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CHAPTER 15:
DESIGNING AND MANAGING INTEGRATED
        MARKETING CHANNELS




                 GROUP # 4
       CRISOSTOMO, KATHLEEN LIZETTE
              GALICANO, SITON
            JONGCO, KRISTOFFER
              PIÑON, RAYMUND
Crisostomo, Kathleen Lizette C.
MARKMA
CHAPTER 15:
DESIGNING AND MANAGING
INTEGRATED MARKETING CHANNELS
Top 10 Concepts
1. Marketing Channel System: Push and Pull
2. Categories of Buyers
3. Decisions in Designing a Marketing Channel System
4. Analyzing customer needs: Channel Service Outputs
5. Identifying Channel Alternatives: Three Elements
6. Channel-Management Decisions
7. Channel Power
8. Channel Integration and Systems
9. Channel Coordination / Channel Conflict
10. E-Commerce Marketing Practices
Top 10 Concepts
1. Marketing Channel System: Push and Pull
2. Categories of Buyers
3. Decisions in Designing a Marketing Channel System
4. Analyzing customer needs: Channel Service Outputs
5. Identifying Channel Alternatives: Three Elements
6. Channel-Management Decisions
7. Channel Power
8. Channel Integration and Systems
9. Channel Coordination / Channel Conflict
10. E-Commerce Marketing Practices
• Push strategy uses the manufacturer’s sales
  force, trade promotion money, and other means
  to induce intermediaries to carry, promote, and
  sell the product to end users.
  - used for low brand loyalty in categories or
  impulse items
• A pull strategy uses advertising, promotion, and
  other forms of communication to persuade
  consumers to demand the product from
  intermediaries.
  - used when consumers can differentiate brands
  well and brand are chosen prior to purchase
Top 10 Concepts
1. Marketing Channel System: Push and Pull
2. Categories of Buyers
3. Decisions in Designing a Marketing Channel System
4. Analyzing customer needs: Channel Service Outputs
5. Identifying Channel Alternatives: Three Elements
6. Channel-Management Decisions
7. Channel Power
8. Channel Integration and Systems
9. Channel Coordination / Channel Conflict
10. E-Commerce Marketing Practices
Categories of Buyers

• Habitual Buyers
  • Same place, same manner

• High value deal seekers
  • They know what they need and they
     surf before buying at the lowest possible
     price
Categories of Buyers
• Variety-loving shoppers
   • Gather info through various channels,
     take advantage of high-touch services,
     then buy in their favorite channel
     regardless of price

• High-involvement shoppers
  • Gather info through alls channels and
     purchase in a low cost channel but takes
     advantage of customer support from a
     high-touch channel
Top 10 Concepts
1. Marketing Channel System: Push and Pull
2. Categories of Buyers
3. Decisions in Designing a Marketing Channel System
4. Analyzing customer needs: Channel Service Outputs
5. Identifying Channel Alternatives: Three Elements
6. Channel-Management Decisions
7. Channel Power
8. Channel Integration and Systems
9. Channel Coordination / Channel Conflict
10. E-Commerce Marketing Practices
Decisions in Designing a
         Marketing Channel System
A. Analyze customer needs
* Greater service = greater channel costs = higher prices
Decisions in Designing a
         Marketing Channel System
A. Analyze customer needs
* Greater service = greater channel costs = higher prices
B. Establish channel objectives
* Which market segment to serve and what best
  channel to use
Decisions in Designing a
         Marketing Channel System
A. Analyze customer needs
* Greater service = greater channel costs = higher prices
B. Establish channel objectives
* Which market segment to serve and what best
  channel to use
C. Identify major channel alternatives
* Each channel reaches a different segment and
   delivers the right product at the least cost
Decisions in Designing a
         Marketing Channel System
A. Analyze customer needs
* Greater service = greater channel costs = higher prices
B. Establish channel objectives
* Which market segment to serve and what best channel to
   use
C. Identify major channel alternatives
* Each channel reaches a different segment and delivers the
   right product at the least cost
D. Evaluate major channel alternative
* vs. economic, control and adaptive criteria
Top 10 Concepts
1. Marketing Channel System: Push and Pull
2. Categories of Buyers
3. Decisions in Designing a Marketing Channel System
4. Analyzing customer needs: Channel Service Outputs
5. Identifying Channel Alternatives: Three Elements
6. Channel-Management Decisions
7. Channel Power
8. Channel Integration and Systems
9. Channel Coordination / Channel Conflict
10. E-Commerce Marketing Practices
Analyzing customer needs:
     Channel Service Outputs
– Lot size: How many can be purchased on 1
  occasion?




                       ?
Analyzing customer needs:
     Channel Service Outputs
– Lot size: How many can be purchased on 1
  occasion?
– Waiting and delivery time: The faster, the
  better
Analyzing customer needs:
     Channel Service Outputs
– Lot size: How many can be purchased on 1
  occasion?
– Waiting and delivery time: The faster, the
  better
– Spatial convenience: how easy is it to buy
  the product?
Analyzing customer needs:
     Channel Service Outputs




– Product variety: more choices = more
  chances of finding what is needed
Analyzing customer needs:
     Channel Service Outputs




– Service back-up: add-ons
Top 10 Concepts
1. Marketing Channel System: Push and Pull
2. Categories of Buyers
3. Decisions in Designing a Marketing Channel System
4. Analyzing customer needs: Channel Service Outputs
5. Identifying Channel Alternatives: Three Elements
6. Channel-Management Decisions
7. Channel Power
8. Channel Integration and Systems
9. Channel Coordination / Channel Conflict
10. E-Commerce Marketing Practices
Identifying Channel Alternatives:
          Three Elements
         1. Types of intermediaries
• Do I need a wholesaler? Retailer? Dealer?
Identifying Channel Alternatives:
           Three Elements
          1. Types of intermediaries
 * Do I need a wholesaler? Retailer? Dealer?
         2. Number of intermediaries
* Distribution: Exclusive? Selective? Intensive?
      * Risk = price wars among retailers
Identifying Channel Alternatives:
           Three Elements
          1. Types of intermediaries
 * Do I need a wholesaler? Retailer? Dealer?
         2. Number of intermediaries
* Distribution: Exclusive? Selective? Intensive?
      * Risk = price wars among retailers
         3. Terms and responsibilities
   * Respect + Opportunity to make profits
Top 10 Concepts
1. Marketing Channel System: Push and Pull
2. Categories of Buyers
3. Decisions in Designing a Marketing Channel System
4. Analyzing customer needs: Channel Service Outputs
5. Identifying Channel Alternatives: Three Elements
6. Channel-Management Decisions
7. Channel Power
8. Channel Integration and Systems
9. Channel Coordination / Channel Conflict
10. E-Commerce Marketing Practices
Channel-Management Decisions
          Because to the customers, the channels are
 Select   the company!
Channel-Management Decisions
           Because to the customers, the channels are
 Select    the company!


