Designing & Managing Integrated Marketing Channel

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.Value Delivery NetworkThe network made up of the company, suppliers, distributors, and ultimately customers who partner with each other to improve the performance of the entire system.

Most producers do not sell their goods directly to the final users; between them stands a set of intermediaries performing a variety of functions. These intermediaries, constitute a marketing channel.Some Intermediaries such as,- Merchants.- Agents.- Facilitators.What is a Marketing Channel?

Marketing channels must not just serve markets , they must also make markets. Push Strategy: It uses the manufacturers sales force , trade promotion money, or other means to induce intermediaries to carry, promote & sell the product to end users. Push strategy is particularly appropriate when there is low brand loyalty in a category, brand choice is made in the store.Pull Strategy: Manufacturer uses advertising, promotion & other forms of communication to persuade consumers to demand the product from intermediaries, thus including the intermediaries to order it.Importance of Channels

Multichannel MarketingHybrid or Multichannel marketing occurs when a single firm uses two or more marketing channels to reach customer segment.E.g: HP uses:-Sales force large accounts.Outbound telemarketing medium size accounts.Direct mail small accounts.Retailers still smaller accounts.Internet specialty item orders.

To manage hybrid channels, company must make sure that these channels:- Work well together.Match each target customers preferred way of doing business.Features expected by customers in a hybrid channel:-Ability to order online and pick it up from a convenient retail store.Ability to return the ordered product back to a nearby retail store.Right to discounts and promotional offers.

Marketing Channel FunctionsGather information about potential & current customers, competitors & other actors & forces in the marketing environment.Develop & disseminate persuasive communication to stimulate purchasing.Negotiate & reach agreements on price & other terms so that transfer of ownership or possession can be affected.Place orders with manufacturers.Acquire the funds to finance inventories at different levels in the marketing channel.

Assume risks connected with carrying out channel work.Provide for the successive storage & movement of physical products.Provide for buyers payment of their bills through banks & other financial institutions.Oversee actual transfer of ownership from one organization or person to another.

Value NetworksDemand-chain planning:- First thinks of market and then design supply chain backwards from market to firm.Emphasizes what solutions customers are looking for, not what producers are trying to sell to them.SIVA replaced the traditional marketing 4 Ps Solutions Information - Value - accessPartnerships and alliances are created to source, augment and deliver its offerings to the end user.A value network includes:-Firms suppliers.Its suppliers supplier.Its intermediate customers.End customers.

Various insights of demand-chain planning:-Company can determine whether more money is upstream or downstream this will help in integrating backward or forward.Company is more aware of disturbances anywhere in supply chain that might cause costs, price or supplies to change suddenly.Companies can go online with their business partners to carry on faster and more accurate communications, transactions and payments to reduce costs and speed up information and increase accuracy. Requires investment in IT & soft wares.SAP and Oracle ERP (enterprise resource plan) systems to manage cash flows, manufacturing, human resources, purchasing and other functions within a unified framework.

The Role of Marketing channelsChannel Functions & FlowsPerforms the work of moving goods from Producers to consumers.Functions like storage & movement, title & communications is a forward flow of activity from company to customer.Ordering & Payment constitutes backward flow from customers to the company.Information, negotiation, finance & risk taking occur in both directions.Selling a product & services require three channels, a sales channel, a delivery channel & a service channel.

Marketing Channel Flows

The producer & the final customer are part of every channel.Zero level is also called a direct marketing channel consists of a manufacturing selling directly to the final customer. E.g. door-to-door sales, telemarketing, manufacturer own storesOne-level channel contains one selling intermediary, such as retailer.two-level channel contains two intermediaries those are wholesaler & retailer.three-level channel contains three intermediaries, i.e. wholesaler, jobber, retailer.

Marketing Channel Levels

Consumer Marketing Channels Levels

Industrial marketing channels An industrial-goods manufacturer can use its sales force to sell directly to industrial customers, or it can sell to industrial distributors who sell to industrial customers.Channel normally describe a forward movement of products from source to user.But there are reverse flow channels which are important in following cases:-Reuse of products or containers (cold drink bottles).Recycle of products (paper).Disposal of products and packaging.

