Document15

Designing and Managing Integrated

Marketing Channels

Marketing Management, 13th ed

15

Copyright © 2009 Jared Hansen

Chapter Questions

• What is a marketing channel system and value network?

• What work do marketing channels perform?• How should channels be designed?• What decisions do companies face in

managing their channels?• How should companies integrate channels

and manage channel conflict?• What are the key issues with e-commerce?


What is a Marketing Channel?

A marketing channel system is the particular set of interdependent

organizations involved in the process of making a product or service available

for use or consumption.


The Supply Chain

• Buying• Selling• Storing• Transporting

• Sorting• Financing• Information Gathering• Risk Taking

A supply chain or channel must perform eight marketing functions:

LO 1


The Supply Chain

• A marketing function does not have to be shifted in its entirety to another institution or to the consumer but can be divided among several entities.

LO 1


The Supply Chain

• Primary Marketing Institutions:

Are those channel members that take title to the goods as they move through the marketing channel. They include manufacturers, wholesalers, and retailers.

LO 1


Primary Marketing Institutions

• Costco is a primary marketing institution that acts as both a wholesaler (selling to small businesses) and a retailer (selling to households).

LO 1


The Supply Chain

• Facilitating Marketing Institutions:

Are those that do not actually take title but assist in the marketing process by specializing in the performance of certain marketing functions.

LO 1


Facilitating Institutions

• Agents• Brokers• Communications

agencies• Advertising

agencies

• Transporters• Public warehouse• Technology

specialists • Financing

institutions

LO 1


Types of Supply Chains

• Supply Chain Length• Supply Chain Width• Control of the Supply Chain

LO 2


Strategic Decisions in Supply Chain Design

LO 2


Direct and Indirect Supply Chains

LO 2


Width of Marketing Supply Chain

LO 2


Supply Chain Width

• Intensive Distribution:

Means that all possible retailers are used in a trade area.

LO 2


Supply Chain Width

• Selective Distribution :

Means that a moderate number of retailers are used in a trade area.

LO 2


Supply Chain Width

• Exclusive Distribution:

Means only one retailer is used to cover a trading area.

LO 2


Marketing Channel Patterns

LO 2


Vertical Marketing Channels

• Quick Response (QR) Systems:

Also known as Efficient Consumer Response (ECR) Systems, are integrated information, production, and logistical systems that obtain real-time information on customer actions by capturing sale data at point-of-purchase terminals and then transmitting this information back through the entire channel to enable efficient production and distribution scheduling.

LO 2


Advantages of Franchising

LO 2


Disadvantages of Franchising

LO 2


Channels and Marketing Decisions

• A push strategy uses the manufacturer’s sales force, trade promotion money, and other means to induce intermediaries to carry, promote, and sell the product to end users

• A pull strategy uses advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries


Managing Retailer-Supplier Relations

• Dependency• Power• Conflict

LO 3



• Dependency:

Every supply chain needs to perform eight marketing functions by any combination of the members. None can be isolated; each depends on the others to do an effective job.

LO 3



• Power:

Is the ability of one channel member to influence the decisions of the other channel members.

LO 3


Types of Power

• Reward Power:

Is based on B’s perception that A has the ability to provide rewards for B.

LO 3


Types of Power

• Expertise Power:

Is based on B’s perception that A has some special knowledge.

LO 3


Types of Power

• Referent Power:

Is based on the identification of B with A.

LO 3


Types of Power

• Coercive Power:

Is based on B’s belief that A has the capability to punish or harm B if B doesn’t do what a wants.

LO 3


Types of Power

• Legitimate Power:

Is based on A’s right to influence B, or B’s belief that B should accept A’s influence.

LO 3


Types of Power

• Informational Power:

Is based on A’s ability to provide B with factual data.

LO 3



• Conflict:

Is inevitable because retailers and suppliers are interdependent.

LO 3


Conflict

• Perceptual Incongruity:

Occurs when the retailer and supplier have different perceptions of reality.

LO 3


Conflict

• Goal Incompatibility:

Occurs when achieving the goals of either the supplier or the retailer would hamper the performance of the other.

