designing & managing integrated marketing channels-kirit kene

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Designing & Managing Integrated Marketing Channels

Submitted to-Mr. T.S.Shibin Submitted by-Kirit Kene

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Following Contents in this Chapter

1. Marketing Channel system & Value Network.2. Work Performing by the Marketing Channel.3. How Should Channels be Designed?4. What Decisions do companies face in managing their

channels?5. Companies Integrate Channels & Manage Channel Conflict.6. Key Issues with e-commerce & m-commerce.

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Marketing Channels

• Marketing channel:- Sets of interdependent organizations involved in the process of making a product or service available for use or consumption.

• Most producers do not sell their goods directly to the final users; between them stands a set of intermediaries performing a variety of functions. These intermediaries, constitute a marketing channel.

• Some Intermediaries such as,

- Merchants.

- Agents.

- Facilitators.

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Importance of Channels• Marketing channels must not just serve markets , they must also

make markets. • Push Strategy- It uses the manufacturer’s sales force , trade

promotion money, or other means to induce intermediaries to carry, promote & sell the product to end users. Push strategy is particularly appropriate when there is low brand loyalty in a category, brand choice is made in the store.

• Pull Strategy-Manufacturer uses advertising, promotion & other forms of communication to persuade consumers to demand the product from intermediaries, thus including the intermediaries to order it.

Marketing Strategy

Push Strategy

Pull Strategy

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Multichannel Marketing• Hybrid or Multichannel marketing occurs when a single firm

uses two or more marketing channels to reach customer segment.

• Ex:- LIC multichannel distribution using the internet, insurance advisors & bancassurance.

HP uses:-

1. Sales force – large accounts.

2. Outbound telemarketing – medium size accounts.

3. Direct mail – small accounts.

4. Retailers – still smaller accounts.

5. Internet – specialty item orders.

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• To manage hybrid channels, company must make sure that these channels:-

1. Work well together.

2. Match each target customer’s preferred way of doing business.• Features expected by customers in a hybrid channel:-

1. Ability to order online and pick it up from a convenient retail store.

2. Ability to return the ordered product back to a nearby retail store.

3. Right to discounts and promotional offers.

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Value Networks• Demand-chain planning:- When a firm first thinks of market

and then design supply chain backwards from market to firm.• Value networks is a system of partnerships and alliances that a

firm creates to source, augment and deliver its offerings to the end user.

• A value network includes:-

1. Firm’s suppliers.

2. Its supplier’s supplier.

3. Its intermediate customers.

4. End customers.

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• Various insights of demand-chain planning:-

1. Company can determine whether more money is upstream or downstream this will help in integrating backward or forward.

2. Company is more aware of disturbances anywhere in supply chain that might cause costs, price or supplies to change suddenly.

3. Companies can go online with their business partners to carry on faster and more accurate communications, transactions and payments to reduce costs and speed up information and increase accuracy.

• Managing value networks requires investment in IT(Information and Technology) and soft wares.

• SAP and Oracle ERP (enterprise resource plan) systems to manage cash flows, manufacturing, human resources, purchasing and other functions within a unified framework.

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The Role of Marketing channels

Channel Functions & Flows• A Marketing channel performs the work of moving goods from

Producers to consumers.• Functions like storage & movement, title & communications is a

forward flow of activity from company to customer.• Ordering & Payment this functions constitute in backward flow

from customers to the company.• Still others information, negotiation, finance & risk taking occur

in both directions.• Selling a product & services require three channels, a sales

channel, a delivery channel & a service channel.

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Table 1. Channel Member Functions• Gather information about potential & current customers,

competitors & other actors & forces in the marketing environment.

• Develop & disseminate presuasive communication to stimulate purchasing.

• Negotiate & reach agreements on price & other terms so that transfer of ownership or possession can be affected.

• Place orders with manufacturers.• Acquire the funds to finance inventories at different levels in the

marketing channel.• Assume risks connected with carrying out channel work.• Provide for the successive storage & movement of physical

products

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Table 1. Channel Member Functions conti…..

• Provide for buyers payment of their bills through banks & other financial institutions.

• Oversee actual transfer of ownership from one organization or person to another.

