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Chapter 17Chapter 17Designing and ManagingDesigning and ManagingValue Networks andValue Networks andMarketing ChannelsMarketing Channelsbyby
PowerPoint byPowerPoint byMilton M. PressleyMilton M. Pressley
University of New OrleansUniversity of New Orleans
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Establish channels fordifferent target marketsand aim for efficiency,control, andadaptability.
Kotler onMarketing
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§§ In this chapter, we focus on the followingIn this chapter, we focus on the followingchannel questions from the viewpoint of thechannel questions from the viewpoint of themanufacturers:manufacturers:§§ What is the value network and marketingWhat is the value network and marketing
channel system?channel system?§§ What work is performed by marketingWhat work is performed by marketing
channels?channels?§§ What decisions do companies face inWhat decisions do companies face in
designing, managing, evaluating, anddesigning, managing, evaluating, andmodifying their channels?modifying their channels?§§ What trends are taking place in channelWhat trends are taking place in channel
dynamics?dynamics?§§ How can channel conflict be managed?How can channel conflict be managed?
Chapter Objectives
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What is a Value Network andMarketing-Channel System?
§§ Value NetworkValue Network§§ Marketing channelMarketing channel
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OracleOracle’’s home pages home page
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What is a Value Network andMarketing-Channel System?§§ ““GoGo--toto--marketmarket”” oror hybridhybrid channelschannels
§§ IBMIBM’’s sales force sells to large accounts, outbounds sales force sells to large accounts, outboundtelemarketing sells to mediumtelemarketing sells to medium--sized accounts, direct mailsized accounts, direct mailsells to small accounts, retailers sell to still smaller accountsells to small accounts, retailers sell to still smaller accounts,s,and the Internet to sell specialty itemsand the Internet to sell specialty items
§§ Charles Schwab enables its customers to do transactions inCharles Schwab enables its customers to do transactions inbranch offices, over the phone, or via the Internetbranch offices, over the phone, or via the Internet
§§ Staples markets through traditional retail, directStaples markets through traditional retail, direct--responseresponseInternet site, virtual malls, and 30,000 linked affiliated sitesInternet site, virtual malls, and 30,000 linked affiliated sites
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What is a Value Network andMarketing-Channel System?
§§ Channel integration characteristics:Channel integration characteristics:§§ Ability to order a product online, andAbility to order a product online, and
pick it up at a convenient retail locationpick it up at a convenient retail location§§ Ability to return an onlineAbility to return an online--orderedordered
product to a nearby storeproduct to a nearby store§§ Right to receive discounts based onRight to receive discounts based on
total of online and offtotal of online and off--line purchasesline purchases
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What Work is Performed byMarketing Channels?
§§ Many producers lack the financial resourcesMany producers lack the financial resourcesto carry out direct marketingto carry out direct marketing§§ In some cases direct marketingIn some cases direct marketing
simply is not feasiblesimply is not feasible§§ Producers who do establish their ownProducers who do establish their own
channels can often earn a greater return bychannels can often earn a greater return byincreasing their investment in their mainincreasing their investment in their mainbusiness.business.
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Figure 17.1:How aDistributorEffects anEconomy ofEffort
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As more retailers develop a web presence, theyAs more retailers develop a web presence, theyoften move from aoften move from a ““brickbrick--andand--mortarmortar”” to ato a““clickclick--andand--mortarmortar”” business model wherebusiness model wherecustomers expect channel integration. Can youcustomers expect channel integration. Can youidentify any potential problems for theseidentify any potential problems for thesecompanies? Can you identify any uniquecompanies? Can you identify any uniquemarketing opportunitiesmarketing opportunitiesthat such a change wouldthat such a change wouldoffer these companies?offer these companies?
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What Work is Performed byMarketing Channels?