LO 3


Conflict

• Dual Distribution:

Occurs when a manufacturer sells to independent retailers and also through its own retail outlets.

LO 3


Conflict

• Domain Disagreements:

Occurs when there is disagreements about which member of the marketing channel should make decisions.

LO 3


Conflict

• Diverter:

Is an unauthorized member of a channel who buys and sells excess merchandise to and from authorized channel members.

LO 3


Conflict

• Gray Marketing:

Is when branded merchandise flows through unauthorized channels.

LO 3


Conflict

• Free-riding:

Is when a consumer seeks product information, usage instructions, and sometimes even warranty work from a full service store but then, armed with the brand’s model number, purchases the product from a limited service discounter or over the Internet.

LO 3


Conflict Process Role of Channel Interdependency

Conflict Resolution

Dependency ofRetailer on Supplier

Dependency of Supplier on Retailer

Fel

t

Man

if est

Per

cei v

ed

Power of Supplier Over

Retailer

Conflict

ConflictPotential

Power of Retailer Over

Supplier

Conflict

Fel

t

Man

if est

Per

cei v

ed

ConflictPotential

Supplier’s Power

Sources

Retailer’s Power

Sources

Interdependency


Category Management

• Category Management (CM):Is the process of managing all the SKUs within a product category and involves the simultaneous management of price, shelf space, merchandising strategy, promotional efforts, and other elements of the retail mix within the category based on the firm’s goals, the changing environment, and consumer behavior.

LO 4


Category Management

• Category Manager:

Is an employee designated by a retailer for each category sold in their store. The manager leverages detailed knowledge of the consumer and trends, detailed point-of-sales information, and specific analysis provided by each supplier to tailor a store’s offerings to the specific needs of each market. The manager works with the suppliers to plan promotions throughout the year.

LO 4


The Marketing Functions

SellingBuying

Storing Transporting

Sorting Financing

InformationGathering

RiskTaking



Power

Dependency

Conflict

LO 3


Buyer Expectations for Channel Integration

• Ability to order a product online and pick it up at a convenient retail location

• Ability to return an online-ordered product to a nearby store

• Right to receive discounts based on total online and offline purchases


Categories of Buyers

• Habitual shoppers

• High value deal seekers

• Variety-loving shoppers

• High-involvement shoppers


Types of Shoppers

• Service/quality customers• Price/value customers• Affinity customers


Channel Member Functions

• Gather information• Develop and disseminate persuasive

communications• Reach agreements on price and terms• Acquire funds to finance inventories• Assume risks• Provide for storage• Provide for buyers’ payment of their bills• Oversee actual transfer of ownership


Designing a Marketing Channel System

• Analyze customer needs

• Establish channel objectives

• Identify major channel alternatives

• Evaluate major channel alternatives


Channel Service Outputs

• Lot size

• Waiting/delivery time

• Spatial convenience

• Product variety

• Service backup


Identifying Channel Alternatives

• Types of intermediaries

• Number of intermediaries

• Terms and responsibilities


Number of Intermediaries

• Exclusive

• Selective

• Intensive


Terms and Responsibilities of Channel Members

• Price policy

• Condition of sale

• Distributors’ territorial rights

• Mutual services and responsibilities


Channel-Management Decisions

• Selecting channel members• Training channel members• Motivating channel members• Evaluating channel members• Modifying channel members


Channel Power

• Coercive

• Reward

• Legitimate

• Expert

• Referent


Channel Integration and Systems

Vertical marketing systems

• Corporate VMS

• Administered VMS

• Contractual VMSHorizontal marketing systemsMultichannel systems


What is Channel Conflict?

• Channel conflict occurs when one member’s actions prevent another channel from achieving its goal.

• Types of channel conflict• Vertical• Horizontal• Multichannel


Causes of Channel Conflict

• Goal incompatibility

• Unclear roles and rights

• Differences in perception

• Intermediaries’ dependence on manufacturer


Table 15.3 Strategies for Managing Channel Conflict

• Adoption of superordinate goals

• Exchange of employees

• Joint membership in trade associations

• Cooptation• Diplomacy• Mediation• Arbitration• Legal recourse

Documents

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