Professional Documents
Culture Documents
Designing and Managing Integrated Marketing Channels: PART V Delivering Value
Designing and Managing Integrated Marketing Channels: PART V Delivering Value
1/21/08
3:49 PM
Page 230
C H A P T E R
1 3
Designing and
Managing Integrated
Marketing Channels
In this chapter, we will address the following questions:
1. What are marketing channel systems and value networks?
2. What functions do marketing channels perform?
3. What decisions do companies face in designing, managing, and integrating their channels?
4. What key issues do companies face in e-commerce?
230
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall.
Copyright 2009 by Pearson Education, Inc.
2008933525
Royal Philips Electronics of the Netherlands is one of the worlds biggest electronics companies
and Europes largest, with annual sales of over $36 billion. The company offers a broad range
of products, from flat screen TVs and electric razors for consumers to medical imaging
equipment and professional lighting systems for hospitals and businesses. Philips uses local distributors in some countries but relies mainly on its company sales force and its own Web sites to
handle orders from institutional and industrial buyers. A hospital purchasing agent can log on,
compare product specifications, enter a purchase order, check the delivery status of a previous
order, or access service and support databases.
On the consumer side, Philips products reach buyers worldwide through a diverse distribution model that includes mass merchants, retail chains, independent stores, and small specialty
M13_KOTL6600_04_SE_M13
1/21/08
3:49 PM
Page 231
uccessful value creation needs successful value delivery. Holistic marketers are
increasingly taking a value network view of their businesses, examining the whole supply
chain that links raw materials, components, and manufactured goods and shows how they
move toward the final consumers. This chapter discusses the strategic and tactical issues
of marketing channels and value networks; Chapter 14 will examine marketing channel
issues from the perspective of retailers, wholesalers, and physical-distribution agencies.
2008933525
231
M13_KOTL6600_04_SE_M13
232
1/21/08
3:49 PM
Page 232
Value Networks
The company should first think of the target market and then design the supply chain
backward from that point, a view called demand-chain planning. Northwesterns
Don Schultz says: A demand chain management approach doesnt just push things
through the system. It emphasizes what solutions consumers are looking for, not what
products we are trying to sell them. He suggests replacing the marketing four Ps
with a new acronym, SIVA, which stands for solutions, information, value, and access.6
The concept of a value networka system of partnerships and alliances that a
firm creates to source, augment, and deliver its offeringstakes an even broader view.
A value network includes a firms suppliers and its suppliers suppliers, and its immediate customers and their end customers. The value network includes valued relations
with others such as university researchers and regulatory agencies.
Demand chain planning yields several insights. First, the firm can estimate
whether more money is made upstream or downstream, in case it might want to
integrate backward or forward. Second, the company is more aware of disturbances
anywhere in the supply chain that might cause costs, prices, or supplies to change
suddenly. Third, companies can go online with business partners for faster, more
accurate, and less costly communications, transactions, and payments.
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall.
Copyright 2009 by Pearson Education, Inc.
2008933525
A marketing channel performs the work of moving products from producers to consumers, overcoming the time, place, and possession gaps that separate goods and services from those who need or want them. Members of the marketing channel perform a
number of key functions (see Table 13.1). Some functions (physical, title, and promotion) constitute a forward flow of activity from the company to the customer; other functions (ordering and payment) constitute a backward flow from customers to the company.
M13_KOTL6600_04_SE_M13
1/21/08
3:49 PM
Page 233
Gather information about potential and current customers, competitors, and other actors
be effected.
Place orders with manufacturers.
Acquire the funds to finance inventories at different levels in the marketing channel.
Assume risks connected with carrying out channel work.
Provide for the successive storage and movement of physical products.
Provide for buyers payment of their bills through banks and other financial institutions.
Oversee actual transfer of ownership from one organization or person to another.