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1. Physical FlowSuppliers Transporters Manufacturer Transporters Dealers Transporters

Customers

2. Title Flow

Suppliers Manufacturer Dealers Customers

3. Payment FlowSuppliers Banks Manufacturer Banks Dealers Banks Customers

Fig- Marketing Flows in the Marketing Channel for Forklift Trucks.

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Suppliers Transporters Manufacturer Transporters Dealers Transporters

4. Information Flow

Customers5. Promotion Flow

Suppliers Advertising Agency Manufacturer Advertising

Agency Dealers Customers

Fig- Marketing Flows in the Marketing Channel for Forklift Trucks.

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Channel Level• The producer & the final customer are part of every channel. Zero level is also called a direct marketing channel consists of

a manufacturing selling directly to the final customer. Ex:- door-to-door sales, telemarketing, manufacturer own stores

IOCL, BPCL, HPCL etc. One-level channel contains one selling intermediary, such as

retailer. A two-level channel contains two intermediaries those are

wholesaler & retailer. A three-level channel contains three intermediaries, i.e.

wholesaler, jobber, retailer.

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a) Consumer Marketing Channels

Manufacturer Manufacturer Manufacturer Manufacturer

0-level 1-level 2-level 3-level

Consumer Consumer

Retailer

Wholesaler

Retailer

Consumer

Wholesaler

Jobber

Retailer

Consumer

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Industrial marketing channels

• An industrial-goods manufacturer can use its sales force to sell directly to industrial customers, or it can sell to industrial distributors who sell to industrial customers.

• It also sell through manufacturer’s representatives or it’s own sales branches directly or indirectly to industrial customers through industrial distributors.

• Channel normally describe a forward movement of products from source to user.

• But there are reverse flow channels which are important in following cases:-

1. Reuse of products or containers (cold drink bottles).

2. Recycle of products (paper).

3. Disposal of products and packaging.

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b) Integrated Marketing Channels0-level 1-level 2-level 3-level

Manufacturer Manufacturer Manufacturer Manufacturer

IndustrialConsumer

IndustrialConsumer

IndustrialConsumer

IndustrialConsumer

Industrial distributers

Manufacturer’srepresentative

Manufacturer’sSales branch

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Service Sector Channels• Internet & other technologies advance, service industries such as

banking, insurance, travel, & stock buying & selling are operating through new channels.

• Marketing channels also keep changing in “person marketing”.• Ex- Social community websites, mass media, TV ads etc.

Channel-Design Decisions

Designing a marketing channel requires:-

1. Analyzing customer needs.

2. Establishing channel objectives.

3. Identifying Major Channel alternatives.

4. Evaluating major channel alternatives.

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Channel-Design DecisionsAnalyzing Customer Needs & Wants

• Lot size-The number of units the channel permits a typical customer to purchase on one occasion.

• Waiting & delivery time- The average time customers wait for receipt of goods. Customers increasingly prefer faster delivery channels.

• Spatial Convenience-The degree to which the marketing channel makes it easy for customers to purchase the product.

• Product Variety-Customer prefer a greater variety because more choices increases the chance of finding what they want, also many choice creates a negative effect.

• Service Backup- Services like credit, delivery, installation, repairs provided by the channel. The greater the service backup, the greater the work provided by the channel.

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Channel-Design Decisions conti…..

Establishing Objectives & Constraints• Marketers should state their channel objectives in term of

targeted service output levels.• Channel institutions should arrange their functional tasks to

minimize total channel costs and still provides desired level of service outputs.

• Channel objectives vary with product characteristics :-

1. Perishable products - direct marketing.

2. Bulky products - channels that minimize shipping distance and amount of handling.

3. Custom built machinery - company sales representatives.

4. Products requiring installations and regular check ups – company owned or leased franchisees.

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Identifying and Evaluating major Channel Alternatives

A firm can choose from a wide variety channels for reaching customers:-

1. Sales force – complex product and transactions.

2. Internet – less expensive but not effective with complex products.

3. Distributors – can create sales but contact with customers is lost.

4. Manufacturer representatives – reach to different segment of customers and delivers the right product at low cost. If fails then leads to channel conflicts and excessive costs.

