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Designing and Managing

Integrated Marketing Channels
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 Marketing Channels
• Most producers do not sell their goods
directly to final users; between producers
and final users stands a set of
intermediaries performing a variety of
functions. These intermediaries constitute
a marketing channel.
• Marketing channels (also called a trade
channel or distribution channel) are sets of
interdependent organizations involved in
the process of making a product or service
available for use or consumption.
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 Intermediaries

Merchants

Agents

Facilitators
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 …Intermediaries
• Merchants (wholesalers and retailers) buy, take
title to, and resell the merchandise.
• Agents (brokers, manufacturers’
representatives, sales agents) search for
customers and may negotiate on the producer’s
behalf but do not take title to the goods.
• Facilitators (transportation companies,
independent warehouses, banks, advertising
agencies) assist in the distribution process but
do not take title to goods nor do the negotiate
purchases or sales.
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 Importance of Channels
Ultimate Selling Price

30% - 50% 5% - 7%
Channel Members Advertising

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 …Importance of Channels
• Marketing channel decisions are among the
most critical decisions facing management.
The company’s chosen channel(s) profoundly
affect all other marketing decisions.
• In the United States, channel members
collectively have earned margins that account
for 30 percent to 50 percent of the ultimate
selling price. In contrast, advertising typically
has accounted for less than 5 percent to 7
percent of the final price.
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…Importance of Channels

Push strategy

Pull strategy
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 …Importance of Channels
• A push strategy uses the manufacturer’s resources to induce
intermediaries to carry, promote, and sell the product to end users. A
push strategy is 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 persuades consumers to demand
the product from intermediaries, thus inducing the intermediaries to
order it. Pull strategy is 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.
• A push strategy is more effective when accompanied by a pull
strategy that activates consumer demand. Top marketing companies
such as Coca-Cola, Intel, and Nike employ both push and pull
strategies. 8
 Multichannel Marketing (Hybrid)

Internet
Sales Force

Direct Mail
Telemarketing9
 …Multichannel Marketing (Hybrid)
• Firm use multiple marketing channels to reach customer
segments. HP has used its sales force to sell to large
accounts, outbound telemarketing to sell to medium-sized
accounts, direct mail with an inbound number to sell to
small accounts, retailers to sell to still smaller accounts, and
the Internet to sell specialty items.
• Companies that manage hybrid channels must make sure
their channels work well together and match each target
customer’s preferred ways of doing business. Customers
expect channel integration, which allows them to:
–Order a product online and pick it up at a convenient retail
location
–Return an online-ordered product to a nearby store of the retailer
–Receive discounts and promotional offers based on total online
and offline purchases
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 Categories of Buyer
Researchers Nunes and Cespedes argue that, in many
markets, buyers fall into one of four categories:
1. Habitual shoppers: Purchase from the same places in the
same manner over time.
2. High-value deal seekers: Know their needs and “channel
surf” a great deal before buying at the lowest possible
price.
3. Variety-loving shoppers: Gather information in many
channels, take advantage of high-touch services, and
then buy in their favorite channel, regardless of price.
4. High-involvement shoppers: Gather information in all
channels, make their purchase in a low-cost channel, but
take advantage of customer support from a high-touch
channel.
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What do European Consumers Value?

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Value Networks

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 …Value Networks
• A value network is a system of
partnerships and alliances that a firm
creates to source, augment, and deliver its
offerings. It includes a firm’s suppliers and
its suppliers’ suppliers, and its immediate
customers and their end customers, as
well as relationships with others such as
university researchers and government
approval agencies.
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Role of Marketing Channels

1. Contacts
Merchants 2. Experience
3. Specialization
Agents 4. Scale of operation

Facilitators

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 …Role of Marketing Channels
• Companies use intermediaries when they lack
the financial resources to carry out direct
marketing, when direct marketing is not
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.

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 Time
Channel Functions and Flows Place
Possession

Forward Flow
Transportation, communication

Information, negotiation,
finance, risk taking

Backward Flow
Ordering, payment 17
 …Channel Functions and Flows
• Members of the marketing channel perform a
number of key functions:
1. Gather information about potential and current
customers, competitors, and other actors and
forces in the marketing environment.
2. Develop and disseminate persuasive
communications to stimulate purchasing.
3. Negotiate and reach agreements on price and
other terms so that transfer of ownership or
possession can be affected.
4. Place orders with manufacturers. 18
 …Channel Functions and Flows
5. Acquire the funds to finance inventories at
different levels in the marketing channel.
6. Assume risks connected with carrying out
channel work.
7. Provide for the successive storage and
movement of physical products.
8. Provide for buyers’ payment of their bills
through banks and other financial institutions.
9. Oversee actual transfer of ownership from one
organization or person to another.
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 …Channel Functions and Flows
• Some of these functions (storage and
movement, title, and communications)
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. Still others
(information, negotiation, finance, and
risk taking) occur in both directions.
directions

