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Marketing Management MBA 2009 Lecture Notes
Chapter 15 lecture notes of marketing management course for MBA students, des...
From Ehab Mesallum
MM
From Prashant Singh
Successful value creation needs successful value delivery.
Marketing Channels and Value Networks
Marketing channels are the pathways a product or service follows after production,culminating in purchase and use by the final end user. Channel memberscollectively earn margins that account for 30 to 50% of the ultimate selling price,and hence is an important constituent of a marketing strategy, since it has a hugeimpact on what the consumer pays, and thereby on the quantity demanded. The company’s pricing depends on whether it chose mass merchandisers or high-quality boutiques. Channel decisions involve relatively long term commitment toother firms. The firm must decide how much effort to devote to push versus pull marketing. Apush strategy involves the use of sales force and trade promotion money to induceintermediaries to carry, promote and sell the product to end users. Appropriatewhere there is low brand loyalty in the category, brand choice is made in the store;the product is an impulse item.A pull strategy involves the manufacturer using advertising and promotion topersuade consumers to ask intermediaries for the product, thus inducing theintermediaries to order it. This is appropriate when there is high brand loyalty andhigh involvement in the category.
Value Networks
The company should first think of the target market and then design the supplychain backward from that point, a view called demand-chain planning. The conceptof value network - a system of partnerships and alliances that a firm creates tosource, augment and deliver its offerings- takes an even broader view. A valuenetwork includes a firm’s suppliers and its suppliers’ suppliers, and its immediatecustomers and their end customers.It yields several insights. First, the firm can estimate whether more money is madeupstream or downstream, in case it might want to integrate backward or forward.Intermediaries smooth the flow of goods and services. This process is necessary tobridge the discrepancy between the assortments of goods and services generatedby the producer and the assortment demanded by the customer.
Channel Functions and Flows
Direct marketing channels consist of a producer selling directly to final customersthrough door-to-door sales, Internet selling etc. A one level channel contains oneintermediary, such as a retailer.
Channel Design Decisions
Analyzing Customer’s Desired Service Output Levels
Channels produce five service outputs:1.Lot Size2.Waiting Time3.Spatial Convenience4.Product Variety5.Service backup
Establishing channel objectives and Constraints
Arrange functional tasks to minimize total channel costs and still provide desiredlevel of service outputs. Effective planning requires determining which marketsegments to serve and the best channels for each. Channel design must alsotake into consideration the strengths and constraints of different types of intermediaries. There are other factors, such as competitors channel, economicsconditions and legal conditions.
Identifying Major Channel Alternatives
1.Types of Available intermediaries2.Number of Intermediaries3.Terms and Responsibilities of Channel MembersCompanies that can switch their customers to lower cost channels without losingsales or service quality will gain a channel advantage.
Channel Management Decisions
Companies should look at their channel members in the same way they look attheir end users. This means determining intermediaries’ needs and tailoring thechannel positioning to provide superior value to these intermediaries. They canprovide training, market research and other capacity building programs.Producers vary greatly in channel power, the ability to alter channel memberbehavior so that members take actions they would not have taken otherwise.Channel Conflicts and Channel CoordinationChannel conflicts occur due to goal incompatibility. Conflicts may also stem fromdifferences in perception as when the producer is optimistic about short termeconomic trends whereas the channel is not. Companies may manage conflictsby striving for superordinate goals, coopting the support of leaders and throughdiplomacy etc.Exclusive Dealings, Tying agreements and Dealers’ rights are some of thestratagems used by companies to secure their channel objectives.
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Designing and Managing Value Networks
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