2nd revised mark man v57 prof. de ungria chap15 designing and managing integrated marketing channels by raymund c. piñon
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
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