FIGURE 13.1
1. Physical Flow
Suppliers
Transporters,
warehouses
Manufacturer
Transporters,
warehouses
Dealers
Transporters
Customers
2. Title Flow
Suppliers
Manufacturer
Dealers
Customers
3. Payment Flow
Suppliers
Banks
Manufacturer
Banks
Transporters,
warehouses,
banks
Manufacturer
Transporters,
warehouses,
banks
Advertising
agency
Manufacturer
Advertising
agency
Dealers
Banks
Customers
Dealers
Transporters,
banks
Customers
4. Information Flow
Suppliers
5. Promotion Flow
2008933525
Suppliers
Dealers
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall.
Copyright 2009 by Pearson Education, Inc.
Customers
233
M13_KOTL6600_04_SE_M13
234
1/21/08
3:49 PM
Page 234
Channel Levels
The producer and the final customer are part of every channel. Well use the number
of intermediary levels to designate the length of a channel. Figure 13.2a illustrates
consumer-goods marketing channels of different lengths, while Figure 13.2b illustrates industrial marketing channels.
A zero-level channel (also called a direct-marketing channel) consists of a producer selling directly to final customers through door-to-door sales, Internet selling,
mail order, telemarketing, home parties, TV selling, manufacturer-owned stores, and
other methods. A one-level channel contains one intermediary, such as a retailer.
A two-level channel contains two intermediaries; a three-level channel contains three intermediaries. From the producers perspective, obtaining information about end users and
exercising control becomes more difficult as the number of channel levels increases.
Channels normally describe a forward movement of products, but there are also
reverse-flow channels, important for bringing products back for reuse (such as refillable
bottles); refurbishing items for resale; recycling products; and disposing of products
and packaging. Several intermediaries play a role in these channels, including manufacturers redemption centers, community groups, traditional intermediaries such as
trash-collection specialists, recycling centers, trash-recycling brokers, and centralprocessing warehousing.7
FIGURE 13.2
0-level
1-level
2-level
3-level
0-level
1-level
2-level
3-level
Manufacturer
Manufacturer
Manufacturer
Manufacturer
Manufacturer
Manufacturer
Manufacturer
Manufacturer
Wholesaler
Wholesaler
Manufacturer's
representative
Manufacturer's
sales branch
Jobber
Retailer
Retailer
Consumer
Consumer
Consumer
Industrial
distributors
Industrial
customer
Industrial
customer
Industrial
customer
Industrial
customer
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall.
Copyright 2009 by Pearson Education, Inc.
2008933525
Consumer
Retailer
M13_KOTL6600_04_SE_M13
1/21/08
3:49 PM
Page 235
CHANNEL-DESIGN DECISIONS
Designing a marketing channel system involves analyzing customer needs, establishing channel objectives, identifying major channel alternatives, and evaluating major
channel alternatives.
Providing greater service outputs means increased channel costs and higher
prices for customers. The success of discount resellers (online and offline) indicates
that many consumers will accept lower outputs if they can save money.
2008933525
235
M13_KOTL6600_04_SE_M13
236
1/21/08
3:49 PM
Page 236
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall.
Copyright 2009 by Pearson Education, Inc.
2008933525
M13_KOTL6600_04_SE_M13
1/21/08
3:49 PM
Page 237
237
sale are payment terms and producer guarantees. Most producers grant cash discounts
to distributors for early payment. Producers might also provide distributors a guarantee against defective merchandise or price declines. A guarantee against price declines
gives distributors an incentive to buy more.
Distributors territorial rights define the distributors territories and the terms
under which the producer will enfranchise other distributors. Distributors normally
expect to receive full credit for all sales in their territory, whether or not they did the
selling. Mutual services and responsibilities must be carefully spelled out, especially in
franchised and exclusive-agency channels. McDonalds provides franchisees with a
building, promotional support, a recordkeeping system, training, and general administrative and technical assistance. In turn, franchisees must satisfy company standards
for the physical facilities, cooperate with promotional programs, furnish requested
information, and buy supplies from specified vendors.
FIGURE 13.3
High
Sales force
Value-add of Sale
Value-added
partners
Distributors
Direct sales
channels
Retail stores
"Indirect" channels
Telemarketing
Internet
Direct marketing
channels
Low
Low
High
2008933525
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall.
Copyright 2009 by Pearson Education, Inc.
