Session 26 MG 220 MBA - 11 Nov 10

MG 220 Marketing Management
MBA 10
Fall 2010
Muhammad Talha Salam, Asst. Professor
talha.salam@nu.edu.pk
Access it online: www.slideshare.net/talhasalam
Part 6:
Delivering Value
> Marketing Channels and Value Networks
> The Role of Marketing Channels: SKIM
> Channel-Design decisions
> Channel-Management decisions: SKIM
> Quiz 7: Part 5 (Complete)
Class Presentation | Session 26 | 11 Nov 2010

Marketing Channels and Value Networks
The Importance of Channels
Marketing Channels
• Sets of independent organizations involved in the process of making a product or service available for
use or consumption
Among these ‘intermediaries’ are:
• Merchants – who buy, take title to, and resell the merchandise
– Wholesalers, Retailers
• Agents – who search for consumers but do NOT take title
– Brokers, Manufacturers’ representatives, sales agents
• Facilitators – assist in distribution but neither take title NOR negotiate sale/purchase
– Transporters, independent warehouses, ad agencies, banks
Importance of Channels
• A marketing channel system is the particular set of marketing channels employed by a firm.
• Channels chosen affect all other marketing decisions
• Push strategy involves manufacturers using its own sales force and trade promotion money to include
intermediaries
– Appropriate when: low brand loyalty | choice is made at purchasing time | impulse item | benefits are understood
• Pull strategy involves manufacturer using advertising and promotion to persuade consumers to ask
intermediaries for the product
– Appr0priate when: High brand loyalty | high involvement | people perceive differnces in brands | decision before
going to store
• Top marketing companies use both strategies
MG 220 Marketing Management 2

Channel Development
• A new firm typically is a local/limited operation selling in a limited market
• As it grows, it moves in new markets and that is where it needs new partners to sell for it
• Channel system evolves in response to local opportunities
Hybrid channels
• Consider IBM, Dell, Microsoft
• Selling online (self), through retailers (intermediaries) – CONSUMERS
• Selling using sales force (own) – INSTITUTIONAL SELLING
• All operate parallel and in one market
• Ensuring Channel Integration – consumers would want channels to be working together
• Also understanding different needs of customers:
• Habitual shoppers | High value deal seekers | Variety-loving shoppers | High-involvement shoppers

Value Networks
Demand chain planning
• Company first thinks of the target market and then plans it all backwards
• 4Ps replaced by SIVA (Solution | Information | Value | Access)
Value Networks
• An even broader view. Company at the center
• A system of partnerships and alliances that a firm creates to source, augment and deliver its
offerings
• A value network includes: firm’s suppliers, suppliers’ suppliers, immediate customers and their
end customers
Demand chain planning yields several insights
• Company can estimate whether more money is made upstream or downstream
• Company is more aware of disturbances anywhere in the supply chain that might cause costs to
change
• Companies can use internet to go online to improve these processes
Concept of ERP
• To manage entire value networks efficiently, different IT solutions and software is extensively
deployed. They form Enterprise Resource Planning (ERP)

The Role of Marketing Channels
Concept
Why delegate the ‘selling job’?
• Many producers lack the financial resources to carry out direct marketing
• Producers who do establish their own channels can often earn a greater return
by increasing investment in their own business (EXAMPLE)
• In some cases direct marketing simply is not feasible
Reducing number of contacts
• Ref: figure
• With and without “D” - Distributor

Channel Functions and Flows
Direction of activities
• Some functions have forward flow of activities
• Some have backward flow
• Others have two-way flow

Channel Levels
Key Points
• Producer and End Customer are there in every case
• Zero-level channel is also called direct marketing channel
• Different schemes for consumer marketing and industrial marketing

Channel-Design Decisions
Analyzing Customers’ Desired service output levels
Service Outputs by a channel
– Lot Size – number of units a channel permits a user to purchase on one occasion
– Waiting & Delivery time – Avg time customers have to wait for receipt of goods
– Spatial Convenience – Degree of convenience in purchasing a product
– Product Variety – Assortment breadth by a marketing channel
– Service Backup – Add-on services provided by a channel
Establishing Objectives & Constraints
• Channel objectives should be stated in terms of targeted service output levels
• Channel objectives vary with product characteristics
• Channel design must take into account strengths and weaknesses of different types of
intermediaries
• Channel design must also take into account economic environment. For instance,
economic depressions lead to cost-cutting thus shorter channels.

Channel-Design Decisions
Identifying Major Channel Alternatives
Decisions of choosing from a wide variety of channels for reaching customers
Elements for describing channel alternative:
• Type of Intermediaries
– Decisions regarding what type of intermediaries shall be used
– Retailers or OEMs
• Number of Intermediaries
– Exclusive Distribution
– Selective Distribution
– Intensive Distribution
• Terms and responsibilities of each channel member
– Price Policy calls
– Conditions of sale
– Distributors’ territorial rights
– Mutual services and responsibilities

Channel-Management Decisions
After choosing, individual intermediaries need to be trained, motivated and
evaluated
• Selecting Channel Members
• Training Channel Members
• Motivating Channel Members
– Channel Power – ability to alter channel members’ behavior
– Coercive Power
– Reward Power
– Legitimate Power
– Expert Power
– Referent Power – how strongly members would like to be associated with the partner

MG 220 Marketing Management
MBA 10
Fall 2010
Muhammad Talha Salam, Asst. Professor
talha.salam@nu.edu.pk
Part 6:
Delivering Value
> Channel integration and systems: SKIM
> E-Commerce Marketing Practices: SKIM
> Retailing
> Private Labels
> Wholesaling
> Market Logistics: SKIM
Class Presentation | Session 27 | 15 Nov 2010

Session 26 MG 220 MBA - 11 Nov 10

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