copyright © 2003 prentice-hall, inc. 17-1 chapter 17 designing and managing value networks and...

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Copyright © 2003 Prentice-Hall, Inc.

Chapter 17 Chapter 17 Designing and Managing Designing and Managing Value Networks and Value Networks and Marketing ChannelsMarketing Channelsbyby

PowerPoint byPowerPoint byMilton M. PressleyMilton M. Pressley

University of New OrleansUniversity of New Orleans

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Establish channels for different target markets and aim for efficiency, control, and adaptability.

Kotler on Marketing

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In this chapter, we focus on the following In this chapter, we focus on the following channel questions from the viewpoint of the channel questions from the viewpoint of the manufacturers:manufacturers: What is the value network and marketing What is the value network and marketing

channel system?channel system? What work is performed by marketing What work is performed by marketing

channels?channels? What decisions do companies face in What decisions do companies face in

designing, managing, evaluating, and designing, managing, evaluating, and modifying their channels? modifying their channels?

What trends are taking place in channel What trends are taking place in channel dynamics?dynamics?

How can channel conflict be managed?How can channel conflict be managed?

Chapter Objectives

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What is a Value Network and Marketing-Channel System?

Value NetworkValue Network Marketing channelMarketing channel

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Oracle’s home pageOracle’s home page

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What is a Value Network and Marketing-Channel System? ““Go-to-market” or Go-to-market” or hybridhybrid channels channels

IBM’s sales force sells to large accounts, outbound IBM’s sales force sells to large accounts, outbound telemarketing sells to medium-sized accounts, direct mail telemarketing sells to medium-sized accounts, direct mail sells to small accounts, retailers sell to still smaller accounts, sells to small accounts, retailers sell to still smaller accounts, and the Internet to sell specialty itemsand the Internet to sell specialty items

Charles Schwab enables its customers to do transactions in Charles Schwab enables its customers to do transactions in branch offices, over the phone, or via the Internetbranch offices, over the phone, or via the Internet

Staples markets through traditional retail, direct-response Staples markets through traditional retail, direct-response Internet site, virtual malls, and 30,000 linked affiliated sitesInternet site, virtual malls, and 30,000 linked affiliated sites

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What is a Value Network and Marketing-Channel System?

Channel integration characteristics:Channel integration characteristics: Ability to order a product online, and Ability to order a product online, and

pick it up at a convenient retail locationpick it up at a convenient retail location Ability to return an online-ordered Ability to return an online-ordered

product to a nearby storeproduct to a nearby store Right to receive discounts based on Right to receive discounts based on

total of online and off-line purchasestotal of online and off-line purchases

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What Work is Performed by Marketing Channels?

Many producers lack the financial resources Many producers lack the financial resources to carry out direct marketingto carry out direct marketing

In some cases direct marketing In some cases direct marketing simply is not feasiblesimply is not feasible

Producers who do establish their own Producers who do establish their own channels can often earn a greater return by channels can often earn a greater return by increasing their investment in their main increasing their investment in their main business.business.

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Figure 17.1: How a Distributor Effects an Economy of Effort

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As more retailers develop a web presence, they As more retailers develop a web presence, they often move from a “brick-and-mortar” to a often move from a “brick-and-mortar” to a “click-and-mortar” business model where “click-and-mortar” business model where customers expect channel integration. Can you customers expect channel integration. Can you identify any potential problems for these identify any potential problems for these companies? Can you identify any unique companies? Can you identify any unique marketing opportunities marketing opportunities that such a change would that such a change would offer these companies?offer these companies?

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Channel Functions and FlowsChannel Functions and Flows Key functions include:Key functions include:

Gather information about potential and Gather information about potential and current customers, competitors, and otherscurrent customers, competitors, and others

Develop and disseminate persuasive Develop and disseminate persuasive communications to stimulate purchasingcommunications to stimulate purchasing

Reach agreements on price and other terms so Reach agreements on price and other terms so that transfer of ownership or possession can be that transfer of ownership or possession can be effectedeffected

Place orders with manufacturersPlace orders with manufacturers

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What Work is Performed by Marketing Channels? Acquire funds to finance inventories at different Acquire funds to finance inventories at different

levels in the marketing channellevels in the marketing channel Assume risk connected with Assume risk connected with

carrying out channel workcarrying out channel work Provide for the successive storage Provide for the successive storage

and movement of physical productsand movement of physical products Provide for buyers’ payment of their bills Provide for buyers’ payment of their bills

through banks and other financial institutionsthrough banks and other financial institutions Oversee actual transfer of ownership from one Oversee actual transfer of ownership from one

organization or person to anotherorganization or person to another

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Figure 17.2: Five Marketing Flows in the Marketing Channel for Forklift Trucks

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Forward flowForward flow Backward flowBackward flow

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Figure 17.3: Consumer and Industrial Marketing Channels

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Channel levelsChannel levels Zero-level channel (a.k.a. direct-marketing Zero-level channel (a.k.a. direct-marketing

channel)channel) One-level channelOne-level channel Two-level channelTwo-level channel Three-level channelThree-level channel Reverse-flow channelReverse-flow channel

Service Sector ChannelsService Sector Channels Information Highway ChannelsInformation Highway Channels

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The advent of print media, the telephone, The advent of print media, the telephone, radio, television, and the Internet have all radio, television, and the Internet have all provided new ways for marketers to get their provided new ways for marketers to get their message to their intended audience. As message to their intended audience. As various technologies advance, these various technologies advance, these information channels offer more precise information channels offer more precise delivery of a message. Can delivery of a message. Can you identify an emerging you identify an emerging information distribution information distribution channel?channel?

