Designing and Managing

Integrated Marketing Channels

Designing
and
Managing
Integrated
Marketing
Channels
Marketing channel and Distribution channel

• Marketing is how you get potential customers to consider

buying what you sell.

• Distribution channels are how you get your products in front

of (or into the hands of) potential buyers.

• Marketing channels may include traditional distribution

models — which include producers, wholesalers and retailers.

• Marketing channels Variants that cut out one or two

components.
• Dell – uses own warehouses and Avon – salespeople to sell to
avoid wholesalers and retailers.
Marketing channel

• Marketing channel is described as the set of people, organizations

and activities that work together to transfer goods (products and
services) from the point of origin to the point of consumption.

• Primary purpose of a marketing channel is to create a connection

between the organization that creates a product or service and
prospective customers who want to purchase it.

• Marketing channel is any known initiative that an organization

uses to boost: Brand awareness, Product awareness, and draw
traffic.
Marketing channel / Trade channels / Distribution channels.

Most producers do not sell their goods directly to the final users;
between them stands a set of intermediaries performing a
variety of functions.

For physical products, there are four basic types of marketing

channels:
Four basic types of marketing channels:

1. Direct selling: Products are marketed and sold directly to

consumers without a fixed retail location

2. Selling through intermediaries: Products are sold to customers

by intermediaries such as agents, brokers, wholesalers and
retail stores

3. Dual distribution: Manufacturers combine multiple types of

channels to sell products to the end-user. This could mean that
the manufacturer sells directly to customers and also through
wholesalers and retailers who sell to customers.

4. Reverse marketing, where products move from the customer

back to the manufacturer. Typical cases of reverse marketing
include recycling and product recalls.
Toyota’s Floor Mat Recall, 2010.
Cost: $3.2 billion

• Toyota car owners (and shareholders) suffered through one of the

costliest recalls in history. The car giant was forced to recall 8.1
million vehicles because of the potential for gas pedals to get
stuck in floor mats, as well as other concerns.

• The government said that unintended acceleration in Toyota

vehicles may have been involved in the deaths of 89 people.

• In 2010, Toyota pegged costs related to the recall at $2 billion.

Four years later, the company paid a $1.2 billion fine to avoid
prosecution for covering up what it knew about ill-fitting floor
mats and other safety problems.
Intermediaries:

• Some intermediaries—such as wholesalers and retailers—

buy, take title to, and resell the merchandise; they are
called merchants.

• Others—brokers, manufacturers’ representatives, sales

agents—search for customers and may negotiate on the
producer‘s behalf but do not take title to the goods; they
are called agents.

• Still others—transportation companies, independent

warehouses, banks, advertising agencies—assist in the
distribution process but neither take title to goods nor
negotiate purchases or sales; they are called facilitators.
Importance of Channels
• A marketing channel system is the particular set of
marketing channels a firm employs, and decisions about it
are among the most critical ones management faces as the
Channel members collectively earn margins from 30 to 50%
of the ultimate selling price.

• Marketing channels also represent a substantial opportunity

cost. One of their chief roles is to convert potential buyers
into profitable customers.

• Marketing channels must not just serve markets, they must

also make markets.
Importance of Channels

In managing its intermediaries, the firm must decide how

much effort to devote to push versus pull marketing.

A push strategy uses the manufacturer's sale force, trade

promotion, or other means to induce intermediaries to
carry, promote, and sell the product to end users.

In a pull strategy the manufacturer uses advertising and

other communications to persuade consumers to demand
the product from intermediaries, thus inducing the
intermediaries to order it.
Push and Pull Strategies
• Marketers can devote their selling efforts to the channel
members themselves, providing direct incentives for them to
stock and sell products to the end consumer. This approach
is called a push strategy.

• Marketing efforts to the end consumer is said to employ a

pull strategy.
Role of Marketing Channels

Through their contacts, experience, specialization, and

scale of operation, intermediaries make goods available
and accessible to target markets, and usually more
effectively and efficiently than the producer can achieve on
its own.
Multichannel Marketing (Hybrid Channels)

• Hybrid channels or multichannel marketing occurs when a

single firm uses two or more marketing channels to
reach customer segments.

