Chapter 14 Selecting and Managing Marketing Channels PowerPoint by Yu Hongyan Business School of Jilin University

Objectives Identify value networks and marketing-channel systems. Learn the type of work performed by marketing channels. Understand the decisions companies face in designing, managing, evaluating, and modifying channels. Channel Management decisions Identify trends taking place in channel dynamics.

1. Value Networks and Marketing Channel Systems A Value Network is a system of partnerships and alliances used by a firm to source, augment, and deliver its product or service offerings. Intermediaries that help get the product from manufacturer to consumer or end users form the Marketing Channel(s).

2. Work Performed by Channels Figure 14-1: How a Distributor Effects Economy of Effort

Discussion Scenario The use of marketing channels is not restricted to physical goods; channels also assist in the distribution of services. Can you think of an example of a zero-level service channel? One-level channel? Two or more level channel?

2.Work Performed by Channels (cont’d) Producers establish marketing channels for a variety of reasons: Producers lack financial resources necessary for direct marketing Direct marketing is not feasible for many offerings Using channels frees money for investment in main business Intermediaries are more efficient

2.Work Performed by Channels (cont’d) Channel members perform a number of key functions: Forward flow functions: Develop / disseminate communication Store and move the physical products Oversee transfer of ownership Backward flow functions: Place orders with manufacturers Facilitate payment of bills

2.Work Performed by Channels (cont’d) Other key functions performed by channel members include those that flow both ways: Forward and backward flow functions: Gather information Negotiate price and transfer of ownership Finance inventories Assume risk

2.Work Performed by Channels (cont’d) Figure 14-2: Five Marketing Flows in the Channel for Forklift Trucks

2.Work Performed by Channels (cont’d) Some channels reverse the flow process

2.Work Performed by Channels (cont’d) Figure 14-3: Consumer and Industrial Marketing Channels

3. Channel-Design Decisions Push vs. Pull Strategy Analyzing Consumers’ Desired Service Output Levels Establishing Objectives and Constraints Identifying / Evaluating Major Channel Alternatives

3.Channel-Design Decisions (cont’d) Channel Factors Intermediary type Number of intermediaries Terms and responsibilities of intermediaries Merchants Buy, take title, and resell merchandise Agents Find customers, negotiate, do not take title to merchandise Facilitators Aid in distribution, do not negotiate or take title to merchandise

3.Channel-Design Decisions (cont’d) Independent insurance agents act for multiple insurance providers

3.Channel-Design Decisions (cont’d) Channel Factors Intermediary type Number of intermediaries Terms and responsibilities of intermediaries Exclusive distribution Severely limited distribution Selective distribution Some intermediaries willing to carry good are selected Intensive distribution Offering is placed in as many outlets as possible.

3.Channel-Design Decisions (cont’d) Channel Factors Intermediary type Number of intermediaries Terms and responsibilities of intermediaries Price policies Price list and schedule of discounts Conditions of sale Payment terms and guarantees Territorial rights Define territory / terms Services to be performed by party

3.Channel-Design Decisions (cont’d) Figure 14-4: The Value-Adds Versus Costs of Different Channels

3.Channel-Design Decisions (cont’d) Criteria for Channel Alternative Evaluation Economic Control Adaptive

4. Channel-Management Decisions The Channel Development Process Channel Member Selection Training Motivation Evaluation Modification Channel Channel

Discussion Scenario Assume that an electronics company has developed a holographic television that converts digital signals to 3D images. Would economic, adaptive or control criteria be most critical in guiding the evaluation of channel alternatives? What channel(s) would you initially select to introduce this innovation?

4. Channel-Design Decisions (cont’d) Figure 14-5: Channel Value-Added and Market Growth Rate

5. Channel Dynamics Channel systems are constantly evolving and developing Vertical Marketing Systems Corporate VMS Administered VMS Contractual VMS Horizontal Marketing Systems Multichannel Marketing Systems

5. Channel Dynamics (cont’d) Conflict, Cooperation, & Competition Types of conflict Vertical, horizontal, and multichannel Causes of conflict Major causes: Goal incompatibility; unclear roles and rights Other potential causes exist Managing channel conflict

5. Channel Dynamics (cont’d) Managing Channel Conflict Mediation Arbitration Diplomacy Cooptation Subordinate Goal Adoption Exchange People Between Channel Levels

Discussion Scenario In an effort to minimize channel conflict, producers may make alterations to the product mix. Minor changes may be implemented with respect to styling, non-essential features, or in terms of supplemental items packaged with, or sold as part of the product bundle. Can you think of an example of a producer that has taken this approach?

5. Channel Dynamics (cont’d) Legal and Ethical Issues in Channel Relations Two common distribution practices are legal as long as they don’t substantially lessen competition: Exclusive dealing Tying agreements

Review Identify value networks and marketing-channel systems. Learn the type of work performed by marketing channels. Understand the decisions companies face in designing, managing, evaluating, and modifying channels. Channel Management decisions Identify trends taking place in channel dynamics