Marketing Management V57Prof. Bong De Ungria

Summary of Top 10 Concepts inDesigning and Managing Integrated Marketing ChannelsBy: Raymund C. PiñonSubmitted: May 10, 2012

1. Marketing is a system of profitably creating, delivering and communicating superior customer value to satisfy customers’ needs, wants and demands much better than competition. To be able to do this, we must consider the 7 tasks of marketing, the 6th of which is DELIVERING and COMMUNICATING CUSTOMER VALUE.

2. Marketing channels are independent organizations that are involved in the process of making products and services available for use and consumption. They are also called intermediaries. They perform functions that facilitate the movement of goods and services from manufacturer to final end-user. Channels are important because they account for 30% to 50% of price margins, they convert potential buyers to profitable customers, and they affect all other marketing mix decisions a firm needs to consider in marketing their products and services like pricing, promotions, etc.

3. The first step in the process of designing and managing integrated marketing channels is to understand customers’ needs. Consumers choose where they will buy from based on price, product assortment, convenience and personal shopping goals. Marketers using different channels must be aware that different consumers have different needs during the buying process.

4. Design aspects of channels also consider the different flows and levels in marketing channels involving different intermediaries playing different facilitating roles in the process of making products and services available for use. The 5 marketing flows in channels are: physical flow, title flow, payment flow, information flow and promotions flow. Also consider the differences in required levels for consumer channels and industrial goods channels.

5. 20th century marketing requires that we go beyond thinking of channels merely as conduits or supply chains, which is sees markets only as destinations, but to move to more progressive customer-centric views as represented by concepts such as Demand Chain Planning - which emphasizes what customers are looking for, instead of focusing on what we are selling - to a more advanced view of delivery systems such as the Value Networks. A Value network is a system of partnerships and alliances that a firm creates to source, augment and deliver its offerings. This concept takes view of companies as being at the center of a value network that orchestrates these alliances in order to deliver superior value to the target

customers.

6. In making decisions about channel design, we must consider three issues: a. What desired service output level do our customers have? This involves:

i. Lot sizesii. Waiting and delivery time

iii. Spatial convenienceiv. Product varietyv. Service back up

b. What will be our channel objectives? This involves:i. Stating channel target service output levels

ii. Organizing channel tasks to deliver outputs at minimal total channel cost

iii. Choosing segments to serve and best channels to serve themiv. Observing what competitors are doingv. Adapting channel objectives to larger environmental context

vi. Varying objectives to suit product characteristicsc. How do we identify and evaluate major channel alternatives? That is, we

choose a mix of channels that reach different segments of buyers and deliver the right products at the least cost. Also we must consider 3 elements of channel alternatives in evaluating channels:

i. What types of business intermediaries are available?ii. How many intermediaries are needed?

1. Exclusive distribution - for limited number2. Selective distribution – few but less than all3. Intensive distribution – all products in as many outlets

iii. What terms, and what are the responsibilities of each channel member?

Finally we can evaluate major channel alternatives usingi. Economic criteria

ii. Control criteriaiii. Adaptive criteria

7. Channel management decisions follow after choosing a channel system. This

requires a company to a. Select individual channel membersb. Train and motivate channel members. In motivating channel members, we

are accorded tools to obtain desired channel cooperation, such as:i. Exercise of channel power

ii. Forging long-term partnerships by clarifying expectationsiii. Streamlining the supply chain and cutting costs adopting ECR –

Efficient Consumer Response practicesc. Evaluate individual channel membersd. Modify channel design and arrangement over time

Also in managing channels, we must consider how much effort to devote to trade push and market pull strategies. Ideally, these efforts must be coordinated to yield synergy.

8. Some of the recent developments in channels include Vertical Marketing Systems (VMS), Horizontal Marketing Systems (HMS) and Integrated Multi-Channel Marketing Systems

a. Vertical Marketing Systems are producers, wholesalers and retailer acting as a unified system. Strong channel members control channel behavior and eliminate conflict. They achieve economies of scale via size, bargaining power and elimination of duplicate services. Some examples of VMS are:

i. Corporate VMSii. Administered VMS

iii. Contractual VMSb. Horizontal Marketing Systems are two or more unrelated companies that

put together resources or programs to exploit an emerging marketing opportunity.

c. Integrating Multi-Channel Marketing Systemsi. Multi-channel marketing

1. Companies using two or more channels to reach one or more customer segment

ii. Integrated marketing channel system1. strategies and tactics of selling through one channel reflects

the strategies and tactics of selling through other channelsd. Benefits of multi-channel marketing systems are: increased marketing

coverage, lower channel costs and more customized selling.e. Competition in retailing is no longer between independent business units

but between whole systems of centrally-planned networks competing against one another to achieve the best economies and customer response

9. Some of the disadvantages of multi-channel marketing systems are: channel conflict and problems with control. Some of the more common causes of channel conflict are: goal incompatibility, unclear roles and rights, differences in perception and intermediaries’ dependence on the manufacturer. The challenge is not to eliminate conflict, but to manage them through:

a. Adoption of super-ordinate goalsb. Joint membership in trade associationsc. Exchange of employeesd. Co-optatione. Diplomacy, mediation or arbitrationf. Legal recourse

10. E-commerce has gained significance as companies have grown to adopt brick-and-click channels. In designing an integrated marketing channel system, companies must take advantage of the strengths of online and offline selling and can work synergistically to bring about better value delivery at lower cost.

Finally, marketers must consider the emergence of m-commerce of the use of cell phones, PDAs and other devices in planning their integrated marketing channels design.