 Train
           Because intermediaries are partners in
           satisfying customers!
Motivate
Channel-Management Decisions
           Because to the customers, the channels are
 Select    the company!


 Train
           Because intermediaries are partners in
           satisfying customers!
Motivate


Evaluate

           Is the strategy still working? (external analysis
 Modify    and current channels)
Top 10 Concepts
1. Marketing Channel System: Push and Pull
2. Categories of Buyers
3. Decisions in Designing a Marketing Channel System
4. Analyzing customer needs: Channel Service Outputs
5. Identifying Channel Alternatives: Three Elements
6. Channel-Management Decisions
7. Channel Power
8. Channel Integration and Systems
9. Channel Coordination / Channel Conflict
10. E-Commerce Marketing Practices
• Channel Power is the ability to
  alter channel’s behavior




• Cooperation is a huge challenge!
Channel Power
a. Coercive power
- Withdraw resource or terminate relationship
b. Reward power
- Extra benefit for performance
c. Legitimate power
- Behavior warranted under the contract
d. Expert power
- Must develop new expertise for them to cooperate
e. Referent power
- Respect causes intermediaries to have pride in the
    association
Top 10 Concepts
1. Marketing Channel System: Push and Pull
2. Categories of Buyers
3. Decisions in Designing a Marketing Channel System
4. Analyzing customer needs: Channel Service Outputs
5. Identifying Channel Alternatives: Three Elements
6. Channel-Management Decisions
7. Channel Power
8. Channel Integration and Systems
9. Channel Coordination / Channel Conflict
10. E-Commerce Marketing Practices
Channel Integration and Systems

Vertical Marketing Systems

                  -Producer + Wholesaler + Retailer
                  = Unified system under channel
                  captain
                  - Corporate (single ownership),
                  administered or contractual
                  (independent firms)
Channel Integration and Systems

Vertical Marketing Systems


      Horizontal             - 2 or more unrelated
   Marketing Systems         companies put together
                             resources to exploit an
                             emerging market
Channel Integration and Systems

Vertical Marketing Systems
                             - More marketing
                             channels/ strategies of 1
      Horizontal             channel reflect the
   Marketing Systems         strategies of other
                             channels
                             - Goal: maximum market
 Integrated Multichannel     coverage
    Marketing Systems
Top 10 Concepts
1. Marketing Channel System: Push and Pull
2. Categories of Buyers
3. Decisions in Designing a Marketing Channel System
4. Analyzing customer needs: Channel Service Outputs
5. Identifying Channel Alternatives: Three Elements
6. Channel-Management Decisions
7. Channel Power
8. Channel Integration and Systems
9. Channel Coordination / Channel Conflict
10. E-Commerce Marketing Practices
• Channel Coordination – channel
  members are brought together to
  advance the goals of the channel
• Channel conflict - one member’s
  actions prevent another channel
  from achieving its goal
* Can be vertical, horizontal or
  multichannel
Top 10 Concepts
1. Marketing Channel System: Push and Pull
2. Categories of Buyers
3. Decisions in Designing a Marketing Channel System
4. Analyzing customer needs: Channel Service Outputs
5. Identifying Channel Alternatives: Three Elements
6. Channel-Management Decisions
7. Channel Power
8. Channel Integration and Systems
9. Channel Coordination / Channel Conflict
10. E-Commerce Marketing Practices
* Online retailers provide convenient,
  informative and personalized experiences
  without:
     • Retail floor space
     • Staff
     • Inventory
* Customer service is critical: no social
  interaction
E-Commerce Marketing Practices
Pure-click

             Launched a website without any previous
             experience as a firm
E-Commerce Marketing Practices
 Pure-click

               Launched a website without any previous
               experience as a firm



Brick-and-click

              - Existing companies with an added online site
              - Risk: conflict with offline intermediaries
Designing and Managing Integrated
       Marketing Channels
           Galicano Siton
           Markma – v57
What is a Marketing Channel?

                          A marketing channel
              Producer
   Agent                  system is the particular
                          set of interdependent
           Retailer
                          organizations involved in
                          the process of making a
                          product or service
Product to the Consumer   available for use or
                          consumption.
Channels and
                  Marketing Decisions

                 Producer
                                               A push strategy uses
                                               the manufacturer’s
Consumer                         Sales Force   sales force, trade
                                               promotion money, and
                                               other means to induce
                                               intermediaries to carry,
      Retailer              Wholesaler
                                               promote, and sell the
                                               product to end users
Channels and
           Marketing Decisions
A pull strategy uses             Advertise

advertising,                     Demand
promotion, and                   Pull Product
other forms of                   Manufacturer
communication to
persuade consumers
to demand the
product from
intermediaries
Buyer Expectations for
              Channel Integration

                                   •   Ability to order a product
                                       online and pick it up at a
             Ease                      convenient retail location

Expertise             Experience   •   Ability to return an online-
                                       ordered product to a
            Product                    nearby store

                                   •   Right to receive discounts
                                       based on total online and
                                       offline purchases
Category and Types of Buyers

     Habitual                  Quality
      Buyers
                               Service

    High Value
   deal Seakers


   Variety Loving
     Shoppers
                               Buyers

       High
                    Affinity
                                         Price
   Involvement
     Shoppers                            Value
Channel Member Functions
Gather Information
• Develop and disseminate persuasive communication