• Each channel targets a different segment of buyers, or

different need states for one buyer, and delivers the right
products in the right places in the right way at the least
cost.

• Companies must ensure that multiple channels work well

together to match each target segment's preferred ways of
doing business.
 Maggi and Wagner Pizza

• In 2017, Maggi (seasonings and instant soups) with considerable

popularity across regions in Europe combined efforts with the
Facebook Creative Team to reformat one of their very successful
TV ads for use on social media. They believed this would
complement their media mix while allowing them to reach a much
broader audience.

• The team put ads together for both Instagram and Facebook,
shortening a 30-second TV spot to an 8-second mobile-optimized
clip with captions. They then ran both TV and social ads during
the same 3-month period.

• This multi-channel campaign was quite successful – they

experienced a 9% increase in sales and a 3.06 x annualized return
on their advertising spend.
Value Networks

How do distribution channels add value to products?

• Value network is a system of partnerships and alliances that a

firm creates to source, expand, and deliver its offerings.

• Intermediaries create a win-win situation by providing

benefits to both manufacturers and consumers. Improving
efficiency, allowing for a better assortment of products and
transactions routines that makes the process easier and the
customer experience more positive.

• Successful value creation depends on successful value delivery.

• Therefore, company should first think of the target market,

and then design the supply chain backward from that point, a
strategy called demand chain planning.
Channel Functions and Flows

Some of the functions:

- Storage and movement,

- Title
- Communication
- a forward flow of activity from the company to customer
- Ordering and payment - constitute a backward flow from
customers to the company
- Information
- Negotiation
- Finance
- Risk taking

Five flows are illustrated in the figure after one slide.

Channel Functions and Flows

A manufacturer selling a physical product and services might

require three channels: a sales channel, a delivery channel, and a
service channel.

To sell a fitness equipment, a ―X Company‖ historically has

emphasized direct marketing via television infomercials and ads,
inbound/outbound call centers, response mailings, and the
Internet as sales channels; UPS ground service as the delivery
channel; and local repair staff as the service channel.
Five Marketing Flows in the Marketing Channel
Channel Levels
• The producer and the final customer are part of every channel.

• Zero-level channel, also called direct marketing channel,

consists of a manufacturer selling directly to final customers
through door-to-door sales, home parties, mail order,
telemarketing, TV selling, Internet selling, manufacturer-
owned stores, and other methods.

• One-level channel contains one selling intermediary.

• Two-level channel contains two – wholesaler and a retailer.

• Three-level channel contains three intermediaries.

• Obtaining information about end users and exercising control

becomes more difficult as the number of channel increases.
Service Sector Channels

Through Internet / other technologies, service industries such as

banking and travel are operating through new channels.

Channel-Design Decisions
To design a marketing channel system, marketers must analyze
customer needs and wants, establish objectives and
constraints, and identify and evaluate major channel
alternatives.

Channel-Management Decisions
After a firm has chosen a channel system, it must select, train,
motivate, and evaluate individual intermediaries for each
channel. It may also modify channel design and arrangements
over time.
Channel Design Decision
Channels produce five service outputs:

1. Lot size—The number of units the channel permits a typical

customer to purchase on one occasion. In buying cars for its
fleet, Hertz prefers a channel from which it can buy a large lot
size.

2. Waiting and delivery time—The average time customers wait

for receipt of goods preferring faster delivery channels.

3. Spatial (dimensional) convenience—The degree to which the

marketing channel makes it easy for customers to purchase the
product.
Toyota offers greater spatial convenience than Lexus because
there are more Toyota dealers, helping customers save on
transportation and search cost in buying and repairing.
Channel Design Decision

4. Product variety—The assortment provided by the marketing

channel. Normally, customers prefer a greater assortment
because more choices increase the chance of finding what they
need (too many choices can sometimes create negative effect).

5. Service backup—Add-on services (credit, delivery, installation,

repairs) provided by the channel. The greater the service backup,
the greater the work provided by the channel.
 Channel Integration and Systems

1. Vertical Marketing Systems

Conventional marketing channel consists of an independent

producer, wholesaler(s), and retailer(s).

