MANAGEMENT OF

MARKETING CHANNELS
Agenda

Introduction to Channel management

Channel member Selection

Designing the channel

Vertical & Horizontal Channels

Channel Evaluation

Performance Evaluation

Channel conflict and Management

Training & Development

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 Vertical Marketing System

 A vertical marketing system (VMS) is one in which the main members of a

distribution channel—producer, wholesaler, and retailer—work together as a
unified group in order to meet consumer needs.

 In conventional marketing systems, producers, wholesalers, and retailers are

separate businesses that are all trying to maximize their profits.

 When the effort of one channel member to maximize profits comes at the
expense of other members, conflicts can arise that reduce profits for the entire
channel.

 To address this problem, more and more companies are forming vertical
marketing systems.

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 Vertical Marketing System

The concept is similar to Vertical Integration & Backward Integration

AUTO PARTS
MANUFACTURER
might practice backward BACK
BACKWARD integration by FORWARD integration by
purchasing a steel plant to purchasing a retail outlet to sell
obtain the raw materials needed its products.
to manufacture its products

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Vertical Marketing System

Corporate VMS - It refers to the producer’s ownership of the entire channel right
from manufacturing to wholesaling & retailing like Sherwin-Williams not only
makes paint but also owns & operates 3000 retail outlets, Titan, Vimal fabrics,
Bata, BPCL owns many petroleum refineries as well as petrol pumps

Administered VMS - It is achieved when some members because of their

position, size and power are in a commanding position to secure cooperation and
support from resellers at different levels like HUL, ITC, P&G.

Contractual VMS - It consists of independent businesses at different levels in the

channel. Members agree to cooperate with each other by entering into contract
like Jaipuria group bottler for Pepsi , Body shop

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Horizontal Marketing System

A horizontal marketing system is a distribution channel arrangement whereby

two or more organizations at the same level join together for marketing purposes
to capitalize on a new opportunity.

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Horizontal Marketing System

 Horizontal marketing system is adopted by companies, which lack the resources

to exploit new opportunities on their own. In this process, marketing resources
are shared between two or more unrelated businesses at the same level of
operation to derive common benefits.
 Horizontal integration helps related businesses to attain economies of scale in
terms of geographic expansion, purchase from suppliers, and bargaining power
of firms. It also helps to reduce cost of international trade. However, horizontal
integration may give rise to problems related to size, lack of co-ordination, and
understanding between members. Moreover, if a firm attempts to increase its
market share by acquiring the competitor’s business, it may lead to anti-trust
actions.
 And sometimes economic anticipated from horizontal marketing system may not
be gained.

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 Horizontal Marketing System

 For example: a bank and a supermarket agree to have the bank’s ATMs located at
the supermarket’s locations;

 two manufacturers combining to achieve economies of scale otherwise not

possible with each acting alone to meet the needs and demands of a very large
retailer;

 or two wholesalers joining together to serve a particular region at a certain time

of year.

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 Horizontal Marketing System

EXAMPLE
 An example is Apple and Starbucks, who announced a music partnership in 2007.
 The purpose of this partnership was to allow Starbucks' customers to wirelessly
browse, search, preview, buy, and download music from iTunes Store onto their
iPod touch, iPhone, or PC or Mac running iTunes.
 Apple’s leadership in digital music, together with the unique Starbucks
experience, created a partnership that offered customers a world class digital
music experience

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Horizontal Marketing System

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Horizontal Marketing System

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 Horizontal Marketing System

THE BENEFIT IS “MUTUAL”

 Apple benefits from this partnership with higher iTunes sales as Starbucks has a
vast and loyal customer base.
 When Apple first introduced its iTunes Store, it had hoped to sell one million
songs in six months, but to its surprise, sold over one million songs within the first
six days of launching.
 With such loyal online music consumers, Starbucks benefits from higher sales,
increase in market share, and stronger customer loyalty. This example
demonstrates how two companies can join forces to follow a new market
opportunity.
 This opportunity allowed Starbucks and Apple to both achieve greater results
than otherwise would have been possible if they somehow attempted this
strategy independently.
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 Multi channel Horizontal Marketing System

MULTI CHANNEL MARKETING SYSTEM

 Multichannel marketing is the ability to interact with potential customers on
various platforms.
 In this sense, a channel might be a print ad, a retail location, a website, a
promotional event, a products package or even word of mouth.

