PowerPoint by Yu Hongyan Business School of Jilin University

Chapter 14

Selecting and MSelecting and Managing Marketanaging Market

ing Channelsing Channels

Objectives

• Identify value networks and marketing-channel systems.

• Learn the type of work performed by marketing channels.

• Understand the decisions companies face in designing, managing, evaluating, and modifying channels.

• Channel Management decisions • Identify trends taking place in channel dynamics.

1. Value Networks and Marketing Channel Systems

• A Value Network is a system of partnerships and alliances used by a firm to source, augment, and deliver its product or service offerings.

• Intermediaries that help get the product from manufacturer to consumer or end users form the Marketing Channel(s).

2. Work Performed by Channels

Figure 14-1: How a Distributor Effects Economy

of Effort

Discussion Scenario

The use of marketing channels is not restricted to physical goods; channels also assist in the distribution of services.

Can you think of an example of a zero-level service channel? One-level channel? Two or more level channel?

2.Work Performed by Channels (cont’d)• Producers establish marketing channels for

a variety of reasons:– Producers lack financial resources necessary for

direct marketing– Direct marketing is not feasible for many

offerings– Using channels frees money for investment in

main business– Intermediaries are more efficient

2.Work Performed by Channels (cont’d)• Channel members perform a number of key

functions:– Forward flow functions:

• Develop / disseminate communication• Store and move the physical products• Oversee transfer of ownership

– Backward flow functions:• Place orders with manufacturers• Facilitate payment of bills

2.Work Performed by Channels (cont’d)

• Other key functions performed by channel members include those that flow both ways:– Forward and backward flow functions:

• Gather information

• Negotiate price and transfer of ownership

• Finance inventories

• Assume risk

2.Work Performed by Channels (cont’d)

Figure 14-2: Five Marketing Flows in the Channel for Forklift Trucks

2.Work Performed by Channels (cont’d)

Some channels reverse the flow process

2.Work Performed by Channels (cont’d)

Figure 14-3: Consumer and Industrial Marketing Channels

3. Channel-Design Decisions

Push vs. Pull Push vs. Pull StrategyStrategy

Analyzing Consumers’ Desired Analyzing Consumers’ Desired Service Output LevelsService Output Levels

Establishing Objectives Establishing Objectives and Constraintsand Constraints

Identifying / Evaluating Major Identifying / Evaluating Major Channel AlternativesChannel Alternatives

3.Channel-Design Decisions (cont’d)

Channel Factors

• Intermediary type• Number of

intermediaries• Terms and

responsibilities of intermediaries

• Merchants– Buy, take title, and resell

merchandise

• Agents– Find customers, negotiate,

do not take title to merchandise

• Facilitators– Aid in distribution, do not

negotiate or take title to merchandise

3.Channel-Design Decisions (cont’d)

Independent insurance agents act for multiple insurance providers

3.Channel-Design Decisions (cont’d)

Channel Factors

• Intermediary type• Number of

intermediaries• Terms and

responsibilities of intermediaries

• Exclusive distribution– Severely limited

distribution

• Selective distribution– Some intermediaries willing

to carry good are selected

• Intensive distribution– Offering is placed in as

many outlets as possible.

3.Channel-Design Decisions (cont’d)

Channel Factors

• Intermediary type• Number of

intermediaries• Terms and

responsibilities of intermediaries

• Price policies– Price list and schedule of

discounts

• Conditions of sale– Payment terms and

guarantees

• Territorial rights– Define territory / terms

• Services to be performed by party

3.Channel-Design Decisions (cont’d)

Figure 14-4: The Value-Adds Versus Costs of Different Channels

3.Channel-Design Decisions (cont’d)

Economic Control

Adaptive

Criteria for Channel Alternative Evaluation

4. Channel-Management Decisions

Modification

The Channel Development Process

Motivation

Selection

Evaluation

Training

Channel Member

Channel Channel

Discussion Scenario

Assume that an electronics company has developed a holographic television that converts digital signals to 3D images.

Would economic, adaptive or control criteria be most critical in guiding the evaluation of channel alternatives? What channel(s) would you initially select to introduce this innovation?

4. Channel-Design Decisions (cont’d)

Figure 14-5: Channel

Value-Added and Market

Growth Rate

5. Channel Dynamics

• Channel systems are constantly evolving and developing

• Vertical Marketing Systems– Corporate VMS– Administered VMS– Contractual VMS

• Horizontal Marketing Systems

• Multichannel Marketing Systems

5. Channel Dynamics (cont’d)

• Conflict, Cooperation, & Competition– Types of conflict

• Vertical, horizontal, and multichannel

– Causes of conflict• Major causes: Goal incompatibility; unclear roles an

d rights

• Other potential causes exist

– Managing channel conflict

5. Channel Dynamics (cont’d)

Managing Channel Conflict

Exchange People Between Channel LevelsExchange People Between Channel Levels

Subordinate Goal AdoptionSubordinate Goal Adoption

CooptationCooptation

DiplomacyDiplomacy

ArbitrationArbitration

MediationMediation

Discussion Scenario

In an effort to minimize channel conflict, producers may make alterations to the product mix. Minor changes may be implemented with respect to styling, non-essential features, or in terms of supplemental items packaged with, or sold as part of the product bundle.

Can you think of an example of a producer that has taken this approach?

5. Channel Dynamics (cont’d)

• Legal and Ethical Issues in Channel Relations– Two common distribution practices are legal as

long as they don’t substantially lessen competition:

• Exclusive dealing

• Tying agreements

Review

• Identify value networks and marketing-channel systems.

• Learn the type of work performed by marketing channels.

• Understand the decisions companies face in designing, managing, evaluating, and modifying channels.

• Channel Management decisions • Identify trends taking place in channel dynamics