Designing & Managing

Integrated Marketing
Channel
What is a Marketing Channel?
A marketing channel system is the particular
set of interdependent organizations involved in
the process of making a product or service
available for use or consumption.
Value Delivery Network
The network made up of the company,
suppliers, distributors, and ultimately
customers who partner with each other to
improve the performance of the entire
system.
Most producers do not sell their goods directly to
the final users; between them stands a set of
intermediaries performing a variety of functions.
These intermediaries, constitute a marketing
channel.
Some Intermediaries such as,
o - Merchants.
o - Agents.
o - Facilitators.
What is a Marketing Channel?
Marketing channels must not just serve markets ,
they must also make markets.
Push Strategy: It uses the manufacturers sales
force , trade promotion money, or other means to
induce intermediaries to carry, promote & sell the
product to end users. Push strategy is particularly
appropriate when there is low brand loyalty in a
category, brand choice is made in the store.
Pull Strategy: Manufacturer uses advertising,
promotion & other forms of communication to
persuade consumers to demand the product from
intermediaries, thus including the intermediaries to
order it.
Importance of Channels
Multichannel Marketing
Hybrid or Multichannel marketing occurs when a
single firm uses two or more marketing channels to
reach customer segment.
E.g: HP uses:-
Sales force large accounts.
Outbound telemarketing medium size accounts.
Direct mail small accounts.
Retailers still smaller accounts.
Internet specialty item orders.

To manage hybrid channels, company must
make sure that these channels:-
Work well together.
Match each target customers preferred way of doing
business.
Features expected by customers in a hybrid channel:-
Ability to order online and pick it up from a
convenient retail store.
Ability to return the ordered product back to a nearby
retail store.
Right to discounts and promotional offers.

Marketing Channel Functions
Gather information about potential & current
customers, competitors & other actors & forces in the
marketing environment.
Develop & disseminate persuasive communication to
stimulate purchasing.
Negotiate & reach agreements on price & other terms
so that transfer of ownership or possession can be
affected.
Place orders with manufacturers.
Acquire the funds to finance inventories at different
levels in the marketing channel.
Assume risks connected with carrying out channel
work.
Provide for the successive storage & movement of
physical products.
Provide for buyers payment of their bills through
banks & other financial institutions.
Oversee actual transfer of ownership from one
organization or person to another.



Value Networks
Demand-chain planning:- First thinks of market and then
design supply chain backwards from market to firm.
Emphasizes what solutions customers are looking for, not
what producers are trying to sell to them.
SIVA replaced the traditional marketing 4 Ps
Solutions Information - Value - access
Partnerships and alliances are created to source,
augment and deliver its offerings to the end user.
A value network includes:-
o Firms suppliers.
o Its suppliers supplier.
o Its intermediate customers.
o End customers.

Various insights of demand-chain planning:-
Company can determine whether more money is upstream
or downstream this will help in integrating backward or
forward.
Company is more aware of disturbances anywhere in
supply chain that might cause costs, price or supplies to
change suddenly.
Companies can go online with their business partners to
carry on faster and more accurate communications,
transactions and payments to reduce costs and speed up
information and increase accuracy.
Requires investment in IT & soft wares.
SAP and Oracle ERP (enterprise resource plan) systems to
manage cash flows, manufacturing, human resources,
purchasing and other functions within a unified framework.

The Role of Marketing channels
Channel Functions & Flows
Performs the work of moving goods from Producers to
consumers.
Functions like storage & movement, title &
communications is a forward flow of activity from
company to customer.
Ordering & Payment constitutes backward flow from
customers to the company.
Information, negotiation, finance & risk taking occur
in both directions.
Selling a product & services require three channels, a
sales channel, a delivery channel & a service channel.


Marketing Channel Flows
The producer & the final customer are part of every
channel.
Zero level is also called a direct marketing
channel consists of a manufacturing selling directly
to the final customer. E.g. door-to-door sales,
telemarketing, manufacturer own stores
One-level channel contains one selling
intermediary, such as retailer.
two-level channel contains two intermediaries
those are wholesaler & retailer.
three-level channel contains three intermediaries,
i.e. wholesaler, jobber, retailer.


Marketing Channel Levels
Consumer Marketing Channels Levels
Industrial marketing channels
An industrial-goods manufacturer can use its sales
force to sell directly to industrial customers, or it can
sell to industrial distributors who sell to industrial
customers.
Channel normally describe a forward movement of
products from source to user.
But there are reverse flow channels which are
important in following cases:-
o Reuse of products or containers (cold drink bottles).
o Recycle of products (paper).
o Disposal of products and packaging.

