CHAPTER 15Designing and Managing Integrated

Marketing Channels

Presented by :Bhumika(13)Nitin(19)Ateet(31)Saurin(33)

WHAT IS MARKETING CHANNELS

• Set of interdependent organisations involved in the process of making a product or service available for use or consumption.• Set of pathways a product or service follows after production, culminating in purchase and use by the final end users.

• Merchants – Buy, take title to, and resell the merchandise• Agents – Search for customers and may negotiate on the producer’s behalf but do not take title to goods• Facilitators – Assist in the distribution process but neither take title to goods nor negotiate purchases or sales

IMPORTANCE OF CHANNELS• Marketing channel system – A set of marketing channels a firm employs and decisions about it are among the most critical management faces.• It represent a substantial opportunity cost• It allows channel members to earn margins• Its main role is to convert potential buyers into profitable customers• Affects all other marketing decisions

MANAGING INTERMEDIARIES

PUSH STRATEGY : Uses manufacturer’s sales force, trade

promotion money or other means

PULL STRATEGY : Uses advertising, promotion and other forms of communication

CHANNEL DEVELOPMENTNew firm

- starts as a local operation selling in circumscribed market

- Uses existing intermediariesSuccessful firm

- Might branch into new market- Uses different channels in different

markets

HYBRID CHANNELS

• Using number of channels• All should work together and match each target customer’s preferred ways of doing business

EXAMPLES

• HP COMPUTERS: Sales force Telemarketing

• ICICI BANK: Branches Franchisees Micro-finance institutions

Internet sites Retailers

UNDERSTANDING CUSTOMER NEEDS

• Habitual shoppers• High-value deal seekers• Variety-loving shoppers• High-involvement shoppers

CLOTHING

GROCERY

Service/quality customers

Service/quality customers

Price/valuecustomers

Affinitycustomers

Price/valuecustomers

Affinitycustomers

France

Germany

United Kingdom

France

Germany

United Kingdom

50% 32% 18%

16% 39% 45%

15% 19% 66%

40% 27% 25%

13% 42% 45%

13% 32% 55%

VALUE NETWORKS

• A system of partnerships and alliances that a firm creates to source, augment and deliver its offerings.• Increasing investments in IT• Supply Chain Management software

DEMAND CHAIN PLANNING• View of a firm to think first of the target market and then designing the supply chain.• Yields several insights – The company can estimate whether more money is made upstream or downstream Company is more aware of disturbances Companies can go online with their business partners

CHANNEL MEMBER FUNCTIONS

• Gather information• Develop and disseminate persuasive communications• Place orders with manufacturers• Acquire the funds• Provide for the successive storage and movement of physical products• Oversee actual transfer of ownership• Reach agreements on price and other terms

1.Physical flow

Suppliers

Transporters, warehouses

Manufacturer

Transporters, warehouses

Dealers

Transporters

Customers

2. Title flow

Suppliers

Manufacturer

Dealers

Customers

3. Payment flow

Suppliers

Banks

Manufacturer

Banks

Dealers

Banks

Customers

4. Information flow

Suppliers

Transporters, warehouses

Manufacturer

Transporters, warehouses

Dealers

Transporters, banks

Customers

Suppliers

Manufacturer

Dealers

Customers

Advertising agency

Advertising agency

5. Promotion flow

CUSTOMER MARKETING CHANNELS

MANUFACTURER MANUFACTURER

WHOLESALER

JOBBER

RETAILER

CONSUMER

MANUFACTURER MANUFACTURER

WHOLESALER

RETAILER RETAILER

CONSUMER CONSUMER CONSUMER

0-Level 1-Level 2-Level 3-Level

INDUSTRIAL MARKETING CHANNELS

MANUFACTURER MANUFACTURERMANUFACTURER MANUFACTURER

0-Level 1-Level 2-Level 3-Level

MANUFACTURER’S REPRESENTATIVE

MANUFACTURER’S SALES BRANCH

INDUSTRIAL DISTRIBUTORS

INDUSTRIAL DISTRIBUTORS

INDUSTRIAL DISTRIBUTORS

INDUSTRIAL CUSTOMERS

INDUSTRIAL CUSTOMERS

INDUSTRIAL CUSTOMERS

INDUSTRIAL CUSTOMERS

CHANNEL-DESIGN DECISIONS

• Analyzing customer needs• Establishing channel objectives• Identifying and evaluating major channel alternatives• Evaluating the major alternatives

• Lot size• Waiting and delivery time• Spatial convenience• Product variety• Service backup

Analyzing customer’s desired service output levels

Channel objectives

• Channel objectives shall be based on targeted service output levels.

• Channel objectives are based on product characteristics.

• When a company enter new markets its objective are affected by other firms in the same market.

Channel constraints

Certain factors or constraints in channel selection are :-

Market conditions

Legal issues

Product characteristics

Competition

Identifying and evaluating major channel alternatives

• Companies have got variety of channel options to reach customers.

• For e.g. agents, distributors, dealers, internet.• But each of them has its own complexities

which makes it difficult for company to decide which channel alternative to choose.

Channel elements

Types of Intermediaries

No. of Intermediaries

Responsibilities of channelmembers

Types of Intermediaries

• A firm need to identify types of intermediaries it needs available to it.

• Companies shall try to search for innovative marketing channels.

• Sometimes companies adopt new or unconventional channel to deal with difficulty or ineffectiveness of dominant channel.

Number of Intermediaries

Three strategies are basically followed for this

Exclusive distribution

Selective distribution

Intensive distribution

Exclusive distribution

• It means keeping limited of number of intermediaries.

