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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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What Work is Performed by Marketing Channels?
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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What Work is Performed by Marketing Channels?
Forward flowForward flow Backward flowBackward flow
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Figure 17.3: Consumer and Industrial Marketing Channels
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What Work is Performed by Marketing Channels?
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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Channel-Design Decisions
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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Channel-Design Decisions
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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Channel-Design Decisions
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