1. Marketing Management • 14e
Kotler • Keller
Phillip
Kevin Lane
Marketing Management • 14e

2. Designing and Managing Integrated Marketing Channels
Chapter 15
Designing and Managing Integrated Marketing Channels

3. Discussion Questions
What is a marketing channel system and value network?
What work do marketing channels perform?
How should channels be designed?

4. Discussion Questions
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?

5. Marketing Channels
Sets of interdependent organizations participating in the process of making a product or service available for use or consumption.
Most producers do not sell their goods directly to final users. Between producers and final users stands one or more marketing channels, a host of marketing intermediaries performing a variety of functions.

6. Intermediaries Merchants Agents Facilitators
Merchants (wholesalers and retailers) buy, take title to, and resell merchandise.
Agents (brokers, manufacturers’ representatives, sales agents) search for customers and may negotiate on the producers behalf, but do not take title to the goods.
Facilitators (shippers, independent warehouses, banks, ad agencies) assist in distribution, but do not take title to goods nor do the negotiate purchases or sales.
Facilitators

7. Importance of Channels
Ultimate Selling Price
30% - 50%
Channel Members
5% - 7%
Advertising
Marketing channel decisions are among the most critical decisions facing management. The company’s chosen channel(s) profoundly affect all other marketing decisions.
In the United States, channel members collectively have earned margins that account for 30 percent to 50 percent of the ultimate selling price. In contrast, advertising typically has accounted for less than 5 percent to 7 percent of the final price.

8. Importance of Channels
Push strategy
Pull strategy
A push strategy uses the manufacturer’s resources to induce intermediaries to carry, promote, and sell the product to end users. A push strategy is appropriate when there is low brand loyalty in a category, brand choice is made in the store, the product is an impulse item, and product benefits are well understood.
In a pull strategy the manufacturer persuades consumers to demand the product from intermediaries, thus inducing the intermediaries to order it. Pull strategy is appropriate when there is high brand loyalty and high involvement in the category, when consumers are able to perceive differences between brands, and when they choose the brand before they go to the store.
A push strategy is more effective when accompanied by a pull strategy that activates consumer demand. Top marketing companies such as Coca-Cola, Intel, and Nike employ both push and pull strategies.

9. Multichannel Marketing (Hybrid)
Internet
Sales Force
Telemarketing
Firm use multiple marketing channels to reach customer segments. HP has used its sales force to sell to large accounts, outbound telemarketing to sell to medium-sized accounts, direct mail with an inbound number to sell to small accounts, retailers to sell to still smaller accounts, and the Internet to sell specialty items.
Companies that manage hybrid channels must make sure their channels work well together and match each target customer’s preferred ways of doing business. Customers expect channel integration, which allows them to:
Order a product online and pick it up at a convenient retail location
Return an online-ordered product to a nearby store of the retailer
Receive discounts and promotional offers based on total online and offline purchases
Direct Mail

10. Value Networks
A value network is a system of partnerships and alliances that a firm creates to source, augment, and deliver its offerings. It includes a firm’s suppliers and its suppliers’ suppliers, and its immediate customers and their end customers, as well as relationships with others such as university researchers and government approval agencies.

11. Role of Marketing Channels
Merchants
Contacts
Experience
Specialization
Scale of operation
Agents
Companies use intermediaries when they lack the financial resources to carry out direct marketing, when direct marketing is not feasible, and when they can earn more by doing so. The most important functions performed by intermediaries are information, promotion, negotiation, ordering, financing, risk taking, physical possession, payment, and title.
Facilitators

12. Channel Functions and Flows
Time
Place
Possession
Forward Flow
Transportation, communication
Information, negotiation, finance, risk taking
Members of the marketing channel perform a number of key functions. Some of these functions (storage and movement, title, and communications) constitute a forward flow of activity from the company to the customer; other functions (ordering and payment) constitute a backward flow from customers to the company. Still others (information, negotiation, finance, and risk taking) occur in both directions.
Backward Flow
Ordering, payment

13. Five Marketing Flows in the Marketing Channel
Figure 15.1
Five Marketing Flows in the Marketing Channel

14. Channel Levels Zero-level (Direct marketing) channel
Manufacturers have many alternatives for reaching a market. They can sell direct or use one-, two-, or three-level channels. Deciding which type(s) of channel to use calls for analyzing customer needs, establishing channel objectives, and identifying and evaluating the major alternatives, including the types and numbers of intermediaries involved in the channel.
The most basic marketing channel is the zero-level or direct marketing channel. Includes telemarketing, direct mail, door-to-door, TV selling (infomercials), and home parties (such as Avon, Tupperware, etc.).
A one-level channel contains one selling intermediary, such as a retailer.
A two-level channel contains two intermediaries. In consumer markets, these are typically a wholesaler and a retailer.
A three-level channel contains three intermediaries.