§§ Channel Functions and FlowsChannel Functions and Flows§§ Key functions include:Key functions include:§§ Gather information about potential andGather information about potential and
current customers, competitors, and otherscurrent customers, competitors, and others§§ Develop and disseminate persuasiveDevelop and disseminate persuasive
communications to stimulate purchasingcommunications to stimulate purchasing§§ Reach agreements on price and other terms soReach agreements on price and other terms so
that transfer of ownership or possession can bethat transfer of ownership or possession can beeffectedeffected§§ Place orders with manufacturersPlace orders with manufacturers
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What Work is Performed byMarketing Channels?§§ Acquire funds to finance inventories at differentAcquire funds to finance inventories at different
levels in the marketing channellevels in the marketing channel§§ Assume risk connected withAssume risk connected with
carrying out channel workcarrying out channel work§§ Provide for the successive storageProvide for the successive storage
and movement of physical productsand movement of physical products§§ Provide for buyersProvide for buyers’’ payment of their billspayment of their bills
through banks and other financial institutionsthrough banks and other financial institutions§§ Oversee actual transfer of ownership from oneOversee actual transfer of ownership from one
organization or person to anotherorganization or person to another
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Figure 17.2: Five Marketing Flows in the Marketing Channelfor Forklift Trucks
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What Work is Performed byMarketing Channels?
§§ Forward flowForward flow§§ Backward flowBackward flow
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Figure 17.3: Consumer and Industrial Marketing Channels
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What Work is Performed byMarketing Channels?
§§ Channel levelsChannel levels§§ ZeroZero--level channel (a.k.a. directlevel channel (a.k.a. direct--marketingmarketing
channel)channel)§§ OneOne--level channellevel channel§§ TwoTwo--level channellevel channel§§ ThreeThree--level channellevel channel§§ ReverseReverse--flow channelflow channel
§§ Service Sector ChannelsService Sector Channels§§ Information Highway ChannelsInformation Highway Channels
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The advent of print media, the telephone,The advent of print media, the telephone,radio, television, and the Internet have allradio, television, and the Internet have allprovided new ways for marketers to get theirprovided new ways for marketers to get theirmessage to their intended audience. Asmessage to their intended audience. Asvarious technologies advance, thesevarious technologies advance, theseinformation channels offer more preciseinformation channels offer more precisedelivery of a message. Candelivery of a message. Canyou identify an emergingyou identify an emerginginformation distributioninformation distributionchannel?channel?
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The PeopleThe People’’s Bank Internet sites Bank Internet site
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Channel-Design Decisions§§ Push strategyPush strategy§§ Pull strategyPull strategy
§§ Designing a channel systemDesigning a channel systeminvolves four steps:involves four steps:§§ Analyzing customer needsAnalyzing customer needs§§ Establishing channel objectivesEstablishing channel objectives§§ Identifying major channel alternativesIdentifying major channel alternatives§§ Evaluating major channel alternativesEvaluating major channel alternatives
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Channel-Design Decisions
§§ Analyze CustomersAnalyze Customers’’ DesiredDesiredService Output LevelsService Output Levels§§ Lot sizeLot size§§ Waiting timeWaiting time§§ Spatial convenienceSpatial convenience§§ Product varietyProduct variety§§ Service backupService backup
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Channel-Design Decisions
§§ Establish Objectives and ConstraintsEstablish Objectives and Constraints§§ Identify Major Channel AlternativesIdentify Major Channel Alternatives§§ Types of IntermediariesTypes of Intermediaries§§ Number of IntermediariesNumber of Intermediaries§§ Exclusive distributionExclusive distribution
§§ Exclusive dealingExclusive dealing
§§ Selective distributionSelective distribution§§ Intensive distributionIntensive distribution
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Channel-Design Decisions