     Reach Agreement on price and terms
     • Acquire funds to finance inventories



          Assume risk and Provide for storage


                Provide for buyers payment of their bills
                • Supervise actual transfer of ownership
Designing a
Marketing Channel System

     Analyze       Establish
    customer       channel
      needs       objectives



     Identify       Evaluate
      major          major
     channel        channel
   alternatives   alternatives
Channel Service Outputs
                    Lot size




                               Waiting/delivery
Service backup
                                     time




                                 Spatial
  Product variety
                               convenience
Identifying Channel Alternatives

• Types of intermediaries
• Number of intermediaries
• Terms and responsibilities
Number of Intermediaries
• Exclusive
• Selective
• Intensive
Terms and Responsibilities
              of Channel Members

•   Price policy
•   Condition of sale
•   Distributors’ territorial rights
•   Mutual services and responsibilities
Channel-Management Decisions


                 Select



  Modify                         Train




      Evaluate            Motivate
Channel Power

•   Coercive
•   Reward
•   Legitimate
•   Expert
•   Referent
Channel Integration and Systems

Vertical marketing systems
• Corporate VMS
• Administered VMS
• Contractual VMS
Horizontal marketing systems
Multichannel systems
What is Channel Conflict?
• Channel conflict occurs when one member’s
  actions prevent another channel from
  achieving its goal.
• Types of channel conflict
  – Vertical
  – Horizontal
  – Multichannel
Causes of Channel Conflict
•   Goal incompatibility
•   Unclear roles and rights
•   Differences in perception
•   Intermediaries’ dependence on manufacturer
Table 15.3 Strategies for Managing Channel
                    Conflict
• Adoption of             •   Cooptation
  superordinate goals     •   Diplomacy
• Exchange of employees   •   Mediation
• Joint membership in     •   Arbitration
  trade associations      •   Legal recourse
Designing & Managing Integrated Marketing
               Channels




              Kristoffer Z. Jongco
             Marketing Management

               www.kristofjongco.blogspot.com
Outline:

1.   Defining Marketing Channels
2.   Importance of Marketing Channels
3.   Understand Customer Needs
4.   Role of Marketing Channels
5.   Channel Design Decisions
6.   Establish Objectives & Constraints



                    www.kristofjongco.blogspot.com
Outline:


7. Identify & Evaluate Major Channel Alternatives
8. Channel Management Decisions
9. Channel Integration & Systems
10. Channel Conflict, Cooperation & Competition




                   www.kristofjongco.blogspot.com
Designing and Managing Integrated
        Marketing Channels
     (10 Things to Remember)




          www.kristofjongco.blogspot.com
Outline:

1.   Defining Marketing Channels
2.   Importance of Marketing Channels
3.   Understand Customer Needs
4.   Role of Marketing Channels
5.   Channel Design Decisions
6.   Establish Objectives & Constraints



                    www.kristofjongco.blogspot.com
1. Marketing Channels




Means by which firms attempt to inform, persuade, and remind consumers,
      directly or indirectly, about the products and brands they sell
Outline:

1.   Defining Marketing Channels
2.   Importance of Marketing Channels
3.   Understand Customer Needs
4.   Role of Marketing Channels
5.   Channel Design Decisions
6.   Establish Objectives & Constraints



                    www.kristofjongco.blogspot.com
2. Importance of Marketing Channels




New Ideas            Increase Profits




            www.kristofjongco.blogspot.com
Outline:

1.   Defining Marketing Channels
2.   Importance of Marketing Channels
3.   Understand Customer Needs
4.   Role of Marketing Channels
5.   Channel Design Decisions
6.   Establish Objectives & Constraints



                    www.kristofjongco.blogspot.com
3. Understand Customer Needs




Customers           Product/Services




                    www.kristofjongco.blogspot.com
Outline:

1.   Defining Marketing Channels
2.   Importance of Marketing Channels
3.   Understand Customer Needs
4.   Role of Marketing Channels
5.   Channel Design Decisions
6.   Establish Objectives & Constraints



                    www.kristofjongco.blogspot.com
4.Role of Marketing Channels


               0 Level

               1 Level

               2 Level


Manufacturer   3 Level

                         Manufacturer’s                    Industrial    Industrial
                           Sales Branch                    Distributor   Customer



                          www.kristofjongco.blogspot.com
Outline:

1.   Defining Marketing Channels
2.   Importance of Marketing Channels
3.   Understand Customer Needs
4.   Role of Marketing Channels
5.   Channel Design Decisions
6.   Establish Objectives & Constraints



                    www.kristofjongco.blogspot.com
5.Channel Design Decisions




Analyze        Customer Needs                       Decisions




                   www.kristofjongco.blogspot.com
Outline:

1.   Defining Marketing Channels
2.   Importance of Marketing Channels
3.   Understand Customer Needs
4.   Role of Marketing Channels
5.   Channel Design Decisions
6.   Establish Objectives & Constraints



                    www.kristofjongco.blogspot.com
6.Establish Objectives & Constraints

          Channel



          Objective




          Product




          Prepare for larger environment


           www.kristofjongco.blogspot.com
Outline:


7. Identify & Evaluate Major Channel Alternatives
8. Channel Management Decisions
9. Channel Integration & Systems
10. Channel Conflict, Cooperation &
Competition




                  www.kristofjongco.blogspot.com
7.Identify & Evaluate Major Channel
                  Alternatives




Selective Distribution   Exclusive Distribution            Intensive Distribution




                          www.kristofjongco.blogspot.com
Outline:


7. Identify & Evaluate Major Channel Alternatives
8. Channel Management Decisions
9. Channel Integration & Systems
10. Channel Conflict, Cooperation &
Competition




                   www.kristofjongco.blogspot.com
8.Channel Management Decisions




Select
Train
Motivate   CHANNEL
Evaluate   MEMBERS
Modify
                www.kristofjongco.blogspot.com
Outline:


