Designing and Managing

Designing and Managing

Integrated Marketing Channels
Integrated Marketing Channels
Presented By:Presented By:Pranjal Mathur
Pranjal Mathur

Marketing channels and Value

networks
Chief role is to convert potential
buyers to profitable customers.
Firms pricing depends on selection
of marketing channels.
Choice of channel depends on
marketing strategy with respect to
segmentation, targeting and
positioning.

Marketin
g
Strategy
Push
Strategy

Pull
Strategy

Push Strategy
Push strategy:- Producers induce
intermediaries to carry, promote and sell
products and services to end users
through its sales force, trade promotions
and other means.
Appropriate when:1. Brand loyalty is high.
2. Brand selection at the spot.
3. Product is an impulse item.
4. Product benefits are well understood.

Pull Strategy
Pull strategy:- Customers are persuaded
through promotional and advertising
campaigns to demand the product, which
induces intermediaries to order it from
producer.
Appropriate when:1. Brand loyalty is high.
2. High involvement product.
3. Brand distinction is possible.
4. Brand selection prior to purchase.

Channel Development
Deciding best channel is not a problem but
convincing the available intermediaries to
handle firms product is a difficult task.
Smaller markets directly through retailers.
Larger markets through distributors.
Rural markets through local merchants.
Channel system evolves as a function of 1. Local opportunities.
2. Emerging threats.
3. companys resources and capabilities.

Hybrid Channels / Go-to Markets

Example to understand:HP uses:1. Sales force large accounts.
2. Outbound telemarketing medium
size accounts.
3. Direct mail small accounts.
4. Retailers still smaller accounts.
5. Internet specialty item orders.

 To mange hybrid channels, company must

make sure that these channels:1. Work well together.
2. Match each target customers preferred
way of doing business.
. Features expected by customers in a
hybrid channel:1. Ability to order online and pick it up from
a convenient retail store.
2. ability to return the ordered product
back to a nearby retail store.
3. Right to discounts and promotional offers.

Understanding Customers Needs

Factors based on which customers
chooses a particular channel are :1. Price.
2. Product assortment.
3. Convenience.
4. Own shopping goals like economic,
social and experimental.

 According to Nunes and Cespades

customers fall into four categories :1. Habitual shoppers:- purchase from same
place in same manner over time.
2. High value deal seekers:- buyers who know
their needs and survey to a great deal to
buy at lowest possible price.
3. Variety loving shoppers:- gathers info from
many channels and buy from favorable
channels regardless of price.
4. High involvement buyers:- gathers info
from all possible channels, buy from low
cost channels and take advantage of
customer support from high-touch channel.

Value Networks
Demand-chain planning:- when a firm first thinks of
market and then design supply chain backwards
from market to firm.
Value networks is a system of partnerships and
alliances that a firm creates to source, augment
and deliver its offerings to the end user.
A value network includes:1. Firms suppliers.
2. Its suppliers supplier.
3. Its intermediate customers.
4. End customers.

 Various insights of demand-chain planning:1. Company can determine whether more

money is upstream or downstream this will
help in integrating backward or forward.
2. Company is more aware of disturbances
anywhere in supply chain that might cause
costs, price or supplies to change suddenly.
3. Companies can go online with their
business partners to carry on faster and
more accurate communications,
transactions and payments to reduce costs
and speed up information and increase
accuracy.

 Managing value networks requires

investment in IT(Information and
Technology) and soft wares.
SAP and Oracle ERP systems to
manage cash flows, manufacturing,
human resources, purchasing and
other functions within a unified
framework.

Roles of Marketing Channels

Producer gain effectiveness and
efficiency by using intermediaries
through:1. Contacts.
2. Experience.
3. Scale of operation.
4. Specialization.
. Make available goods and services
widely available to target market.

Channel Function and Flows

Functions that are performed by channel members
are:1. Gathers information about potential and current
customers and competitors.
2. Develop and disseminate persuasive information to
stimulate purchasing.
3. Place orders with manufacturers.
4. Reach agreements on price and other terms so that
transfer of ownership or possession can be affected.
5. Assume risk connected with channel work.
6. Provide for storage and movement of goods.
7. Provide for buyers payment of their bills through
banks and other financial institutions.

 Physical product transfer, title and promotional

processes constitute a forward flow of activity
from company to customers.
Ordering and payment processes constitute a
backward flow of activity from customers to
company.
Information, negotiation, finance and risk taking
processes take place in both the directions.
A manufacturer selling a physical product or
service might require only three channels:1. Sales channel.
2. Distribution channel.
3. Service channel.

 All channel functions have three things in

common:1. They use up scarce resources.
2. They can be performed better through
specialization.
3. They can be shifted among channel
members.
. If intermediaries are more efficient than
manufacturers, prices to customers should
be lower.
. If consumers perform some work by
themselves they can enjoy even lower
prices.

