1. ©2003 Prentice Hall, Inc.To accompany A Framework for Marketing Management, 2 nd Edition Slide 0 in Chapter 14 Chapter 14 Designing and Managing Value Networks and Marketing Channels PowerPoint by Karen E. James Louisiana State University - Shreveport

2. ©2003 Prentice Hall, Inc.To accompany A Framework for Marketing Management, 2 nd Edition Slide 1 in Chapter 14 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.

3. ©2003 Prentice Hall, Inc.To accompany A Framework for Marketing Management, 2 nd Edition Slide 2 in Chapter 14 Objectives  Identify trends taking place in channel dynamics.  Learn how channel conflict can be managed.

4. ©2003 Prentice Hall, Inc.To accompany A Framework for Marketing Management, 2 nd Edition Slide 3 in Chapter 14 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).

5. ©2003 Prentice Hall, Inc.To accompany A Framework for Marketing Management, 2 nd Edition Slide 4 in Chapter 14 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

6. ©2003 Prentice Hall, Inc.To accompany A Framework for Marketing Management, 2 nd Edition Slide 5 in Chapter 14 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

7. ©2003 Prentice Hall, Inc.To accompany A Framework for Marketing Management, 2 nd Edition Slide 6 in Chapter 14 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

8. ©2003 Prentice Hall, Inc.To accompany A Framework for Marketing Management, 2 nd Edition Slide 7 in Chapter 14 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.

9. ©2003 Prentice Hall, Inc.To accompany A Framework for Marketing Management, 2 nd Edition Slide 8 in Chapter 14 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

10. ©2003 Prentice Hall, Inc.To accompany A Framework for Marketing Management, 2 nd Edition Slide 9 in Chapter 14 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

11. ©2003 Prentice Hall, Inc.To accompany A Framework for Marketing Management, 2 nd Edition Slide 10 in Chapter 14 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.

12. ©2003 Prentice Hall, Inc.To accompany A Framework for Marketing Management, 2 nd Edition Slide 11 in Chapter 14 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

13. ©2003 Prentice Hall, Inc.To accompany A Framework for Marketing Management, 2 nd Edition Slide 12 in Chapter 14 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

14. ©2003 Prentice Hall, Inc.To accompany A Framework for Marketing Management, 2 nd Edition Slide 13 in Chapter 14 Channel-Management Decisions  Motivate channel members  Evaluate channel members  Modify channel arrangements Channel Development Process  Select channel members  Train channel members

15. ©2003 Prentice Hall, Inc.To accompany A Framework for Marketing Management, 2 nd Edition Slide 14 in Chapter 14 Channel Dynamics  Channel systems are constantly evolving and developing  Vertical Marketing Systems –Corporate VMS –Administered VMS –Contractual VMS  Horizontal Marketing Systems  Multichannel Marketing Systems

16. ©2003 Prentice Hall, Inc.To accompany A Framework for Marketing Management, 2 nd Edition Slide 15 in Chapter 14 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

17. ©2003 Prentice Hall, Inc.To accompany A Framework for Marketing Management, 2 nd Edition Slide 16 in Chapter 14 Channel-Management Decisions  Cooptation  Diplomacy  Mediation  Arbitration Managing Channel Conflict  Subordinate goal adoption  Exchange people between channel levels

18. ©2003 Prentice Hall, Inc.To accompany A Framework for Marketing Management, 2 nd Edition Slide 17 in Chapter 14 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