Each is a separate business seeking to maximize its own

profits, even if this goal reduces profit for the system as a
whole.

The manufacture, wholesaler and retailer work together with

the intention of profit maximization.

Example – a water pumps manufacturer sells the goods to

water pumps contractors as well as installers. (Lubi Pumps,
Ahmedabad)
 Channel Integration and Systems

Vertical
Marketing
Systems
2. Horizontal Marketing System

A marketing system in which two or more unrelated

companies put together resources or programs to exploit
an emerging marketing opportunity.

Each company lacks the capital, know-how, production, or

marketing resources to venture alone, or it is afraid of the
risk.

(The companies might work together on a temporary or

permanent basis or create a joint venture company).
Types
• Two or more Manufacturers - utilization of all scarce
resources.
• Two or more Wholesalers - covering a wider area for
distributing goods and services.
• Two or more Retailers - providing products in a particular area
in bulk quantities.

Example of Horizontal Channels

• Johnson and Johnson joined hands with Google. Collaboration
done with the aim of having a robotic-assisted surgical platform
enhancing the overall quality of health-care services by
integration of advanced technologies.
• Nike and Apple, both associated for producing advanced
footwear of Nike+ in which apple iPod can be connected. Shoe
will play music and along with it display all information such as
calories burned, distance covered and heart pace on iPod
screen.
 Channel Integration and Systems

Horizontal
Marketing
Systems
3. Integrating Multichannel Marketing Systems

• Multichannel marketing refers to the practice of interacting

with customers using a combination of indirect and direct
communication channels – websites, retail stores, mail order
catalogs, direct mail, email, mobile, etc.

• Multichannel marketing is the implementation of a single

strategy across multiple channels or platforms, thus
maximizing opportunities to interact with prospective
customers.

• A channel might be email, a print ad, a retail location, a

website, a promotional event, a mobile app, SMS messaging, a
product’s package, or word-of-mouth
3. Integrating Multichannel Marketing Systems

• The goal of multichannel is to give consumers a choice, and

allow them buy when and where they want to.

• Multichannel marketing provides customers with more than

one way to complete a sales transaction, such as through a
retail store, a web page on the Internet, or even through their
smartphones.

• Additionally, it recognizes that different consumers not only

favor particular channels, but may commonly use multiple
channels throughout the purchasing process—for example, by
finding information on a web page, but actually making the
purchase at a physical store.
3. Integrating Multichannel Marketing Systems

• So…

• One benefit: Increased market coverage. Not only are

more customers able to shop for the company's products
in more places.

• Second benefit: Lower channel cost. Selling by phone is

cheaper than personal selling to small customers.

• Third benefit: Customized selling, such as by adding a

technical sales force to sell complex equipment.
(New channels typically introduce conflict and problems
with control and cooperation).
 Channel Integration and Systems

Integrated
Multichannel
Marketing
Systems
Conflict, Cooperation, and Competition
Channel conflict is generated when one channel member's
actions prevent other channel member from achieving its goal.

Channel coordination occurs when channel members are

brought together to advance the channel's goals, as opposed to
their own potentially incompatible goals.

Types of Conflict and Competition

Horizontal channel conflict occurs between channel members at
the same level.
Vertical channel conflict occurs between different levels of the
channel.
Multichannel conflict exists when the manufacturer has two or
more channels that sell to the same market.
Causes of Channel Conflict are:

• goal incompatibility

• unclear roles and rights

• differences in perception (producer is optimistic about the

economy and wants dealers to carry higher inventory)

• intermediaries‗ dependence on the manufacturer (auto dealers

affected by the manufacturer's product and pricing decisions).
Managing Channel Conflict

Some channel conflict can be constructive and lead to better

adaptation (but not too much) to a changing environment

Dilution and Cannibalization

Marketers must be careful not to dilute their brands through

inappropriate channels (especially luxury brands whose images
often rest on exclusivity and personalized service).
Legal and Ethical Issues in Channel Relations

Companies are generally free to develop whatever channel

arrangements suit them.

In fact, the law seeks to prevent them from using exclusionary

tactics that might keep competitors from using a channel.