15. Channel Levels – Consumer
Figure 15.2
Channel Levels – Consumer

16. Figure 15.2
Channel Levels – B2B

17. Channel-Design Decisions
Customer wants and needs
Objectives and constraints
Identifying and evaluate alternatives
To design a marketing channel system, marketers analyze customer needs and wants, establish channel objectives and constraints, and identify and evaluate major channel alternatives.

18. Customer Needs and Wants
Price
Product Assortment
Different consumers have different needs during the purchase process. One study of European costumers found that
Service/quality customers cared most about the variety and performance of products and service;
Price/value customers were most concerned about spending wisely;
Affinity customers primarily sought stores that suited people like themselves or groups they aspired to join.
Shopping Goals
Economic
Social
Experiential
Convenience

19. What do European Consumers Value
Figure 15.3
What do European Consumers Value
Figure 15.3 shows that customer profiles differ across three markets: In France, shoppers stressed service and quality, in the United Kingdom, affinity, and in Germany, price and value.

20. Channels Service Outputs
Spatial Convenience
Waiting/
Deliver Time
Service Backup
Product Variety
Channels produce five service outputs:
Lot size—The number of units the channel permits a typical customer to purchase on one occasion.
Waiting and delivery time—The average time customers wait for receipt of goods.
Spatial convenience—The degree to which the marketing channel makes it easy for customers to purchase the product.
Product variety—The assortment provided by the marketing channel.
Service backup—Add-on services (credit, delivery, installation, repairs) provided by the channel.
Lot Size

21. Objectives and Constraints
Service
Costs
Nonstandard Products
Marketers should state their channel objectives in terms of service output levels and associated cost and support levels. They can identify several market segments based on desired service and choose the best channels for each.
Channel objectives vary with product characteristics.
Marketers must adapt their channel objectives to the larger environment.
Bulky Products
Installation / Maintenance

22. Identify Channel Alternatives
Sales Force
Distributors
Direct Mail
Each channel—from sales forces to agents, distributors, dealers, direct mail, telemarketing, and the Internet—has unique strengths and weaknesses. Sales forces can handle complex products and transactions, but they are expensive. The Internet is inexpensive but may not be as effective with complex products. Distributors can create sales, but the company loses direct contact with customers. Several clients can share the cost of manufacturers’ reps, but the selling effort is less intense than company reps provide.
Channel alternatives differ in three ways: types of intermediaries, number needed, and terms and responsibilities of each.
Channel Alternatives
Type of Intermediaries
Number of Intermediaries
Terms and Responsibilities
Telemarketing

23. Identify Channel Alternatives
Each channel—from sales forces to agents, distributors, dealers, direct mail, telemarketing, and the Internet—has unique strengths and weaknesses. Sales forces can handle complex products and transactions, but they are expensive. The Internet is inexpensive but may not be as effective with complex products. Distributors can create sales, but the company loses direct contact with customers. Several clients can share the cost of manufacturers’ reps, but the selling effort is less intense than company reps provide.
Channel alternatives differ in three ways: types of intermediaries, number needed, and terms and responsibilities of each.
Channel Alternatives
Type of Intermediaries
Number of Intermediaries
Terms and Responsibilities

24. Types of Intermediaries
Satellite Radio Manufacturer
OEMs
Ray’s Cars
Satellite radio manufacturer have multiple options to sell its product. OEMs (Car manufacturers); dealers; or consumers through various channels such as direct mail, internet, retailers, etc.
Dealers
Direct to Consumers

25. Number of Intermediaries
Exclusive Distribution
Intensive Distribution
Exclusive distribution limits the number of intermediaries. Exclusive deals are becoming a mainstay for specialists looking for an edge in markets increasingly driven by price.
Selective distribution relies on only some of the intermediaries willing to carry a particular product. Company does not need to worry about having too many outlets; while gaining adequate market coverage.
Intensive distribution places the goods or services in as many outlets as possible. This strategy serves well for products consumers buy frequently or in a variety of locations.
Selective Distribution

26. Evaluating Channel Alternatives
Economic Criteria
$4.07
(Face-to-Face Transaction)
$0.27
(ATM Transaction)
Each channel alternative needs to be evaluated against economic, control, and adaptive criteria.
Economic Criteria: Each channel alternative will produce a different level of sales and costs. Firms will try to align customers and channels to maximize demand at the lowest overall cost. The first step is to estimate how many sales each alternative will likely generate. The next step is to estimate the costs of selling different volumes through each channel. The final step is comparing sales and costs.
$0.54
(Phone Transaction)
$0.01
(Online Transaction)

27. Value-Adds vs. Costs of Different Channels
Figure 15.4
Value-Adds vs. Costs of Different Channels
Figure 15.4 shows how six different sales channels stack up in terms of the value added per sale and the cost per transaction.

