Marketing Management Dr' David Andrus Exam 3 Lecture 4

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Marketing ManagementDr. David AndrusExam 3
Lecture 4
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Themes Of My Presentation

• Market Channels
• Push and Pull Strategies
• Channel Integration
• Value Networks
• Channel Levels and Design
• Channel Conflict

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MARKETING CHANNELS

• Marketing channels are sets of interdependent
  organizations involved in the process of making a
  product or service available for use or
  consumption.
• Some intermediaries buy, take title to, and
  resell the merchandise, they care called
  merchants.
• Others search for customers and may negotiate on
  the producers behalf but do not take title to
  the goods, they are called agents.
• Still others assist in the distribution process
  but neither takes title to goods nor negotiates
  purchases or sales, they are called facilitators.

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The Importance of Channels

• Decisions about the marketing channel system are
  among the most critical facing management.
• In the United States, channel members earn
  margins that account for 30 to 50 percent of the
  ultimate selling price.
• Marketing channels must not just serve markets,
  they must also make markets.

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Push and Pull Strategies

• Push strategy - manufacturer uses sales force and
  trade promotion money to induce intermediaries to
  carry, promote, and sell product to end user.
• Use when there is low brand loyalty in a
  category, brand choice is made in stores, product
  is an impulse item, and product benefits are well
  understood.
• Pull strategy - manufacturer uses advertising and
  promotion to induce consumers to ask
  intermediaries for the product, thus inducing the
  intermediaries to order it.
• Use when there is high brand loyalty and high
  involvement in the category, when people perceive
  differences between brands, and when people
  choose the brand before they go to the store.

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Channel Development

• A new firm typically starts as a local operation
  selling in a limited market, using existing
  intermediaries.
• If the firm is successful, it might branch into
  new markets and use different channels in
  different markets.
• The same consumer may choose to use different
  channels for different functions in making a
  purchase.

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Channel Integration

• Customers expect channel integration,
  characterized by the following features
• The ability to order a product online and pick it
  up at a convenient retail location.
• The ability to return an online ordered product
  to a nearby store of the retailer.
• The right to receive discounts based on total
  online and off-line purchases.

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Value Networks

• A supply chain view of a firm sees markets as
  destination points and amounts to a linear view
  of the flow.
• The company should first think of the target
  market, and then design the supply chain backward
  from that point.
• value networka system of partnerships and
  alliances that a firm creates to source, augment,
  and deliver its offerings.
• A value network includes a firms suppliers, its
  suppliers suppliers, its immediate customers,
  and their end customers.

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THE ROLE OF MARKETING CHANNELS

• Many producers lack the financial resources to
  carry out direct marketing.
• Producers who do establish their own channels can
  often earn a greater return by increasing
  investment in their main business.
• Intermediaries normally achieve superior
  efficiency in making goods widely available and
  accessible to target markets.

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Channel Functions and Flows

• A marketing channel performs the work of moving
  goods from producers to consumers.
• It overcomes the time, place, and possession gaps
  that separate goods and services from those who
  need and want them.
• The question is who is to perform various channel
  functions.
• All channel functions have three things in
  common
• They use up scarce resources.
• They can often be performed better though
  specialization.
• They can be shifted among channel members.

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Channel Levels

• A zero-level channel (also called a
  direct-marketing channel) consists ofa
  manufacturer selling directly to the final
  consumer.
• A one-level channel contains one selling
  intermediarysuch as a retailer.
• A two-level channel contains two
  intermediarieswholesaler and a retailer.
• A three-level channel containswholesalers,
  jobbers, and retailers.

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Reverse-flow Channels

• Channels normally describe a forward movement of
  products from source to user.
• Reverse-flow channels are important in the
  following cases
• To reuse products or containers.
• To refurbish products for resale.
• To recycle products.
• To dispose of products and packaging.

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CHANNEL-DESIGN DECISIONS

• Designing a marketing channel system involves
  analyzing
• customer needs,
• establishing channel objectives,
• identifying major channel alternatives,
• evaluating major channel alternatives.

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Desired Service Output Levels

• In designing the marketing channel, the marketers
  must understand the service output levels desired
  by target customers.
• Channels produce five service outputs
• Lot size.
• Waiting and delivery time.
• Spatial convenience.
• Product variety.
• Service backup.
• The marketing-channel designer knows that
  providing greater service outputs means increased
  channel costs and higher prices for customers.

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Establishing Objectives and Constraints

• Channel objectives should be stated in terms of
  targeted service output levels.
• Channel institutions should arrange their
  functional tasks to minimize total channel costs
  and still provide desired levels of service
  outputs.
• Planners can identify several market segments
  that want different service levels.
• Channel objectives vary with product
  characteristics.

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Identifying Major Channel Alternatives

• Companies can choose from a wide variety of
  channels for reaching customersfrom sales
  forces, to agents, distributors, dealers, direct
  mail, telemarketing, and the Internet.
• Each channel has unique strengths as well as
  weaknesses.
• Most companies now use a mix of channels.
• Each channel hopefully reaches a different
  segment of buyers and delivers the right products
  to each at the least cost.

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Price Sensitivity

• Companies decide on the number of intermediaries
  to use at each channel level.
• Exclusive distribution means severely limiting
  the number of intermediaries.
• It is used when the producer wants to maintain
  control over the service level and outputs
  offered by the resellers.
• Often it involves exclusive dealing arrangements
  between suppliers and retailers that are becoming
  a mainstay for specialists looking for a
  competitive advantage.

