0. Designing and Managing Value Networks and Marketing Channels
Chapter 14
Designing and Managing Value Networks and Marketing Channels
PowerPoint by Karen E. James
Louisiana State University - Shreveport
To accompany A Framework for Marketing Management, 2nd Edition

1. To accompany A Framework for Marketing Management, 2nd Edition
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.
To accompany A Framework for Marketing Management, 2nd Edition

2. To accompany A Framework for Marketing Management, 2nd Edition
Objectives
Identify trends taking place in channel dynamics.
Learn how channel conflict can be managed.
To accompany A Framework for Marketing Management, 2nd Edition

3. 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).
To accompany A Framework for Marketing Management, 2nd Edition

4. Work Performed by Channels
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
To accompany A Framework for Marketing Management, 2nd Edition

5. Work Performed by Channels
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
To accompany A Framework for Marketing Management, 2nd Edition

6. Work Performed by Channels
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
To accompany A Framework for Marketing Management, 2nd Edition

7. Work Performed by Channels
Channel levels vary according to the number of intermediaries:
Zero-level (direct marketing) channel
One, two, and three-level channels
Reverse flow channels
Service sector channels use agencies and locations to access population to be served.
To accompany A Framework for Marketing Management, 2nd Edition

8. Channel-Design Decisions
Push vs. pull strategy
Analyzing consumers’ desired service output levels
Lot size, waiting time, product variety, spatial convenience, service backup
Establishing objectives / constraints
Identifying and then evaluating major channel alternatives
To accompany A Framework for Marketing Management, 2nd Edition

9. Channel-Design Decisions
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
To accompany A Framework for Marketing Management, 2nd Edition

10. Channel-Design Decisions
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.
To accompany A Framework for Marketing Management, 2nd Edition

11. Channel-Design Decisions
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
To accompany A Framework for Marketing Management, 2nd Edition

12. Channel-Design Decisions
Channel Alternative Evaluation Criteria:
Economic criteria
Sales and costs vs. added value
Control criteria
Adaptive criteria
After choosing a particular channel alternative, firms take several actions
To accompany A Framework for Marketing Management, 2nd Edition

13. Channel-Management Decisions
Channel Development Process
Select channel members
Train channel members
Motivate channel members
Evaluate channel members
Modify channel arrangements
To accompany A Framework for Marketing Management, 2nd Edition

14. To accompany A Framework for Marketing Management, 2nd Edition
Channel Dynamics
Channel systems are constantly evolving and developing
Vertical Marketing Systems
Corporate VMS
Administered VMS
Contractual VMS
Horizontal Marketing Systems
Multichannel Marketing Systems
To accompany A Framework for Marketing Management, 2nd Edition

15. To accompany A Framework for Marketing Management, 2nd Edition
Channel Dynamics
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
To accompany A Framework for Marketing Management, 2nd Edition

16. Channel-Management Decisions
Managing Channel Conflict
Subordinate goal adoption
Exchange people between channel levels
Cooptation
Diplomacy
Mediation
Arbitration
To accompany A Framework for Marketing Management, 2nd Edition

17. To accompany A Framework for Marketing Management, 2nd Edition
Channel Dynamics
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
To accompany A Framework for Marketing Management, 2nd Edition