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Chapter 14
Selecting and
Managing
Marketing
Channels
PowerPoint by Yu Hongyan
Business School of Jilin
University
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.
• Channel Management decisions
• Identify trends taking place in channel dynamics.
1. 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).
2. Work Performed by Channels
Figure 14-1:
How a Distributor
Effects Economy
of Effort
Discussion Scenario
The use of marketing channels is not restricted
to physical goods; channels also assist in the
distribution of services.
Can you think of an example of a zero-level
service channel? One-level channel? Two or
more level channel?
2.Work Performed by Channels
(cont’d)
• 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
2.Work Performed by Channels
(cont’d)
• 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
2.Work Performed by Channels
(cont’d)
• 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
2.Work Performed by Channels
(cont’d)
Figure 14-2:
Five Marketing Flows in the Channel for Forklift Trucks
2.Work Performed by Channels
(cont’d)
Some
channels
reverse the
flow process
2.Work Performed by Channels
(cont’d)
Figure 14-3:
Consumer and Industrial Marketing Channels
3. Channel-Design Decisions
Push vs. Pull
Strategy
Analyzing Consumers’ Desired
Service Output Levels
Establishing Objectives
and Constraints
Identifying / Evaluating Major
Channel Alternatives
3.Channel-Design Decisions (cont’d)
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
3.Channel-Design Decisions (cont’d)
Independent
insurance
agents act for
multiple
insurance
providers
3.Channel-Design Decisions (cont’d)
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.
3.Channel-Design Decisions (cont’d)
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
3.Channel-Design Decisions (cont’d)
Figure 14-4:
The Value-Adds Versus Costs of Different Channels
3.Channel-Design Decisions (cont’d)
Criteria for Channel Alternative
Evaluation
Economic
Control
Adaptive
4. Channel-Management Decisions
The Channel Development Process
Channel Member
Training
Selection
Motivation
Channel
Evaluation
Modification
Channel
Discussion Scenario
Assume that an electronics company has
developed a holographic television that converts
digital signals to 3D images.
Would economic, adaptive or control criteria be
most critical in guiding the evaluation of
channel alternatives? What channel(s) would
you initially select to introduce this innovation?
4. Channel-Design Decisions (cont’d)
Figure 14-5:
Channel
Value-Added
and Market
Growth Rate
5. Channel Dynamics
• Channel systems are constantly evolving
and developing
• Vertical Marketing Systems
– Corporate VMS
– Administered VMS
– Contractual VMS
• Horizontal Marketing Systems
• Multichannel Marketing Systems
5. Channel Dynamics (cont’d)
• 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
5. Channel Dynamics (cont’d)
Managing Channel Conflict
Mediation
Arbitration
Diplomacy
Cooptation
Subordinate Goal Adoption
Exchange People Between Channel Levels
Discussion Scenario
In an effort to minimize channel conflict,
producers may make alterations to the product
mix. Minor changes may be implemented with
respect to styling, non-essential features, or in
terms of supplemental items packaged with, or
sold as part of the product bundle.
Can you think of an example of a producer that
has taken this approach?
5. Channel Dynamics (cont’d)
• 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
Review
• 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.
• Channel Management decisions
• Identify trends taking place in channel dynamics