§§ Terms and Responsibilities ofTerms and Responsibilities ofChannel MembersChannel Members§§ Price policyPrice policy§§ Conditions of saleConditions of sale§§ DistributorsDistributors’’ territorial rightsterritorial rights
§§ Evaluate the Major AlternativesEvaluate the Major Alternatives§§ Economic CriteriaEconomic Criteria
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Figure 17.4: The Value-Adds versus Costs of Different Channels
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Figure 17.5:Break-evenCost Chart
Channel-Design Decisions§§ Channel advantageChannel advantage
§§ Control and Adaptive CriteriaControl and Adaptive Criteria
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Channel-ManagementDecisions
§§ Selecting Channel MembersSelecting Channel Members§§ Training Channel MembersTraining Channel Members§§ Motivating Channel MembersMotivating Channel Members§§ Producers can use:Producers can use:§§ Coercive powerCoercive power§§ Reward powerReward power§§ Legitimate powerLegitimate power§§ Expert powerExpert power§§ Referent powerReferent power
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Channel-ManagementDecisions
§§ Distribution programmingDistribution programming§§ DistributorDistributor--relations planningrelations planning
§§ Evaluating Channel MembersEvaluating Channel Members§§ Modifying Channel ArrangementsModifying Channel Arrangements
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Figure 17.6: Channel Value Added and Market Growth Rate
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Channel Dynamics
§§ Vertical Marketing SystemsVertical Marketing Systems§§ Conventional marketing channelConventional marketing channel§§ Vertical marketing systems (VMS)Vertical marketing systems (VMS)
§§ Corporate and Administered VMSCorporate and Administered VMS§§ Corporate VMSCorporate VMS§§ Administered VMSAdministered VMS
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Channel Dynamics§§ Contractual VMSContractual VMS§§ WholesalerWholesaler--sponsored voluntary chainssponsored voluntary chains§§ Retailer cooperativesRetailer cooperatives§§ Franchise organizationsFranchise organizations
§§ ManufacturerManufacturer--sponsored retailer franchisesponsored retailer franchise§§ ManufacturerManufacturer--sponsored wholesalersponsored wholesaler
franchisefranchise§§ ServiceService--firmfirm--sponsored retailer franchisesponsored retailer franchise
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Channel Dynamics
§§ The New Competition in RetailingThe New Competition in Retailing§§ Horizontal Marketing SystemsHorizontal Marketing Systems§§ Multichannel Marketing SystemsMultichannel Marketing Systems
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StihlStihl’’s product liness product lines
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Channel Dynamics
§§ Planning Channel ArchitecturePlanning Channel Architecture
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Figure 17.7: The Hybrid Grid
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Channel Dynamics
§§ Roles of Individual FirmsRoles of Individual Firms§§ InsidersInsiders§§ StriversStrivers§§ ComplementersComplementers§§ TransientsTransients§§ Outside innovatorsOutside innovators
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Channel Dynamics§§ Conflict, Cooperation, and CompetitionConflict, Cooperation, and Competition§§ Types of Conflict and CompetitionTypes of Conflict and Competition§§ Vertical channel conflictVertical channel conflict§§ Horizontal channel conflictHorizontal channel conflict§§ Multichannel conflictMultichannel conflict
§§ Causes of Channel ConflictCauses of Channel Conflict§§ Goal incompatibilityGoal incompatibility§§ Unclear roles and rightsUnclear roles and rights
§§ Differences in perceptionDifferences in perception
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Channel Dynamics§§ By adding new channels, a company facesBy adding new channels, a company faces
the possibility of channel conflict whichthe possibility of channel conflict whichmay include:may include:§§ Conflict between the national accountConflict between the national account
managers and field sales forcemanagers and field sales force§§ Conflict between the field salesConflict between the field sales
force and the telemarketersforce and the telemarketers§§ Conflict between the field salesConflict between the field sales
force and the dealersforce and the dealers
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Channel Dynamics§§ Managing Channel ConflictManaging Channel Conflict
§§ DiplomacyDiplomacy§§ MediationMediation§§ ArbitrationArbitration
§§ Legal and Ethical IssuesLegal and Ethical Issuesin Channel Distributionin Channel Distribution
§§ Exclusive distributionExclusive distribution§§ Exclusive dealingExclusive dealing§§ Tying agreementsTying agreements