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 Multi channel Horizontal Marketing
System

MULTI CHANNEL MARKETING SYSTEM

 In the most simplistic term, multichannel marketing is all about choice.
 The objective of the companies doing the marketing is to make it easy for a
consumer to buy from them in whatever way is most appropriate.
 To be effective multichannel marketing needs to be supported by good supply
chain management systems, so that the details and prices of goods on offer are
consistent across the different channels.
 It might also be supported by detailed analysis of the return on investment from
each different channel, measured in terms of customer response and conversion
of sales.

Multi Channel marketing allows the retail merchant to reach its prospective
or current customer in a channel of his/ her liking…
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Agenda

Introduction to Channel management

Channel member Selection

Designing the channel

Vertical & Horizontal Channels

Channel Evaluation

Performance Evaluation

Channel conflict and Management

Training & Development

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Channel Evaluation

 Channel performance measurement is a key activity when a sales organization employs different
types of channel partners. In more complex multi-channel structures, it becomes even more
important due to the number of people, processes, and roles involved. The performance of a
channel can be measured across multiple dimensions. The parameters that are measured usually
are effectiveness, efficiency, productivity, equity and profitability of the channel.
 The various channels have different purposes in the value chain; however, each task needs to
support the overall corporate goals. As the number of channel partners increases, it is difficult to
ensure that the channel partners are performing their specific roles as effectively as required. For
example, the goal of a business might be to increase the number of strategic accounts. However, in
order to gather maximum possible commission, channel partners might be engaged in getting the
maximum number of accounts possible with total disregard towards prioritizing the acquisition of
strategic accounts. It is therefore important to audit the channel partners and incentivize them for
activities that are aligned with the corporate goals. The channel performance should also be judged
on the ability to fulfil given tasks. A few carefully chosen metrics can give a good indication of the
performance of each channel.
 The channel performance measurement is primarily a four-step process.
 Define the Sales Objectives
 Determine Channel Performance Metrics
 Set Channel Partner Targets
 Manage Channel Performance

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1. Define Sales Objectives

 The first step in channel performance measurement is to define the sales

objectives for the company. These objectives are outlined and discussed
in sales meetings to ensure a shared understanding between members of the
marketing and sales teams

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2. Determine Channel Performance
Metrics

 Evaluating the performance of a distribution channel depends largely on the

agreed upon performance metrics. Choosing the right number and type of
performance metrics can help to monitor and improve the performance of
channel partners. These metrics provide an understanding of how well the
channel partner is doing in reaching its performance targets.
 Though it is possible to evaluate a channel on hundreds of performance
metrics, this would make reporting and analysis of the performance a
cumbersome job. When determining channel performance metrics, a key
performance driver, such as sales or units sold, should be chosen to identify
and measure the most important tasks. A series of performance metrics are then
decided based on the key performance driver.

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3. Set Channel Partner Targets

 After overall sales objectives are defined, it is important to assign specific

targets to each of the channel partners to ensure they are in alignment with the
overall objectives. Properly set targets provide a benchmark to measure
channel success, monitor performance, and take corrective action to meet
expectations. Each channel partner has a specific role towards fulfilling the
overall sales objectives. Performance targets should be set to reflect the
channel partner’s contribution to the overall objectives

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4. Manage Channel Performance

 This is the final step in channel performance measurement. It uses the agreed
upon goals, assigned performance targets, and identified performance metrics
to manage channel performance on an on-going basis and to identify the
performance shortfalls of the channel partners. During this step, management
gains an understanding of the strengths and weaknesses of each channel.
Management can then take corrective action to ensure efficient performance of
the channel.
 The success of a channel and its efficiency are determined by the efficiency of
channel intermediaries in delivering goods and services to customers and the
quality of services offered in the process. Developing a comprehensive
marketing plan that provides clear and concise direction about
marketing activities and strategy is critical to the organization's success.

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Thank you
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Bibliography

 https://courses.lumenlearning.com/clinton-marketing/chapter/reading-
optimizing-channels/
 http://fac.ksu.edu.sa/sites/default/files/chapter_06_1.pdf
 https://www.smstudy.com/article/channel-performance-measurement-a-close-
overview
 https://yourstory.com/2018/02/steps-measure-marketing-profitability-
channels?utm_pageloadtype=scroll

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