10

Marketing Channels:
Delivering Customer Value

Veronica Mak

Copyright 2011 Pearson Education

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Case Study: Ikea

IKEAs vision is, to create a better life for the many people. With such
a magnanimous vision, strangely enough, IKEAs core focus on
price. It believes that if it can design stylish, quality, and functional
furniture and household items around a low price point, that this
will make more things available to more people, thus improving
lifestyles.

Copyright 2011 Pearson Education

Supply Chains
Producing and making products available to
buyers requires building relationships with
upstream and downstream supply chain
partners
Upstream: Firms that supply the raw materials,
components, parts, and other elements
necessary to create a product or service
Downstream (demand chain): Marketing
channel partners that link the firm to the
customer
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Value Delivery Network

Network composed of
the company,
suppliers,
distributors, and
ultimately customers
who partner to help
the entire system
deliver better
customer value

In making and marketing its

many models, Honda manages a
huge network of people within
Honda plus thousands of
suppliers and dealers outside the
company who work together to
bring value to final customers
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Marketing Channels
Set of interdependent organizations that
help make a product or service available
for use or consumption by the consumer
or business users
Marketing channel decisions:
Affect other marketing decisions, such as
pricing or product design
Can lead to competitive advantage
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Channel Members Add Value

- intermediaries can provide economies

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Direct Vs Indirect Marketing Channels

Number of Channel Levels
Direct

Indirect

Direct

Indirect

Length
of mktg
channel

McDonald,
Tutorial
School,
Disneyland

Crest, Del
Monte

Crest, Del
Monte,
BMW,
Kodak

Intel, IBM
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Multichannel Distribution Systems

Multichannel Distribution Systems (often called hybrid marketing

channels): Occurs when a single firm sets up two or more marketing
channels to reach one or more customer segments.

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Discussion Question
Why might a
company like Dell
have several
types of channels
including direct
while Ikea only
retails?
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How can Marketing intermediaries Add Value?

Go Direct or Indirect or
Both?
From the producers
point of view, a
greater number of
levels mean less
control and greater
channel complexity.

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Channel Conflicts

7-Eleven Franchees

More common, eg. Nike

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Channel Conflict
In recent years,
Burger King has
had a steady
stream of
conflicts with its
franchised dealers
over everything
from advertising
content to the
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Conventional vs Vertical Marketing Systems

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Types of Vertical Marketing Systems

e.g. Top Shop, Zara

e.g. Ikea, McDonald

e.g. P&G, Wellcome, ParknShop, Kraft

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Franchising Systems
A contractual
vertical marketing
system in which a
channel member,
called a franchisor,
links several
stages in the
productiondistribution process

Almost every kind of

business has been
franchisedfrom motels and
fast-food restaurants to
cleaning and handyman 10 - 15 4 - 15
companies

Types of Franchises
Franchising in
HK
E.g. AjisenRamen, Angel
Beauty, Century
21 Real Estate,
Dymocks
Full list at
http://www.franch
ise.org.hk/fohka.
asp
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Horizontal Marketing Systems

Horizontal marketing
system is a channel
arrangement in which two or
more companies at one
level join together to follow a
new marketing opportunity.
e.g. McDonald at JUSCO

McDonalds now places

express versions of their
stores in Walmart stores

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Multichannel Distribution Systems

A single firm sets up two or more marketing
channels to reach one or more customer
segments
Each new channel expands sales and
marketing coverage
Helps tailor its products and services to
specific needs of diverse customer
segments
Hard to control; can generate conflicts
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Disintermediation
Occurs when
product and
service producers
cut out
intermediaries or
displace traditional
resellers with
radical new types
of intermediaries

Avoiding disintermediation
problems: Fenders Web site
provides detailed product
information refers them to its
resellers Web sites and stores
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Discussion:
Changing Channel Organization
In what types of
industries do we see the
most disintermediation?

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Marketing at Work
Online video
content challenged
Netflixs DVD rental
business model
Changed to a
subscription-based
digital-streaming
service

Netflix/ HMV faces

dramatic changes how
movies and other
entertainment content
will be distributed;
HMV launched online
video rental service.
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Channel Design Decisions

- Customer Value Delivery Networks
Marketing channel design includes designing effective marketing
channels by
1. analyzing consumer needs,
2. setting channel objectives,
3. identifying major channel alternatives (type, roles, responsibilities),
4. Number of marketing intermediates,
5. evaluating them
6. Designing International Distribution Channels (eg Avon in China)

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3 Strategies of Channel Design

Durable products
- Whirlpool

Deluxe products - Rolex

FMCG - Coca-Cola, P&G

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Channel Design Decisions

Evaluating the major alternatives involves
comparing each alternative to:
Economic criteria
Control issues
Adaptive criteria

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Channel Management Decisions

Selecting channel
members
Managing and
motivating channel
members:
Caterpillar works closely with its
worldwide network of
independent dealers to find
better ways to bring value to
customers

Partner relationship
management

Evaluating channel
members
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Todays Summary

Explain why companies use marketing channels

and discuss the functions these channels
perform
Discuss how channel members interact and how
they organize to perform the work of the channel
Identify the major channel alternatives open to a
company
Explain how companies select, motivate, and
evaluate channel members
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Not covered areas

Designing International Distribution
Channels (p.334-335)
PUBLIC POLICY AND DISTRIBUTION
DECISIONS (p.337)
MARKETING LOGISTICS AND SUPPLY
CHAIN MANAGEMENT (p.338-354)

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