M13_KOTL6600_04_SE_M13
238
1/21/08
3:49 PM
Page 238
CHANNEL-MANAGEMENT DECISIONS
After a firm has chosen a channel system, it must select, train, motivate, and evaluate
individual intermediaries for each channel. It must also modify channel design and
arrangements over time.
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall.
Copyright 2009 by Pearson Education, Inc.
2008933525
Producers must periodically evaluate intermediaries performance against such standards as sales-quota attainment, average inventory levels, customer delivery time,
treatment of damaged and lost goods, and cooperation in promotional and training
programs (see Marketing Skills: Evaluating Intermediaries). A producer will occasionally discover that it is paying particular intermediaries too much for what they are
M13_KOTL6600_04_SE_M13
1/21/08
3:49 PM
Page 239
2008933525
239
M13_KOTL6600_04_SE_M13
240
1/21/08
3:49 PM
Page 240
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall.
Copyright 2009 by Pearson Education, Inc.
2008933525
M13_KOTL6600_04_SE_M13
1/21/08
3:49 PM
Page 241
2008933525
241
M13_KOTL6600_04_SE_M13
242
1/21/08
3:49 PM
Page 242
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall.
Copyright 2009 by Pearson Education, Inc.
2008933525
Source: Excerpted from Hallie Mummert, Multi-Channel Marketers Earn a C+ on Returns, Target Marketing,
October 2003, p. 158.
M13_KOTL6600_04_SE_M13
1/21/08
3:49 PM
Page 243
2008933525
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall.
Copyright 2009 by Pearson Education, Inc.
243
M13_KOTL6600_04_SE_M13
244
1/21/08
3:49 PM
Page 244
Pure-Click Companies
There are several kinds of pure-click companies: search engines, Internet service
providers (ISPs), commerce sites, transaction sites, content sites, and enabler sites.
Commerce sites sell all types of products and services, notably books, music, toys,
insurance, travel services, clothes, and so on. Breakthrough Marketing: Amazon
describes that quintessential commerce site.
Although the popular press has given the most attention to business-to-consumer
(B2C) Web sites, even more activity is being conducted on business-to-business (B2B)
sites, which make markets more efficient. In the past, buyers had to exert a lot of effort
to gather information on worldwide suppliers. With the Internet, buyers have easy
access to information from (1) supplier Web sites; (2) infomediaries, third parties that
add value by aggregating information about alternatives; (3) market makers, third
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall.
Copyright 2009 by Pearson Education, Inc.
2008933525
Amazon started as the worlds largest bookstore in July 1995 and has blazed a
trail of e-commerce innovations ever since. It set out to create personalized storefronts for each customer by providing more useful information and more choices
than neighborhood stores. Amazon invites readers to review books, evaluate
them on a one- to five-star rating system, and vote on how helpful each review is.
Readers can browse and search pages from thousands of books, receive personal
recommendations based on their buying patterns, and buy with just one click.
And, to overcome the lag between purchase and delivery, Amazon offers fast,
inexpensive shipping.
Today Amazon generates $10 billion in annual revenue from its Web sites
in Canada, the United Kingdom, Germany, Austria, France, China, and Japan,
offering everything from clothing and kitchen items to downloadable movies and
music. It also profits from serving as an electronic marketplace, enabling all kinds
of merchants to sell on Amazon.com. Its Amazon Web project opened its databases to more than 65,000 programmers and businesses that, in turn, have created moneymaking Web sites, online shopping interfaces, and services for
Amazons 800,000 sellers. Recently Amazon began renting excess data storage
capacity to businesses, the first in a new series of technology offerings. What will
Amazon sell next?27
M13_KOTL6600_04_SE_M13
1/21/08
3:49 PM
Page 245
Brick-and-Click Companies
Many brick-and-mortar companies debated adding an e-commerce channel, fearing
that channel conflict would arise from competing with their offline retailers, agents,
or company-owned stores.29 Most eventually added the Internet as a distribution
channel after seeing how much business their online competitors were generating.
