Chapter 14

1. Chapter 14 Designing and Managing Value Networks and Marketing Channels PowerPoint by Karen E. James Louisiana State University - Shreveport To accompany A Framework for Marketing Management, 2nd Edition

2. Objectives • Identify value networks and marketing-channel systems. • Learn the type of work performed by marketing channels. • Understand the decisions companies face in designing, managing, evaluating, and modifying channels. To accompany A Framework for Marketing Management, 2nd Edition

3. Objectives • Identify trends taking place in channel dynamics. • Learn how channel conflict can be managed. To accompany A Framework for Marketing Management, 2nd Edition

4. 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). To accompany A Framework for Marketing Management, 2nd Edition

5. 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 To accompany A Framework for Marketing Management, 2nd Edition

6. 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 To accompany A Framework for Marketing Management, 2nd Edition

7. 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 To accompany A Framework for Marketing Management, 2nd Edition

8. 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. To accompany A Framework for Marketing Management, 2nd Edition

9. 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 To accompany A Framework for Marketing Management, 2nd Edition

10. Channel Factors Intermediary type Number of intermediaries Terms and responsibilities of intermediaries 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 Channel-Design Decisions To accompany A Framework for Marketing Management, 2nd Edition

11. Channel Factors Intermediary type Number of intermediaries Terms and responsibilities of intermediaries 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. Channel-Design Decisions To accompany A Framework for Marketing Management, 2nd Edition

12. Channel Factors Intermediary type Number of intermediaries Terms and responsibilities of intermediaries 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 Channel-Design Decisions To accompany A Framework for Marketing Management, 2nd Edition

13. 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 To accompany A Framework for Marketing Management, 2nd Edition

14. Motivate channel members Evaluate channel members Channel-Management Decisions Channel Development Process • Select channel members • Train channel members • Modify channel arrangements To accompany A Framework for Marketing Management, 2nd Edition

15. Channel Dynamics • Channel systems are constantly evolving and developing • Vertical Marketing Systems • Corporate VMS • Administered VMS • Contractual VMS • Horizontal Marketing Systems • Multichannel Marketing Systems To accompany A Framework for Marketing Management, 2nd Edition

16. 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 To accompany A Framework for Marketing Management, 2nd Edition

17. Cooptation Diplomacy Mediation Arbitration Channel-Management Decisions Managing Channel Conflict • Subordinate goal adoption • Exchange people between channel levels To accompany A Framework for Marketing Management, 2nd Edition

18. 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 To accompany A Framework for Marketing Management, 2nd Edition