Chapter 15: Designing and Managing Integrated Marketing Channels

* Successful value creation needs successful value delivery

I. Marketing Channels and Value Networks

Marketing Channels- sets of interdependent organizations involved in the process of

making a product or service available for use or consumption

Merchants- buy, take title to, and resell the merchandise

- wholesalers and retailers

Agents- search for customers and may negotiate on the producer’s behalf but do
not take title to the goods
- brokers, manufacturers’ representatives, sales agent

Facilitators- assist in the distribution process but neither take title to goods nor
negotiate purchases or sales
- transportation companies, independent warehouses, banks, advertising
agencies

A. The Importance of Channels

Marketing Channel System- the particular set of marketing channels a firm employs, and
decisions about it are among the most critical on ones
management faces
*Marketing channels must not just SERVE markets, they must also MAKE markets

Push Strategy- uses the manufacturer’s sales force, trade promotion money, or other
means to induce intermediaries to carry, promote, and sell the product to
end users

Pull Strategy- the manufacturer uses advertising, promotion, and other forms of
communication to persuade consumers to demand the product from
intermediaries, thus including the intermediaries to order it

B. Channel Development

* Deciding on the best channels might not be a problem; the problem is often to
convince the available intermediaries to handle the firm’s line

* The channel system evolves as a function of local opportunities and conditions,

emerging threats and opportunities, company resources and capabilities, and other
factors
C. Hybrid Channels (go-to-market)
* Use of multiple channels of distribution to reach customers in a defined market

* Multiple channels must work well together and match each target customer’s preffered
ways f doing business

D. Understanding Customer Needs

* Different customers have different needs during the purchase process
1. Habitual shoppers
2. High-value deal seekers
3. Variety-loving shoppers
4. High-involvement shoppers

E. Value Networks

Demand Chain Planning- the process of designing the supply chain based on adopting a
target market perspective and working backward

SIVA
- Solutions
- Information
- Value
- Access

Value Network- a system of partnerships and alliances that a firm creates to source,
augment, and deliver its offerings

II. The Role of Marketing Channels

* Many producers lack the financial resources and expertise to sell directly on their own
but producers can often gain in effectiveness and efficiency by using intermediaries

A. Channel Functions and Flows

* A marketing channel performs the work of moving goods from producers to consumers

Forward flow: from company to the customers

Backward flow: from customers to the company

Three Channels
1. Sales channel
2. Delivery channel
3. Service channel
* The question is not WHETHER various channel functions need to be performed—they
must be—but rather, WHO is to perform them

B. Channel Levels

Zero-level Channel (direct marketing)- consists of a manufacturer selling directly to the

final customer

One-level Channel: one selling intermediary (retailer)

Two-level Channel: two intermediaries (wholesaler and retailer)
Three-level Channel: three intermediaries (wholesalers-jobbers-small retailers)

Channel Flows
- Forward movement
- Reverse-flow Channels

C. Service Sector Channels

- Educational-dissemination system: schools
- Health-delivery system: hospitals

III. Channel-Design Decisions

* Designing a marketing channel system requires analyzing customer needs,
establishing channel objectives, and identifying and evaluating major channel
alternatives

A. Analyzing Customers’ Desired Service Output Levels

Channels produce five service outputs:

1. Lot size- the number of units the channel permits the customer to purchase on one
occasion
2. Waiting and Delivery time- the average time customers of that channel wait for
receipt of the goods
3. Spatial Convenience- the degree to which the marketing channel makes it easy for
customers to purchase the product
4. Product Variety- the assortment breadth provided by the marketing channel
5. Service Backup- the add-on services provided by the channel

B. Establishing Objectives and Constraints

* Marketers should state their channel objectives in terms of targeted service output
levels
* Channel objectives vary with product characteristics
* A number of other factors affect channel objectives
* Marketers must adapt their channel objectives to the larger environment
C. Identifying and Evaluating Major Channel Alternatives
* Each channel has unique strengths as well as weaknesses
* The problem is further complicated by the fact that most companies now use a mix of
channels

