Chapter

17
Designing
And Managing
Integrated Marketing
Channels
 Marketing Channels
and Value Networks
• Marketing channels
– Sets of interdependent
organizations participating
in the process of making a
product or service
available for use or
consumption
– Intermediaries:
merchants, agents, and
facilitators
 The Nature and Importance of Marketing Channels

Marketing Channel Defined

Marketing channel is a set of independent

organizations that help make a product or service
available for use or consumption by the consumer
or business users

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 The Nature and Importance of Marketing Channels

How Channel Members Add Value

Channel members add value by bridging the major

time, place, and possession gaps that separate
goods and services from those who would use them

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 The Nature and Importance of Marketing
Channels
How Channel Members Add Value

Producers use intermediaries because they

create greater efficiency in making goods
available to target markets.

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 The Nature and Importance of Marketing
Channels
How Channel Members Add Value

Intermediaries offer the firm more than it can achieve

on its own through their contacts, experience,
specialization, and scale of operations

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 The Nature and Importance of Marketing
Channels

How Channel Members Add Value

From an economic view, intermediaries

transform the assortment of products into
assortments wanted by consumers

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The Nature and Importance of Marketing Channels

How Channel Members Add Value

Information refers to the gathering and distributing research

and intelligence information about actors and forces in
the marketing environment needed for planning and
aiding exchange

Promotion refers to the development and spreading

persuasive communications about an offer

Contacts refers to finding and communicating with

prospective buyers
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 The Nature and Importance of Marketing
Channels
How Channel Members Add Value

Matching refers to shaping and fitting the offer to the

buyer’s needs, including activities such as
manufacturing, grading, assembling, and packaging

Negotiation refers to reaching an agreement on price

and other terms of the offer so that ownership or
possession can be transferred

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 The Nature and Importance of Marketing Channels

How Channel Members Add Value

Physical distribution refers to transporting and storing goods

Financing refers to acquiring and using funds to cover the costs

or carrying out the channel work

Risk taking refers to assuming the risks of carrying out the

channel work

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 The Nature and Importance of Marketing
Channels
Number of Channel Members

Channel level refers to each layer of marketing intermediaries

that performs some work in bringing the product and its
ownership closer to the final buyer

Direct marketing channel has no intermediary levels; the

company sells directly to consumers

Indirect marketing channels contain one or more intermediaries

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 CHANNELS OF DISTRIBUTION
Most producers do not sell their goods directly to the final users; between them
stands a set of intermediaries performing a variety of functions. These
intermediaries constitute a marketing channel (also called a trade channel or
distribution channel). Formally, marketing channels are sets of interdependent
organizations participating in the process of making a product or service available
for use or consumption.
What Is a Marketing Channel?
A marketing channel system is the particular set of interdependent organizations
involved in the process of making a product or service available for use or
consumption.
 Marketing Channels
and Value Networks
• A marketing channel system
– The particular set of marketing channels a
firm employs
– Push vs. pull strategy
Channels and Marketing Decisions-Push strategy &Pull strategy
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 sales force, trade promotion money, or other
means to induce intermediaries to carry, promote, and sell the product to end users.
A push strategy is particularly appropriate when there is low brand loyalty in a
category, brand choice is made in the store, the product is an impulse item, and
product benefits are well understood.
In a pull strategy the manufacturer uses advertising, promotion, and other forms of
communication to persuade consumers to demand the product from intermediaries,
thus inducing the intermediaries to order it. Pull strategy is particularly appropriate
when there is high brand loyalty and high involvement in the category, when
consumers are able to perceive differences between brands, and when they choose
the brand before they go to the store.
Hybrid channels or multichannel marketing occurs when a single firm uses two or
more marketing channels to reach customer segments.

Channel Member Functions

•Gather information
•Develop and disseminate persuasive communications
•Reach agreements on price and terms
•Acquire funds to finance inventories
•Assume risks
•Provide for storage
•Provide for buyers’ payment of their bills
•Oversee actual transfer of ownership
 The Role of
Marketing Channels
• Channel functions and flows
 The Role of
Marketing Channels
• Channel levels
– Zero-level channel
(direct)
– One/two/three-level
channels
(intermediaries)
– Reverse-flow channels
• Service sector channels
 Marketing Channel Levels

 Zero-level channel (direct marketing channel) A zero-level channel, also

called a direct marketing channel, consists of a manufacturer selling
directly to the final customer. The major examples are door-to-door sales,
home parties, mail order, ICICI Lombard sells insurance through
telemarketing and the Internet
 One-level channel-. A one-level channel contains one selling intermediary,
such as a retailer.
Two-level channel -A two-level channel contains two intermediaries. In
consumer markets, these are typically a wholesaler and a retailer.
 Three-level channel-A three-level channel contains three intermediaries.
Wholesalers sell to commission agent, essentially small-scale wholesalers,
who sell to small retailers.
 Marketing Channels
and Value Networks
• Multichannel marketing
– Using two or more
marketing channels to
reach customer segments
in one market area
– Omnichannel marketing
– Integrated marketing
channel system
 Marketing Channels
and Value Networks
• The digital channels
revolution
– Customer support in
store/online/phone
– Check online for product
availability at local stores
– Order product online to
pick up at store
– Return a product
purchased online to a
nearby store
Reverse-Flow Channels

Reverse-flow channels are important to:

