

firms at different levels of production and distribution integrating their programs on a contractual basis to obtain more economies or sales impact than they can achieve alone. There are three types:

1.Wholesaler-sponsored voluntary chains 2.Retailer cooperatives 3.Franchise organizations

THE NEW COMPETITION IN RETAILINGThe new competition in retailing

is no longer between independent business units but between whole systems of centrally programmed networks (corporate, administered, and contractual) competing against one another to achieve the best economies and customers response.

Horizontal Marketing SystemsIn which two or more

unrelated companies put together resources or programs to exploit an emerging market opportunity.

Multichannel Marketing SystemsMultichannel marketing occurs

when a single firm uses two or more marketing channels to reach one or more customer segments. An Integrated marketing channel system is one in which the strategies and tactics of selling through one channel reflect the strategies and tactics of selling through other channels.

Conflict, Cooperation and CompetitionChannel conflict is generated

when one channel members action prevent the channel achieve its goal. Channel coordination occurs when channel members are brought together to advance the goals of the channel, as opposed to their own potentially incompatible goals.

Types of Conflict and CompetitionVertical Channel Conflict Horizontal Channel Conflict Multichannel Channel Conflict

Causes of Channel ConflictGoal incompatiblility Unclear roles and rights Differences in perception Intermediaries' dependence

on the manufacturer

Managing Channel ConflictOne is the adaptation of superordinate goals.

Channel members come to an agreement on the fundamental goal they are jointly seeking, whether it is survival, market share, high quality or satisfaction. Co-optationis an effort by one organization to win

the support of the leaders of another organization by including them in advisory council boards of directors, and the like. As long as initiating organization treats the leaders seriously and listens to their opinions, cooptation can reduce conflict, but the initiating organization may have to compromise its policies

Managing Channel Conflict (cont.)Diplomacy takes place when each side sends a

person or group to meet with its counterpart to resolve the conflict. Mediation means resorting to a neutral third

party who is skilled in conciliating the two parties interest.

Arbitration occurs when the two parties

disagree to present their arguments to one or more arbitrators and accept the arbitration decision.

Dilution and Cannibalization

Legal and Ethics Issues in Channel RelationsTying arguments are not necessary illegal, but may

violate in certain countries if they tend to lessen competition substantially. A strategy in which the seller allows only certain

outlets to carry its products is called exclusive distribution, and when the seller requires these dealers not handle competitors products this is called exclusive dealing.

Legal and Ethics Issues in Channel Relations (cont.)Four Factors of gray market:

1.Differential pricing to different channel members may lead to a distributor over ordering to obtain a discount and selling off excess to unauthorized channels. 2.Manufacturers may price differently to different geographic markets due to differences in tax, exchange rates or price sensitivity. 3.Products may be sold through high-service, highprice channels, providing an opportunity to induce gray markets through discount retailers. 4.The development of emerging markets and worldwide trade liberalization create incentives for firm to capitalize on their brand equity and

Legal and Ethics Issues in Channel Relations (cont.)Manufacturers tolerate gray market when:

1)Violations are difficult to detect or document. 2)The potential for one channel to free-ride on another member is low. 3)The product is mature. 4)The parallel importer is a high-performing dealer loyal to the manufacturer rather than the one which carries competing brands in the manufacturers product category. 5)

E-Commerce Marketing practicesE-business describes the use of electronic

means and platforms to conduct a companys business E-commerce means that the company or site offers to transact or facilitate the selling of products and services online E-commerce has given rise to e-purchasing and e-marketing. E-purchasing means companies decide to purchase goods, services, and information from various online suppliers. E-marketingdescribes company effort to inform, communicate, promote, and sell its products and services over the internet.

E-Commerce Marketing practices (cont.)The eterm is also used in terms as e-finance,

e-learning, and e-service. Pure-click companies, those that have launched a Website without any previous existence as a firm. Brick-and-click companies, exixting companies that have added an online site for information and/or e-commerce.

Pure-Click CompaniesThere are several kinds of pure click

companies: o Internet service Providers (ISP) o Commerce sites o Transaction sites, and o Enabler sites Commerce sites sell all types of products and services , notably books, music, toys, insurance, stocks , clothes, financial services and so on.

Brick-and-Click CompaniesMany brick-and-mortar companies

have agonized over whether to add an online e-commerce channel.

M-CommerceConsumer and business people no longer

need to be near a computer to send and receive information. All they need is a cellphone or Personal Digital Assistant (PDA). The whole field is called telematics places wireless Internet-connected computers on dashboards of cars and trucks, and makes more home appliances (such as computers) wireless so they can be used anywhere in or near the home. Many see a big future in what is now called mcommerce (m for mobile)

Retailing

RetailingRetailing includes all the activities

involved in goods or services directly to final consumers for personal, nonbusiness use. A retailer or retail store is any business enterprise whose sales volume comes primarily from retailing.

