Designing and Managing Value Networks and Marketing Channels

Identify

value networks and marketingchannel systems. Learn the type of work performed by marketing channels. Understand the decisions companies face in designing, managing, evaluating, and modifying channels.

 Identify

trends taking place in channel dynamics. Learn how channel conflict can be managed.

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).

 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

 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

 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

 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.

 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

Merchants
Buy, take title, and resell

Channel Factors
Intermediary Number

merchandise

type

Agents
Find customers, negotiate,

of intermediaries Terms and responsibilities of intermediaries

do not take title to merchandise

Facilitators
Aid in distribution, do not

negotiate or take title to merchandise

Exclusive distribution
Severely limited distribution

Channel Factors

Selective distribution
Some intermediaries willing

Intermediary Number

type

of intermediaries Terms and responsibilities of intermediaries

to carry good are selected

Intensive distribution
Offering is placed in as

many outlets as possible.

Price policies
Price list and schedule of

Channel Factors
Intermediary Number

discounts

type

Conditions of sale
Payment terms and

of intermediaries Terms and responsibilities of intermediaries

guarantees

Territorial rights
Define territory / terms

Services to be performed by party

 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

Channel Development Process

Select channel members
Train channel members
Motivate

channel members Evaluate channel members

Modify channel arrangements

 Channel

systems are constantly evolving and developing Vertical Marketing Systems

Corporate VMS Administered VMS Contractual VMS
Horizontal

Marketing Systems Multichannel Marketing Systems

 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

Managing Channel Conflict

Subordinate goal adoption
Exchange people between channel levels
Cooptation Diplomacy Mediation Arbitration

 Legal

and Ethical Issues in Channel Relations

Two common distribution practices are legal

as long as they dont substantially lessen competition:

Exclusive dealing Tying agreements