Kotler on Marketing

Establish channels for

different target markets and
aim for efficiency, control,
and adaptability.
 DESIGNING AND MANAGING INTEGRATED
MARKETING CHANNELS. 

 Importance of Channels

 The channels chosen will have an impact on all

marketing decisions.

 Company’s pricing depends upon whether it uses online

discounters or high – quality boutiques.

 Its sales force and advertising decisions depend on how

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Dr. H. Gayathri
 In Managing its intermediates the firm must decide how
much effort should it devote to push or pull marketing

 Push Strategy – involves the manufacturer to use its sales

force and trade promotion, money to induce intermediaries
to carry, promote and sell the product to end users.

 This strategy is appropriate where there is low brand

loyalty in a category,

 Where the brand choice is made in the store,

 When the product is an impulse item.

 Pull Strategy – involves the manufacturer using
advertising and promotion to induce consumers to ask
intermediaries for the product – thus inducing the
intermediaries to order the product.
 This strategy is appropriate when there is high brand
loyalty and high involvement in the category,
 When consumer perceives differences between brands,
and,
 When consumers choose the brand before they go
to the store.
  Hybrid Channels or Multichannel Marketing : Occurs when a
single firm users two or more to reach customers segments.
 Demand Chain Planning : When the company thinks first of the
target market and then design the supply chain backward.
Demand chain planning yields:
1) Estimates whether more money is made in upstream or
downstream & to integrate backward or forward.
2) Identifies disturbances in the supply chain that might change
costs, prices or supplies.
3) To go online with their partners to speed up communications,
transactions, payments, reduce costs and increase accuracy.

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Dr. H. Gayathri
 Channel - Design Decisions
 Designing a channel system calls for
a) Analyzing customer needs and wants.
b) Establishing channel objectives.
c) Identifying the major channel alternatives.
d) Evaluating them.
 Analyzing Service output levels desired by customers.
Understanding what, where, why, when and how target
customers buy is the first step in designing the
marketing channels.
 Establishing the channel objectives and constraints.

 Channel objectives vary with product characteristics;

Perishable, Bulky, Non standardized, High unit value.

  Channel design must take into account the strengths and

weaknesses of different types of intermediaries.

 Identifying the major channel alternatives.

 Sales force, agents, distributors, dealers, direct mail,

telemarketing, internet etc.
 Types of intermediaries  

   Number of intermediaries

   Exclusive Distribution

   Selective Distribution

   Intensive Distribution.

  Terms and Responsibilities of channel members.

The main elements in the ‘trade - relations mix’ are - price

policies, conditions of sale, territorial rights and specific
services to be performed by each party.
 Evaluating the major channel alternatives
 Economic Criteria
 Control and Adaptive Criteria
 Channel Management Decisions
 Selecting Channel Members.
 Motivating Channel Members.
 Training, supervision, encouragement etc.
 Evaluating channel members
 Sales quote attainment, customer delivery time,
average inventory levels, cooperation in
promotional and training programmes.
 Modifying channel Arrangements.

 System will require periodic modification to meet

new conditions in the market place.

 Modifications will be necessary when consumer

buying patterns change, market expands, product
matures, new competition arises and a new innovation
in distribution channel emerges.
  Multichannel Marketing System
 It occurs when a single firm uses two or more channels
to reach one or more customers segments.
 By adding more channels, company’s get increased
market coverage, it helps lower channel cost and more
customized selling.
 New channels may introduce both conflict and control
problems.

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Dr. H. Gayathri
  Physical Distribution & Channel Management
Dimensions of Channel Structure
One of the key characteristic of channel structure is
channel length
 The free market economy, competitive forces and the
profit incentive will tend to bend towards that length of
channel which will be efficient—depending upon type
of product, number of customers, geographical dispersion
of customers, variety required by customers, type and
range of services required etc.
 The second key characteristic of the channel structure
concerns the relationship between channel members—
particularly the relationships that pertain to the power and
decision - making in the channel structure.

 Broad types of channel structure can be identified on the

basis of different relationships.

    Free flow / conventional marketing channels.

   Vertical Marketing Systems.

 Multichannel marketing system

 Free flow / Conventional Marketing channels.
  In this type of a channel essentially each member in the
channel-producer, wholesales, retailer, etc, operates as an
autonomous business unit.

  Each level operates with its own aims and objectives in

mind and no one level of the channel has any degree of
substantial control over the remaining levels.

  The primary force keeping the channel intact is a mutually

beneficial trading arrangement which can be ended by
either party should the arrangement become less beneficial.
 Vertical Marketing System (VMS)

 In a Vertical Marketing System each level in the

distribution channel acts in a planned and unified way so as
to achieve maximum efficiency for the channel as a whole.
 
 Unlike the Conventional Marketing Channels or free
flow—here each level in the channel acknowledges and
functions on the basis of interdependence.

 The Vertical Marketing System has three distinct

approaches on the basis of coordination and cooperation
achieved in the system.
 The three Vertical Marketing System approaches are :
a) Corporate Vertical Marketing System.
b) Administered Vertical Marketing System.
c) Contractual Vertical Marketing System.

 Corporate Vertical Marketing System (CVMS) Here one

of the channel members owns preceding and / or subsequent
levels in the channels.
 CVMS combines successive stages of production and
distribution under single ownership.
 Administered Vertical Marketing System

 Coordinates successive stages of production and

distribution thro’ the dominance, size and power of one
of the channel members.

  E.g. P & G, HUL, Titan etc, are able to command unusual

cooperation from the resellers in connection with
displays, shelf space, promotions and price policies.
 Contractual Vertical Marketing System - is one in which
coordination and cooperation in the channel are
achieved thro’ formal contractual arrangements to
obtain more economies or sales impact than they could
achieve alone.

Consist of independent firms at different levels of

productions and distribution integrating their programme
on contractual basis. 

  E.g. Wholesaler - sponsored voluntary chains, retailer

cooperatives, Franchise organizations.
 Horizontal Marketing System :
 Unrelated companies pooling resources to exploit an
emerging marketing opportunity.
 E.g. Banks and Retail outlets.
 Types of conflict and competition.
 Vertical channel conflict - between different levels.
 Horizontal channel conflicts – conflict between members
at the same channel.
 Multichannel conflict.
 Two or more levels compete with each other in selling
to the same market.
 Causes of channel conflict.
 Goal incompatibility.
 Unclear roles and rights .
 Differences in perception.
 Dependence
 Managing Channel Conflict
 Dual Compensations
 Superordinate goals.
 Employee Exchange.
 Co-optation.
 Diplomacy.
 Mediation.
 Arbitration.
 Lawsuit.