7. Identify & Evaluate Major Channel Alternatives
8. Channel Management Decisions
9. Channel Integration & Systems
10. Channel Conflict, Cooperation &
Competition




                   www.kristofjongco.blogspot.com
9.Channel Integration & Systems



Vertical System   Horizontal System                Multi Channel System




                  www.kristofjongco.blogspot.com
Outline:


7. Identify & Evaluate Major Channel Alternatives
8. Channel Management Decisions
9. Channel Integration & Systems
10. Channel Conflict, Cooperation &
Competition




                   www.kristofjongco.blogspot.com
10. Channel Conflict, Cooperation &
           Competition
 Conflict




 Cooperate




 Competition


               www.kristofjongco.blogspot.com
Summary:
             Designing and Marketing Integration Marketing
                              Channels



Think
                                  Profit



                 Cooperate

  Channels                              Decision
Customer Needs




                             www.kristofjongco.blogspot.com
Designing & Managing Integrated Marketing
               Channels




              Kristoffer Z. Jongco
             Marketing Management

               www.kristofjongco.blogspot.com
Chap. 15
Designing and Managing Integrated
       Marketing Channels

        Raymund C. Piñon
    Marketing Management V57
       Prof. Bong De Ungria
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
Recall: Marketing is…
• A system of profitably creating, DELIVERING
  and communicating superior VALUE to satisfy
  customers’ needs, wants and demands better
  than competition.
To achieve this,
      the 6th Task of Marketing is…
1. Developing marketing strategies and plans
2. Capturing marketing insights and
   performance
3. Connecting with customers
4. Building strong brands
5. Shaping the marketing offer
6. Delivering and communicating value
7. Creating successful long-term growth
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 company’s 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
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, don’t take title to
     goods
• Facilitators
   – Transportation companies, warehouses banks, advertising
     agencies
   – Assist in the distribution process but don’t take title to goods
     nor negotiate on purchases or sales
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
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
So (again) Step #1 is…
       Understanding Customer Needs
    Consumers 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
There are 5 marketing flows in a marketing channel
Physical Flow
                   Transporters,                    Transporters,
 Suppliers                          Manufacturer                    Dealers               Transporters    Customers
                    Warehouses                       Warehouses



Title Flow
 Suppliers                          Manufacturer                    Dealers                               Customers




Payment Flow
 Suppliers            Banks         Manufacturer       Banks        Dealers                Banks          Customers




Information Flow

                   Transporters,                   Transporters,
                                                                                        Transporters,
 Suppliers         Warehouses,      Manufacturer   Warehouses,      Dealers                               Customers
                                                                                            Banks
                       Banks                           Banks




Promotions Flow
                    Advertising                      Advertising
 Suppliers                         Manufacturer                               Dealers                    Customers
                     agencies                         agencies
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-level
Manufacturer     Manufacturer    Manufacturer   Manufacturer   Manufacturer    Manufacturer   Manufacturer     Manufacturer




                                  Wholesaler     Wholesaler                                   Manufacturer’s   Manufacturer’s
                                                                                              Representative    Sales Branch



                                                   Jobber



                                                                                Industrial
                                                                                distributor
                   Retailer        Retailer       Retailer




                                                                Industrial      Industrial      Industrial      Industrial
 Consumer         Consumer        Consumer       Consumer       customers       customers       customers       customers
A broader view of delivering customer value:
                        Value Networks
         Partnerships 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
Channel Design Decisions
      What are key issues in designing channels?

1. Analyzing customer needs

2. Establishing channel objectives

3. Evaluating major channel alternatives
In Channel Design, Step #1 is…
         Analyze customers’ desired service output level

There 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, consulting

Note: 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
Channel Design Decision Step #2 is…
           Establishing 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
Channel Design Decisions
          In 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
In Channel Design Decision, Step #3 is…
     Identifying 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
Manufacturer’s         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
In Evaluating Channels
               Consider 3 elements of channel alternatives

1.       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 possible

3.       What are the terms, and what are the responsibilities of each channel
         members?
In Channel Design
     Evaluate major channel alternatives using…

• Economic criteria

• Control criteria

• Adaptive criteria
Economic criteria in channel evaluation
       Each channel alternative will generate different
                 levels of sales and costs

       high
                                                                                               Sales
                                                                                     Value-    force
                                                                                     Added
                                                                                    partners

                                                                                               Direct sales
         Value-Added of Sales




                                                                    Distributors
                                                                                                channels
                                                           Retail
                                                           Stores
                                           Telemarketing                           “Indirect” channels

                                Internet              Direct marketing
       low                                                channels

                                   low                                                         high
                                                           Cost per Transaction

Try to align customers and channels to maximize demand at the lowest overall cost
Channel Design Decisions
    Control 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
Channel Management Decisions
     After choosing a channel system, the company must:


1. Select individual channel members

2. Train and motivate channel members

3. Evaluate individual channel members

4. Modify channel design and arrangements
   over time
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
Channel Management Decisions
           After choosing a channel system, the company must:


2. 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
Channel Management Decisions
                After choosing a channel system, the company must:

2.    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
Channel Management Decisions
                  In motivating channel members

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

2.       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
Channel Management Decisions
      After choosing a channel system, the company must:

3. 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
Channel Management Decisions
           After choosing a channel system, the company must:

4.       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
In managing channels, how much effort 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
Channel Integration and Systems
        Some 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
Channel Integration and Systems
       Some 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
Channel Integration and Systems
     Some 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
Channel Integration and Systems
      Some 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
Channel Integration and Systems
      Some 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
Channel Integration and Systems
      3 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
Channel Integration and Systems
        Disadvantages 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
In Channel Architecture
                                                                         Demand-generation Tasks
                                          Determine which channels should perform which functions
                                                              Better     Disseminate     Reach      Pace      Acquire     Assume   Facilitate   Facilitate    Oversee
                                                           Information   information      price    orders    funds for     risks    product     payment      ownership
                                                                                       agreement            inventories            storage &                   terms
                                                                                                                                   movement

                                           Internet

                                           National
                                           account
Marketing channels and Methods