Types of RetailersSpecialty Store: Narrow product line. E.g., The Body Shop Department Stores : Several product lines . E . g ., Isetan Supermarket: low-cost, low-margin, high-volume, self service store designed to meet total needs for food and household products. E.g., Wellcome Convenience Store: Small store in residential area, often open 24/7, limited line of high-turnover convenience products plus take out. E.g., 7-Eleven Discount Store: Standardor specialty merchandise; low-price, low-margin, high-volume stores. E.g., Wal-mart. Off-price retailer: Leftover good, overruns, irregular merchandisesold at less than a retail. E.g., Reject Shop Superstore: Huge selling space, routinely purchased food and household items, plus services (laundry, shoe repair, dry cleaning and check cashing ). Category Killer (Deep assortment in one category) such as Toys R Us; hypermarket (huge storeshigh markup, fast-moving, brand-name goods sold by catalog at Catalog Showroom: Broad selection of that combine supermarket, discount, and warehouses retailing) such as Carrefour can pick up merchandise at the store. discount. Customers

Major Retailer Types

Levels of serviceRetailers can position themselves as

offering one of four levels of service:

1.Self service 2.Self selection 3.Limited service 4.Full-Service

Broad

Retail Positioning Map

B re a d th o f th e p ro d u ct lin e

Ta k a sh im a y a

C a rre fo u r

Shanghai Ta n g

This Fashion

Narrow High

Value Added

Low

Levels of service (cont.)By combining these different service levels with different assortment breadths, we can distinguish the four broad positioning strategies available to retailers. 1.Takashimaya 2.Shanghai Tang

3.This Fashion 4.Carrefour 5. 6.

Levels of service (cont.)Non-store RetailingNon-store retailing falls into four

major categories: 1. Direct Selling 2.Direct Marketing 3.Automatic Vending 4.Buying service

Corporate RetailingCorporate retail organizations achieve

economies of scale, greater purchasing power , wider brand recognition better trained employees.

The major types of corporate retailing :Corporate Chain stores Voluntary chains Retailer Cooperatives Franchises Merchandise Conglomerates

1.New retail forms and combinations 2.Growth intertype competition 3.Competition between store-based and nonstore-based retailing 4.Growth of giant retailers 5.The traditional trade is alive and well 6.Growing investment in technology 7.Global presence of major retailers 8.Upgrading of Asian retailers

The New Retail Environments

Marketing Decisions

Target MarketIs defined and profiled, the retailer

cannot make consistent decisions on product assortment, store dcor, advertising messages and media, price and service levels.

Product AssortmentThe retailers product assortment

match the target markets shopping expectations. The retailer has to decide on product

assortment breadth and depth

Retail Category Management1.Define the category. 2.Figure out its role. 3.Assess performance. 4.Set goals. 5.Choose the audience. 6.Figure out tactics. 7.Implement the plan. 8.

Product differentiation StrategyFeature exclusive national brands that are

not available competing retailer. Feature mostly private branded merchandise. Feature blockbuster distinctive merchandise events. Feature surprise or ever-changing merchandise. Feature the latest or newest merchandise first. Offer merchandise customizing services.

ProcurementAfter deciding on the product-

assortment strategy, the retailer must establish merchandise resources, policies and practices.

PricesPrices are key positioning key

factor and must be decided in relation to the target market, the product-and-service assortment mix, and the competition.

ServicesThe services mix is a key tool for

differentiating one store from another .Prepurchase services include accepting

telephone and mail orders, advertising, window and interior display, fitting rooms, shopping hours, fashion shows, and tradeins. Post purchase services include shipping and delivery, giftwrapping, adjustments and returns, alternations and tailoring, installations and engraving. Ancillary services include general information, check cashing, parking, restaurants, repairs, interior decorating, credit, restrooms and

Store AtmosphereEvery store has a physical layout that

makes it difficult or easy to move around. Every store has a look. The store must embody a planned atmosphere that suits the target market and draws customers towards purchase.

Store Activities and ExperiencesThe growth of e-commerce has forced traditional

brick-and-mortar retailers to respond. In addition to their additional to their natural advantages, such as products that shoppers can actually see, touch and test, real-life customers service, and no delivery lag time for a small-or-medium-sized purchases, they also provide a shopping experience as a strong differentiator.

CommunicationRetailers use a variety of

communication tools to generate traffic and purchases. They place Ads, run special sales, issue moneysaving coupons, and run frequent shopper-reward programs, in-store food sampling, and coupons on selves or at check-out points.

LocationRetailers are accustomed to saying

that the keys to success are location, location, and location. Retailers can locate their stores in: General Business Districts Regional shopping centers Community shopping centers Strip malls (also called shopping strips) A location within a larger store

Location (cont.)Retailers can assess a particular

stores sales effectiveness by looking at four indicators : 1.Number of people passing by on an average day 2.Percentage who enter the store 3.Percentage of those entering who buy 4.Average amount spent per sale

Private LabelsA private label brand (also called a

reseller, store house, or distributor brand) is one retailer and wholesalers develop.

Role of Private LabelsThey are more profitable Retailer develop exclusive store

brands to differentiate themselves from competitors. Generics are unbranded, plainly packaged, less expensive versions of common products

The Private Label ThreatThe price have to be somewhat

higher to cover the higher promotion cost. Mass distributors pressure manufacturers to put more promotional money into trade allowances and deals if they want adequate shelf space.

THE END