Designing and Managing Integrated Marketing Channels

Marketing Management Chapter 17

Kotler & Keller

I. What is a Marketing Channel?

A marketing channel system is the particular set of interdependent organizations involved in the process of making a
product or service available for use or consumption.

Intermediaries
1. Merchants
2. Agents
3. Facilitators

II. Channels and Marketing Decisions

1. Push Strategy
- A push strategy uses the manufacturer’s sales force, trade promotion money, and other means to induce
intermediaries to carry, promote, and sell the product to end users.
2. Pull Strategy
- A pull strategy uses advertising, promotion, and other forms of communication to persuade consumers to
demand the product from intermediaries.

III. Multichannel Marketing

- Using two or more marketing channels to reach customer segments in one market area

IV. Omnichannel Marketing

- Multiple channels work seamlessly together and match each target customer’s preferred ways of doing
business, delivering the right product information and customer service regardless of whether customers
are online, in the store, or on the phone.

V. Integrated Marketing Channel System

- An integrated marketing channel system is one in which the strategies and tactics of selling through one
channel reflect the strategies and tactics of selling through one or more other channels.

VI. The Hybrid Grid

VII. Value Networks
Demand Chain Planning
- When a company thinks of the target market and then design supply chain backwards from the market to
the company

VIII. Value Networks

Value Networks
- A system of partnerships and alliances that afirm creates to source, augment, and deliver its offering
- Includes:
o Company’s supplier
o Suppliers’ suppliers
o Immediate Customers
o End Customers

IX. Digital Channels Revolution

- The digital revolution is profoundly transforming distribution strategies.
- Online retail sales (or e-commerce) have been growing at a double-digit rate
- Customers want the advantages both of digital and of physical stores.

X. Buyers Expectations on Channel Integration

- Enjoy helpful customer support in a store, online, or on the phone
- Check online for product availability at local stores before making a trip
- Find out in-store whether a product that is unavailable can be purchased and shipped from another store to
home
- Order a product online and pick it up at a convenient retail location
- Return a product purchased online to a nearby store of the retailer
- Receive discounts and promotional offers based on total online and offline purchases

XI. Role of Marketing Channels

- Producer can gain effectiveness and efficiency by using intermediaries through:
1. Contact
2. Experience
3. Scale of operation
4. Specialization
- Make goods and services widely available to target market

XII. Channel Member Functions

XIII. Channel Functions and Flows
1. Forward Flow
- Physical product transfer, title and promotional processes, communications, storage
2. Backward Flow
- Ordering and payment
3. Both Directions
- Information, negotiation, finance and risk taking

XIV. Channel Functions and Flows

A manufacturer selling a physical product or service might require only 3 channels:
1. Sales Channel
2. Distribution Channel
3. Service Channel

XV. Channel Levels

Consumer Markets
XVI. Channel Levels
Industrial Markets

XVII. Channel Levels

- Reverse
Flow Channels
1. Reuse
of products or
containers
2. Recycle
of products
3. Disposa
l of products and packaging

XVIII. Designing a Marketing Channel System

1. Analyze Customer Needs and Wants
2. Establish Channel Objectives and Constraints
3. Identify Major Channel Alternatives
4. Evaluate Major Channel Alternatives

XIX. Designing a Marketing Channel System

Analyzing Customer Needs and Wants
Consumers may choose the channels based on:
1. Price
2. Product Assortment
3. Convenience
4. Own Shopping Goals
a. Economic
b. Social
c. Experiential

Channels produce five service outputs:

1. Desired Lot Size
2. Waiting and Delivery Time
3. Spatial Convenience
 4. Product Variety
5. Service Backup

XX. Designing a Marketing Channel System

Establishing Objectives and Constraints
1. Targeted Service Output Levels
2. Market Segment
3. Product Characteristics
a. Perishable Products
b. Bulky Products
c. Nonstandard Products
d. Products requiring installation or maintenance services
e. High-unit Value Products

XXI. Identifying Major Channel Alternatives

Each channel has unique strengths and weaknesses.
 Sales Force can handle complex products and transactions, but they are expensive
 Internet is inexpensive but may not be as effective with complex products.
 Distributors can create sales but the company loses direct contact with customers.