                                           management

                                           Direct sales

                                           Tele-




                                                                                                                                                                         Customer
                                           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
Conflict, Cooperation and Competition
                                Causes 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
Conflict, Cooperation and Competition
                           Management 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
E-Commerce Marketing Practices
                            Some definitions
• E-business
   – Use of electronic means and platforms to conduct a company’s
     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
E-Commerce Marketing Practices
                      Some 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
E-Commerce Marketing Practices
     3 Aspects of online transactions in retailing competition


• Customer interaction with the Website

• Delivery of the product

• Ability to address problems when they occur
E-Commerce Marketing Practices
                  2 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
E-Commerce Marketing Practices
        Issues of using online channels for Brick-and-Click
                     and 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
M-Commerce
• Wireless internet-connectivity to do business
• Location-based services
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

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Markma Group 4 Chapter 15 Presentation

  • 1. CHAPTER 15: DESIGNING AND MANAGING INTEGRATED MARKETING CHANNELS GROUP # 4 CRISOSTOMO, KATHLEEN LIZETTE GALICANO, SITON JONGCO, KRISTOFFER PIÑON, RAYMUND
  • 2. Crisostomo, Kathleen Lizette C. MARKMA CHAPTER 15: DESIGNING AND MANAGING INTEGRATED MARKETING CHANNELS
  • 3. Top 10 Concepts 1. Marketing Channel System: Push and Pull 2. Categories of Buyers 3. Decisions in Designing a Marketing Channel System 4. Analyzing customer needs: Channel Service Outputs 5. Identifying Channel Alternatives: Three Elements 6. Channel-Management Decisions 7. Channel Power 8. Channel Integration and Systems 9. Channel Coordination / Channel Conflict 10. E-Commerce Marketing Practices
  • 4. Top 10 Concepts 1. Marketing Channel System: Push and Pull 2. Categories of Buyers 3. Decisions in Designing a Marketing Channel System 4. Analyzing customer needs: Channel Service Outputs 5. Identifying Channel Alternatives: Three Elements 6. Channel-Management Decisions 7. Channel Power 8. Channel Integration and Systems 9. Channel Coordination / Channel Conflict 10. E-Commerce Marketing Practices
  • 5. • Push strategy uses the manufacturer’s sales force, trade promotion money, and other means to induce intermediaries to carry, promote, and sell the product to end users. - used for low brand loyalty in categories or impulse items
  • 6. • A pull strategy uses advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries. - used when consumers can differentiate brands well and brand are chosen prior to purchase
  • 7. Top 10 Concepts 1. Marketing Channel System: Push and Pull 2. Categories of Buyers 3. Decisions in Designing a Marketing Channel System 4. Analyzing customer needs: Channel Service Outputs 5. Identifying Channel Alternatives: Three Elements 6. Channel-Management Decisions 7. Channel Power 8. Channel Integration and Systems 9. Channel Coordination / Channel Conflict 10. E-Commerce Marketing Practices
  • 8. Categories of Buyers • Habitual Buyers • Same place, same manner • High value deal seekers • They know what they need and they surf before buying at the lowest possible price
  • 9. Categories of Buyers • Variety-loving shoppers • Gather info through various channels, take advantage of high-touch services, then buy in their favorite channel regardless of price • High-involvement shoppers • Gather info through alls channels and purchase in a low cost channel but takes advantage of customer support from a high-touch channel
  • 10. Top 10 Concepts 1. Marketing Channel System: Push and Pull 2. Categories of Buyers 3. Decisions in Designing a Marketing Channel System 4. Analyzing customer needs: Channel Service Outputs 5. Identifying Channel Alternatives: Three Elements 6. Channel-Management Decisions 7. Channel Power 8. Channel Integration and Systems 9. Channel Coordination / Channel Conflict 10. E-Commerce Marketing Practices
  • 11. Decisions in Designing a Marketing Channel System A. Analyze customer needs * Greater service = greater channel costs = higher prices
  • 12. Decisions in Designing a Marketing Channel System A. Analyze customer needs * Greater service = greater channel costs = higher prices B. Establish channel objectives * Which market segment to serve and what best channel to use
  • 13. Decisions in Designing a Marketing Channel System A. Analyze customer needs * Greater service = greater channel costs = higher prices B. Establish channel objectives * Which market segment to serve and what best channel to use C. Identify major channel alternatives * Each channel reaches a different segment and delivers the right product at the least cost
  • 14. Decisions in Designing a Marketing Channel System A. Analyze customer needs * Greater service = greater channel costs = higher prices B. Establish channel objectives * Which market segment to serve and what best channel to use C. Identify major channel alternatives * Each channel reaches a different segment and delivers the right product at the least cost D. Evaluate major channel alternative * vs. economic, control and adaptive criteria
  • 15. Top 10 Concepts 1. Marketing Channel System: Push and Pull 2. Categories of Buyers 3. Decisions in Designing a Marketing Channel System 4. Analyzing customer needs: Channel Service Outputs 5. Identifying Channel Alternatives: Three Elements 6. Channel-Management Decisions 7. Channel Power 8. Channel Integration and Systems 9. Channel Coordination / Channel Conflict 10. E-Commerce Marketing Practices
  • 16. Analyzing customer needs: Channel Service Outputs – Lot size: How many can be purchased on 1 occasion? ?
  • 17. Analyzing customer needs: Channel Service Outputs – Lot size: How many can be purchased on 1 occasion? – Waiting and delivery time: The faster, the better
  • 18. Analyzing customer needs: Channel Service Outputs – Lot size: How many can be purchased on 1 occasion? – Waiting and delivery time: The faster, the better – Spatial convenience: how easy is it to buy the product?
  • 19. Analyzing customer needs: Channel Service Outputs – Product variety: more choices = more chances of finding what is needed
  • 20. Analyzing customer needs: Channel Service Outputs – Service back-up: add-ons