Industrial Marketing Channels Levels
Designing a Marketing Channel System
Analyze customer needs
Evaluate major channel alternatives
Identify major channel alternatives
Establish channel objectives
Channel-Design Decisions
Analyzing Customer Needs & Wants
Lot size: Number of units the channel permits a typical
customer to purchase on one occasion.
Waiting & delivery time: Average time customers wait for
receipt of goods. Faster delivery channels preferred.
Spatial Convenience: Degree to which the marketing
channel makes it easy for customers to purchase the
product.
Product Variety: Customer prefer a greater variety
because more choices increases the chance of finding what
they want, also many choice creates a negative effect.
Service Backup: Services like credit, delivery, installation,
repairs provided by the channel. The greater the service
backup, the greater the work provided by the channel.
Channel-Design Decisions
Establishing Objectives & Constraints
Marketers should state their channel objectives in term of
targeted service output levels.
Channel institutions should arrange their functional tasks to
minimize total channel costs and still provide desired level
of service outputs.
Channel objectives vary with product characteristics :-
o Perishable products - direct marketing.
o Bulky products - channels that minimize shipping distance
and amount of handling.
o Custom built machinery - company sales representatives.
o Products requiring installations and regular check ups
company owned or leased franchisees.

Channel-Design Decisions
Identifying and Evaluating major Channel Alternatives
A firm can choose from a wide variety channels for
reaching customers:-
1. Sales force complex product and transactions.
2. Internet less expensive but not effective with
complex products.
3. Distributors can create sales but contact with
customers is lost.
4. Manufacturer representatives reach to different
segment of customers and delivers the right product at
low cost. If fails then leads to channel conflicts and
excessive costs.

Channel-Design Decisions
Identifying Major Channel Alternatives
Channel alternatives differ in three ways:
i) Types of Intermediaries
ii) Number of Intermediaries
iii) Terms & Responsibilities of Channel Members.


Types & Number of Intermediaries

Types of Intermediaries:- Agents, wholesalers,
dealers are the Intermediaries.

A firm can decide on number of intermediaries to use
at each level by using these three strategies :-
o Exclusive distribution: limiting the number of
intermediaries
o Selective distribution: relies on more than a few but less
than all of the available intermediaries
o Intensive distribution: places goods/products to all
available outlets
Terms and Responsibilities of Channel
Members
Each channel member must be treated respectfully
and must be given opportunity to be profitable.
Main policies are:-
o Price policies.
o Condition of scales.
o Territorial rights.
o Mutual services and responsibilities.

Price policies:- Establish a price-list and schedule of
discounts and allowances.
Conditions of sales:- Refers to payment terms and
producer guarantees. Provision for trade discounts on bulk
orders or purchases. Guarantee against defective
merchandise or price declines.
Distributors territorial rights:- Definition of distributor's
territories and terms under which distributor will
enfranchise with other distributors.
Mutual services & responsibilities:- E.g. McDonalds
McDonalds provides:-
Franchisee with a building.
Promotional support.
Record keeping system.
Training.
General administrative and technical assistance.

Evaluating Major Channel Alternatives
Each channel alternative needs to be evaluated against
economic, control & adaptive criteria.
Economic Criteria:- Each channel alternative will
produce a different level of sales & costs.
Control & Adaptive Criteria:- Using a sales agency
can pose a control problem. Agents may concentrate
on the customers who buy the most, not necessarily
those who buy the manufacturers goods. They might
not master the technical details of the companys
product or handle its promotion materials effectively.
High
Low
Low
Internet
Telemarketi
ng
Retail stores
Distributors
Value-added
partners
Retail stores
Direct marketing
channels
Indirect channels
Direct sales
channels
Cost per Transaction
Value
-
Add
of
sale
Value-Adds vs Costs of Different Channels
Break-Even Cost: choice between Company
Sales Force & Manufacturers Sales Agency
Level of Sales (rupees)
Selling
Costs
(rupees)
Manufacturers
Sales agency
Company
sales force
SB
Channel Management Decisions
Training and Motivating Channel Members
View intermediaries as end-users.
Needs and wants of intermediaries are compulsory to
stimulate them to top-level performance.
Channel power:- Ability to alter behavior of
intermediaries so that they can think out-of-box.

