Designing and Managing Integrated

Marketing Channels

Presented By:-
Pranjal Mathur
 Marketing channels and Value
networks
• Chief role is to convert potential buyers to
profitable customers.
• Firm’s pricing depends on selection of
marketing channels.
• Choice of channel depends on marketing
strategy with respect to
segmentation, targeting and positioning.
 Marketing
Strategy

Push Pull
Strategy Strategy
 Push Strategy
• Push strategy:- Producers induce intermediaries
to carry, promote and sell products and services
to end users through its sales force, trade
promotions and other means.
• Appropriate when:-
1. Brand loyalty is high.
2. Brand selection at the spot.
3. Product is an impulse item.
4. Product benefits are well understood.
 Pull Strategy
• Pull strategy:- Customers are persuaded through
promotional and advertising campaigns to
demand the product, which induces
intermediaries to order it from producer.
• Appropriate when:-
1. Brand loyalty is high.
2. High involvement product.
3. Brand distinction is possible.
4. Brand selection prior to purchase.
 Channel Development
• Deciding best channel is not a problem but
convincing the available intermediaries to handle
firm’s product is a difficult task.
• Smaller markets – directly through retailers.
• Larger markets – through distributors.
• Rural markets – through local merchants.
• Channel system evolves as a function of -
1. Local opportunities.
2. Emerging threats.
3. company’s resources and capabilities.
Hybrid Channels / “Go-to Markets”
• Example to understand:-
HP uses:-
1. Sales force – large accounts.
2. Outbound telemarketing – medium size
accounts.
3. Direct mail – small accounts.
4. Retailers – still smaller accounts.
5. Internet – specialty item orders.
• To mange hybrid channels, company must make
sure that these channels:-
1. Work well together.
2. Match each target customer’s preferred way of
doing business.
• Features expected by customers in a hybrid
channel:-
1. Ability to order online and pick it up from a
convenient retail store.
2. ability to return the ordered product back to a
nearby retail store.
3. Right to discounts and promotional offers.
 Understanding Customer’s Needs
• Factors based on which customers chooses a
particular channel are :-
1. Price.
2. Product assortment.
3. Convenience.
4. Own shopping goals like economic, social and
experimental.
• According to Nunes and Cespades customers fall
into four categories :-
1. Habitual shoppers:- purchase from same place
in same manner over time.
2. High value deal seekers:- buyers who know their
needs and survey to a great deal to buy at
lowest possible price.
3. Variety loving shoppers:- gathers info from many
channels and buy from favorable channels
regardless of price.
4. High involvement buyers:- gathers info from all
possible channels, buy from low cost channels
and take advantage of customer support from
high-touch channel.
 Value Networks
• Demand-chain planning:- when a firm first thinks of
market and then design supply chain backwards from
market to firm.
• Value networks is a system of partnerships and
alliances that a firm creates to source, augment and
deliver its offerings to the end user.
• A value network includes:-
1. Firm’s suppliers.
2. Its supplier’s supplier.
3. Its intermediate customers.
4. End customers.
• Various insights of demand-chain planning:-
1. Company can determine whether more
money is upstream or downstream this will
help in integrating backward or forward.
2. Company is more aware of disturbances
anywhere in supply chain that might cause
costs, price or supplies to change suddenly.
3. Companies can go online with their business
partners to carry on faster and more accurate
communications, transactions and payments
to reduce costs and speed up information
and increase accuracy.
• Managing value networks requires investment
in IT(Information and Technology) and soft
wares.
• SAP and Oracle ERP systems to manage cash
flows, manufacturing, human resources,
purchasing and other functions within a
unified framework.
 Roles of Marketing Channels
• Producer gain effectiveness and efficiency by
using intermediaries through:-
1. Contacts.
2. Experience.
3. Scale of operation.
4. Specialization.
• Make available goods and services widely
available to target market.
 Channel Function and Flows
• Functions that are performed by channel members
are:-
1. Gathers information about potential and current
customers and competitors.
2. Develop and disseminate persuasive information to
stimulate purchasing.
3. Place orders with manufacturers.
4. Reach agreements on price and other terms so that
transfer of ownership or possession can be affected.
5. Assume risk connected with channel work.
6. Provide for storage and movement of goods.
7. Provide for buyer’s payment of their bills through
banks and other financial institutions.
• Physical product transfer, title and promotional
processes constitute a forward flow of activity
from company to customers.
• Ordering and payment processes constitute a
backward flow of activity from customers to
company.
• Information, negotiation, finance and risk taking
processes take place in both the directions.
• A manufacturer selling a physical product or
service might require only three channels:-
1. Sales channel.
2. Distribution channel.
3. Service channel.
• All channel functions have three things in
common:-
1. They use up scarce resources.
2. They can be performed better through
specialization.
3. They can be shifted among channel
members.
• If intermediaries are more efficient than
manufacturers, prices to customers should be
lower.
• If consumer’s perform some work by
themselves they can enjoy even lower prices.
 Channel Levels
• The producers and final customers are part of
every channel.
• A zero level channel consists of a manufacturer
selling directly to final customers.(Tupperware,
Bata, BPCL)
• The one level channel contains one selling
intermediary such as retailer.
• Two level channel contains two intermediaries
such as wholesalers and retailers.
• Three level channel contains three intermediaries
such as distributors, wholesalers and retailers.
• Channel normally describe a forward
movement of products from source to user.