  • 21. Top 10 Concepts 1. Marketing Channel System: Push and Pull 2. Categories of Buyers 3. Decisions in Designing a Marketing Channel System 4. Analyzing customer needs: Channel Service Outputs 5. Identifying Channel Alternatives: Three Elements 6. Channel-Management Decisions 7. Channel Power 8. Channel Integration and Systems 9. Channel Coordination / Channel Conflict 10. E-Commerce Marketing Practices
  • 22. Identifying Channel Alternatives: Three Elements 1. Types of intermediaries • Do I need a wholesaler? Retailer? Dealer?
  • 23. Identifying Channel Alternatives: Three Elements 1. Types of intermediaries * Do I need a wholesaler? Retailer? Dealer? 2. Number of intermediaries * Distribution: Exclusive? Selective? Intensive? * Risk = price wars among retailers
  • 24. Identifying Channel Alternatives: Three Elements 1. Types of intermediaries * Do I need a wholesaler? Retailer? Dealer? 2. Number of intermediaries * Distribution: Exclusive? Selective? Intensive? * Risk = price wars among retailers 3. Terms and responsibilities * Respect + Opportunity to make profits
  • 25. Top 10 Concepts 1. Marketing Channel System: Push and Pull 2. Categories of Buyers 3. Decisions in Designing a Marketing Channel System 4. Analyzing customer needs: Channel Service Outputs 5. Identifying Channel Alternatives: Three Elements 6. Channel-Management Decisions 7. Channel Power 8. Channel Integration and Systems 9. Channel Coordination / Channel Conflict 10. E-Commerce Marketing Practices
  • 26. Channel-Management Decisions Because to the customers, the channels are Select the company!
  • 27. Channel-Management Decisions Because to the customers, the channels are Select the company! Train Because intermediaries are partners in satisfying customers! Motivate
  • 28. Channel-Management Decisions Because to the customers, the channels are Select the company! Train Because intermediaries are partners in satisfying customers! Motivate Evaluate Is the strategy still working? (external analysis Modify and current channels)
  • 29. Top 10 Concepts 1. Marketing Channel System: Push and Pull 2. Categories of Buyers 3. Decisions in Designing a Marketing Channel System 4. Analyzing customer needs: Channel Service Outputs 5. Identifying Channel Alternatives: Three Elements 6. Channel-Management Decisions 7. Channel Power 8. Channel Integration and Systems 9. Channel Coordination / Channel Conflict 10. E-Commerce Marketing Practices
  • 30. • Channel Power is the ability to alter channel’s behavior • Cooperation is a huge challenge!
  • 31. Channel Power a. Coercive power - Withdraw resource or terminate relationship b. Reward power - Extra benefit for performance c. Legitimate power - Behavior warranted under the contract d. Expert power - Must develop new expertise for them to cooperate e. Referent power - Respect causes intermediaries to have pride in the association
  • 32. Top 10 Concepts 1. Marketing Channel System: Push and Pull 2. Categories of Buyers 3. Decisions in Designing a Marketing Channel System 4. Analyzing customer needs: Channel Service Outputs 5. Identifying Channel Alternatives: Three Elements 6. Channel-Management Decisions 7. Channel Power 8. Channel Integration and Systems 9. Channel Coordination / Channel Conflict 10. E-Commerce Marketing Practices
  • 33. Channel Integration and Systems Vertical Marketing Systems -Producer + Wholesaler + Retailer = Unified system under channel captain - Corporate (single ownership), administered or contractual (independent firms)
  • 34. Channel Integration and Systems Vertical Marketing Systems Horizontal - 2 or more unrelated Marketing Systems companies put together resources to exploit an emerging market
  • 35. Channel Integration and Systems Vertical Marketing Systems - More marketing channels/ strategies of 1 Horizontal channel reflect the Marketing Systems strategies of other channels - Goal: maximum market Integrated Multichannel coverage Marketing Systems
  • 36. Top 10 Concepts 1. Marketing Channel System: Push and Pull 2. Categories of Buyers 3. Decisions in Designing a Marketing Channel System 4. Analyzing customer needs: Channel Service Outputs 5. Identifying Channel Alternatives: Three Elements 6. Channel-Management Decisions 7. Channel Power 8. Channel Integration and Systems 9. Channel Coordination / Channel Conflict 10. E-Commerce Marketing Practices
  • 37. • Channel Coordination – channel members are brought together to advance the goals of the channel
  • 38. • Channel conflict - one member’s actions prevent another channel from achieving its goal * Can be vertical, horizontal or multichannel
  • 39. Top 10 Concepts 1. Marketing Channel System: Push and Pull 2. Categories of Buyers 3. Decisions in Designing a Marketing Channel System 4. Analyzing customer needs: Channel Service Outputs 5. Identifying Channel Alternatives: Three Elements 6. Channel-Management Decisions 7. Channel Power 8. Channel Integration and Systems 9. Channel Coordination / Channel Conflict 10. E-Commerce Marketing Practices
  • 40. * Online retailers provide convenient, informative and personalized experiences without: • Retail floor space • Staff • Inventory * Customer service is critical: no social interaction
  • 41. E-Commerce Marketing Practices Pure-click Launched a website without any previous experience as a firm
  • 42. E-Commerce Marketing Practices Pure-click Launched a website without any previous experience as a firm Brick-and-click - Existing companies with an added online site - Risk: conflict with offline intermediaries
  • 43. Designing and Managing Integrated Marketing Channels Galicano Siton Markma – v57
  • 44. What is a Marketing Channel? A marketing channel Producer Agent system is the particular set of interdependent Retailer organizations involved in the process of making a product or service Product to the Consumer available for use or consumption.
  • 45. Channels and Marketing Decisions Producer A push strategy uses the manufacturer’s Consumer Sales Force sales force, trade promotion money, and other means to induce intermediaries to carry, Retailer Wholesaler promote, and sell the product to end users
  • 46. Channels and Marketing Decisions A pull strategy uses Advertise advertising, Demand promotion, and Pull Product other forms of Manufacturer communication to persuade consumers to demand the product from intermediaries
  • 47. Buyer Expectations for Channel Integration • Ability to order a product online and pick it up at a Ease convenient retail location Expertise Experience • Ability to return an online- ordered product to a Product nearby store • Right to receive discounts based on total online and offline purchases
  • 48. Category and Types of Buyers Habitual Quality Buyers Service High Value deal Seakers Variety Loving Shoppers Buyers High Affinity Price Involvement Shoppers Value
  • 49. Channel Member Functions Gather Information • Develop and disseminate persuasive communication Reach Agreement on price and terms • Acquire funds to finance inventories Assume risk and Provide for storage Provide for buyers payment of their bills • Supervise actual transfer of ownership
