Part 6 : Delivering ValuePart 6 : Delivering Value

Chapter 15 – Designing and Managing Chapter 15 – Designing and Managing Value Networks and ChannelsValue Networks and Channels

The Importance of ChannelsThe Importance of Channels

• Most producers do not sell their goods directly to final users. Between producers and final users stands one or more marketing channels (intermediaries) such as merchants (wholesaler and retailer), agents (broker and sales agent), and facilitator (banks and transportation co)

• Companies use intermediaries as advantages when they lack the financial resources to carry out direct marketing, and when direct marketing is not feasible

• Intermediaries normally achieve superior efficiency in making goods widely available and accessible to target market through their contacts, experience, specialization, and scale of operation

The Importance of Channels The Importance of Channels • In managing its intermediaries, the firm must decide how

much effort to devote to push versus pull marketing• A push strategy involves the manufacturer using its sales

force and trade promotion money to induce intermediaries to carry, promote, and sell the product to end users.

• A pull strategy involves the manufacturer using advertising and promotion to persuade customers to ask intermediaries for products, thus inducing the intermediaries to order

• A push strategy is appropriate where there is low brand loyalty and products benefits are well understood e.g. impulse items. While a pull strategy is appropriate when there is high brand loyalty and people perceive differences between brands, and when people choose the brand before they go to the store

Value NetworksValue Networks

• Value network is a system of partnership and alliances that a firm creates to source, augment, and deliver its offerings.

• A value network includes a firm’s supplier and its suppliers’ suppliers (this can be achieved by B2B Web sites), and its immediate customers and their end customers (this can be achieved by marketing channels) so that a firm can deliver superior value

Channel Design DecisionsChannel Design Decisions• Manufacturers have many alternatives for reaching a market.

They can sell direct or use one-, two-, or three-level channels. Deciding which types of channel to use calls for:

I. Analyzing Customers’ Desired Serviced Output Levels:a. Lot size: The number of units the channel permits a typical

customer to purchase on one occasionb. Waiting and delivery time: customers prefer faster and faster

delivery channelsc. Spatial convenience: customers prefer widely delivery channels

with the market decentralization to help customersd. Product variety: customers prefer a greater assortment because

more choices increase the chance of finding what they neede. Service backup: the greater the service backup (credit, delivery,

installation, repairs), the greater the work provided by the channel

II. Establishing channel objectives: vary with product characteristics e.g. perishable products require direct marketing, non standard products such as machineries are sold by sales representatives

Channel Design DecisionsChannel Design DecisionsIII. Identifying major channel alternatives for reaching

customers: a. Types of intermediaries e.g. poor sales in machine

with spare parts can be solved by expanding direct sales force, finding distributors, hire manufacturer’s agents in different regions

b. Number of intermediaries. There are three strategies to cover the potential market: exclusive distribution (the producer wants to maintain control over the service level and outputs offered by the reseller); selective distribution (the producer with too many outlets to gain adequate market coverage with more control and less cost); intensive distribution (the consumer requires a great deal of location convenience)

IV. Evaluating the major alternatives upon economic and control criteria

Channel Management DecisionsChannel Management Decisions• Effective channel management calls fora. Selecting channel members with growth and profit record,

financial strength, cooperatives and reputationb. Training channel membersc. Motivating channel members• The goal is to build a long term partnership that will profitable for

all channel members• Three of the most important trends in marketing channels’

dramatic change are:a. Vertical marketing systems: producer, wholesaler and retailer

acting as unified system to control and eliminate conflict. One channel member, the channel captain, owns the others or franchises them or has so much power that they all corporate e.g. Coca cola with soft drinks

b. Horizontal marketing systems: two or more unrelated companies put together resources to exploit marketing opportunity e.g. supermarkets with local bank

c. Multi channel marketing systems: a single firm uses two or more marketing channels to reach one or more customer segments