Chapter Seven: Designing and
Managing Integrated
Marketing Channels
Chapter Questions
• What is a marketing channel system and
value network?
• What work do marketing channels perform?
• How should channels be designed?
• What decisions do companies face in
managing their channels?
• How should companies integrate channels
and manage channel conflict?
• What are the key issues with e-commerce
and m-commerce?
Introduction
• Successful value creation needs
successful value delivery.
• Holistic marketers are increasingly taking
a value network view of their
businesses.
• They are looking at customer segments
and considering a wide range of new and
different means to sell, distribute, and
service their offerings.
7.1 Marketing Channels
and Value Networks
• Most producers do not sell their goods
directly to the final users.
• Between them stands a set of
intermediaries performing a variety of
functions.
What is a Marketing Channel?
• A marketing channel is the particular set
of interdependent organizations involved
in the process of making a product or
service available for use or consumption.
• They are the set of pathways a product or
service follows after production,
culminating in purchase and consumption
by the final end user.
Cont..
Some intermediaries are such as:
• Wholesalers and retailers -merchants.
• Brokers, sales agents - agents.
• Transportation companies, independent
warehouses, banks -facilitators.
Channels of all types play an important
role in the success of a company and
affect all other marketing decisions.
The Importance of Channels
• A marketing channel system is the
particular set of marketing channels a firm
employs, and decisions about it are among
the most critical ones management faces.
• Marketing channels must not just serve
markets, they must also make markets.
• The channels chosen affect all other
marketing decisions.
• Channel decisions include relatively long-
term commitments with other firms as well
as a set of policies and procedures.
Channels and Marketing Decisions
• 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.
• A pull strategy uses advertising,
promotion, and other forms of
communication to persuade consumers
to demand the product from intermediaries.
Hybrid Channels and Multichannel
Marketing
• Hybrid channels or multichannel marketing
occurs when a single firm uses two or more
marketing channels to reach customer
segments.
• In multichannel marketing, each channel
targets a different segment of buyers, or
different need states for one buyer, and
delivers the right products in the right
places in the right way at the least cost.
Buyer Expectations for
Channel Integration
• Ability to order a product
online and pick it up at a
convenient retail location
• Ability to return an online-
ordered product to a
nearby store
• Right to receive discounts
based on total online and
offline purchases
7.2 The Role of Marketing Channels
• Marketing channels through their contacts,
experience, specialization, and scale of
operation, intermediaries make goods
widely available and accessible to target
markets, usually offering the firm more
effectiveness and efficiency than it can
achieve on its own.
• Many producers lack the financial
resources and expertise to sell directly on
their own.
Channel Functions and Flows
• A marketing channel performs the work of
moving goods from producers to
consumers.
• It overcomes the time, place, and
possession gaps that separate goods and
services from those who need or want them.
• Some of these functions constitute a:
• Forward flow
• Backward flow
• Both directions
Figure 7.1 Marketing Channel Flows
Channel Levels
• The producer and the final customer are
part of every channel.
• We will use the number of intermediary
levels to designate the length of a channel.
• Zero-level channel
• One-level channel
• Two-level channel
• Three-level channel
Figure 7.2
Consumer Marketing Channels
Figure 7.3
Industrial Marketing Channels
Cont...
• Channels normally describe a forward
movement of products from source to
user, but reverse-flow channels are also
important:
• to reuse products or containers
• to refurbish products for resale
• to recycle products
• to dispose of products and packaging
7.3 Channel-Design Decisions
Analyze customer needs
Establish channel objectives
Identify major channel alternatives
Evaluate major channel alternatives
Analyzing Customer Needs and Wants
• Consumers may choose the channels they
prefer based on price, product assortment,
and convenience, as well as their own
shopping goals.
• As with products, segmentation exists, and
marketers must be aware that different
consumers have different needs during the
purchase process.
Types of Shoppers
• Service/quality customers
• Price/value customers
• Affinity customers
Channel service outputs
• Lot size
• Waiting and delivery time
• Spatial convenience
• Product variety
• Service backup
Establishing Objectives and
Constraints
Marketers should state their channel
objectives in terms of service output
levels and associated cost and support
levels.
•Minimize costs
•Provide desired levels of service.
Legal regulations and restrictions also
affect channel design.
Identifying Channel Alternatives
Types of
intermediaries
Number of
intermediaries
Terms and
responsibilities
Number of Intermediaries
Exclusive
Selective
Intensive
Terms and Responsibilities
of Channel Members
• Price policy
• Condition of sale
• Distributors’ territorial rights
• Mutual services and responsibilities
Evaluating Major Channel Alternatives
Economic Criteria
• Sales revenue
• Cost of selling
• Comparing sales and costs
Control and Adaptive Criteria
• The producer needs channel structures and
policies that provide high adaptability.
Figure 7.4 The Value-Adds vs. Costs
of Different Channels
7.4 Channel-Management Decisions
Selecting channel members
Training channel members
Motivating channel members
Evaluating channel members
Modifying channel members
Channel Power
• Coercive
• Reward
• Legitimate
• Expert
• Referent
7.5 Channel Integration and Systems
1. Vertical Marketing Systems (VMS)
• It includes the producer, wholesaler(s), and
retailer(s) acting as a unified system.
• One channel member, the channel captain,
owns or franchises the others or has so
much power that they all cooperate.
• Corporate VMS
• Administered VMS
• Contractual VMS
Cont....
2. Horizontal Marketing Systems
• It a system in which two or more unrelated
companies put together resources or
programs to exploit an emerging marketing
opportunity.
• Each company lacks the capital, know-how,
production, or marketing resources to
venture alone, or it is afraid of the risk.
• The companies might work together on a
temporary or permanent basis or create a
joint venture company.
Cont...
• 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.
• Its benefits are:
o Increased market coverage
o Lower channel cost
o More customized selling
7.6 Conflict, Cooperation,
and Competition
• Channel conflict occurs when one
member’s actions prevent another
channel from achieving its goal.
• Types of channel conflict
• Vertical
• Horizontal
• Multichannel
Causes of Channel Conflict
Goal incompatibility
Unclear roles and rights
Differences in perception
Intermediaries’ dependence
on the manufacturer
Strategies for Managing Channel
Conflict
• Adoption of • Co-optation
superordinate goals • Diplomacy
• Exchange of • Mediation
employees • Arbitration
• Joint membership in • Legal recourse
trade associations
7.7 E-Commerce Marketing Practices
• E-commerce uses a Web site to transact or
facilitate the sale of products and services
online.
• Online retail sales have exploded in recent
years because:
o It can predictably provide convenient,
informative, and personalized experiences for
vastly different types of consumers and
businesses.
o It saves the cost of retail floor space, staff, and
inventory....
Cont...
• Pure-click companies, those that
have launched a Web site without any
previous existence as a firm.
• Brick-and-click companies, existing
companies that have added an online
site for information or e-commerce.
7.8 M-Commerce Marketing Practices
• The widespread penetration of cell phones
and smart phones.
• There are currently more mobile phones
than personal computers in the world.
• This allows people to connect to the
Internet and place online orders on the
move.
• Many see a big future in what is now called
m-commerce.
Cont....
• The existence of mobile channels and
media can keep consumers connected
and interacting with a brand throughout
their day-to-day lives.
Marketing Debate
Does it matter where you are selling?
Take a position:
1. Channel images do not really affect
the brand images of the products they
they sell that much.
or
2. Channel images must be consistent with
the brand image.