Three Elements of Channel Alternatives

1. Types of Business Intermediaries Available
- sometimes the company chooses a new or unconventional channel because of
the difficulty, cost, or ineffectiveness of working with the dominant channel

2. Number of Intermediaries Needed

Exclusive Distribution- severely limiting the number of intermediaries

- requires a closer relationship between seller and reseller

Selective Distribution- relies on more than a few but less than all of the intermediaries
willing to carry a product

Intensive Distribution- the manufacturer places the goods or services in as many outlets
as possible

3. Terms and Responsibilities of each Channel Members

“Trade-relations” Mix Elements:

a. Price Policy: price list and schedule of discounts and allowances
b. Conditions of Sale: payment terms and guarantees
c. Distributors’ Territorial Rights: specific territories
d. Mutual Services and Responsibilities

D. Evaluating the Major Alternatives

1. Economic Criteria
- each channel alternative will produce a different level of sales and costs
- firms will try to align customers and channels to maximize demand at the lowest
overall costs
a. Estimate how many sales are likely to be generated
b. Estimate the costs of selling different volumes
c. Comparing sales and costs

2. Control and Adaptive Criteria

* The producer needs channel structures and policies that provide high adaptability
IV. Channel-Management Decisions
* Select, train, motivate, and evaluate individual intermediaries for each channel

A. Selecting Channel Members

* Producers should determine what characteristics distinguish the better intermediaries

B. Training and Motivating Channel Members

* Need to determine intermediaries; needs and construct a channel positioning such that
its channel offering is tailored to provide superior value to these intermediaries

* The company must constantly communicate its view that the intermediaries are
partners in a joint effort to satisfy end users of the product

Channel Power- the ability to alter channel members’ behavior so that they take actions
they would not have take otherwise

1. Coercive Power
2. Reward Power
3. Legitimate Power
4. Expert Power
5. Referent Power

Efficient Consumer Response (ECR)

1. Demand Side Management
2. Supply Side Management
3. Enablers and Integrators

C. Evaluating Channel Members

* Underperformers need to be counselled, retrained, motivated, or terminated

D. Modifying Channel Design and Arrangements

* A producer must periodically review and modify its channel design and arrangements
* No marketing channel will remain effective over the whole product life cycle
* Adopting or dropping individual channel members requires an incremental analysis
* Perhaps the most difficult decision of all is whether to revise an overall channel
strategy
V. Channel Integration and Systems

A. Vertical Marketing Systems

Conventional Marketing Channel- comprises an independent producer, wholesaler(s),

and retailer(s)

Vertical Marketing System (VMS) - comprises the producer, wholesaler(s), and

retailer(s) acting as a unified system

1. Corporate VMS- combines successive stages of production and distribution under

single ownership

2. Administered VMS- coordinates successive stages of production and distribution

through the power of one of the members

Distribution Programming- builds a planned, professionally managed, vertical

marketing system that meets the needs of both
manufacturer and distributors

Distributor Relations Planning Department

- job is to identify distributor needs and build up merchandising programs to
help each distributor operate as efficiently as possible

3. Contractual VMS- consists of individual firms at different levels of production and

distribution, integrating their programs on a contractual basis to
obtain more economies or sales impact than they could achieve
alone

a. Wholesaler-sponsored voluntary chains

b. Retailer cooperatives
c. Franchise organizations

B. The New Competition in Retailing

“ The new competition in retailing is no more 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 cost economies and customer response.”