• Its best suited when producer wants to have control over service level.

• It requires a close partnership between seller and reseller.

• It basically used in distribution of automobiles, major appliances etc.

Selective distribution

• It relies on more than a few intermediaries.• It is basically useful for established companies

& for new companies seeking distributors.• Best advantage of selective distribution is that

the company here gain adequate market coverage, more control & less cost.

Intensive distribution

• Here the manufacture places its products and services in as many outlets as possible.

• Its best suited for products that consumer buys frequently.

• E.g. soft-drinks, newspapers, snack foods.• Titan watches follows intensive distribution

technique.

Terms and responsibilities of channel members

• Price policy:- Producer shall prepare appropriate pricing policy & shall offer reasonable allowances to intermediaries.

• Conditions of sale:- Payment terms and producer guarantees shall be disclosed properly.

• Distributors’ territorial rights:- it defines distributor’s territories & terms for franchisee.

Continue…..

• Mutual services and responsibilities:- This has to be clearly specified. Franchisees are also expected to satisfy company standards for physical facility, support new promotions, buy supplies from specified vendors.

Evaluating Major Alternatives

Control & Adaptive criteria

Economic criteria

Economic criteria

• Each alternative will produce different level of sales and costs.

• So firms will try to analyze & would prefer channel that can maximize demand and that too at lower cost.

• Sales agents are tend to be used by smaller firms where the sales volume is low.

Control & adaptive criteria

• When sales agency is used it creates control problem as it focuses on maximizing profits.

• To make channels successful members must develop sense of commitment with each other.

• Channel structures & policies should provide high adaptability to producers.

Channel management

decision

Selecting channel

members

Motivating channel

members

Evaluating channel

members

Modify channel design

Selecting channel members

• For these the producers shall consider characteristics of better intermediaries.

• They shall evaluate the no. of years in business, other lines carried, growth & profit etc.

• Further more evaluation has to be done as per intermediaries as for e.g.:-sales agents, department stores etc.

Motivating Channel Members

• The company shall plan and implement training programs & research programs.

• The company shall make intermediaries believe them to be equal partner in their process.

• Producers can even use channel power so that members takes action which they wouldn’t have taken otherwise.

Evaluating channel members

• Producers must periodically evaluate intermediaries’ performance against set standards like sales-quota attainment, inventory levels etc.

• Producer shall provide discounts to members as per performance.

• Underperformers on other hand shall be provided guidance

Modifying channel design & arrangements

• A producer must review channel design & modify if its not successful enough.

• No marketing channel will remain effective for life time so change has to be made with time.

• The change could mean adding or dropping particular channel member or bringing new way to sell.

channel integration systems

vertical marketing

Horizontal marketing

Integrated multichannel marketing

Vertical marketing systems

VMS are of three types:-• Corporate Vertical Marketing Systems-successive stages from

production to distribution are under single ownership.

• Administered VMS-seeks to control successive stages from production to distribution not through ownership but through the size and power of one of the channel members.

• Contractual VMS-independent firms at different levels of production and distribution integrating their programs on a contractual basis to obtain larger economies of scale and, or sales impact than they could achieve alone

Three types of contractual VMS

• Wholesaler based voluntary chains are under which whole-sellers organize voluntary chains of independent retailers.

• Retailer co-operatives are under which retailers take initiative to carry on wholesaling and possibly some production.

• Franchise organizations are under which franchisor might link several stages in production-distribution process.

Horizontal marketing system

• This reflects the readiness or willingness of two or more non-related companies to put together resources to exploit an emerging market opportunity

• E.g. post offices selling insurance, HUL in strategic tie-up with PepsiCo.

Integrated multichannel systems

• In multi channel marketing the firm uses two or more channels to reach one or more market segments.

• An integrated marketing channel system is one in which tactics & strategies of selling through one channel reflects tactics and selling through other channels.

Advantages of multichannel marketing

Increased market coverage

Lower channel cost

More customized selling

TYPES OF CHANNEL CONFLICT

There are mainly 3 types of channel conflict: -

1) Vertical channel conflict

2) Horizontal channel conflict

3) Multichannel conflict

CAUSES OF CHANNEL CONFLICT

Goal incompatibility

Differences in perception

Dependence

MANAGING CHANNEL CONFLICT Adoption of subordinate goals

Exchange of persons between channels

Co-optation

Meditation

Arbitration

File a law suit

E-Marketing

E-Marketing describes company efforts to inform buyers, communicate, promote and sell its products and services over the Internet.

Cont…

There are mainly two types companies in E- Marketing:

Pure-click companiesBrick-click companies

Pure click companies

Companies those that have launched a web-site without any previous existence as a firm.

Burst of Dot-com bubble

• There are mainly three reasons:

Rushed into the market without proper research or planning

Poorly designed websites Lacking in adequate infrastructures

Brick-click companies

• Companies that have added an outline site for information and/or e-commerce

• They resist adding e-commerce to their sites

• They felt that selling their products or services online would produce channel conflict

Three strategies to improve sales

• Different brands or products on the Internet

• Offer the offline partners higher commissions to cushion the negative impact on sales

• Take orders on the website but have retailers deliver and collect payment.

• Producers do not sell their goods directly to final users but through a host of marketing intermediaries.

• Company uses intermediaries when direct marketing is not feasible.

• The important functions performed by intermediaries are information, promotion, negotiation, ordering etc.

SUMMARY

Continue……

• Manufactures have many alternatives for market channels and they need to analyze properly and select intermediaries.

• Marketing channels at times have to face conflict which have to be sorted out properly.

• E-commerce plays and important aspect in channel system and its importance is growing today.

THANK YOU