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Chapter 17 Designing and Managing Value Networks and Marketing Channels by. Kotler on Marketing. Establish channels for different target markets and aim for efficiency, control, and adaptability. Chapter Objectives.

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Chapter 17 Designing and Managing Value Networks and Marketing Channelsby


Kotler on Marketing

Establish channels for different target markets and aim for efficiency, control, and adaptability.


Chapter Objectives

  • In this chapter, we focus on the following channel questions from the viewpoint of the manufacturers:

    • What is the value network and marketing channel system?

    • What work is performed by marketing channels?

    • What decisions do companies face in designing, managing, evaluating, and modifying their channels?

    • What trends are taking place in channel dynamics?

    • How can channel conflict be managed?


What is a Value Network and Marketing-Channel System?

  • Value Network

  • Marketing channel


What is a Value Network and Marketing-Channel System?

  • Channel integration characteristics:

    • Ability to order a product online, and pick it up at a convenient retail location

    • Ability to return an online-ordered product to a nearby store

    • Right to receive discounts based on total of online and off-line purchases


How a Distributor Reduces theNumber of Channel Transactions

1

B. Number of contacts

with a distributor

M x C = 3 + 3 = 6

4

Store

2

5

6

3

= Manufacturer

= Distributor

= Customer


Distribution Channel Functions

Information

Transfer

Communication

Payments

Negotiation

Physical

Distribution

Ordering

Risk Taking

Financing


What Work is Performed by Marketing Channels?

  • Acquire funds to finance inventories at different levels in the marketing channel

  • Assume risk connected with carrying out channel work

  • Provide for the successive storage and movement of physical products

  • Provide for buyers’ payment of their bills through banks and other financial institutions

  • Oversee actual transfer of ownership from one organization or person to another


Channel-Design Decisions

  • Push strategy

  • Pull strategy

  • Designing a channel system involves four steps:

    • Analyzing customer needs

    • Establishing channel objectives

    • Identifying major channel alternatives

    • Evaluating major channel alternatives


  • Manufacturer

    Consumer

    0-level channel

    Manufacturer

    Retailer

    Consumer

    1-level channel

    Mfg

    Wholesaler

    Retailer

    Consumer

    2-level channel

    Mfg

    Wholesaler

    Jobber

    Retailer

    Consumer

    3-level channel

    Consumer Marketing Channels


    Industrial

    distributors

    Consumer

    Manufacturer

    Manufacturer’s

    representative

    Manufacturer’s

    sales branch

    Industrial Marketing Channels


    Channel-Design Decisions

    • Analyze Customers’ Desired Service Output Levels

      • Lot size

      • Waiting time

      • Spatial convenience

      • Product variety

      • Service backup


    Channel-Design Decisions

    • Establish Objectives and Constraints

    • Identify Major Channel Alternatives

      • Types of Intermediaries

      • Number of Intermediaries

        • Exclusive distribution

          • Exclusive dealing

        • Selective distribution

        • Intensive distribution


    Channel-Design Decisions

    • Terms and Responsibilities of Channel Members

      • Price policy

      • Conditions of sale

      • Distributors’ territorial rights

  • Evaluate the Major Alternatives

    • Economic Criteria


  • Figure 17.4: The Value-Adds versus Costs of Different Channels


    Manufacturer’s

    sales agency

    Company

    sales force

    Selling

    costs

    (dollars)

    SB

    Level of sales (dollars)

    Break-Even Cost Chart


    Selecting

    Training

    Motivating

    FEEDBACK

    Evaluating

    Channel Management Decisions


    Corporate

    Common Ownership at Different

    Levels of the Channel

    Types of Vertical Marketing Systems

    Administered

    Leadership is Assumed by One or

    a Few Dominant Members

    Contractual

    Contractual Agreement Among

    Channel Members


    Wholesaler

    Retailer

    Consumer

    Consumer

    Conventional Distribution Channel vs. Vertical Marketing Systems

    Vertical

    marketing

    channel

    Conventional

    marketing

    channel

    Manufacturer

    Manufacturer

    Wholesaler

    Retailer


    Channel Dynamics

    • Conflict, Cooperation, and Competition

      • Types of Conflict and Competition

        • Vertical channel conflict

        • Horizontal channel conflict

        • Multichannel conflict

      • Causes of Channel Conflict

        • Goal incompatibility

        • Unclear roles and rights

          • Differences in perception


    Channel Dynamics

    • By adding new channels, a company faces the possibility of channel conflict which may include:

      • Conflict between the national account managers and field sales force

      • Conflict between the field sales force and the telemarketers

      • Conflict between the field sales force and the dealers


    Channel Dynamics

    • Managing Channel Conflict

      • Diplomacy

      • Mediation

      • Arbitration

  • Legal and Ethical Issues in Channel Distribution

    • Exclusive distribution

    • Exclusive dealing

    • Tying agreements


  • Chapter 18 Managing Retailing, Wholesaling, and Market Logisticsby


    Kotler on Marketing

    Successful “go-to-market” strategies require integrating retailers, wholesalers, and logistical organizations.