Powers a manufacturer posses to elicit cooperation
from intermediaries:-
Coercive power:- Threatening intermediaries to
terminate relationship if they fail to cooperate.
Reward power:- Offering extra benefits on
performing specific act or function.
Legitimate power:- Request for behavior that is
warranted under contract.
Expert power:- Having a special knowledge that
intermediaries value and doesnt posses.
Referent power:- The manufacturer is so highly
respected that intermediaries are proud to be
associated with it.



Modifying Channel Design
No channel strategy remains effective over the whole
product life cycle. In competitive markets with low
entry barriers, the optimal channel structure will
inevitably change over time.
Channel Evolution:-New firm typically starts as a local
operation selling in a fairly circumscribed market,
using a few existing intermediaries.
Channel modification Decisions:- A producer must
periodically review & modify its channel design &
arrangements.
Global channel Considerations:- International markets
pose distinct challenges, including variations in
customers shopping habits, but opportunities at the
same time.
Channel Integration & Systems
Horizontal marketing system: two or more unrelated
companies put together resources or programs to exploit
an emerging market opportunity.
Each one lacks capital, know how production,
marketing resources to venture alone.
Companies might work with each other on temporary
or permanent basis.

Channel Integration & Systems
Vertical Marketing System
Producer, wholesaler and retailer acts a unified
system.
One channel member owns the others or franchises
them has so much power that they all cooperate.
VMS arose as a result of strong channel members
attempt to control behavior and eliminate the
conflict.

Multichannel Marketing: occurs when a single firm
uses two or more marketing channels to reach one
or more customer segments
Most companies today have adopted multichannel
marketing.
Integrating Multichannel Marketing Systems
An Integrated marketing channel system is one in
which the strategies & tactics of selling through one
channel reflect the strategies & tactics of selling
through one or more other channels.
Conflict, Cooperation and Competition
Channel conflict is generated when one channel
members action prevent another channel from
achieving its goals.
Channel coordination occurs when channel members
are brought together to advance goals of the
channel as opposed to their own potentially
incompatible goals.
Types of Conflict & Competition
Horizontal channel conflict:- It occurs between
channel members at the same level.
Vertical channel conflict:- It occurs between
different levels of the channel.
Multichannel conflict:- It exists when the
manufacturer has established two or more channels
that sell to the same market.
Causes of Channel Conflict
Conflicts may arise from:-
1. Goal incompatibility :- Manufacturers want to achieve
rapid market penetration through low price policy.
2. Unclear Roles and Rights :- HP may sell personal
computers to large accounts through its own sales force,
but its licensed dealers may also be trying to sell to large
accounts.
3. Differences in Perception:- Disputes between
manufacturers and distributors about optimal advertising
strategy.
4. Intermediaries Dependence on Manufacturer :- Fortune
of exclusive dealers depend totally upon manufacturers
products and pricing decisions which creates high
potential for conflict.

Managing Channel Conflict
Various mechanisms of managing conflicts are:-
1. Strategic Justification:- A convincing strategic
justification that they serve distinctive segments & do
not compete as much as they might think can reduce
potential for conflict among channel members.
2. Dual Compensation:- Dual compensation pays existing
channels for sales made through new channels.
3. Superordinate Goal:- Channel members come to an
agreement on fundamental goals they are jointly seeking,
weather it is survival, market share, high quality or
customer satisfaction.
4. Exchange of Employees:- A useful step is to exchange
persons between two or more channel level.
5. Joint Memberships:- The manufacturer and the
intermediaries come together in good cooperation
which may lead to better understanding between
them.
6. Co-option:- It is an effort by one organization to
win the support of leaders of other organization by
including them in advisory council, board of
directors, which reduces the chances of conflicts.
7. Diplomacy, Mediation or Arbitration:- when
conflict is chronic, the companies may need to
resort to diplomacy, mediation or arbitration.

i. Diplomacy:- It takes place when each sends a
person or groups to meet with its counterparts to
resolve the conflict.
ii. Mediation:- It means resorting to a neutral third
party skilled in conciliating the two parties interest.
iii. Arbitration:- It occurs when both the parties
agree to present their arguments to one or more
arbitrators and accept their decisions.
8. Legal Recourse:- when none of the above
methods prove effective, company or channel
partners may choose to file a law suit.


Marketing Debate
Does it matter where you are sold?

Take a position:
1. Channel images do not really affect
the brand images of the products they
they sell that much.

or

2. Channel images must be consistent with
the brand image.