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Selective and Intensive Distribution

• Selective distribution involves the use of more
  than a few, but less than all, of the
  intermediaries who are willing to carry a
  particular product
• Intensive distribution consists of the
  manufacturer placing goods or services in as many
  outlets as possible.
• Manufacturers are constantly tempted to move from
  exclusive or selective distribution to intensive
  distribution to increase coverage and sales.

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Economic and Control Criteria

• Each channel will produce a different level of
  sales and costs.
• When sellers discover a convenient lower-cost
  channel, they try to get their customers to us
  it.
• Companies that are successful in switching
  customers to lower-cost channels, assuming no
  loss of sales or deterioration in service
  quality, will gain a channel advantage.
• Channel members must make a commitment to each
  other for a specified time.

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Selecting Channel Members

• Companies need to select their channel members
  carefully.
• They should evaluate the
• Number of years in business.
• Other lines carried.
• Growth and profit records.
• Financial strength.
• Cooperativeness.
• Service reputation.

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Sales Agents and Stores

• If the intermediaries are sales agents, producers
  should evaluate the
• Number and character of other lines carried.
• Size and quality of the sales force.
• If the intermediaries are department stores that
  want exclusive distribution, the producer should
  evaluate
• Locations.
• Future growth potential.
• Type of clientele.

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Motivating Channel Members

• Stimulating channel members to top performance
  starts with understanding their needs and wants.
• The company should provide training programs and
  market research programs to improve
  intermediaries performance.
• The company must constantly communicate its view
  that the intermediaries are partners in a joint
  effort to satisfy end users of the product.
• Most producers see gaining intermediaries
  cooperation as a huge challenge.
• Companies that are more sophisticated try to
  forge a long-term partnership with distributors.

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Evaluating Channel Members

• Producers must periodically evaluate
  intermediaries performance against such standards
  as
• sales quota attainment,
• average inventory levels,
• customer delivery times,
• treatment of damaged and lost goods,
• cooperation in promotional and training programs.

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Modifying Channel Arrangements

• Modification becomes necessary when the
  distribution channel is not working as planned.
• When consumer-buying patterns change.
• When the market expands.
• When new competition arises.
• When innovative distribution channels emerge.
• And when the product moves into the later stages
  in the product life cycle.

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Vertical Marketing Systems

• One of the most significant recent channel
  developments is the rise of vertical marketing
  systems.
• A conventional marketing system comprises an
  independent producer, wholesaler(s), and
  retailer(s).
• A vertical marketing system (VMS), by contrast,
  comprises the producer, wholesaler(s), and
  retailer(s) acting as a unified system.
• One channel member, the channel captain, owns the
  others, franchises them, or has so much power
  that they all cooperate.

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VMS Advantages

• VMSs achieve economies through
• Size.
• Bargaining power.
• The elimination of duplicated services.

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Three Types of VMS

• A corporate VMS combines successive stages of
  production and distribution under single
  ownership.
• An administered VMS coordinates successive stages
  of production and distribution through the size
  and power of one of the members.
• A contractual VMS consists of independent firms
  at different levels of production and
  distribution integrating their programs on a
  contractual basis to obtain more economies or
  sales impact than they could achieve alone.

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Contractual VMS

• Contractual VMSs now constitute one of the most
  significant developments in the economy.
• They are of three types
• Wholesaler-sponsored voluntary chains.
• Retailer cooperatives.
• Franchise organizations.

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Horizontal and Multi-channel Marketing Systems

• Two or more unrelated companies put together
  resources or programs to exploit an emerging
  marketing opportunity.
• Multi-channel marketing occurs when a single firm
  uses two or more marketing channels to reach one
  or more customer segments.
• By adding more channels, companies can gain three
  important benefits
• Increased market coverage.
• Lower channel cost.
• More customized selling.

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Multi-channel Costs

• The gains from adding new channels come at a
  price
• New channels typically introduce conflict and
  control problems.
• Two or more channels may end up competing for the
  same customers.
• The new channel may be more independent and make
  cooperation more difficult.

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Types of Conflict

• Vertical channel conflict means conflict between
  different levels within the same channel.
• Horizontal channel conflict involves conflict
  between members at the same level within the
  channel.
• Multi-channel conflict exists when the
  manufacturer has established two or more channels
  that sell to the same market.
• Multi-channel conflict is likely to be especially
  intense when the members of one channel get a
  lower price (based on larger volume purchases) or
  work with a lower margin.

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Managing Channel Conflict

• As companies add channels to grow sales, they run
  the risk of creating channel conflict.
• Channel members come to an agreement on the
  fundamental goal they are jointly seeking.
• A useful step is to exchange persons between two
  or more channel levels.
• Co-optation is an effort by one organization to
  win the support of the leaders of another
  organization by including them in advisory
  councils, and the like.

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E-COMMERCE MARKETING PRACTICES

• E-commerce means that the company or site offers
  to transact or facilitate the selling of products
  and services online.
• E-purchasing means companies decide to purchase
  goods, services, and information from various
  online suppliers.
• E-marketing describes company efforts to inform,
  communicate, promote, and sell its products and
  services over the Internet.

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Advantages of Internet Marketing

• The Internet is most useful for products and
  services when the shopper seeks
• Greater ordering convenience.
• Lower cost.
• When buyers need information about product
  features and prices.
• The Internet is less useful for
• Products that must be touched or examined in
  advance.
• Customer service is critical.