• But there are reverse flow channels which are
important in following cases:-
1. Reuse of products or containers (cold drink
bottles).
2. Recycle of products (paper).
3. Disposal of products and packaging.
 Channel-Design Decisions
• Designing a marketing channel requires:-
1. Analyzing customer needs.
2. Establishing channel objectives.
3. Evaluating major channel alternatives.
 1. Analyzing Customer Needs
• Channels produce five service outputs:-
1. Lot Size:- the number of units the channel permits a
typical customer to purchase on one occasion.
2. Waiting and Delivery Time:- the average time
customers wait for receipt of goods.
3. Spatial Convenience:- Bata and Exide batteries have
made it easier for consumers to access them.
4. Product Variety:- assortment breadth provided by
marketing channels.
5. Service Backup:- the add-on services (credit, delivery
installation, repairs) provided by channel .
 2.Establishing Objectives and
Constraints
• Marketers should state their channel objectives in term of
targeted service output levels.
• Channel institutions should arrange their functional tasks to
minimize total channel costs and still provides desired level
of service outputs.
• Channel objectives vary with product characteristics :-
1. Perishable products - direct marketing.
2. Bulky products - channels that minimize shipping distance
and amount of handling.
3. Custom built machinery - company sales representatives.
4. Products requiring installations and regular check ups –
company owned or leased franchisees.
 3. Identifying and Evaluating major
Channel Alternatives
• A firm can choose from a wide variety channels
for reaching customers:-
1. Sales force – complex product and transactions.
2. Internet – less expensive but not effective with
complex products.
3. Distributors – can create sales but contact with
customers is lost.
4. Manufacturer representatives – reach to
different segment of customers and delivers the
right product at low cost. If fails then leads to
channel conflicts and excessive costs.
 Number of Intermediaries
• A firm can decide on number of
intermediaries to use at each level by using
these three strategies :-
1. Exclusive distribution.
2. Selective distribution.
3. Intensive distribution.
 Exclusive Distribution
• Appropriate when manufacturer wants to
maintain a strict control over service level and
outputs offered by resellers.
• Requires a closer partnership with
intermediaries.
• Used in distribution of automobiles, earth
movers etc.
• Example:- Gucci
 Selective Distribution
• Relies on more than a few but less than all of
intermediaries.
• A company can gain adequate market
coverage with less cost and more control.
 Intensive Distribution
• Goods and services are kept in as many stores
as possible.
• These strategies are generally used for
perishable products such as snacks, soft-
drinks, newspapers etc.
• Intensive distribution increases product
availability and service but encourages
retailers to compete aggressively.
• Ex. :- Titan watches.
Terms and Responsibilities of Channel
Members
• Each channel member must be treated
respectfully and must be given opportunity to
be profitable.
• Main policies are:-
1. Price policies.
2. Condition of scales.
3. Territorial rights.
4. Mutual services and responsibilities.
• Price policies:- A producer should establish a
price-list and schedule of discounts and
allowances.
• Conditions of sales:- Refers to payment terms and
producer guarantees. Provision for trade
discounts on bulk orders or purchases. Guarantee
against defective merchandise or price declines.
• Distributor’s territorial rights:- Definition of
distributor's territories and terms under which
distributor will enfranchise with other
distributors.
• Mutual services and responsibilities:- Example
of McDonald’s –
McDonald’s provides:-
1. Franchisee with a building.
2. Promotional support.
3. Record keeping system.
4. Training.
5. General administrative and technical
assistance.
• In return franchisees are expected to :-
1. Satisfy company standards.
2. Cooperate with promotional offers.
3. Furnish required information and buy
supplies from specified suppliers or vendors.
 Channel-Management Decisions
• After a channel has been chosen, company
must :-
1. Select.
2. Train.
3. Motivate.
individual intermediaries for each channel.
 1. Selecting Channel Members
• To select a channel member producer should
determine:-
1. No. of years in business.
2. Other lines carried out.
3. Growth and profit record.
4. Financial strength.
5. Cooperativeness.
6. Service reputation.
 2. Training and Motivating Channel
Members
• A company should view its intermediaries as
end-users.
• Needs and wants of intermediaries are
compulsory to stimulate them to top-level
performance.
• For ex.:- Microsoft.
• Channel power:- ability to alter behavior of
intermediaries so that they can think out-of-
box.
• Powers a manufacturer posses to elicit
cooperation from intermediaries:-
1. Coercive power:- threatening intermediaries
to terminate relationship if they fail to
cooperate.
2. Reward power:- offering extra benefits on
performing specific act or function.
3. Legitimate power:- request for behavior that
is warranted under contract.
4. Expert power:- having a special knowledge
that intermediaries value and doesn’t posses.
• Efficient Consumer Response (ECR) opted by
manufacturer and intermediaries to
streamline supply chain and cut costs.
• ECR organizes relationship between
manufacturer and intermediaries in two
areas:-
1. Demand side management:- collaborative
activities to stimulate demand from
consumer side by promoting joint marketing
and sales activities.
2. Supply side management:- collaborative
practices to optimize supply.
 3. Evaluating Channel Members
• Manufacturers regularly check performance
against standards such as:-
sales quotas, inventory levels, customer delivery
time, treatment of damaged and lost goods and
cooperation in promotional and training
programs.
 Modifying Channel Design
• A channel is modified when:-
1. Channel is not working well as planned.
2. Consumer buying pattern change.
3. Market expands.
4. New competition arises.
5. Product moves into latter stage of its product
life cycle.
 Channel Integration System

