Value Delivery Network

Marketing channel

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.
Set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user

Marketing channel: system of marketing

institutions that promotes the physical flow of goods and services, along with ownership title, from producers to consumer or business user; also called a distribution channel

Channel choices affect other decisions in the marketing mix

Pricing, Marketing communications

A strong distribution system can be a competitive advantage Channel decisions involve long-term commitments to other firms

How Channel Members Add Value

Intermediaries require fewer contacts to move the product to the final purchaser. Intermediaries help match product assortment demand with supply. Intermediaries help bridge major time, place, and possession gaps that separate products from those who would use them.

Information gathering Consumer motivation Negotiating with suppliers Placing orders Financing Inventory management Risk bearing After sales support

Physical reach Customer contact Building relationships Market feedback Understand market trends and keep principals informed Handle price risks Finances market credit and inventory holdings Provide after sales service

Number of Channel Levels

The number of intermediary levels indicates the length of a marketing channel.
Direct Channels Indirect Channels

Producers lose more control and face greater channel complexity as additional channel levels are added.

Physical Flow Payment Flow Information Flow Promotion Flow

Flow of Ownership

Direct channel: marketing channel that

moves goods directly from a producer to ultimate user Direct selling: strategy designed to establish direct sales contract between producer and final user

Conventional Distribution Channels

Consists of one or more independent channel members Lack leadership and power Often result in poor performance

Vertical Marketing Systems

Consists of members acting as a unified system Use contracts, ownership or power

Vertical marketing system (VMS): planned

channel system designed to improve distribution efficiency and cost effectiveness by integrating various functions throughout the distribution chain

Three types of VMS:

Examples: Bata, Bombay Dyeing, Raymond Sears, Goodyear Suppliers of food items could be also their own supplying firms - like Nilgiris

Corporation owns production and distribution Coordination and conflict through regular organizational channels

Individual firms who join through contracts Franchise organizations

Manufacturer-sponsored retailer franchise system Manufacturer-sponsored wholesaler franchise system Service-firm-sponsored retailer franchise system

Leadership through the size and power of dominant channel members Leadership could be manufacturer or retailer Gains market power by dominating a channel Usually true of dominant brands like GE, Kodak, Pepsi, Gillette, Coke and HLL in certain locations
Command high level of co-operation in shelf space, co-operation from resellers, displays, pricing policies and promotion strategies

Horizontal Marketing Systems

Multichannel Distribution Systems

Companies at the same level work together with channel members

Also called hybrid marketing channels Occurs when a firm uses two or more marketing channels

Company uses different channels to reach / same or different market segments

Most FMCG companies have separate networks for retail market and institutions Most B2B firms use multi-channels for customer segments like Government, institutions etc

Used in situations where:

Benefits include lower cost, better market coverage and customized selling

Same product but different market segments Unrelated products in same market detergents and ice creams (HLL) Size of buyers varies Geographic concentration of potential consumers varies Reach is difficult