Types of Intermediaries
1. Merchants
2. Agents
3. Facilitators

Number of Intermediaries
1. Exclusive Distribution
- Severely limits the number of intermediaries
- Requires a closer partnership with intermediaries
- Appropriate when manufacturer wants to maintain a strict control
2. Selective Distribution
- Relies on only some of the intermediaries willing to carry a particular product
- A company can gain adequate market coverage with less cost and more control
3. Intensive Distribution
- Places the goods or services in as many outlets as possible.
- Generally used for perishable products
- Increases product availability but encourages retailers to compete aggressively

Terms and Responsibilities of Channel Members

Each channel member must be treated respectfully and must be given opportunity to be profitable.
1. Price Policy
2. Conditions of Sale
3. Distributors’ territorial rights
4. Mutual services and responsibilities

XXII. Evaluating Major Channel Alternatives

1. Economic Criteria
- Every channel member will produce a different level of sales and cost

The Value-Adds versus Costs of Different Channels

 2. Control and Adaptive Criteria
- Using a sales agency can pose a control problem. Agents may concentrate on the customers who buy the
most, not necessarily those who buy the manufacturer’s goods.

XXIII. Channel Management Decisions

1. Selecting Channel Members
- To select a channel member, producer should determine:
o Number of years in business
o Other lines carried out
o Growth and profit record
o Financial strength
o Cooperativeness
o Service reputation

2. Training and Motivating Channel Members

- A company must view its intermediaries as end-users and should determine their needs and wants and tailor
its channel offering to provide them with superior value.

Channel Power – the ability to alter the channel members’ behaviour.

 Coercive Power
 Reward Power
 Legitimate Power
 Expert Power
 Referent power

3. Evaluating Channel Members

- Manufacturers regularly check performance against standards such as:
o Sales quotas
o Inventory levels
o Customer Delivery Time
 o Treatment of Damaged and Lost Goods
o Cooperation in Promotional and Training Programs

4. Modifying Channel Members

- No channel strategy remains effective over the whole product life cycle.
- A channel is modified when:
o Channel is not working well as planned
o Consumer buying pattern change
o Market expands
o New competition arises
o Innovative distribution channels emerge
o Product moves into latter stage of its product life cycle

XXIII. Channel Integration and Systems

1. Vertical Marketing Systems

- The producer, wholesaler and retailer acts as
2. Horizontal Marketing Systems
-
XXIV. Conflict, Cooperation and Competition
- Channel Conflict is generated when one channel member’s action prevent another channel from achieving
its goals
- Channel Coordination occurs when channel members are brought together to advance goals of the channel
as opposed to their own potentially incompatible goals.
Types of Conflict
1. Horizontal Channel Conflict
- Occurs between channel members at the same level.
2. Vertical Channel Conflict
- Occurs between different levels of the channel.
3. Multichannel Conflict
- Exists when the manufacturer has established two or more channels that sell to the same market.

Causes of Conflict
1. Goal incompatibility
2. Unclear roles and rights
3. Differences in perception
4. Intermediaries’ dependence on the manufacturer

Managing Channel Conflict

1. Strategic Justification
2. Dual Compensation
3. Superordinate Goals
4. Employee Exchange
5. Joint Memberships
6. Co-Optation
7. Diplomacy, mediation, or arbitration
8. Legal Recourse
XXV. E-Commerce
- Commercial transactions conducted electronically on the internet.

Why E-Commerce?

1. Pure-Click Companies
- Those who have launched their website without any previous existence as a firm

2. Brick-and-Click Companies
- Existing company that have added an online website

E-Commerce Success Factors

o Make Website fast, easy and simple
 To improve conversion rate
o Fast Delivery and Good Return Policy
o Live online chat, Virtual Environment, Blogs and Videos
 To have pleasurable experiences, social interaction, and personal consultation with a company
representative
o Avatars – animated characters that act as company representatives
 To increase customer satisfaction and the entertainment and information value of online
shopping experiences
o Ensuring security and privacy online

XXVI. M-Commerce
- Commercial transactions conducted electronically by mobile phone
- Mobile channels and media can keep consumers as connected and interacting with a brand as they choose.

M-Commerce Marketing Practices

1. Advertising and Promotion
2. Geofencing
- The idea of geofencing is to target customers with a mobile promotion when they are withina defined
geographical space, typically near or in a store.