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The People’s Bank Internet siteThe People’s Bank Internet site

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Channel-Design Decisions

Push strategyPush strategy Pull strategyPull strategy

Designing a channel system Designing a channel system involves four steps:involves four steps: Analyzing customer needsAnalyzing customer needs Establishing channel objectivesEstablishing channel objectives Identifying major channel alternativesIdentifying major channel alternatives Evaluating major channel alternativesEvaluating major channel alternatives

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Analyze Customers’ Desired Analyze Customers’ Desired Service Output LevelsService Output Levels Lot sizeLot size Waiting timeWaiting time Spatial convenienceSpatial convenience Product varietyProduct variety Service backupService backup

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Establish Objectives and ConstraintsEstablish Objectives and Constraints Identify Major Channel AlternativesIdentify Major Channel Alternatives

Types of IntermediariesTypes of Intermediaries Number of IntermediariesNumber of Intermediaries

Exclusive distributionExclusive distribution Exclusive dealingExclusive dealing

Selective distributionSelective distribution Intensive distributionIntensive distribution

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Terms and Responsibilities of Terms and Responsibilities of Channel MembersChannel Members Price policyPrice policy Conditions of saleConditions of sale Distributors’ territorial rightsDistributors’ territorial rights

Evaluate the Major AlternativesEvaluate the Major Alternatives Economic CriteriaEconomic Criteria

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Figure 17.4: The Value-Adds versus Costs of Different Channels

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Figure 17.5: Break-even Cost Chart

Channel-Design Decisions Channel advantageChannel advantage

Control and Adaptive CriteriaControl and Adaptive Criteria

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Channel-Management Decisions

Selecting Channel MembersSelecting Channel Members Training Channel MembersTraining Channel Members Motivating Channel MembersMotivating Channel Members

Producers can use:Producers can use: Coercive powerCoercive power Reward powerReward power Legitimate powerLegitimate power Expert powerExpert power Referent power Referent power

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Channel-Management Decisions

Distribution programmingDistribution programming Distributor-relations planningDistributor-relations planning

Evaluating Channel MembersEvaluating Channel Members Modifying Channel Arrangements Modifying Channel Arrangements

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Figure 17.6: Channel Value Added and Market Growth Rate

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Channel Dynamics

Vertical Marketing SystemsVertical Marketing Systems Conventional marketing channelConventional marketing channel Vertical marketing systems (VMS)Vertical marketing systems (VMS)

Corporate and Administered VMSCorporate and Administered VMS Corporate VMSCorporate VMS Administered VMSAdministered VMS

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Channel Dynamics

Contractual VMSContractual VMS Wholesaler-sponsored voluntary chainsWholesaler-sponsored voluntary chains Retailer cooperativesRetailer cooperatives Franchise organizationsFranchise organizations

Manufacturer-sponsored retailer franchiseManufacturer-sponsored retailer franchise Manufacturer-sponsored wholesaler Manufacturer-sponsored wholesaler

franchisefranchise Service-firm-sponsored retailer franchiseService-firm-sponsored retailer franchise

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Channel Dynamics

The New Competition in RetailingThe New Competition in Retailing

Horizontal Marketing SystemsHorizontal Marketing Systems Multichannel Marketing SystemsMultichannel Marketing Systems

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Stihl’s product linesStihl’s product lines

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Channel Dynamics

Planning Channel ArchitecturePlanning Channel Architecture

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Figure 17.7: The Hybrid Grid

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Channel Dynamics

Roles of Individual FirmsRoles of Individual Firms InsidersInsiders StriversStrivers ComplementersComplementers TransientsTransients Outside innovatorsOutside innovators

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Channel Dynamics Conflict, Cooperation, and CompetitionConflict, Cooperation, and Competition

Types of Conflict and CompetitionTypes of Conflict and Competition Vertical channel conflictVertical channel conflict Horizontal channel conflictHorizontal channel conflict Multichannel conflictMultichannel conflict

Causes of Channel ConflictCauses of Channel Conflict Goal incompatibilityGoal incompatibility Unclear roles and rightsUnclear roles and rights

Differences in perceptionDifferences in perception

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Channel Dynamics

By adding new channels, a company faces By adding new channels, a company faces the possibility of channel conflict which the possibility of channel conflict which may include:may include: Conflict between the national account Conflict between the national account

managers and field sales forcemanagers and field sales force Conflict between the field sales Conflict between the field sales

force and the telemarketersforce and the telemarketers Conflict between the field sales Conflict between the field sales

force and the dealersforce and the dealers

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Channel Dynamics

Managing Channel ConflictManaging Channel Conflict DiplomacyDiplomacy MediationMediation ArbitrationArbitration

Legal and Ethical Issues Legal and Ethical Issues in Channel Distributionin Channel Distribution

Exclusive distributionExclusive distribution Exclusive dealingExclusive dealing Tying agreementsTying agreements

copyright © 2003 prentice-hall, inc. 17-1 chapter 17 designing and managing value networks and...

Documents

marketing slide

marketing channels

marketing channel system

marketingchannel system

channel functions

cases direct marketing

channel dynamics

unique marketing opportunities