B. Horizontal Marketing Systems

Horizontal Marketing Systems- two or more unrelated companies put together resources
or program to exploit an emerging marketing opportunity
Multichannel Marketing- occurs when a single firm uses two or more marketing channels
to reach one or more customer segments

Integrated Marketing Channel System- one in which the strategies and tactics of selling
through one channel reflects the strategies and
tactics of selling through other channels

Three Important Benefits of Adding More Channels:

1. Increased market coverage
2. Lower channel cost
3. More customized selling

* Companies need to think through their channel architecture

* A multichannel architecture optimizes coverage, customization, and control while
minimizing costs and conflict
* Companies should use different channels for selling to different-size business
customers
* Multichannel marketers must also need to decide how much of their product to offer in
each of the channels

VI. Conflict, Cooperation, and Competition

Channel Conflict- generated when one channel member’s action prevent another channel
from achieving 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

A. Types of Conflict and Competition

Vertical Channel Conflict- conflict between different levels within the same channel
Horizontal Channel Conflict- conflict between members at the same level within the
channel
Multichannel Conflict- exists when the manufacturer has established two or more
channels that sell to the same market

* Strategies to reduce multichannel conflict are creating and enforcing rules of

engagement beforehand and compensating both parties that participate in a sale
regardless of which one books the order
B. Causes of Channel Conflict
1. Goal incompatibility
2. Unclear roles and rights
3. Differences in perception
4. Intermediaries’ dependence on the manufacturer

C. Managing Channel Conflict

* As companies add channels to grow sales, they run the risk of creating channel conflict
* Too much conflict is dysfunctional; the challenge is not to eliminate conflict but to
manage it better

Mechanisms for Effective Conflict Management:

- Adoption of superordinate goals is a mechanism for effective conflict
management
- Exchange of persons between two or more channel levels
- Encouraging joint membership in and between trade associations

Co-optation: effort by an organization to win the support of the leaders of another

organization by including them in advisory councils, board of
directors, and the like

Diplomacy- takes place when each side sends a person or group to meet with its
counterpart to resolve the conflict
Mediation- resorting to a neutral third party skilled in conciliating the two parties’
interests
Arbitration- occurs when two or more parties agree to present their arguments to
one or more arbitrators and accept the arbitration decision

D. Dilution and Cannibalization

* Marketers must be careful not to dilute their brands through inappropriate channels

E. Legal and Ethical Issues in Channel Relations

* Companies are legally free to develop whatever channel arrangements that suits them

Exclusive Distribution- a strategy in which the seller allows only certain outlets to
carry its products
Exclusive Dealing- when the seller requires that these dealers not handle
competitor’s products
- often includes exclusive territorial agreements
VII. E-Commerce Marketing Practices

E- business: describes the use of electronic means and platforms to conduct a

company’s business
E-commerce: means that the company or site offers to transact or facilitate the selling
of products and services online

E-purchasing: means companies decide to purchase goods, services, and

information from various online suppliers
E-marketing: describes the company efforts to inform buyers, communicate,
promote, and sell its products and services over the Internet

A. Pure-click Companies
* E-commerce websites must be set-up and operated carefully because customer service
is critical
* The most significant inhibitors of online shopping are the absence of pleasurable
experiences, social interaction, and personal consultation with a company representative
* Another benefit of providing live sales assistance is the ability to sell additional items
* Ensuring security and privacy online remains important
* The purpose of B2B sites is to make markets more efficient
1. Supplier Websites
2. Infomediaries
3. Market Makers
4. Customer communities

Avatars- graphical representation of virtual, animated characters that can act as

company representatives

B. Brick-and-Click Companies
* Adding an e-commerce channel creates the threat of a backlash from retailers,
brokers, agents, and other intermediaries
* It is difficult to launch a new brand successfully, so most companies brand their online
ventures under their existing brand names
1. Offer different brands or products on the Internet
2. Offer off-line partners higher commissions to cushion the negative impact of
sales
3. Take orders on the Website but have retailers deliver and collect payment

C. M-Commerce

Telematics- places wireless Internet-connected computers in the dashboards of cars and

trucks and makes more home appliances wireless so they can be used
anywhere in or near the home