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www. facebook.com/v65ASMPHMarkma Designing & Managing Integrating Marketing Channels (Chapter 15 of Marketing Management By Philip Kotler) Ulysses Joseph L. Yap Ateneo School of Medicine and Public Health 21st Century Edition

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Designing & Managing Integrating Marketing Channels

(Chapter 15 of Marketing ManagementBy Philip Kotler)

Ulysses Joseph L. YapAteneo School of Medicine and Public Health

21st Century Edition

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OUTLINE

1. Marketing Channels and Value Networks

2. The Role of Marketing Channels 3. Channel-Design Decisions 4. Channel-Management Decisions5. Channel Integration & Systems6. Conflict, Cooperation, and Competition7. E-commerce Marketing Practices

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1. Marketing Channels and Value Networks

Marketing channel– Interdependent organizations participating

in the process of making a product available

for use or consumption

Value Networks: Demand Chain Planning– Thinking of the target market and designing the supply

chain backward from that point– Company can estimate whether more money is made

upstream or downstream– Aware of disturbances anywhere in the supply chain– Can go online with their business partners

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1A. Importance of Channels

PUSH vs. PULL marketing– Push: sales force, trade promotion money to

induce intermediaries to carry, promote, and sell product to end users • For low brand loyalty, brand choice made in the store,

product is an impulse item, and product benefits well understood

– Pull: advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries• High brand loyalty, high involvement in the category,

consumers are able to perceive the difference between brands, brand is chosen before going to the store

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1B. Importance of Channels

Channels chosen affect all other marketing decisions– Sales force and advertising decisions dictate

training and motivation dealers need– Channel choices depend on company’s marketing

strategy with respect to segmentation, targeting, and positioning

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KEY CONCEPT #1

Most producers do not sell their goods directly to final users. Between producers and final users stands one or more marketing channels, a host of marketing intermediaries performing a variety of functions. - Kotler example: Philips use of international retailers (Best

Buy, Costco, etc.) - Local & medical example: MSD or GSK with Mercury Drug

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2. Roles of Marketing Channels

3 channels: Sales, Delivery, or ServiceAll channel functions have 3 things in common: They use up scarce resources, often be performed through specialization, and can be shifted among channel members.

Zero-level channelOne-level (up to 3)

Describe a forward movement of products from source to user

Reverse-flow channels are also important

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KEY CONCEPT # 2

Manufacturers have many alternatives for reaching a market. - Kotler example: Philips use of international retailers (Best

Buy, Costco, etc.) - Local & medical example: Common medications being sold

in the supermarket, pharmacy, even the sari-sari store.

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3. Channel-Design Decisions

Channels produce 5 service outputs– (1) Lot size, (2) waiting and delivery time, (3)

spatial convenience, (4) product variety, (5) service backup

Establishing objectives and constraints- Stated in terms of service output levels and

associated cost and support levels

Identifying Alternatives- Differ in 3 ways: the type of intermediaries, number needed, and terms and responsibilities of each

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3a. Responsibilities

The main elements in the trade-relations mix– Price policy– Conditions of sale– Distributors territorial rights– Mutual services and responsibilities

Evaluating Major Channel Alternatives- Estimate how many sales each alternative will generate- Estimate the costs of selling different volumes through each

channel- Comparing sales and costs

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KEY CONCEPT #3

Marketing channel decisions are among the most critical decisions facing management. The company’s chosen channel(s) profoundly affect all other marketing decisions. - Kotler example: Bowflex fitness equipment sold through the

phone- Local example: Internet selling by Zalora Marketplace- Medical example: OTC drugs being sold in the

supermarkets

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4. Channel Management Decisions

Channel power– The ability to alter channel members’ behavior so they take

actions they would not have taken otherwise• Coercive power• Reward power• Legitimate power• Expert power• Referent power

Evaluating Channel Members- Counseling, retraining, motivating, or terminating

underperformers- Standards: Sales-quota attainment, average inventory levels,

etc.

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5. Channel Integration SystemsVertical Marketing System– Conventional marketing channel – separate businesses

maximizing own profit– VMS – unified system

• Corporate VMS – successive stages of production and distribution under single ownership

• Administered VMS – successive stages of production and distribution through the size and power of one of the members

Horizontal Marketing System- 2 or more unrelated companies join resources to exploit

emerging opportunities

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KEY CONCEPT #4

Companies use intermediaries when they lack the financial resources to carry out direct marketing, when direct marketing is not feasible. - Kotler example: Avon sales representatives sell cosmetics

door-to-door- Local: Promodizers selling cigarettes to customers in

bars/nightclubs- Medical: Drug representatives being sent to give samples to

doctors to encourage them to purchase from them

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6. Conflict, cooperation, competition

Types of conflict and competition– Horizontal channel conflict – between channel members at the

same level– Vertical channel conflict – between different levels of the

channel– Multichannel conflict – 2 or more established channels that sell

to the market

Causes- Goal incompatibility - Unclear roles and rights- Differences in perception- Dependence of intermediaries’ on the manufacturer

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KEY CONCEPT #5&6Effective channel management calls for selecting intermediaries and training and motivating them. - Kotler example: Calvin Klein and Tommy Hilfiger took a hit when they

sold too many of their products in discount channels.- Local & medical example: Training medical representatives well so that

they are knowledgeable in their products and motivated to sell them

Marketing channels are characterized by continuous and sometimes dramatic change. Important trends are the growth of vertical marketing, horizontal marketing, and multichannel marketing.

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KEY CONCEPT #7&8All marketing channels have the potential for conflict and competition resulting from goal incompatibility, poorly defined roles and rights, perceptual differences, and interdependent relationships.

Channel arrangements are up to the company, but there are certain legal and ethical issues to be considered with regard to practices, such as exclusive dealing or territories, tying agreements, and dealers’ rights - Kotler example: GT Bicycles of California suing PriceCostCo

for selling their bikes to Russia at a huge discount. - Local & medical example: Medical resources not being

made available to the Philippines immediately

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7. E- and M-Commerce Marketing Practices

– Pure-click companies – those that have launched a website without any previous existence as a firm

– Brick-and-click companies – added an online site for information or e-commerce• 3 Strategies to gain acceptance from intermediaries

– Offer different brands or products on the Internet– Offer offline partners higher commissions to cushion

negative impact on sales– Take orders on the website but have retailers deliver and

collect payment

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KEY CONCEPT #9&10E-commerce has grown in importance as companies have adopted “brick-and-click” channel systems.

An area of increasing importance is m-commerce and marketing through smart phones and PDA

- Kotler example: Alibaba as the world’s largest online B2B marketplace and Asia’s most popular online auction site

- Local & medical example: HP Diagnostics providing patient’s results online

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OUTLINE

1. Marketing Channels and Value Networks

2. The Role of Marketing Channels 3. Channel-Design Decisions 4. Channel-Management Decisions5. Channel Integration & Systems6. Conflict, Cooperation, and Competition7. E-commerce Marketing Practices

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Designing & Managing Integrating Marketing Channels

(Chapter 15 of Marketing ManagementBy Philip Kotler)

Ulysses Joseph L. YapAteneo School of Medicine and Public Health

21st Century Edition