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Chapter 15 Designing and Managing Integrated Marketing Channels.docx

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MKT 702
Rob Wilson

MKT702 Marketing Management CHAPTER 15 Designing and Managing Integrated Marketing Channels MARKETING CHANNELS AND VALUE NETWORKS  Marketing channels: set of interdependent organizations participating in the process of making a product or service available for use or consumption o Merchants buy, take title to, and resell the merchandise o Agents for customers and may negotiate on producer’s behalf but not take title to the goods o Facilitators assist in distribution process but neither take title to goods nor negotiate purchase of sale The Importance of Channels  Marketing channel system: particular set of marketing channels firm employs, and decisions about it are most critical ones management faces o Marketing channels must not just serve markets, they make markets  Channel decisions include relatively long-term commitments with other firms as well as set of policies and procedures  In managing intermediaries, firm must decide how much effort to devote to push versus pull marketing o Push strategy: manufacture’s sales force, trade promotion money, or other means to induce intermediaries to carry, promote, and sell product to end users  Appropriate when there is low brand loyalty, brand choice is made in store, product is an impulse item, and product benefits are well-understood o Pull strategy: manufacturer uses advertising, promotion, and other forms of communication to persuade consumers to demand product from intermediaries  Appropriate when there is high brand loyalty and high involvement, perceived differences between brands, and choose brand before going to the store Hybrid Channels and Multichannel Marketing  Hybrid channels (multichannel marketing): firm uses two or more marketing channels to reach customer segments o Each channel targets different segment of buyers, and delivers the right products in the right places in the right way at the least cost Value Networks  Demand chain planning: process of designing supply chain based on adopting target market perspective an working backwards o Demand chain planning yields some insights i. Company can estimate whether more money is made upstream or downstream, in case it integrates backward or forward ii. Company is more aware of disturbances anywhere in supply chain that might change costs, prices, or supplies iii. Company can go online with their business partners to speed communications, transactions, and payments; reduce costs; and increase accuracy  Value network: system of partnerships and alliances that a firm creates to source augment, and deliver its offerings THE ROLE OF MARKETING CHANNELS Channel Functions and Flows  Five types of marketing flows: physical flow, title flow, payment flow, information flow, promotion flow  Manufacturer selling physical goods and services requires three channels: sales channel, delivery channel, and service channel  Channel functions have three things in common 1. They use up scarce resources 2. They can often be performed better through specialization 3. They can be shifted among channel members Channel Levels  Zero-level channel (direct marketing channel): manufacturer selling directly to the final customer o One-level channel contains one selling intermediary (i.e. retailer) MKT702 Marketing Management o Two-level channel contains two intermediaries (i.e. wholesaler and retailer) o Three-level channel contains three intermediaries (i.e. wholesaler, jobber, retailer)  Reverse-flow channels important to reuse products or containers, refurbish products for resale, to recycle products, and to dispose of products and packaging CHANNEL-DESIGN DECISIONS Analyzing Customer Needs and Wants  Retailers serve three types of shoppers: 1. Service/quality customers – who care about variety of performance of products and services 2. Price/value customers – who are most concerned about spending wisely 3. Affinity customers – who primarily sought stores that suited people like themselves or in groups they aspire to join  Channels produce five service outputs: 1. Lot size – number of units the channel permits a typical customer to purchase on one occasion 2. Waiting and delivery time – average time customers wait for receipt of goods 3. Spatial convenience – degree to which marketing channels makes it easy for customers to purchase the product 4. Product variety – assortment provided by marketing channel 5. Service backup – add-on services provided by the channel  Providing greater service outputs also means increasing channel costs and raising prices Establishing Objectives and Constraints  State channel objectives in terms of service output levels and associated cost and support levels  When economic conditions are depressed, producers want to move goods to market using shorter channels and without services that add to final price Identifying Major Channel Alternatives  Channel alternatives differ in three ways 1. Types of intermediaries – choose new or unconventional channel because of difficulty, cost, or ineffectiveness of working with dominant channel 2. Number of intermediaries  Exclusive distribution: severely limiting number of intermediaries o Appropriate when producer wants to maintain control over service level and outputs offered by resells, and includes exclusive dealing arrangements o Requires closer relationship between seller and reseller  Selective distribution: use of more than a few but less than all of the intermediaries who are willing to carry a particular product  Intensive distribution: placing goods or services in as many outlets as possible 3. Terms and responsibilities of channel members – each channel member must be treated respectfully and given opportunity to be profitable  Elements of “trade-relations mix” o Price policy calls for producer to establish price list and schedule of discounts and allowances that intermediaries see as equitable and sufficient o Conditions of sale refer to payment terms and producer guarantees o Distributors’ territorial rights define distributors’ territories and terms under which producer will enfranchise other distributors o Mutual services and responsibilities must be carefully spelled out, especially in franchised and exclusive-agency channels Evaluating Major Channel Alternatives  Economic criteria – each channel alternative will produce a different level of sales and costs o Align customers and channels to maximize demand at the lowest overall cost; attempt to replace high-cost channels with low-cost channels as long as value added per sale is sufficient  Control and adaptive criteria – using agents may reduce control over technical details of company’s product or handle its promotion materials effectively, and members must commit to each other for specific period of time  Channel management decisions – select, train, motivate, and evaluate individual intermediaries for each channel MKT702 Marketing Management  Selecting channel members – determine what characteristics distinguish the better intermediaries – number of years in business, other lines carried, growth and profit record, financial strength, co-cooperativeness, and service reputation  Training and motivating channel members – determine needs and wants and tailor its channel offering to provide them when superior value  Channel power – ability to alter channel members’ behaviour so that they take actions they would have not taken otherwise o Coercive power – manufacturer threatens to withdraw resource or terminate relationship if intermediaries fail to cooperate o Reward power – manufacturer offers intermediaries extra benefit of performing specific acts or functions o Legitimate power – manufacturer requests behaviour that is warranted under the contract o Expert power – manufacturer has special knowledge the intermediaries value o Referent power – manufacturer is so highly respected that intermediaries are proud to be associated with it  Channel partnerships – manufacturers clearly communicate what it wants from distributors in the way of market coverage, inventory levels, marketing development, account solicitation, technical advice and service, and marketing
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