Marketing Management V57 PPT presentation on Designing and Managing Integrated Marketing Channels

1. Chap. 15
Designing and Managing
Integrated Marketing
Channels
Raymund C. Piñon
Marketing Management V57
Prof. Bong De Ungria

2. 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

3. Recall: Marketing is…
 A system of profitably creating, DELIVERING
and communicating superior VALUE to
satisfy customers’ needs, wants and
demands better than competition.

4. To achieve this,
the 6th Task of Marketing is…
 Developing marketing strategies and plans
 Capturing marketing insights and
performance
 Connecting with customers
 Building strong brands
 Shaping the marketing offer
 Delivering and communicating value
 Creating successful long-term growth

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. Channel Design Decisions
What are key issues in designing channels?
1. Analyzing customer needs
2. Establishing channel objectives
3. Evaluating major channel alternatives

14. 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

15. 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

16. 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

17. 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

18. 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
4. What are the terms, and what are the responsibilities of each
channel members?

19. In Channel Design
Evaluate major channel alternatives using…
 Economic criteria
 Control criteria
 Adaptive criteria

20. Economic criteria in channel evaluation
Each channel alternative will generate different
levels of sales and costs
high
Sales
force
Value-
Added
partners
Value-Added of Sales
Direct sales
Distributors channels
Retail
Stores
“Indirect” channels
Telemarketing
Internet Direct marketing
channels
low
low high
Cost per Transaction
Try to align customers and channels to maximize demand at the lowest overall cost

21. 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

22. 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

23. 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

24. Channel Management Decisions
After choosing a channel system, the company must:
1. 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

25. Channel Management Decisions
After choosing a channel system, the company must:
1. 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

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

27. Channel Management Decisions
In motivating channel members
 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

28. Channel Management Decisions
After choosing a channel system, the company must:
1. 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

29. Channel Management Decisions
After choosing a channel system, the company must:
1. 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

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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

36. 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

37. 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

38. In Channel Architecture
Determine which channels should perform which functions
Demand-generation Tasks
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
Marketing channels and Methods
National
account
management
Direct sales
Customer
Tele-
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

39. 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

40. 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

41. 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

42. 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

43. 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

44. 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

45. 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

46. M-Commerce
 Wireless internet-connectivity to do business
 Location-based services

47. 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