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Designing & Managing Integrating Marketing Channels
(Chapter 15 of Marketing ManagementBy Philip Kotler)
Ulysses Joseph L. YapAteneo School of Medicine and Public Health
21st Century Edition
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OUTLINE
1. Marketing Channels and Value Networks
2. The Role of Marketing Channels 3. Channel-Design Decisions 4. Channel-Management Decisions5. Channel Integration & Systems6. Conflict, Cooperation, and Competition7. E-commerce Marketing Practices
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1. Marketing Channels and Value Networks
Marketing channel– Interdependent organizations participating
in the process of making a product available
for use or consumption
Value Networks: Demand Chain Planning– Thinking of the target market and designing the supply
chain backward from that point– Company can estimate whether more money is made
upstream or downstream– Aware of disturbances anywhere in the supply chain– Can go online with their business partners
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1A. Importance of Channels
PUSH vs. PULL marketing– Push: sales force, trade promotion money to
induce intermediaries to carry, promote, and sell product to end users • For low brand loyalty, brand choice made in the store,
product is an impulse item, and product benefits well understood
– Pull: advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries• High brand loyalty, high involvement in the category,
consumers are able to perceive the difference between brands, brand is chosen before going to the store
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1B. Importance of Channels
Channels chosen affect all other marketing decisions– Sales force and advertising decisions dictate
training and motivation dealers need– Channel choices depend on company’s marketing
strategy with respect to segmentation, targeting, and positioning
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KEY CONCEPT #1
Most producers do not sell their goods directly to final users. Between producers and final users stands one or more marketing channels, a host of marketing intermediaries performing a variety of functions. - Kotler example: Philips use of international retailers (Best
Buy, Costco, etc.) - Local & medical example: MSD or GSK with Mercury Drug
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2. Roles of Marketing Channels
3 channels: Sales, Delivery, or ServiceAll channel functions have 3 things in common: They use up scarce resources, often be performed through specialization, and can be shifted among channel members.
Zero-level channelOne-level (up to 3)
Describe a forward movement of products from source to user
Reverse-flow channels are also important
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KEY CONCEPT # 2
Manufacturers have many alternatives for reaching a market. - Kotler example: Philips use of international retailers (Best
Buy, Costco, etc.) - Local & medical example: Common medications being sold
in the supermarket, pharmacy, even the sari-sari store.
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3. Channel-Design Decisions
Channels produce 5 service outputs– (1) Lot size, (2) waiting and delivery time, (3)
spatial convenience, (4) product variety, (5) service backup
Establishing objectives and constraints- Stated in terms of service output levels and
associated cost and support levels
Identifying Alternatives- Differ in 3 ways: the type of intermediaries, number needed, and terms and responsibilities of each
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3a. Responsibilities
The main elements in the trade-relations mix– Price policy– Conditions of sale– Distributors territorial rights– Mutual services and responsibilities
Evaluating Major Channel Alternatives- Estimate how many sales each alternative will generate- Estimate the costs of selling different volumes through each
channel- Comparing sales and costs
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KEY CONCEPT #3
Marketing channel decisions are among the most critical decisions facing management. The company’s chosen channel(s) profoundly affect all other marketing decisions. - Kotler example: Bowflex fitness equipment sold through the
phone- Local example: Internet selling by Zalora Marketplace- Medical example: OTC drugs being sold in the
supermarkets
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4. Channel Management Decisions
Channel power– The ability to alter channel members’ behavior so they take
actions they would not have taken otherwise• Coercive power• Reward power• Legitimate power• Expert power• Referent power
Evaluating Channel Members- Counseling, retraining, motivating, or terminating
underperformers- Standards: Sales-quota attainment, average inventory levels,
etc.
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5. Channel Integration SystemsVertical Marketing System– Conventional marketing channel – separate businesses
maximizing own profit– VMS – unified system
• Corporate VMS – successive stages of production and distribution under single ownership
• Administered VMS – successive stages of production and distribution through the size and power of one of the members
Horizontal Marketing System- 2 or more unrelated companies join resources to exploit
emerging opportunities
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KEY CONCEPT #4
Companies use intermediaries when they lack the financial resources to carry out direct marketing, when direct marketing is not feasible. - Kotler example: Avon sales representatives sell cosmetics
door-to-door- Local: Promodizers selling cigarettes to customers in
bars/nightclubs- Medical: Drug representatives being sent to give samples to
doctors to encourage them to purchase from them
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6. Conflict, cooperation, competition
Types of conflict and competition– Horizontal channel conflict – between channel members at the
same level– Vertical channel conflict – between different levels of the
channel– Multichannel conflict – 2 or more established channels that sell
to the market
Causes- Goal incompatibility - Unclear roles and rights- Differences in perception- Dependence of intermediaries’ on the manufacturer
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KEY CONCEPT #5&6Effective channel management calls for selecting intermediaries and training and motivating them. - Kotler example: Calvin Klein and Tommy Hilfiger took a hit when they
sold too many of their products in discount channels.- Local & medical example: Training medical representatives well so that
they are knowledgeable in their products and motivated to sell them
Marketing channels are characterized by continuous and sometimes dramatic change. Important trends are the growth of vertical marketing, horizontal marketing, and multichannel marketing.
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KEY CONCEPT #7&8All marketing channels have the potential for conflict and competition resulting from goal incompatibility, poorly defined roles and rights, perceptual differences, and interdependent relationships.
Channel arrangements are up to the company, but there are certain legal and ethical issues to be considered with regard to practices, such as exclusive dealing or territories, tying agreements, and dealers’ rights - Kotler example: GT Bicycles of California suing PriceCostCo
for selling their bikes to Russia at a huge discount. - Local & medical example: Medical resources not being
made available to the Philippines immediately
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7. E- and M-Commerce Marketing Practices
– Pure-click companies – those that have launched a website without any previous existence as a firm
– Brick-and-click companies – added an online site for information or e-commerce• 3 Strategies to gain acceptance from intermediaries
– Offer different brands or products on the Internet– Offer offline partners higher commissions to cushion
negative impact on sales– Take orders on the website but have retailers deliver and
collect payment
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KEY CONCEPT #9&10E-commerce has grown in importance as companies have adopted “brick-and-click” channel systems.
An area of increasing importance is m-commerce and marketing through smart phones and PDA
- Kotler example: Alibaba as the world’s largest online B2B marketplace and Asia’s most popular online auction site
- Local & medical example: HP Diagnostics providing patient’s results online
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OUTLINE
1. Marketing Channels and Value Networks
2. The Role of Marketing Channels 3. Channel-Design Decisions 4. Channel-Management Decisions5. Channel Integration & Systems6. Conflict, Cooperation, and Competition7. E-commerce Marketing Practices