Marketing
Systems

Horizontal Vertical
Marketing Marketing
Systems Systems
 Horizontal Marketing System
• A horizontal marketing system is one in which
two or more unrelated companies put
together resources or programs to exploit an
emerging market opportunity.
• Each one lacks capital, know how production,
marketing resources to venture alone.
• Companies might work with each other on
temporary or permanent basis.
 Vertical Marketing System
• The producer, wholesaler and retailer acts a
unified system.
• One channel member, the channel captain
owns the others or franchises them has so
much power that they all cooperate.
• VMS arose as a result of strong channel
members’ attempt to control behavior and
eliminate the conflict.
 Vertical Marketing
System

Administered Contractual
Corporate Vertical
Vertical Marketing Vertical Marketing
Marketing System
System System
• Corporate Vertical Marketing System:- It
combines successive stages of production and
distribution under single ownership.
• Administered Vertical Marketing System:- It
coordinates successive stages of production
and distribution through size and power of
one of the members.
• Contractual Vertical Marketing System:- It
consists of independent firms at different
levels of production and distribution, in order
to obtain more economies or sales impact
what they had achieved alone.
 Contractual
Vertical Marketing
Systems

Wholesalers
Retailer Franchisee
Sponsored
Cooperatives Organizations
Voluntary Chain
• Wholesalers Sponsored Voluntary Chain:-
Wholesalers organize voluntary chains of retailers
to help them standardize their selling practices
and help them achieve buying economies in
order to compete with large chain organizations.
• Retailer Cooperatives:- Retailers take the initiative
and organize new business entity to carry on
wholesaling with some production. Members
concentrate their purchases through retailer co-
op and plan their advertising jointly. Profits pass
back to members in proportion to their purchase.
• Franchisee Organization:- A channel member
called franchisor might link several successive
stage in the production-distribution process.
Conflict, Cooperation and Competition
• Channel conflict is generated when one
channel members’ action prevent another
channel from achieving its goals.
• Channel coordination occurs when channel
members are brought together to advance
goals of the channel as opposed to their own
potentially incompatible goals.
 Types of Conflict
Conflict
Causes of Conflict

Managing
Conflicts
 Causes of Channel Conflict
• Conflicts may arise from:-
1. Goal incompatibility :- Manufacturers want
to achieve rapid market penetration through
low price policy.
2. Unclear Roles and Rights :- HP may sell
personal computers to large accounts
through its own sales force, but its licensed
dealers may also be trying to sell to large
accounts.
3. Differences in Perception:- Disputes between
manufacturers and distributors about
optimal advertising strategy.
4. Intermediaries Dependence on Manufacturer
:- Fortune of exclusive dealers depend totally
upon manufacturers’ products and pricing
decisions which creates high potential for
conflict.
 Managing Channel Conflict
• Various mechanisms of managing conflicts
are:-
1. Adoption of Superordinate Goal:- Channel
members come to an agreement on
fundamental goals they are jointly
seeking, weather it is survival, market
share, high quality or customer satisfaction.
2. Exchange of Employees
3. Joint Membership in Trade Association:- The
manufacturer and the intermediaries come
together in good cooperation which may lead to
better understanding between them.
4. Co-option:- It is an effort by one organization to
win the support of leaders of other organization
by including them in advisory council, board of
directors, which reduces the chances of
conflicts.
5. Diplomacy, Mediation or Arbitration:- when
conflict is chronic, the companies may need to
resort to diplomacy, mediation or arbitration.
i. Diplomacy:- It takes place when each sends a
person or groups to meet with its
counterparts to resolve the conflict.
ii. Mediation:- It means resorting to a neutral
third party skilled in conciliating the two
parties interest.
iii. Arbitration:- It occurs when both the parties
agree to present their arguments to one or
more arbitrators and accept their decisions.
6. Legal Recourse:- when none of the above
methods prove effective, company or
channel partners may choose to file a law
suit.
The End