Industrial Marketing Channels Levels

Designing a Marketing Channel SystemAnalyze customer needsEvaluate major channel alternativesIdentify major channel alternativesEstablish channel objectives

Channel-Design DecisionsAnalyzing Customer Needs & WantsLot size: Number of units the channel permits a typical customer to purchase on one occasion.Waiting & delivery time: Average time customers wait for receipt of goods. Faster delivery channels preferred.Spatial Convenience: Degree to which the marketing channel makes it easy for customers to purchase the product.Product Variety: Customer prefer a greater variety because more choices increases the chance of finding what they want, also many choice creates a negative effect.Service Backup: Services like credit, delivery, installation, repairs provided by the channel. The greater the service backup, the greater the work provided by the channel.

Channel-Design DecisionsEstablishing Objectives & ConstraintsMarketers should state their channel objectives in term of targeted service output levels.Channel institutions should arrange their functional tasks to minimize total channel costs and still provide desired level of service outputs.Channel objectives vary with product characteristics :-Perishable products - direct marketing.Bulky products - channels that minimize shipping distance and amount of handling.Custom built machinery - company sales representatives.Products requiring installations and regular check ups company owned or leased franchisees.

Channel-Design Decisions Identifying and Evaluating major Channel AlternativesA firm can choose from a wide variety channels for reaching customers:- Sales force complex product and transactions.Internet less expensive but not effective with complex products.Distributors can create sales but contact with customers is lost.Manufacturer representatives reach to different segment of customers and delivers the right product at low cost. If fails then leads to channel conflicts and excessive costs.

Channel-Design Decisions Identifying Major Channel AlternativesChannel alternatives differ in three ways:Types of IntermediariesNumber of IntermediariesTerms & Responsibilities of Channel Members.

Types & Number of Intermediaries

Types of Intermediaries:- Agents, wholesalers, dealers are the Intermediaries.

A firm can decide on number of intermediaries to use at each level by using these three strategies :-Exclusive distribution: limiting the number of intermediariesSelective distribution: relies on more than a few but less than all of the available intermediariesIntensive distribution: places goods/products to all available outlets

Terms and Responsibilities of Channel MembersEach channel member must be treated respectfully and must be given opportunity to be profitable.Main policies are:-Price policies.Condition of scales.Territorial rights.Mutual services and responsibilities.

Price policies:- Establish a price-list and schedule of discounts and allowances.Conditions of sales:- Refers to payment terms and producer guarantees. Provision for trade discounts on bulk orders or purchases. Guarantee against defective merchandise or price declines.Distributors territorial rights:- Definition of distributor's territories and terms under which distributor will enfranchise with other distributors.Mutual services & responsibilities:- E.g. McDonalds McDonalds provides:- Franchisee with a building.Promotional support.Record keeping system.Training.General administrative and technical assistance.

Evaluating Major Channel Alternatives Each channel alternative needs to be evaluated against economic, control & adaptive criteria.Economic Criteria:- Each channel alternative will produce a different level of sales & costs.Control & Adaptive Criteria:- Using a sales agency can pose a control problem. Agents may concentrate on the customers who buy the most, not necessarily those who buy the manufacturers goods. They might not master the technical details of the companys product or handle its promotion materials effectively.

HighLowLowInternetTelemarketingRetail storesDistributorsValue-added partnersRetail storesDirect marketing channelsIndirect channelsDirect sales channelsCost per TransactionValue-Addofsale Value-Adds vs Costs of Different Channels

Break-Even Cost: choice between Company Sales Force & Manufacturers Sales Agency

Level of Sales (rupees)SellingCosts(rupees)ManufacturersSales agencyCompany sales forceSB

Channel Management DecisionsTraining and Motivating Channel MembersView intermediaries as end-users.Needs and wants of intermediaries are compulsory to stimulate them to top-level performance.Channel power:- Ability to alter behavior of intermediaries so that they can think out-of-box.