(1) reuse products or containers (such as refillable chemical-carrying drums);
(2) refurbish products for resale (such as circuit boards or computers)
(3) recycle products (such as paper)
(4) dispose of products and packaging
 E-Commerce
Marketing Practices
• E-commerce
– Uses a Web site to transact or facilitate the
sale of products and services online
• Pure-click vs. brick-and-click companies
Designing a Marketing Channel System

1. Analyze customer needs

2. Establish channel objectives
3. Identify major channel alternatives
4. Evaluate major channel alternatives

Identifying Channel Alternatives

1. Types of intermediaries
2. Number of intermediaries
3. Terms and responsibilities
E-Commerce
Pure-click
Brick-and-click
E-commerce uses a Web site to transact or facilitate the sale of products and services
online. Online retailers compete in three key aspects of a transaction: (1) customer
interaction with the Web site, (2) delivery, and (3) ability to address problems when they
occur. We can distinguish between pure-click companies, those that have launched a Web
site without any previous existence as a firm, and brick-and-click companies, existing
companies that have added an online site for information or e-commerce.

M-Commerce
The widespread penetration of cell phones and smart phones—there are currently more
mobile phones than personal computers in the world—allows people to connect to the
Internet and place online orders on the move. Many see a big future in what is now called
m-commerce (m for mobile). The existence of mobile channels and media can keep
consumers connected and interacting with a brand throughout their day-to-day lives. GPS-
type features can help identify shopping or purchase opportunities for consumers for their
favorite brands.
 Channel-Design Decisions
• Analyzing customer needs and wants

 Desired lot size

 Waiting and delivery time
 Spatial convenience
 Product variety
 Service backup
 Channel-Design Decisions
• Establishing objectives and constraints
 Channel-Design Decisions
• Identifying major channel alternatives

Types of intermediaries

Number of intermediaries

Terms/responsibilities of
channel members
 Identifying major channel alternatives

• Number of
intermediaries
– Exclusive
distribution
– Selective
distribution
– Intensive
distribution
Number of Intermediaries
Exclusive- Exclusive distribution means severely limiting the number of
intermediaries. It’s appropriate when the producer wants to maintain control over
the service level and outputs offered by the resellers
Selective- Selective distribution relies on only some of the intermediaries willing to
carry a particular product.
Intensive- Intensive distribution places the goods or services in as many outlets as
possible. This strategy serves well for snack foods, soft drinks, newspapers,
chocolates —products consumers buy frequently or in a variety of locations
 Identifying Major Channel Alternatives

• Terms and responsibilities of channel

members

 Price policy
 Conditions of sale
 Distributors’ territorial rights
 Mutual services and responsibilities
Terms and Responsibilities of Channel Members
Price policy- Price policy calls for the producer to establish a price list and schedule
of discounts and allowances that intermediaries see as equitable and sufficient.
Condition of sale- . Conditions of sale refers to payment terms and producer
guarantees. Most producers grant cash discounts to distributors for early payment.
They might also offer a guarantee against defective merchandise creating an
incentive to buy larger quantities
Distributors’ territorial rights -Distributors’ territorial rights define the distributors’
territories.
Mutual services and responsibilities -Mutual services and responsibilities must be
carefully spelled out, especially in franchised and exclusive- agency channels.
Channel-Management Decisions

Selecting Training
channel channel
members members

Evaluating
Global channel channel
considerations members

Channel Modifying
modification channel
decisions design
Training and Motivating Channel Members

• Channel power

Coercive

Reward

Legitimate

Expert

Referent
 Channel Integration and Systems

• Conventional
marketing channel
• Vertical marketing
systems
• Horizontal marketing
systems
Channel Integration and Systems
A 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. No channel member has complete or substantial control over other
members.

1. Vertical marketing systems-A vertical marketing system (VMS), by contrast,

includes the producer, wholesaler(s), and retailer(s) acting as a unified system.
2. Horizontal marketing systems
3. Multichannel systems
 Conflict, Cooperation,
and Competition

• Causes of channel conflict

 Goal incompatibility
 Unclear roles and rights
 Differences in perception
 Intermediaries’ dependence on
manufacturer
 Channel Behavior and Organization
Channel Behavior

Channel conflict refers to disagreement over goals,

roles, and rewards by channel members
• Horizontal conflict
• Vertical conflict

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 Channel Behavior and Organization

Channel Behavior

Horizontal conflict is conflict among members at the

same channel level

Vertical conflict is conflict between different levels of

the same channel

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Channel Conflict
Channel conflict is generated when one channel member’s actions prevent
another channel from achieving its goal. Channel coordination occurs when
channel members are brought together to advance the goals of the
channel, as opposed to their own potentially incompatible goals. 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 established two or
more channels that sell to the same market. It’s likely to be especially
intense when the members of one channel get a lower price (based on
larger-volume purchases) or work with a lower margin.
Causes of Channel Conflict

1. Goal incompatibility
2. Unclear roles and rights
3. Differences in perception
4. Intermediaries’ dependence on manufacturer

Some causes of channel conflict are easy to resolve, others are not. For instance, the
manufacturer may want to achieve rapid market penetration through a low-price
policy. Dealers, in contrast, may prefer to work with high margins and pursue short-run
profitability. 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. Territory
boundaries and credit for sales often produce conflict. The manufacturer may be
optimistic about the short-term economic outlook and want dealers to carry higher
inventory. Dealers may be pessimistic. This situation creates a high potential for
conflict.