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Identifying Major Channel Alternatives

Channel alternatives differ in three ways:

i) Types of Intermediaries

ii) Number of Intermediaries

iii) Terms & Responsibilities of Channel Members.

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

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Number of Intermediaries

• A firm can decide on number of intermediaries to use at each level by using these three strategies :-

1. Exclusive distribution.

2. Selective distribution.

3. Intensive distribution.

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Exclusive Distribution

• It’s appropriate when manufacturer wants to maintain a strict control over service level and outputs offered by resellers & it often includes exclusive dealing arrangements.

• Requires a closer partnership with intermediaries.• Used in distribution of automobiles, earth movers etc. • Example:- Gucci

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Selective Distribution• Relies on more than a few but less than all of intermediaries.• A company can gain adequate market coverage with less cost and

more control.• Ex-Woodland

Terms and Responsibilities of Channel Members

• Each channel member must be treated respectfully and must be given opportunity to be profitable.

• Main policies are:-

1. Price policies.

2. Condition of scales.

3. Territorial rights.

4. Mutual services and responsibilities.

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• Price policies:- A producer should establish a price-list and schedule of discounts and allowances.

• Conditions of sales:- Refers to payment terms and producer guarantees. Provision for trade discounts on bulk orders or purchases. Guarantee against defective merchandise or price declines.

• Distributor’s territorial rights:- Definition of distributor's territories and terms under which distributor will enfranchise with other distributors.

• Mutual services and responsibilities:- Example of McDonald’s –

McDonald’s provides:-

1. Franchisee with a building.

2. Promotional support.

3. Record keeping system.

4. Training.

5. General administrative and technical assistance.

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Evaluating Major Channel Alternatives

• Each channel alternative needs to be evaluated against economic, control & adaptive criteria.

• Economic Criteria:- Each channel alternative will produce a different level of sales & costs.

• Control & Adaptive Criteria:- Using a sales agency can pose a control problem. Agents may concentrate on the customers who buy the most, not necessarily those who buy the manufacturer’s goods. They might not master the technical details of the company’s product or handle its promotion materials effectively.

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High

High

Low

Low

Internet

Telemarketing

Retail stores

Distributors

Value-added partners

Retail stores

Direct marketing channels

Indirect channels

Direct sales channels

Cost per Transaction

Value-Addofsale

Fig:-The Value-Adds versus Costs of Different Channels

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Fig-Break-Even Cost chart for the choice between a Company Sales Force & a Manufacturer’s Sales Agency

Level of Sales (rupees)

SellingCosts(rupees)

Manufacturer’sSales agency

Company sales force

SB

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Channel-Management DecisionsAfter a channel has been chosen, company must :-

1. Select.

2. Train.

3. Motivate.

4. Evaluate individual intermediaries for each channel.

Selecting Channel MembersTo select a channel member producer should determine:-

5. No. of years in business.

6. Other lines carried out.

7. Growth and profit record.

8. Financial strength.

9. Cooperativeness.

10. Service reputation.

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Channel Management Decisions Conti…..

Training and Motivating Channel Members• A company should view its intermediaries as end-users.• Needs and wants of intermediaries are compulsory to

stimulate them to top-level performance.• For ex.:- Microsoft.• Channel power:- Ability to alter behavior of intermediaries

so that they can think out-of-box.• Powers a manufacturer posses to elicit cooperation from

intermediaries:-

1. Coercive power:- Threatening intermediaries to terminate relationship if they fail to cooperate.

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2. Reward power:- Offering extra benefits on performing specific act or function.

3. Legitimate power:- Request for behavior that is warranted under contract.

4. Expert power:- Having a special knowledge that intermediaries value and doesn’t posses.

5. Referent power:- The manufacturer is so highly respected that intermediaries are proud to be associated with it.

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Channel Partnerships• Efficient Consumer Response (ECR) opted by manufacturer and

intermediaries to streamline supply chain and cut costs.• ECR organizes relationship between manufacturer and

intermediaries in two areas:-

1. Demand side management:- Collaborative activities to stimulate demand from consumer side by promoting joint marketing and sales activities.