Channel Levels
The producers and final customers are part of
every channel.
A zero level channel consists of a manufacturer
selling directly to final customers.(Tupperware,
Bata, BPCL)
The one level channel contains one selling
intermediary such as retailer.
Two level channel contains two intermediaries
such as wholesalers and retailers.
Three level channel contains three intermediaries
such as distributors, wholesalers and retailers.

 Channel normally describe a forward

movement of products from source
to user.
But there are reverse flow channels
which are important in following
cases:1. Reuse of products or containers
(cold drink bottles).
2. Recycle of products (paper).
3. Disposal of products and packaging.

Channel-Design Decisions
Designing a marketing channel
requires:1. Analyzing customer needs.
2. Establishing channel objectives.
3. Evaluating major channel
alternatives.

1. Analyzing Customer
Needs
Channels produce five service outputs:1. Lot Size:- the number of units the channel permits
a typical customer to purchase on one occasion.
2. Waiting and Delivery Time:- the average time
customers wait for receipt of goods.
3. Spatial Convenience:- Bata and Exide batteries
have made it easier for consumers to access them.
4. Product Variety:- assortment breadth provided by
marketing channels.
5. Service Backup:- the add-on services (credit,
delivery installation, repairs) provided by channel .

2.Establishing Objectives and

Constraints
Marketers should state their channel objectives in term of
targeted service output levels.
Channel institutions should arrange their functional tasks
to minimize total channel costs and still provides desired
level of service outputs.
Channel objectives vary with product characteristics :1. Perishable products - direct marketing.
2. Bulky products - channels that minimize shipping
distance and amount of handling.
3. Custom built machinery - company sales representatives.
4. Products requiring installations and regular check ups
company owned or leased franchisees.

3. Identifying and Evaluating major

Channel Alternatives
A firm can choose from a wide variety channels
for reaching customers:1. Sales force complex product and transactions.
2. Internet less expensive but not effective with
complex products.
3. Distributors can create sales but contact with
customers is lost.
4. Manufacturer representatives reach to
different segment of customers and delivers the
right product at low cost. If fails then leads to
channel conflicts and excessive costs.

Number of Intermediaries
A firm can decide on number of
intermediaries to use at each level
by using these three strategies :1. Exclusive distribution.
2. Selective distribution.
3. Intensive distribution.

Exclusive Distribution
Appropriate when manufacturer
wants to maintain a strict control
over service level and outputs
offered by resellers.
Requires a closer partnership with
intermediaries.
Used in distribution of automobiles,
earth movers etc.
Example:- Gucci

Selective Distribution
Relies on more than a few but less
than all of intermediaries.
A company can gain adequate
market coverage with less cost and
more control.

Intensive Distribution
Goods and services are kept in as many
stores as possible.
These strategies are generally used for
perishable products such as snacks,
soft-drinks, newspapers etc.
Intensive distribution increases product
availability and service but encourages
retailers to compete aggressively.
Ex. :- Titan watches.

Terms and Responsibilities of

Channel Members
Each channel member must be
treated respectfully and must be
given opportunity to be profitable.
Main policies are:1. Price policies.
2. Condition of scales.
3. Territorial rights.
4. Mutual services and responsibilities.

 Price policies:- A producer should establish

a price-list and schedule of discounts and
allowances.
Conditions of sales:- Refers to payment
terms and producer guarantees. Provision
for trade discounts on bulk orders or
purchases. Guarantee against defective
merchandise or price declines.
Distributors territorial rights:- Definition of
distributor's territories and terms under
which distributor will enfranchise with other
distributors.

 Mutual services and responsibilities:Example of McDonalds

McDonalds provides:1. Franchisee with a building.
2. Promotional support.
3. Record keeping system.
4. Training.
5. General administrative and
technical assistance.

 In return franchisees are expected

to :1. Satisfy company standards.
2. Cooperate with promotional offers.
3. Furnish required information and
buy supplies from specified
suppliers or vendors.

Channel-Management
Decisions
After a channel has been chosen,
company must :1. Select.
2. Train.
3. Motivate.
individual intermediaries for
each channel.

1. Selecting Channel
Members
To select a channel member producer
should determine:1. No. of years in business.
2. Other lines carried out.
3. Growth and profit record.
4. Financial strength.
5. Cooperativeness.
6. Service reputation.

2. Training and Motivating Channel

Members
A company should view its
intermediaries as end-users.
Needs and wants of intermediaries are
compulsory to stimulate them to toplevel performance.
For ex.:- Microsoft.
Channel power:- ability to alter
behavior of intermediaries so that they
can think out-of-box.

 Powers a manufacturer posses to elicit

cooperation from intermediaries:1. Coercive power:- threatening
intermediaries to terminate relationship
if they fail to cooperate.
2. Reward power:- offering extra benefits
on performing specific act or function.
3. Legitimate power:- request for behavior
that is warranted under contract.
4. Expert power:- having a special
knowledge that intermediaries value
and doesnt posses.