    Chapter Objectives

    • In this chapter, we focus on the following questions about each marketing intermediary:

      • What major types of organizations occupy this sector?

      • What marketing decisions do organizations in this sector make?

      • What are the major trends in this sector?


    Table 18.1: Major Retailer Types

    See text for complete table


    Retailing

    • Levels of Service

      • Wheel-of-retailing

      • Four levels of service:

        • Self-service

        • Self-selection

        • Limited service

        • Full service


    Broad

    Breadth of

    product line

    Narrow

    Value added

    Low

    High

    Retail Positioning Map

    Bloomingdale’s

    Wal-Mart

    Tiffany

    Kinney

    Shoe


    Classification Of Retailer Types

    Narrow Product Line, Deep Assortment

    Wide Variety of Product Lines i.e. Clothing, Home Furnishings, & Household Items

    Wide Variety of Food, Laundry, & Household Products

    Limited Line of High-Turnover Convenience Goods

    Broad Product Line, Low Margin, High Volume

    Inexpensive, Overruns, Irregulars, and Leftover Goods

    Large Assortment of Routinely Purchased Food & Nonfood Products, Plus Services

    Broad Selection, Fast Turnover, Discount Prices

    Store TypeLength and Breadth of Product Assortment

    Specialty Stores

    Department Stores

    Supermarkets

    Convenience Stores

    Discount Stores

    Off-Price Retailer

    Superstores

    Catalog Showroom


    Direct Selling

    Types of NonStore Retailing

    Direct Marketing

    NonStore Retailing Accounts for More Than 12% of All Consumer Purchases, and is trending up.

    Automatic Vending

    Buying Services


    Wheel of Retailing

    Mid Price

    Mid Status

    Mid Margin

    Low Price

    Low Status

    Low Margin

    High Price

    High Status

    High Margin

    New Entrants


    Wholesaler

    Functions

    Why are Wholesalers Used?

    Selling and

    Promoting

    Management

    Services & Advice

    Market

    Information

    Buying and

    Assortment Building

    Bulk Breaking

    Risk Bearing

    Financing

    Warehousing

    Transporting


    Table 18.3: Major Wholesaler Types

    See text for complete table


    Wholesaling

    • Trends in Wholesaling

      • Narus and Anderson identified four ways to strengthen relationships with manufacturers

        • Sought clear agreement about their expected function in the marketing channel

        • Gained insight into the manufacturers’ requirements by visiting their plants

        • Fulfilled commitments by meeting volume targets

        • Identified and offered value-added services to help their suppliers


    • Provide a Targeted Level of Customer Service at the Least Cost.

    • Maximize Profits, Not Sales.

    Higher Distribution Costs/ Higher Customer Service Levels

    Lower Distribution Costs/ Lower Customer Service Levels

    Goals of the Logistics System


    Transportation Water, Truck, Rail, Pipeline & Air

    Logistics Systems

    Order Processing

    Submitted

    Processed

    Shipped

    Costs

    Minimize Costs of

    Attaining Logistics

    Objectives

    Logistics

    Functions

    Warehousing

    Storage

    Distribution

    Inventory

    When to order

    How much to order

    Just-in-time


    Market Logistics

    • Supply chain management (SCM)

    • Value network

    • Demand chain planning

    • Market logistics

      • Market logistics planning has four steps:

        • Deciding on the company’s value proposition to its customers

        • Deciding on the best channel design and network strategy for reaching the customers

        • Developing operational excellence in sales forecasting, warehouse management, transportation management, and materials management

        • Implementing the solution with the best information systems, equipment, policies, and procedures

    • Integrated logistics systems (ILS)


    Figure 18.2: Determining Optimal Order Quantity


    Rail

    Nation’s largest carrier, cost-effective

    for shipping bulk products, piggyback

    Truck

    Flexible in routing & time schedules, efficient

    for short-hauls of high value goods

    Water

    Low cost for shipping bulky, low-value

    goods, slowest form

    Pipeline

    Ship petroleum, natural gas, and chemicals

    from sources to markets

    Air

    High cost, ideal when speed is needed or to

    ship high-value, low-bulk items

    Transportation Modes


    1. Speed.

    2. Dependability.

    3. Capability.

    4. Availability.

    5. Cost.

    Checklist for Choosing

    Transportation Modes


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