MM:Chapter 17
Managing Marketing
Channels
Marketing Channels
are sets of interdependent organizations
involved in the process of making a
product or service available for use of
consumption
Tasks of Marketing Channels
Gather marketing information for supplies
Develop and disseminate persuasive
communication to consumers
Facilitate transfer of ownership
Place orders with manufacturers
Acquire funds to finance inventories
Assume risks connected with inventory
Provide storage and PD activities
Settle the payment through fin. Institutions
Oversee actual transfer of ownership
Channel Functions and Flows
Forward flow (physical, title, promotion)
Backward flow (ordering, payment)
Two-way Flow (negotiation, finance, risk
taking and information)
Channel Levels
Zero-level (direct-marketing)
One-level channel
Two-level
Three-level channel
Backward/ reverse-flow channels:
e.g., dispose of batteries at DTAC
Channel-Design Decisions:
4 steps of designing a channel system
1. Analyze Customers Desired Service
Output Level
2. Establish Objectives and Constraints
3. Identify Major Channel Alternatives
4. Evaluate Major Alternatives
1. Analyze Customers Desired
Service Output Level
Channels produce 5 service outputs:
Lot Size
Waiting Time
Spatial Convenience
Product Variety
Service Backup
2. Establish Objectives and
Constraints
Channel Objectives :
Should be stated in terms of targeted
service output levels
Would vary with product characteristics
Channel Constraints :
e.g., Size of pdt, Perishability,
3. Identify Major Channel
Alternatives
Type of intermediaries
Number of intermediaries:
Exclusive distribution: Image
Selective distribution: adequate mkt coverage
Intensive distribution
Terms & Responsibilities of Channel
Members
price policy, conditions of sale, distributor’s territorial
rights, mutual services and responsibilities
4. Evaluate Major Alternatives
Each channel alternative needs to be
evaluated against the following factors:
Economic Criteria (compare the cost and
expected sales of different intermediaries)
Control Criteria
Adaptive criteria
Channel-Management Decisions
Selecting channel members
Training channel members
Motivating channel members
Coercive power
Reward power
Legitimate power
Expert power
Referent power
Evaluating channel members
Modifying channel arrangement
Channel Dynamics
1. Vertical marketing systems
2. Horizontal marketing systems
3. Multi-channel marketing system
4. Conflict, co-operation and competition
5. Legal and ethical issues in channel
relations
1. Vertical Marketing Systems
A unified working system of channel members from
different levels.
1. Corporate VMS: single ownership e.g., Dapper
2. Administered VMS: through size and power
3. Contractual VMS
3.1 Wholesaler-sponsored voluntary chains
3.2 Retailer cooperatives
3.3 Franchise organizations
3.3.1 Manufacturer-sponsored retailer franchise
3.3.2 Manufacturer-sponsored wholesaler franchise
3.3.3 Service-firm-sponsored retailer franchise
2. Horizontal Marketing Systems
“Symbiotic marketing” --- Two or more
unrelated companies put together
resources or programs to exploit an
emerging marketing opportunity. e.g.,
VISA credit cards and Convenience
store with the Counter service
3. Multi-Channel Marketing
System
Multichannel marketing: using more than one
channels to reach one or more segments
Roles of individual firms:
Insiders --- members of dominant channel
Strivers --- firms seeking to be members of
dominant channel
Complementers --- not part of dominant channel,
but serving smaller segments of the market
Transients--- firms going in and out of the mkt
Outside innovators--- real disrupters of the
dominant channels
4. Conflict, Cooperation and
Competition
Types of conflict
Vertical channel conflict
Horizontal channel conflict
Multi-channel conflict
Cause of channel conflict
Goal incompatibility
Unclear roles and rights
Managing conflicts (superordinate goals,
exchange persons, cooptation, joint
membership, diplomacy, mediation, arbitration)
5. Legal, Ethical Issues in
channel Relations
Exclusive dealing: not handling competitors’
products
Exclusive territories: selling pdt only in its own
territory
Tying agreements: full-line forcing
Dealers’ rights: producer cannot drop
dealers easily