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Five Marketing Flows in the Marketing Channel

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 Channel Levels
Zero-level (Direct marketing) channel

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 …Channel Levels
• Manufacturers have many alternatives for reaching a
market. They can sell direct or use one-, two-, or three-level
channels. Deciding which type(s) of channel to use calls for
analyzing customer needs, establishing channel objectives,
and identifying and evaluating the major alternatives,
including the types and numbers of intermediaries involved
in the channel.
• The most basic marketing channel is the zero-level or direct
marketing channel. Includes telemarketing, direct mail,
door-to-door, TV selling (infomercials), and home parties
(such as Avon, Tupperware, etc.).
• A one-level channel contains one selling intermediary, such
as a retailer.
• A two-level channel contains two intermediaries. In
consumer markets, these are typically a wholesaler and a
retailer.
• A three-level channel contains three intermediaries. 23
Channel Levels – Consumer

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Channel Levels – B2B

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 Channel-Design Decisions
1. Analyzing customer needs and wants
2. Establishing channel objectives and constraints
3. Identifying and evaluating major channel alternatives

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 Customer Needs and Wants

Price
Product Assortment

Shopping Goals
•Economic
•Social
Convenience •Experiential 27
 …Customer Needs and Wants
Different consumers have different needs
during the purchase process. One study of
European costumers found that--
1.Service/quality customers cared most about the
variety and performance of products and
service;
2.Price/value customers were most concerned
about spending wisely;
3.Affinity customers primarily sought stores that
suited people like themselves or groups they
aspired to join. 28
 Channels Service Outputs

Spatial Convenience
Waiting/
Deliver Time

Service Backup

Product Variety Lot Size 29

 …Channels Service Outputs
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: The degree to which the
marketing channel makes it easy for customers to
purchase the product.
4. Product variety: The assortment provided by the
marketing channel.
5. Service backup: Add-on services (credit, delivery,
installation, repairs) provided by the channel.
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 Objectives and Constraints
Service Costs
Nonstandard Products

Bulky Products

Installation / Maintenance 31
 …Objectives and Constraints
• Marketers should state their channel
objectives in terms of service output levels
and associated cost and support levels. They
can identify several market segments based
on desired service and choose the best
channels for each.
• Channel objectives vary with product
characteristics.
• Marketers must adapt their channel
objectives to the larger environment. 32
Identify Channel Alternatives
Sales Force

Distributors
Direct Mail

Channel Alternatives
•Type of Intermediaries
•Number of Intermediaries
Telemarketing •Terms and Responsibilities
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 …Identify Channel Alternatives
• Each channel—from sales forces to agents,
distributors, dealers, direct mail, telemarketing, and
the Internet—has unique strengths and weaknesses.
Sales forces can handle complex products and
transactions, but they are expensive. The Internet is
inexpensive but may not be as effective with complex
products. Distributors can create sales, but the
company loses direct contact with customers. Several
clients can share the cost of manufacturers’ reps, but
the selling effort is less intense than company reps
provide.
• Channel alternatives differ in three ways: types of
intermediaries, number needed, and terms and
responsibilities of each.
each 34
 Types of Intermediaries
Satellite Radio OEMs (Car manufacturers)
Manufacturer

Dealers Ray’s Cars

Direct to Consumers
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 Number of Intermediaries
Exclusive Distribution

Intensive Distribution

Selective Distribution

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 …Number of Intermediaries
• Exclusive distribution limits the number of
intermediaries. Exclusive deals are becoming a
mainstay for specialists looking for an edge in
markets increasingly driven by price.
• Selective distribution relies on only some of the
intermediaries willing to carry a particular product.
Company does not need to worry about having too
many outlets; while gaining adequate market
coverage.
• Intensive distribution places the goods or services
in as many outlets as possible. This strategy serves
well for products consumers buy frequently or in a
variety of locations.
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 Evaluating Channel Alternatives
1. Economic Criteria
2. Control & Adaptive Criteria

$4.07
(Face-to-Face Transaction)