Powers a manufacturer posses to elicit cooperation from intermediaries:-Coercive power:- Threatening intermediaries to terminate relationship if they fail to cooperate.Reward power:- Offering extra benefits on performing specific act or function.Legitimate power:- Request for behavior that is warranted under contract.Expert power:- Having a special knowledge that intermediaries value and doesnt posses.Referent power:- The manufacturer is so highly respected that intermediaries are proud to be associated with it.

Modifying Channel DesignNo channel strategy remains effective over the whole product life cycle. In competitive markets with low entry barriers, the optimal channel structure will inevitably change over time.Channel Evolution:-New firm typically starts as a local operation selling in a fairly circumscribed market, using a few existing intermediaries.Channel modification Decisions:- A producer must periodically review & modify its channel design & arrangements.Global channel Considerations:- International markets pose distinct challenges, including variations in customers shopping habits, but opportunities at the same time.

Channel Integration & Systems Horizontal marketing system: two or more unrelated companies put together resources or programs to exploit an emerging market opportunity. Each one lacks capital, know how production, marketing resources to venture alone. Companies might work with each other on temporary or permanent basis.

Channel Integration & SystemsVertical Marketing SystemProducer, wholesaler and retailer acts a unified system.One channel member owns the others or franchises them has so much power that they all cooperate. VMS arose as a result of strong channel members attempt to control behavior and eliminate the conflict.

Multichannel Marketing: occurs when a single firm uses two or more marketing channels to reach one or more customer segmentsMost companies today have adopted multichannel marketing.Integrating Multichannel Marketing SystemsAn Integrated marketing channel system is one in which the strategies & tactics of selling through one channel reflect the strategies & tactics of selling through one or more other channels.

Conflict, Cooperation and Competition Channel conflict is generated when one channel members action prevent another channel from achieving its goals.Channel coordination occurs when channel members are brought together to advance goals of the channel as opposed to their own potentially incompatible goals.

Types of Conflict & CompetitionHorizontal channel conflict:- It occurs between channel members at the same level.Vertical channel conflict:- It occurs between different levels of the channel.Multichannel conflict:- It exists when the manufacturer has established two or more channels that sell to the same market.

Causes of Channel ConflictConflicts may arise from:- Goal incompatibility :- Manufacturers want to achieve rapid market penetration through low price policy.Unclear Roles and Rights :- HP may sell personal computers to large accounts through its own sales force, but its licensed dealers may also be trying to sell to large accounts.Differences in Perception:- Disputes between manufacturers and distributors about optimal advertising strategy.Intermediaries Dependence on Manufacturer :- Fortune of exclusive dealers depend totally upon manufacturers products and pricing decisions which creates high potential for conflict.

Managing Channel ConflictVarious mechanisms of managing conflicts are:-Strategic Justification:- A convincing strategic justification that they serve distinctive segments & do not compete as much as they might think can reduce potential for conflict among channel members.Dual Compensation:- Dual compensation pays existing channels for sales made through new channels.Superordinate Goal:- Channel members come to an agreement on fundamental goals they are jointly seeking, weather it is survival, market share, high quality or customer satisfaction.Exchange of Employees:- A useful step is to exchange persons between two or more channel level.

5.Joint Memberships:- The manufacturer and the intermediaries come together in good cooperation which may lead to better understanding between them.6.Co-option:- It is an effort by one organization to win the support of leaders of other organization by including them in advisory council, board of directors, which reduces the chances of conflicts.7.Diplomacy, Mediation or Arbitration:- when conflict is chronic, the companies may need to resort to diplomacy, mediation or arbitration.

Diplomacy:- It takes place when each sends a person or groups to meet with its counterparts to resolve the conflict.Mediation:- It means resorting to a neutral third party skilled in conciliating the two parties interest.Arbitration:- It occurs when both the parties agree to present their arguments to one or more arbitrators and accept their decisions.8.Legal Recourse:- when none of the above methods prove effective, company or channel partners may choose to file a law suit.

Marketing DebateDoes it matter where you are sold?

Take a position:Channel images do not really affectthe brand images of the products theythey sell that much.

or

2. Channel images must be consistent withthe brand image.

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