28. Break-Even Cost Chart: Company Sales Force vs. Sales Agency
Figure 15.5
Break-Even Cost Chart: Company Sales Force vs. Sales Agency

29. Channel-Management Decisions
Training and Motivating
Selecting Channel Members
Effective channel management calls for selecting intermediaries and training and motivating them. The goal is to build a long-term partnership that will be profitable for all channel members.
When select channel members, producers should determine what characteristics distinguish the better intermediaries.
Carefully implemented training, market research, and other capability-building programs can motivate and improve intermediaries’ performance.
Producers must periodically evaluate intermediaries’ performance against set standards in promotional and training programs.
Modifying
Evaluating

30. Channel Integration and Systems
Horizontal Marketing Systems
Integrating Multichannel
Marketing Systems
Disney
Blockbuster
Disney Store
Best Buy
.com
Amazon
Vertical Marketing Systems
Marketing channels are characterized by continuous and sometimes dramatic change. Three important trends are:
A vertical marketing system (VMS) 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.
In a horizontal marketing system, two or more unrelated companies put together resources or programs to exploit an emerging marketing opportunity. The companies might work together on a temporary or permanent basis or create a joint venture company.
In an integrated marketing channel system, the strategies and tactics of selling through one channel reflect the strategies and tactics of selling through one or more other channels. Adding more channels gives companies such benefits as increased market coverage, lower channel cost, and more customized selling.

31. Figure 15.6
The Hybrid Grid
Companies need to think through their channel architecture and determine which channels should perform which functions. Figure 15.6 shows a simple grid to help make channel architecture decisions.

32. Conflict, Cooperation & Competition
Channel Coordination
Channel Conflict
Channel conflict is generated when one channel member’s actions prevent another channel from achieving its goal.
Channel coordination occurs when channel members are brought together to advance the goals of the channel, as opposed to their own potentially incompatible goals.

33. Channel Conflict Multichannel Conflict Vertical Channel Conflict
Horizontal Channel Conflict occurs between channel members at the same level. Some Pizza Inn franchisees complained about others cheating on ingredients, providing poor service, and hurting the overall brand image.
Vertical Channel Conflict occurs between different levels of the channel. When Estée Lauder set up a Web site to sell its Clinique and Bobbi Brown brands, the department store Dayton Hudson reduced its space for Estée Lauder products
Multichannel Conflict exists when the manufacturer has established two or more channels that sell to the same market. When Goodyear began selling its popular tire brands through Sears, Walmart, and Discount Tire, it angered its independent dealers and eventually placated them by offering exclusive tire models not sold in other retail outlets.
Horizontal Channel Conflict

34. Managing Channel Conflict
Employee Exchange
Dual Compensation
Legal Recourse
All marketing channels have the potential for conflict and competition resulting from such sources as goal incompatibility, poorly defined roles and rights, perceptual differences, and interdependent relationships. There are a number of different approaches companies can take to try to manage conflict.
Mediation

35. E-Commerce Marketing Practices
Brick-and-Click Firms
B2B E-Commerce
E-commerce has grown in importance as companies have adopted “brick-and-click” channel systems. Channel integration must recognize the distinctive strengths of online and offline selling and maximize their joint contributions.
There are several kinds of pure-click companies: search engines, Internet service providers (ISPs), commerce sites, transaction sites, content sites, and enabler sites.
B2B sites make markets more efficient, giving buyers easy access to a great deal of information, change the supplier–customer relationship in profound ways.
Adding an e-commerce channel creates the possibility of a backlash from retailers, brokers, agents, and other intermediaries. Managing the online and offline channels has thus become a priority for many firms.
Pure-Click Firms

36. M-Commerce Marketing Practices
Text Promotions
An area of increasing importance is m-commerce and marketing through cell phones and PDAs that allow people to connect to the Internet and place online orders on the move. The existence of mobile channels and media can keep consumers connected and interacting with a brand throughout their day-to-day lives. GPS-type features can help identify shopping or purchase opportunities for consumers for their favorite brands.
GPS Features