Designing and Managing Integrated Marketing Channels 15 Designing and Managing Integrated Marketing Channels Marketing Management, 13th ed

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? Copyright © 2009 Jared Hansen

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. Copyright © 2009 Jared Hansen

The Supply Chain A supply chain or channel must perform eight marketing functions: Buying Selling Storing Transporting Sorting Financing Information Gathering Risk Taking Copyright © 2009 Jared Hansen LO 1

The Supply Chain A marketing function does not have to be shifted in its entirety to another institution or to the consumer but can be divided among several entities. Copyright © 2009 Jared Hansen LO 1

The Supply Chain Primary Marketing Institutions: Are those channel members that take title to the goods as they move through the marketing channel. They include manufacturers, wholesalers, and retailers. Copyright © 2009 Jared Hansen LO 1

Primary Marketing Institutions Costco is a primary marketing institution that acts as both a wholesaler (selling to small businesses) and a retailer (selling to households). Copyright © 2009 Jared Hansen LO 1

The Supply Chain Facilitating Marketing Institutions: Are those that do not actually take title but assist in the marketing process by specializing in the performance of certain marketing functions. Copyright © 2009 Jared Hansen LO 1

Facilitating Institutions Agents Brokers Communications agencies Advertising agencies Transporters Public warehouse Technology specialists Financing institutions Copyright © 2009 Jared Hansen LO 1

Types of Supply Chains Supply Chain Length Supply Chain Width Control of the Supply Chain Copyright © 2009 Jared Hansen LO 2

Strategic Decisions in Supply Chain Design Copyright © 2009 Jared Hansen LO 2

Direct and Indirect Supply Chains Copyright © 2009 Jared Hansen LO 2

Width of Marketing Supply Chain Copyright © 2009 Jared Hansen LO 2

Supply Chain Width Intensive Distribution: Means that all possible retailers are used in a trade area. Copyright © 2009 Jared Hansen LO 2

Supply Chain Width Selective Distribution : Means that a moderate number of retailers are used in a trade area. Copyright © 2009 Jared Hansen LO 2

Supply Chain Width Exclusive Distribution: Means only one retailer is used to cover a trading area. Copyright © 2009 Jared Hansen LO 2

Marketing Channel Patterns Copyright © 2009 Jared Hansen LO 2

Vertical Marketing Channels Quick Response (QR) Systems: Also known as Efficient Consumer Response (ECR) Systems, are integrated information, production, and logistical systems that obtain real-time information on customer actions by capturing sale data at point-of-purchase terminals and then transmitting this information back through the entire channel to enable efficient production and distribution scheduling. Copyright © 2009 Jared Hansen LO 2

Advantages of Franchising Copyright © 2009 Jared Hansen LO 2

Disadvantages of Franchising Copyright © 2009 Jared Hansen LO 2

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 Copyright © 2009 Jared Hansen

Managing Retailer-Supplier Relations Dependency Power Conflict Copyright © 2009 Jared Hansen LO 3

Managing Retailer-Supplier Relations Dependency: Every supply chain needs to perform eight marketing functions by any combination of the members. None can be isolated; each depends on the others to do an effective job. Copyright © 2009 Jared Hansen LO 3

Managing Retailer-Supplier Relations Power: Is the ability of one channel member to influence the decisions of the other channel members. Copyright © 2009 Jared Hansen LO 3

Types of Power Reward Power: Is based on B’s perception that A has the ability to provide rewards for B. Copyright © 2009 Jared Hansen LO 3

Types of Power Expertise Power: Is based on B’s perception that A has some special knowledge. Copyright © 2009 Jared Hansen LO 3

Types of Power Referent Power: Is based on the identification of B with A. Copyright © 2009 Jared Hansen LO 3

Types of Power Coercive Power: Is based on B’s belief that A has the capability to punish or harm B if B doesn’t do what a wants. Copyright © 2009 Jared Hansen LO 3

Types of Power Legitimate Power: Is based on A’s right to influence B, or B’s belief that B should accept A’s influence. Copyright © 2009 Jared Hansen LO 3

Types of Power Informational Power: Is based on A’s ability to provide B with factual data. Copyright © 2009 Jared Hansen LO 3

Managing Retailer-Supplier Relations Conflict: Is inevitable because retailers and suppliers are interdependent. Copyright © 2009 Jared Hansen LO 3

Conflict Perceptual Incongruity: Occurs when the retailer and supplier have different perceptions of reality. Copyright © 2009 Jared Hansen LO 3

Conflict Goal Incompatibility: Occurs when achieving the goals of either the supplier or the retailer would hamper the performance of the other. Copyright © 2009 Jared Hansen LO 3