  • 50. Designing a Marketing Channel System Analyze Establish customer channel needs objectives Identify Evaluate major major channel channel alternatives alternatives
  • 51. Channel Service Outputs Lot size Waiting/delivery Service backup time Spatial Product variety convenience
  • 52. Identifying Channel Alternatives • Types of intermediaries • Number of intermediaries • Terms and responsibilities
  • 53. Number of Intermediaries • Exclusive • Selective • Intensive
  • 54. Terms and Responsibilities of Channel Members • Price policy • Condition of sale • Distributors’ territorial rights • Mutual services and responsibilities
  • 55. Channel-Management Decisions Select Modify Train Evaluate Motivate
  • 56. Channel Power • Coercive • Reward • Legitimate • Expert • Referent
  • 57. Channel Integration and Systems Vertical marketing systems • Corporate VMS • Administered VMS • Contractual VMS Horizontal marketing systems Multichannel systems
  • 58. What is Channel Conflict? • Channel conflict occurs when one member’s actions prevent another channel from achieving its goal. • Types of channel conflict – Vertical – Horizontal – Multichannel
  • 59. Causes of Channel Conflict • Goal incompatibility • Unclear roles and rights • Differences in perception • Intermediaries’ dependence on manufacturer
  • 60. Table 15.3 Strategies for Managing Channel Conflict • Adoption of • Cooptation superordinate goals • Diplomacy • Exchange of employees • Mediation • Joint membership in • Arbitration trade associations • Legal recourse
  • 61. Designing & Managing Integrated Marketing Channels Kristoffer Z. Jongco Marketing Management www.kristofjongco.blogspot.com
  • 62. Outline: 1. Defining Marketing Channels 2. Importance of Marketing Channels 3. Understand Customer Needs 4. Role of Marketing Channels 5. Channel Design Decisions 6. Establish Objectives & Constraints www.kristofjongco.blogspot.com
  • 63. Outline: 7. Identify & Evaluate Major Channel Alternatives 8. Channel Management Decisions 9. Channel Integration & Systems 10. Channel Conflict, Cooperation & Competition www.kristofjongco.blogspot.com
  • 64. Designing and Managing Integrated Marketing Channels (10 Things to Remember) www.kristofjongco.blogspot.com
  • 65. Outline: 1. Defining Marketing Channels 2. Importance of Marketing Channels 3. Understand Customer Needs 4. Role of Marketing Channels 5. Channel Design Decisions 6. Establish Objectives & Constraints www.kristofjongco.blogspot.com
  • 66. 1. Marketing Channels Means by which firms attempt to inform, persuade, and remind consumers, directly or indirectly, about the products and brands they sell
  • 67. Outline: 1. Defining Marketing Channels 2. Importance of Marketing Channels 3. Understand Customer Needs 4. Role of Marketing Channels 5. Channel Design Decisions 6. Establish Objectives & Constraints www.kristofjongco.blogspot.com
  • 68. 2. Importance of Marketing Channels New Ideas Increase Profits www.kristofjongco.blogspot.com
  • 69. Outline: 1. Defining Marketing Channels 2. Importance of Marketing Channels 3. Understand Customer Needs 4. Role of Marketing Channels 5. Channel Design Decisions 6. Establish Objectives & Constraints www.kristofjongco.blogspot.com
  • 70. 3. Understand Customer Needs Customers Product/Services www.kristofjongco.blogspot.com
  • 71. Outline: 1. Defining Marketing Channels 2. Importance of Marketing Channels 3. Understand Customer Needs 4. Role of Marketing Channels 5. Channel Design Decisions 6. Establish Objectives & Constraints www.kristofjongco.blogspot.com
  • 72. 4.Role of Marketing Channels 0 Level 1 Level 2 Level Manufacturer 3 Level Manufacturer’s Industrial Industrial Sales Branch Distributor Customer www.kristofjongco.blogspot.com
  • 73. Outline: 1. Defining Marketing Channels 2. Importance of Marketing Channels 3. Understand Customer Needs 4. Role of Marketing Channels 5. Channel Design Decisions 6. Establish Objectives & Constraints www.kristofjongco.blogspot.com
  • 74. 5.Channel Design Decisions Analyze Customer Needs Decisions www.kristofjongco.blogspot.com
  • 75. Outline: 1. Defining Marketing Channels 2. Importance of Marketing Channels 3. Understand Customer Needs 4. Role of Marketing Channels 5. Channel Design Decisions 6. Establish Objectives & Constraints www.kristofjongco.blogspot.com
  • 76. 6.Establish Objectives & Constraints Channel Objective Product Prepare for larger environment www.kristofjongco.blogspot.com
  • 77. Outline: 7. Identify & Evaluate Major Channel Alternatives 8. Channel Management Decisions 9. Channel Integration & Systems 10. Channel Conflict, Cooperation & Competition www.kristofjongco.blogspot.com
  • 78. 7.Identify & Evaluate Major Channel Alternatives Selective Distribution Exclusive Distribution Intensive Distribution www.kristofjongco.blogspot.com
  • 79. Outline: 7. Identify & Evaluate Major Channel Alternatives 8. Channel Management Decisions 9. Channel Integration & Systems 10. Channel Conflict, Cooperation & Competition www.kristofjongco.blogspot.com
  • 80. 8.Channel Management Decisions Select Train Motivate CHANNEL Evaluate MEMBERS Modify www.kristofjongco.blogspot.com
  • 81. Outline: 7. Identify & Evaluate Major Channel Alternatives 8. Channel Management Decisions 9. Channel Integration & Systems 10. Channel Conflict, Cooperation & Competition www.kristofjongco.blogspot.com
  • 82. 9.Channel Integration & Systems Vertical System Horizontal System Multi Channel System www.kristofjongco.blogspot.com
  • 83. Outline: 7. Identify & Evaluate Major Channel Alternatives 8. Channel Management Decisions 9. Channel Integration & Systems 10. Channel Conflict, Cooperation & Competition www.kristofjongco.blogspot.com
  • 84. 10. Channel Conflict, Cooperation & Competition Conflict Cooperate Competition www.kristofjongco.blogspot.com
  • 85. Summary: Designing and Marketing Integration Marketing Channels Think Profit Cooperate Channels Decision Customer Needs www.kristofjongco.blogspot.com
  • 86. Designing & Managing Integrated Marketing Channels Kristoffer Z. Jongco Marketing Management www.kristofjongco.blogspot.com
  • 87. Chap. 15 Designing and Managing Integrated Marketing Channels Raymund C. Piñon Marketing Management V57 Prof. Bong De Ungria
  • 88. 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
  • 89. Recall: Marketing is… • A system of profitably creating, DELIVERING and communicating superior VALUE to satisfy customers’ needs, wants and demands better than competition.
  • 90. To achieve this, the 6th Task of Marketing is… 1. Developing marketing strategies and plans 2. Capturing marketing insights and performance 3. Connecting with customers 4. Building strong brands 5. Shaping the marketing offer 6. Delivering and communicating value 7. Creating successful long-term growth
  • 91. 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 company’s 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