 Efficient Consumer Response (ECR)

opted by manufacturer and
intermediaries to streamline supply
chain and cut costs.
ECR organizes relationship between
manufacturer and intermediaries in
two areas:1. Demand side management:collaborative activities to stimulate
demand from consumer side by
promoting joint marketing and sales
activities.
2. Supply side management:-

3. Evaluating Channel
Members
Manufacturers regularly check
performance against standards such
as:sales quotas, inventory levels,
customer delivery time, treatment of
damaged and lost goods and
cooperation in promotional and
training programs.

Modifying Channel Design

A channel is modified when:1. Channel is not working well as
planned.
2. Consumer buying pattern change.
3. Market expands.
4. New competition arises.
5. Product moves into latter stage of
its product life cycle.

Channel Integration System

Marketing
Systems
Horizontal
Marketing
Systems

Vertical
Marketing
Systems

Horizontal Marketing
System
A horizontal marketing system is one
in which two or more unrelated
companies put together resources or
programs to exploit an emerging
market opportunity.
Each one lacks capital, know how
production, marketing resources to
venture alone.
Companies might work with each
other on temporary or permanent

Vertical Marketing System

The producer, wholesaler and retailer
acts a unified system.
One channel member, the channel
captain owns the others or franchises
them has so much power that they
all cooperate.
VMS arose as a result of strong
channel members attempt to control
behavior and eliminate the conflict.

Vertical
Marketing
System
Corporate
Vertical
Marketing
System

Administered
Vertical
Marketing
System

Contractual
Vertical
Marketing
System

 Corporate Vertical Marketing System:- It

combines successive stages of
production and distribution under single
ownership.
Administered Vertical Marketing System:It coordinates successive stages of
production and distribution through size
and power of one of the members.
Contractual Vertical Marketing System:- It
consists of independent firms at different
levels of production and distribution, in
order to obtain more economies or sales
impact what they had achieved alone.

Contractual
Vertical
Marketing
Systems
Wholesalers
Sponsored
Voluntary
Chain

Retailer
Cooperatives

Franchisee
Organizations

 Wholesalers Sponsored Voluntary Chain:Wholesalers organize voluntary chains of

retailers to help them standardize their selling
practices and help them achieve buying
economies in order to compete with large chain
organizations.
Retailer Cooperatives:- Retailers take the
initiative and organize new business entity to
carry on wholesaling with some production.
Members concentrate their purchases through
retailer co-op and plan their advertising jointly.
Profits pass back to members in proportion to
their purchase.
Franchisee Organization:- A channel member
called franchisor might link several successive
stage in the production-distribution process.

Conflict, Cooperation and

Competition
Channel conflict is generated when
one channel members action
prevent another channel from
achieving its goals.
Channel coordination occurs when
channel members are brought
together to advance goals of the
channel as opposed to their own
potentially incompatible goals.

Conflict

Types of
Conflict
Causes of
Conflict
Managing
Conflicts

Causes of Channel Conflict

Conflicts may arise from:1. Goal incompatibility :- Manufacturers
want to achieve rapid market
penetration through low price policy.
2. Unclear Roles and Rights :- HP may
sell personal computers to large
accounts through its own sales force,
but its licensed dealers may also be
trying to sell to large accounts.

3. Differences in Perception:- Disputes

between manufacturers and
distributors about optimal
advertising strategy.
4. Intermediaries Dependence on
Manufacturer :- Fortune of exclusive
dealers depend totally upon
manufacturers products and pricing
decisions which creates high
potential for conflict.

Managing Channel Conflict

Various mechanisms of managing
conflicts are:1. Adoption of Superordinate Goal:Channel members come to an
agreement on fundamental goals
they are jointly seeking, weather it
is survival, market share, high
quality or customer satisfaction.
2. Exchange of Employees

3. Joint Membership in Trade Association:- The

manufacturer and the intermediaries come
together in good cooperation which may
lead to better understanding between them.
4. Co-option:- It is an effort by one
organization to win the support of leaders of
other organization by including them in
advisory council, board of directors, which
reduces the chances of conflicts.
5. Diplomacy, Mediation or Arbitration:- when
conflict is chronic, the companies may need
to resort to diplomacy, mediation or
arbitration.

i. Diplomacy:- It takes place when each

sends a person or groups to meet with its
counterparts to resolve the conflict.
ii. Mediation:- It means resorting to a neutral
third party skilled in conciliating the two
parties interest.
iii. Arbitration:- It occurs when both the
parties agree to present their arguments
to one or more arbitrators and accept
their decisions.
6. Legal Recourse:- when none of the above
methods prove effective, company or
channel partners may choose to file a law
suit.

The End