Chapter 17

1. Chapter 17 Selecting and Managing Marketing Channels Dr. S. Borna MBA 671

2. A Good Source! Marketing Channels by Louis W. Stern Adell El-Ansary

3. Definition of Channels of Distribution (Stern and El-Ansary) Aninterorganizationsystem comprised of a set of interdependentinstitutions involved with the task of moving “goods” from their point of conception, extraction or prod- uction to points of consumption.

4. The Notion of System Interdependency Input-Output-Process Subsystems Environment of the System (Political, Legal, Social…) Boundaries (Geographic, Economic…)

5. 1 2 3 4 A. Number of contacts without a distributor M x C = 3 X 3 = 9 5 6 7 8 9 How a Distributor Reduces theNumber of Channel Transactions Manufacturers selling directly = Manufacturer = Customer

6. 1 B. Number of contacts with a distributor M x C = 3 + 3 = 6 4 Store 2 5 6 3 How a Distributor Reduces theNumber of Channel Transactions = Manufacturer = Distributor = Customer

7. Functions Performed by the Intermediaries A Flow is Identical to a “Function” Typical “Forward” Flow Physical Possession Ownership Promotion Typical “Backward” Flow Payment Ordering

8. Channel Flows Physical flow Ownership flow Information flow C R P W C W P R P C W R

9. Channel flows Cont. Negotiation P R w C Payment P w R C Ordering w R C P Note: Channel functions are shiftable.

10. Complexity of Channel Flows c P R W TITTLE FLOW PHYSICAL FLOW INFO FLOW PAYMENT FLOW

11. Rationale for the existence of middlemen: You can eliminate channel members but you cannot eliminate channel functions.

12. Marketing functions are more basic than the institutions that perform them at any given time. The question of efficiency and effectiveness

13. Note: Producer and consumer are part of a channel because they perform channel functions

14. Channel Levels Levelmeans intermediary in the channel. Lengthof a channel refers to the number of intermediary levels

15. 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

16. Multi-channel distribution CCC C P P R C P W RC Note: the same producer reaching threedifferentcustomer groups orthe samecustomer group!

17. Channel for Services Note: Impact of service characteristics on channels of distribution. In Banking: Branch Decisions Automatic Teller Hospitals: Macro-Location Decisions Micro-Outpatient Clinics

18. Location--A key element in the marketing of services Car Rental Business Donation Centers Voting Centers Schools Etc.

19. Longer channels in service sectors: Hotels: Travel Agency-Hotels- Customer Airlines: Travel Agency (Broker-selling-Travel Agency- (Buyer) and Customer

20. Channel-Design Decisions Need for Formal Channel Planning Process Majority of channels are not purposively designed but simply evolved over time (Lambert study of 18 consumer and industrial goods)

21. 2 1 service output: Lot size, waiting time etc. Consumer demand for Service output

22. Channels structure (Institution and establish- ment arrangement Organization of the mkg functions or flows 3 4

23. Steps in the Channel Planning Process Analyze consumer needs for service outputs Establish channel object in terms of delivering service output planning Set channel strategy in terms of coverage and exposure

24. Implementation Select appropriate channel members from available alternatives Control

25. Analyzing Service Output Lot Size [the purchase unit(s) allowed] Waiting Time Spatial Convenience Product Variety Service Backup (credit, delivery installation, repair) (source:Louis Bucklin)

26. Channel Objectives Firms design channels to accomplish one or more of the following objectives: 1. Making the product available 2. Ensuring that promotional effort is devoted to the product 3. Providing a high level of customer service. 4. Market information 5. Providing cost effectiveness

27. Identifying the Major Channel Alternatives Alternatives are identified in terms of : Types of Intermediaries Number of Intermediaries The terms and responsibilities of each alternative

28. Types of Intermediaries example of cellular car phones OEM market (Original Equipment Mkt.) Auto-dealer market Retail automotive-equipment dealers Car phone specialist dealers Mail-order market

29. Number of intermediaries 1. Intensive distribution 2. Selective distribution 3. Exclusive distribution

30. Pitfalls of Intensive Distribution 1. Image problem (some stores may use the product to generate traffic) 2. Service may deteriorate 3. Company unwillingly to participate in many channel flows

31. Tradeoffs in Selecting a Strategy 1. Products Covered (Domain violation issue) 2. Classes or type of Customers (domain issue again) (supplier may want to sell directly to military or large accounts such as GM or Ford) cont.

32. 3. Territory covered (a potential conflict area) 4. Inventories (who will bear the burden of inventory?)

33. Tradeoffs in Selecting A Strategy 5. Installation and repair services, training sales people 6. Prices 7. Sale quotas (are quotas reasonable?) 8. etc.

34. Terms and Responsibilities of Channel Members Price Policies Conditions of Sales Distributor’s Territorial Rights

35. Evaluating the Major Channel Alternatives 1. Economic Criteria (Sales vs. Costs) 2. Control Criteria 3. Adaptive Criteria (The degree of freedom available to the producer to change its commitment)

36. manufacturer’s sales agency costs Company sales force level of sales

37. Selecting Training Motivating FEEDBACK Evaluating Channel Management Decisions

38. Channel-Management Decisions Selecting Channel Members The case of a soft drink company in XY country or personal computers in the US Motivating Channel Members

39. Channel Management Decisions cont. Evaluating Channel Members Need for Criteria Modifying Channel of Distribution

40. Motivating Channel Members The concept of power and when to use it to influence channel members’ behavior: • Coercive power • Reward power • Legitimate power • (legal obligations)

41. Power cont. • Expert power • Referent power • (channel members are • eager to be identified with • the producer (IBM as an • example).

42. Incentives For Motivating Channel Members 1.Incentives to increase reseller purchases and inventories: New Product--higher margins introductory discounts Established Products--buy back allowances

43. 2. Incentives to increase personal selling effort: Instructional Manuals Training Seminars 3. Incentives to increase local promotional efforts: Cooperative Ad. Programs In-store Promotion Efforts

44. 4. Incentives to improve customer service: Company-Sponsored Training Programs

45. A Conceptual Approach to the Problem of Channel Modification (P,A,D) (P,A,D) (P,A,D) Q3 Q2 Q1 Market Producer W Retailer Z1 Z3 Z2 + + TZ= Z Z Z 3 Note: functions performedby the market is ignored 1 2 Equilibrium if TZ can not be Disequilibrium if TZ can be

46. Channel Dynamics VMS Systems An Attempt to Eliminate Suboptimization Least Integrated Highly Integrated Systems System

47. Vertical Marketing Systems (VMS) Unanswered Questions in Traditional or Conventional Marketing Channels 1. Channel Leadership 2. Channel Coordination 3. Conflict Management 4. Control

48. Wholesaler Retailer Consumer Consumer Conventional Distribution Channel vs. Vertical Marketing Systems Vertical marketing channel Conventional marketing channel Manufacturer Manufacturer Wholesaler Retailer

49. 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

50. Vertical Marketing Systems VMC Conventional Marketing Channels (CMC)