Chapter 14 Designing and Managing Value Networks and Marketing Channels PowerPoint by Karen E. James Louisiana State University - Shreveport ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 0 in Chapter 14 Objectives Identify value networks and marketingchannel systems. Learn the type of work performed by marketing channels. Understand the decisions companies face in designing, managing, evaluating, and modifying channels. ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 1 in Chapter 14 Objectives Identify trends taking place in channel dynamics. Learn how channel conflict can be managed. ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 2 in Chapter 14 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). ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 3 in Chapter 14 Work Performed by Channels 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 ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 4 in Chapter 14 Work Performed by Channels 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 ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 5 in Chapter 14 Work Performed by Channels 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 ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 6 in Chapter 14 Work Performed by Channels Channel levels vary according to the number of intermediaries: – Zero-level (direct marketing) channel – One, two, and three-level channels – Reverse flow channels Service sector channels use agencies and locations to access population to be served. ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 7 in Chapter 14 Channel-Design Decisions Push vs. pull strategy Analyzing consumers’ desired service output levels – Lot size, waiting time, product variety, spatial convenience, service backup Establishing objectives / constraints Identifying and then evaluating major channel alternatives ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 8 in Chapter 14 Channel-Design Decisions Channel Factors Intermediary type Number of intermediaries Terms and responsibilities of intermediaries ©2003 Prentice Hall, Inc. 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 To accompany A Framework for Marketing Management, 2nd Edition Slide 9 in Chapter 14 Channel-Design Decisions Channel Factors Intermediary type Number of intermediaries Terms and responsibilities of intermediaries ©2003 Prentice Hall, Inc. 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. To accompany A Framework for Marketing Management, 2nd Edition Slide 10 in Chapter 14 Channel-Design Decisions Channel Factors Intermediary type Number of intermediaries Terms and responsibilities of intermediaries ©2003 Prentice Hall, Inc. 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 To accompany A Framework for Marketing Management, 2nd Edition Slide 11 in Chapter 14 Channel-Design Decisions Channel Alternative Evaluation Criteria: – Economic criteria Sales and costs vs. added value – Control criteria – Adaptive criteria After choosing a particular channel alternative, firms take several actions ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 12 in Chapter 14 Channel-Management Decisions Channel Development Process Select channel members Motivate channel members Train channel members Evaluate channel members Modify channel arrangements ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 13 in Chapter 14 Channel Dynamics Channel systems are constantly evolving and developing Vertical Marketing Systems – Corporate VMS – Administered VMS – Contractual VMS Horizontal Marketing Systems Multichannel Marketing Systems ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 14 in Chapter 14 Channel Dynamics 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 ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 15 in Chapter 14 Channel-Management Decisions Managing Channel Conflict Subordinate goal adoption Cooptation Exchange people between channel levels Mediation ©2003 Prentice Hall, Inc. Diplomacy Arbitration To accompany A Framework for Marketing Management, 2nd Edition Slide 16 in Chapter 14 Channel Dynamics 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 ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 17 in Chapter 14