Conflict Dual Distribution: Occurs when a manufacturer sells to independent retailers and also through its own retail outlets. Copyright © 2009 Jared Hansen LO 3

Conflict Domain Disagreements: Occurs when there is disagreements about which member of the marketing channel should make decisions. Copyright © 2009 Jared Hansen LO 3

Conflict Diverter: Is an unauthorized member of a channel who buys and sells excess merchandise to and from authorized channel members. Copyright © 2009 Jared Hansen LO 3

Conflict Gray Marketing: Is when branded merchandise flows through unauthorized channels. Copyright © 2009 Jared Hansen LO 3

Conflict Free-riding: Is when a consumer seeks product information, usage instructions, and sometimes even warranty work from a full service store but then, armed with the brand’s model number, purchases the product from a limited service discounter or over the Internet. Copyright © 2009 Jared Hansen LO 3

Conflict Process Role of Channel Interdependency Dependency of Retailer on Supplier Dependency of Supplier on Retailer Supplier’s Power Sources Power of Retailer Over Supplier Power of Supplier Over Retailer Retailer’s Power Sources Conflict Potential Conflict Potential Conflict Conflict Perceived Felt Manifest Perceived Felt Manifest Conflict Resolution Copyright © 2009 Jared Hansen

Category Management Category Management (CM): Is the process of managing all the SKUs within a product category and involves the simultaneous management of price, shelf space, merchandising strategy, promotional efforts, and other elements of the retail mix within the category based on the firm’s goals, the changing environment, and consumer behavior. Copyright © 2009 Jared Hansen LO 4

Category Management Category Manager: Is an employee designated by a retailer for each category sold in their store. The manager leverages detailed knowledge of the consumer and trends, detailed point-of-sales information, and specific analysis provided by each supplier to tailor a store’s offerings to the specific needs of each market. The manager works with the suppliers to plan promotions throughout the year. Copyright © 2009 Jared Hansen LO 4

The Marketing Functions Buying Selling Storing Transporting Sorting Financing Information Gathering Risk Taking Copyright © 2009 Jared Hansen

Managing Retailer-Supplier Relations Dependency Power Conflict Copyright © 2009 Jared Hansen LO 3

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 Copyright © 2009 Jared Hansen

Categories of Buyers Habitual shoppers High value deal seekers Variety-loving shoppers High-involvement shoppers Copyright © 2009 Jared Hansen

Types of Shoppers Service/quality customers Price/value customers Affinity customers Copyright © 2009 Jared Hansen

Channel Member Functions Gather information Develop and disseminate persuasive communications Reach agreements on price and terms Acquire funds to finance inventories Assume risks Provide for storage Provide for buyers’ payment of their bills Oversee actual transfer of ownership Copyright © 2009 Jared Hansen

Designing a Marketing Channel System Analyze customer needs Establish channel objectives Identify major channel alternatives Evaluate major channel alternatives Copyright © 2009 Jared Hansen

Channel Service Outputs Lot size Waiting/delivery time Spatial convenience Product variety Service backup Copyright © 2009 Jared Hansen

Identifying Channel Alternatives Types of intermediaries Number of intermediaries Terms and responsibilities Copyright © 2009 Jared Hansen

Number of Intermediaries Exclusive Selective Intensive Copyright © 2009 Jared Hansen

Terms and Responsibilities of Channel Members Price policy Condition of sale Distributors’ territorial rights Mutual services and responsibilities Copyright © 2009 Jared Hansen

Channel-Management Decisions Selecting channel members Training channel members Motivating channel members Evaluating channel members Modifying channel members Copyright © 2009 Jared Hansen

Channel Power Coercive Reward Legitimate Expert Referent Copyright © 2009 Jared Hansen

Channel Integration and Systems Vertical marketing systems Corporate VMS Administered VMS Contractual VMS Horizontal marketing systems Multichannel systems Copyright © 2009 Jared Hansen

What is Channel Conflict? Channel conflict occurs when one member’s actions prevent another channel from achieving its goal. Types of channel conflict Vertical Horizontal Multichannel Copyright © 2009 Jared Hansen

Causes of Channel Conflict Goal incompatibility Unclear roles and rights Differences in perception Intermediaries’ dependence on manufacturer Copyright © 2009 Jared Hansen

Table 15.3 Strategies for Managing Channel Conflict Adoption of superordinate goals Exchange of employees Joint membership in trade associations Cooptation Diplomacy Mediation Arbitration Legal recourse Copyright © 2009 Jared Hansen