2. Supply side management:- Collaborative practices to optimize supply.

3. Enablers & integrators:- Collaborative information technology & process improvement tools to support joint activities that reduce operational problems & allow standardization.

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Evaluating Channel Members

• Manufacturers regularly check performance against standards such as:-

Sales quota, inventory levels, customer delivery time, treatment of damaged and lost goods and cooperation in promotional and training programs.

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Modifying Channel Design• No channel strategy remains effective over the whole product life

cycle. In competitive markets with low entry barriers, the optimal channel structure will inevitably change over time.

• Channel Evolution:-New firm typically starts as a local operation selling in a fairly circumscribed market, using a few existing intermediaries.

• Channel modification Decisions:- A producer must periodically review & modify its channel design & arrangements.

• Global channel Considerations:- International markets pose distinct challenges, including variations in customers shopping habits, but opportunities at the same time.

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Channel Integration & Systems

Marketing Systems

Horizontal Marketing Systems

Vertical Marketing Systems

• A horizontal marketing system is one in which two or more unrelated companies put together resources or programs to exploit an emerging market opportunity.• Each one lacks capital, know how production, marketing resources to venture alone.• Companies might work with each other on temporary or permanent basis.

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Channel Integration & Systems Conti…..

Vertical Marketing System• The producer, wholesaler and retailer acts a unified system.• One channel member, the channel captain owns the others or

franchises them has so much power that they all cooperate.• VMS arose as a result of strong channel members’ attempt to

control behavior and eliminate the conflict.

Vertical Marketing System

Corporate Vertical Marketing System

Administered Vertical Marketing System

Contractual Vertical Marketing System

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Vertical Marketing System• Corporate Vertical Marketing System:- It combines successive

stages of production and distribution under single ownership.• Administered Vertical Marketing System:- It coordinates

successive stages of production and distribution through size and power of one of the members.

• Contractual Vertical Marketing System:- It consists of independent firms at different levels of production and distribution, in order to obtain more economies or sales impact what they had achieved alone.


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• Wholesalers Sponsored Voluntary Chain:- Wholesalers organize voluntary chains of retailers to help them standardize their selling practices and help them achieve buying economies in order to compete with large chain organizations.

• Retailer Cooperatives:- Retailers take the initiative and organize new business entity to carry on wholesaling with some production. Members concentrate their purchases through retailer co-op and plan their advertising jointly. Profits pass back to members in proportion to their purchase.

• Franchisee Organization:- A channel member called franchisor might link several successive stage in the production-distribution process.

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The New Competition in Retailing:-• Many independent retailers that have not joined VMSs have

developed specialty stores serving special market segments.

Horizontal Marketing Systems• In this system two or more unrelated companies put together

resources or programs to exploit an emerging marketing opportunity.

Integrating Multichannel Marketing Systems

• Most companies today have adopted multichannel marketing.• Ex- Disney sells it’s DVD through five main channels, i.e.

Blockbuster, Disney stores etc.• An Integrated marketing channel system is one in which the

strategies & tactics of selling through one channel reflect the strategies & tactics of selling through one or more other channels.

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Conflict, Cooperation and Competition

• Channel conflict is generated when one channel members’ action prevent another channel from achieving its goals.

• Channel coordination occurs when channel members are brought together to advance goals of the channel as opposed to their own potentially incompatible goals.

Conflict

Types of Conflict

Causes of Conflict

Managing Conflicts

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Types of conflict & Competition

• Horizontal channel conflict:- It occurs between channel members at the same level.

• Vertical channel conflict:- It occurs between different levels of the channel.

• Multichannel conflict:- It exists when the manufacturer has established two or more channels that sell to the same market.

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Causes of Channel Conflict

• Conflicts may arise from:-

1. Goal incompatibility :- Manufacturers want to achieve rapid market penetration through low price policy.

2. Unclear Roles and Rights :- HP may sell personal computers to large accounts through its own sales force, but its licensed dealers may also be trying to sell to large accounts.

3. Differences in Perception:- Disputes between manufacturers and distributors about optimal advertising strategy.

4. Intermediaries Dependence on Manufacturer :- Fortune of exclusive dealers depend totally upon manufacturers’ products and pricing decisions which creates high potential for conflict.