  • 92. 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, don’t take title to goods • Facilitators – Transportation companies, warehouses banks, advertising agencies – Assist in the distribution process but don’t take title to goods nor negotiate on purchases or sales
  • 93. 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
  • 94. 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
  • 95. So (again) Step #1 is… Understanding Customer Needs Consumers 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
  • 96. There are 5 marketing flows in a marketing channel Physical Flow Transporters, Transporters, Suppliers Manufacturer Dealers Transporters Customers Warehouses Warehouses Title Flow Suppliers Manufacturer Dealers Customers Payment Flow Suppliers Banks Manufacturer Banks Dealers Banks Customers Information Flow Transporters, Transporters, Transporters, Suppliers Warehouses, Manufacturer Warehouses, Dealers Customers Banks Banks Banks Promotions Flow Advertising Advertising Suppliers Manufacturer Dealers Customers agencies agencies
  • 97. 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-level Manufacturer Manufacturer Manufacturer Manufacturer Manufacturer Manufacturer Manufacturer Manufacturer Wholesaler Wholesaler Manufacturer’s Manufacturer’s Representative Sales Branch Jobber Industrial distributor Retailer Retailer Retailer Industrial Industrial Industrial Industrial Consumer Consumer Consumer Consumer customers customers customers customers
  • 98. A broader view of delivering customer value: Value Networks Partnerships 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
  • 99. Channel Design Decisions What are key issues in designing channels? 1. Analyzing customer needs 2. Establishing channel objectives 3. Evaluating major channel alternatives
  • 100. In Channel Design, Step #1 is… Analyze customers’ desired service output level There 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, consulting Note: 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
  • 101. Channel Design Decision Step #2 is… Establishing 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
  • 102. Channel Design Decisions In 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
  • 103. In Channel Design Decision, Step #3 is… Identifying 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 Manufacturer’s 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
  • 104. In Evaluating Channels Consider 3 elements of channel alternatives 1. 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 possible 3. What are the terms, and what are the responsibilities of each channel members?
  • 105. In Channel Design Evaluate major channel alternatives using… • Economic criteria • Control criteria • Adaptive criteria
  • 106. Economic criteria in channel evaluation Each channel alternative will generate different levels of sales and costs high Sales Value- force Added partners Direct sales Value-Added of Sales Distributors channels Retail Stores Telemarketing “Indirect” channels Internet Direct marketing low channels low high Cost per Transaction Try to align customers and channels to maximize demand at the lowest overall cost
  • 107. Channel Design Decisions Control 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
  • 108. Channel Management Decisions After choosing a channel system, the company must: 1. Select individual channel members 2. Train and motivate channel members 3. Evaluate individual channel members 4. Modify channel design and arrangements over time
  • 109. 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
  • 110. Channel Management Decisions After choosing a channel system, the company must: 2. 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
  • 111. Channel Management Decisions After choosing a channel system, the company must: 2. 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
  • 112. Channel Management Decisions In motivating channel members 2. Forge long-term partnerships by clarifying expectations – Market coverage – Inventory levels – Marketing development – Account solicitation – Technical advise and services – Marketing information
  • 113. Channel Management Decisions In motivating channel members 2. 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
  • 114. Channel Management Decisions After choosing a channel system, the company must: 3. 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
  • 115. Channel Management Decisions After choosing a channel system, the company must: 4. 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
  • 116. In managing channels, how much effort 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
  • 117. Channel Integration and Systems Some 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
  • 118. Channel Integration and Systems Some 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
  • 119. Channel Integration and Systems Some 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
  • 120. Channel Integration and Systems Some 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
  • 121. Channel Integration and Systems Some 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
  • 122. Channel Integration and Systems 3 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
  • 123. Channel Integration and Systems Disadvantages 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
  • 124. In Channel Architecture Demand-generation Tasks Determine which channels should perform which functions Better Disseminate Reach Pace Acquire Assume Facilitate Facilitate Oversee Information information price orders funds for risks product payment ownership agreement inventories storage & terms movement Internet National account Marketing channels and Methods management Direct sales Tele- Customer 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
  • 125. Conflict, Cooperation and Competition Causes 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
  • 126. Conflict, Cooperation and Competition Management 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
  • 127. E-Commerce Marketing Practices Some definitions • E-business – Use of electronic means and platforms to conduct a company’s 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
  • 128. E-Commerce Marketing Practices Some 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
  • 129. E-Commerce Marketing Practices 3 Aspects of online transactions in retailing competition • Customer interaction with the Website • Delivery of the product • Ability to address problems when they occur
  • 130. E-Commerce Marketing Practices 2 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
  • 131. E-Commerce Marketing Practices Issues of using online channels for Brick-and-Click and 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
  • 132. M-Commerce • Wireless internet-connectivity to do business • Location-based services
  • 133. 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