The question is how to sell both through intermediaries and online. There are
at least three strategies for trying to gain acceptance from intermediaries: (1) offer different brands or products on the Internet; (2) offer offline partners higher commissions to cushion the negative impact on sales; and (3) take orders on the Web site but
have retailers deliver and collect payment. Harley-Davidson asks customers who want
to order accessories online to select a participating dealer. The dealer, in turn, fulfills
the order, adhering to Harleys standards for prompt shipping.30
M-Commerce
Consumers and businesspeople no longer need to be near a computer to go online. All
they need is a cellular phone or personal digital assistant to wirelessly connect to the
Internet so they can check the weather, sports scores, and more; send and receive
e-mail messages; and place online orders. Many see a big future in what is now called
m-commerce (m for mobile).31 M-commerce success will be driven, in part, by convenience, ease of use, trust, and widespread availability.32
For example, in Japan, millions of teenagers carry DoCoMo phones from NTT
(Nippon Telephone and Telegraph). In addition to voice and text communication,
they can use their phones to order goods or make purchases at participating outlets
like McDonalds. Subscribers receive a monthly bill from NTT listing the subscriber
fee, usage fee, and cost of all other transactionsand they can pay the bill at any
7-Eleven convenience store.33
2008933525
EXECUTIVE SUMMARY
Most producers dont sell their goods directly to final users. Between producers
and final users stands one or more marketing channels, a host of marketing intermediaries performing a variety of functions. Companies use intermediaries when they
lack the financial resources to carry out direct marketing, when direct marketing isnt
feasible, and when they can earn more by doing so. The most important functions
performed by intermediaries are information, promotion, negotiation, ordering,
financing, risk taking, physical possession, payment, and title.
Manufacturers can reach a market by selling direct or using one-, two-, or
three-level channels, depending on customer needs, channel objectives, and their
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall.
Copyright 2009 by Pearson Education, Inc.
245
M13_KOTL6600_04_SE_M13
246
1/21/08
3:49 PM
Page 246
NOTES
6. Chekitan S. Dev and Don E. Schultz, In the Mix:
A Customer-Focused Approach Can Bring the
Current Marketing Mix into the 21st Century,
Marketing Management 14 (January/February 2005).
7. For additional information on reverse-flow
channels, see Marianne Jahre, Household Waste
Collection as a Reverse ChannelA Theoretical
Perspective, International Journal of Physical
Distribution and Logistics 25, no. 2 (1995): 3955;
and Terrance L. Pohlen and M. Theodore Farris II,
Reverse Logistics in Plastics Recycling,
International Journal of Physical Distribution and
Logistics 22, no. 7 (1992): 3537.
8. Katherine Boehret, The Mossberg Solution:
How the Big Photo-Sharing Sites Stack Up,
Wall Street Journal, August 1, 2007, p. D8; William
M. Bulkeley, Kodak Revamps Wal-Mart Kiosks,
Wall Street Journal, September 6, 2006; Faith
Keenan, Big Yellows Digital Dilemma,
BusinessWeek, March 24, 2003, pp. 8081.
9. Louis P. Bucklin, A Theory of Distribution Channel
Structure (Berkeley: Institute of Business and
Economic Research, University of California, 1966).
10. Allison Enright, Shed New Light, Marketing
News, May 1, 2006, pp. 910.
11. For more on relationship marketing and the
governance of marketing channels, see Jan B. Heide,
Interorganizational Governance in Marketing
Channels, Journal of Marketing (January 1994):
7185.
12. Anderson and Coughlan, Channel Management:
Structure, Governance, and Relationship
Management, pp. 223247.
13. Bert Rosenbloom, Marketing Channels: A Management
View, 5th ed. (Hinsdale, IL: Dryden, 1995).
14. Bruce Horovitz, Cranium Guys Have Their Inner
Child on Speed Dial, USA Today, May 8, 2006, p. 7B;
Christopher Palmeri, March of the ToysOut of the
Toy Section, BusinessWeek, November 29, 2004,
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall.
Copyright 2009 by Pearson Education, Inc.
2008933525
M13_KOTL6600_04_SE_M13
1/21/08
3:49 PM
Page 247
15.
16.
17.
18.
19.
20.
21.
22.
23.
2008933525
24.
247
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall.
Copyright 2009 by Pearson Education, Inc.