Marketing Channels • After studying this chapter; the student will be able to understand: - Downstream/upstream partners - Pull and push strategy - Channel levels - Direct and indirect distribution - Channel member functions - Value added services by intermediaries - Vertical marketing system - Horizontal and vertical conflict • There can be no sales without marketing channels. Marketing channels represent an opportunity cost. One of the chief roles of marketing channels is to convert potential buyers into profitable customers. Marketing channels must not just serve markets, they must also make markets. • Producing a product and making it available to buyers requires building relationships not just with customers but also with key suppliers in the company’s supply chain (downstream partners- raw materials, components, information, finance), and (upstream partners- • A value delivery network is made up of the company, suppliers, distributors, and customers who “partner” with each other to improve the performance of the entire system. • In managing its intermediaries, the firm must decide how much effort to devote to push versus pull marketing. • A push strategy uses the manufacturer’s sales force, trade promotion money, or other means to induce intermediaries to carry, promote, and sell the product to end users. Push strategy is appropriate where there is low brand loyalty, brand choice is made in the store, and the product is an impulse item. • In a pull strategy the manufacturer uses advertising, promotion and other forms of communication to persuade consumers to demand the product from intermediaries, indicating them to order it. Pull strategy is appropriate when there is high brand loyalty, when consumers are able to perceive differences between brands, and when they choose the brand before they go to the store. (drug firms) • Top marketing companies like Nike and Coca Cola employ both strategies. • Channel levels:- The producer and the final customer are part of every channels. We will use the number of intermediary levels to designate the length of a channel. • A zero-level channel (direct marketing channel) consist of a manufacturer selling directly to the final customer: TV selling, telemarketing, door-to-door sales, mail order, and internet selling. Avon, Apple. • One-level channel • Two-level channel • Three-level channel Electronic Marketing Channels Book Publisher (Amazon.com) Auto Manufacturer (Autobytel.com) Book Distributor Auto Dealer Amazon.com (virtual Retailer) Auto-By-Tell (Virtual Broker) ULTIMATE Commercial Airline (Travelocity.com) Travelocity (Virtual Agent) BUYERS Dell Inc. (Dell.com) Multichannel distribution system Catalogs, telephone, Internet Retailers Consumer Segment 2 Dealers Business segment 1 Producer Distributor Consumer Segment 1 Sales force Business segment 2 • Companies must decide on the number of intermediaries to use at each channel level. Three strategies are available: Exclusive distribution means severely limiting the number of intermediaries. Producer wants to maintain control over service levels/outputs. Selective distribution relies on more than a few but less than all of the intermediaries willing to carry a particular product. In intensive distribution, the manufacturer places the goods in as many outlets as possible. Snack foods, soft drinks, newspapers, candies and gum such as 7-Eleven stores. Value-added services provided by intermediaries Value-added services Facilitating value -Financing -Training -Information -After sales -Risk bearing Transactional Value -Risk -Marketing -Administration Logistical Value -Assortment -Storage -Sorting -Bulk breaking -Transportation -Handling • Evaluating major alternatives. Each channel alternative will produce a different sales and costs. Next figure shows how six different sales channels affects the value added per sale and the cost per transaction. • Firms try to align customers and channels to maximize demand at the lowest overall cost. • To develop a channel, members must make some degree of commitment to each other for a specified period of time. In rapidly changing, volatile and uncertain product markets, high adaptability is necessary. The powerful partnership rests on a handful of basic principles and practices: • • • • • Dealer profitability Extraordinary dealer support Communications Dealer performance Personal relationships Thus, Caterpillar’s superb distribution system serves as a major source of competitive advantage. The system is built on a firm base of mutual trust and shared dreams. A conventional marketing vs a vertical marketing system CONVENTIONAL MARKETING CHANNEL VERTICAL MARKETING SYSTEM Manufacturer manufacturer wholesaler wholesaler retailer retailer consumer consumer • Horizontal conflict occurs among firms at the same level of the channel. For example, some Ford dealers in Chicago might complain the other dealers in the city steal sales from them by pricing too low or by selling outside their assigned territories.. Or Holiday Inn franchisees might complain about other Holiday Inn operators overcharging guests or giving poor service, hurting the overall Holiday Inn image • Vertical conflict, conflicts between different levels of the same channel. Is even more common. For ex, H&R Block franchisees complained when the parent company began using the internet to deal directly with customers. Similarly, McDonald’s created conflict with some of its California dealers when it placed new stores in areas that took business from existing locations.