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Managing Channel Conflict

• Various mechanisms of managing conflicts are:-

1. Strategic Justification:- A convincing strategic justification that they serve distinctive segments & do not compete as much as they might think can reduce potential for conflict among channel members.

2. Dual Compensation:- Dual compensation pays existing channels for sales made through new channels.

3. Superordinate Goal:- Channel members come to an agreement on fundamental goals they are jointly seeking, weather it is survival, market share, high quality or customer satisfaction.

4. Exchange of Employees:- A useful step is to exchange persons between two or more channel level.

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5. Joint Memberships:- The manufacturer and the intermediaries come together in good cooperation which may lead to better understanding between them.

6. Co-option:- It is an effort by one organization to win the support of leaders of other organization by including them in advisory council, board of directors, which reduces the chances of conflicts.

7. Diplomacy, Mediation or Arbitration:- when conflict is chronic, the companies may need to resort to diplomacy, mediation or arbitration.

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i. Diplomacy:- It takes place when each sends a person or groups to meet with its counterparts to resolve the conflict.

ii. Mediation:- It means resorting to a neutral third party skilled in conciliating the two parties interest.

iii. Arbitration:- It occurs when both the parties agree to present their arguments to one or more arbitrators and accept their decisions.

8. Legal Recourse:- when none of the above methods prove effective, company or channel partners may choose to file a law suit.

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Dilution & Cannibalization• Marketers must be careful not to dilute their brands through

inappropriate channels, particularly luxury brands whose images often rest on exclusivity & personalized service.

Legal & Ethical Issues in Channel Relations• Companies are generally free to develop whatever channel

arrangements suit them.• The legality of certain practices, exclusive dealing, exclusive

territories, tying agreements & dealers right.• Exclusive distribution only certain outlets are allowed to carry a

seller’s products, requiring that these dealers not handle competitors product called as exclusive leading.

• Exclusive dealing often includes exclusive territorial agreements.

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Legal & Ethical Issues in Channel Relations

• Companies are generally free to develop whatever channel arrangements suit them.

• The legality of certain practices, including exclusive dealing, exclusive territories, tying agreements, & dealer’s right.

• Requiring that these dealers not handle competitors products is called exclusive dealing.

• Exclusive dealing often includes exclusive territorial agreements.

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Legal & Ethical Issues in Channel Relations Conti…..• Producers of a strong brand sometimes sell it to dealers only if

they will take some or all of the rest of the line. This pratice is called full-line forcing.

• Such tying agreements are not necessarily illegal, but they do violate the law if they tend to lessen competition substantially.

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E-Commerce Marketing Practices

• E-commerce uses a web site to transact or facilitate the sale of products & services online.

• Online retailers compete in three key aspects of a transaction

1) Customer interaction with the website

2) Delivery

3) Ability to address problems when they occur

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Pure-Click Companies • Several kinds of Pure Click companies: search engines,

Internet service providers, commerce sites, transaction sites, content sites.

• Sell all types of products• Ex- Flipkart, Make My Trip.com, Snap Deal etc.

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E-commerce Success Factors Companies must set up & operate their e-commerce Web sites

carefully. Customer Service is critical. To increase customer satisfaction & entertainment & information

value based shopping experiences. Ensuring security & privacy online remains important. Online retailers are also trying new technologies , mobile

marketing to attract new shoppers.

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B2B E-Commerce• Although business-to-consumer (B2C) web sites have attracted

much attention in the media, even more activity is being conducted on business-to-business (B2B) sites.

• Which are changing the supplier-customer relationship in profound ways.

• Ex- The National Small Industries Corporation Ltd. Govt.of India.

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Brick-and-Click Companies• Many Brick-and-mortar companies may have initially debated

whether to add an online e-commerce channel for fear of channel conflict with their offline retailers, agents, or their own stores most eventually added the Internet as a distribution channel after seeing how much business generated online.

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M-Commerce Marketing Practices

• The widespread penetration of cell & smart phones, there are currently more mobile phones than personal computers in the world, allows people to connect to the Internet & Place online orders on the move, many see a big future is now called as m-commerce.

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•Thank You

designing & managing integrated marketing channels-kirit kene

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