$0.27
(ATM Transaction)
$0.54 $0.01
(Phone Transaction) (Online Transaction) 38
 …Evaluating Channel Alternatives
• Each channel alternative needs to be evaluated
against economic, control, and adaptive criteria.
• Economic Criteria: Each channel alternative will
produce a different level of sales and costs. Firms
will try to align customers and channels to
maximize demand at the lowest overall cost. The
first step is to estimate how many sales each
alternative will likely generate. The next step is
to estimate the costs of selling different volumes
through each channel. The final step is
comparing sales and costs. 39
 Channel-Management Decisions

Selecting Channel Members

Training and Motivating

Modifying Evaluating 40
 …Channel-Management Decisions
• Effective channel management calls for selecting
intermediaries and training and motivating them.
The goal is to build a long-term partnership that will
be profitable for all channel members.
• When select channel members, producers should
determine what characteristics distinguish the better
intermediaries.
• Carefully implemented training, market research,
and other capability-building programs can motivate
and improve intermediaries’ performance.
• Producers must periodically evaluate intermediaries’
performance against set standards in promotional
and training programs. 41
 Channel Integration and Systems
Integrating Multichannel
Marketing Systems
Best Buy Blockbuster
Horizontal Marketing Systems
Disney .com

Amazon Disney
Store

Vertical Marketing Systems

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 …Channel Integration and Systems
• Marketing channels are characterized by continuous and
sometimes dramatic change. Three important trends are:
• A vertical marketing system (VMS) includes the producer,
wholesaler(s), and retailer(s) acting as a unified system. One
channel member, the channel captain, owns or franchises the
others or has so much power that they all cooperate.
• In a horizontal marketing system, two or more unrelated
companies put together resources or programs to exploit an
emerging marketing opportunity. The companies might work
together on a temporary or permanent basis or create a joint
venture company.
• In an integrated marketing channel system, the strategies and
tactics of selling through one channel reflect the strategies and
tactics of selling through one or more other channels. Adding
more channels gives companies such benefits as increased
market coverage, lower channel cost, and more customized
selling.
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The Hybrid Grid

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 …The Hybrid Grid

• Companies need to think through their

channel architecture and determine which
channels should perform which functions.
Figure 15.6 shows a simple grid to help make
channel architecture decisions.

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Conflict, Cooperation & Competition

Channel Conflict

Channel Coordination

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…Conflict, Cooperation & Competition

• 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.
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 Channel Conflict
Multichannel Conflict

Vertical Channel Conflict

Horizontal Channel Conflict

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 …Channel Conflict
• Horizontal Channel Conflict occurs between channel members at
the same level. Some Pizza Inn franchisees complained about
others cheating on ingredients, providing poor service, and
hurting the overall brand image.
• Vertical Channel Conflict occurs between different levels of the
channel. When Estée Lauder set up a Web site to sell its Clinique
and Bobbi Brown brands, the department store Dayton Hudson
reduced its space for Estée Lauder products

• Multichannel Conflict exists when the manufacturer has

established two or more channels that sell to the same market.
When Goodyear began selling its popular tire brands through
Sears, Walmart, and Discount Tire, it angered its independent
dealers and eventually placated them by offering exclusive tire
models not sold in other retail outlets. 49
Managing Channel Conflict
Employee Exchange

Dual Compensation

Legal Recourse
Mediation

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 …Managing Channel Conflict
• All marketing channels have the
potential for conflict and competition
resulting from such sources as goal
incompatibility, poorly defined roles and
rights, perceptual differences, and
interdependent relationships. There are
a number of different approaches
companies can take to try to manage
conflict.
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 E-Commerce Marketing Practices

Brick-and-Click Firms

B2B E-Commerce

Pure-Click Firms 52
 …E-Commerce Marketing
•
Practices
E-commerce has grown in importance as companies have
adopted “brick-and-click” channel systems. Channel
integration must recognize the distinctive strengths of
online and offline selling and maximize their joint
contributions.
• There are several kinds of pure-click companies: search
engines, Internet service providers (ISPs), commerce
sites, transaction sites, content sites, and enabler sites.
• B2B sites make markets more efficient, giving buyers easy
access to a great deal of information, change the
supplier–customer relationship in profound ways.
• Adding an e-commerce channel creates the possibility of
a backlash from retailers, brokers, agents, and other
intermediaries. Managing the online and offline channels
has thus become a priority for many firms.
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 M-Commerce Marketing Practices

Text Promotions

M-Commerce

GPS Features
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 …M-Commerce Marketing Practices
• An area of increasing importance is m-
commerce and marketing through cell phones
and PDAs that allow people to connect to the
Internet and place online orders on the move.
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.

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THE END

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