Most
producers do not sell their goods directly to final users. Between producers
and final users stands one or more marketing channels, a host of marketing
intermediaries performing a variety of functions.
Merchants
(wholesalers and retailers) buy, take
title to, and resell merchandise.
Agents
(brokers, manufacturers’ representatives, sales agents) search for customers
and may negotiate on the producers behalf, but do not take title to the goods.
Facilitators
(shippers, independent warehouses, banks, ad agencies) assist in distribution,
but do not take title to goods nor do the negotiate purchases or sales.
Marketing
channel decisions are among the most critical decisions facing management. The
company’s chosen channel(s) profoundly affect all other marketing decisions.
In
the United States, channel members collectively have earned margins that
account for 30 percent to 50 percent of the ultimate selling price. In
contrast, advertising typically has accounted for less than 5 percent to 7
percent of the final price.
A push strategy uses
the manufacturer’s resources to induce intermediaries to carry, promote, and
sell the product to end users. A push strategy is appropriate when there is low
brand loyalty in a category, brand choice is made in the store, the product is
an impulse item, and product benefits are well understood.
In a pull strategy the
manufacturer persuades consumers to demand the product from intermediaries,
thus inducing the intermediaries to order it. Pull strategy is appropriate when
there is high brand loyalty and high involvement in the category, when
consumers are able to perceive differences between brands, and when they choose
the brand before they go to the store.
A push strategy is more effective when
accompanied by a pull strategy that activates consumer demand. Top marketing
companies such as Coca-Cola, Intel, and Nike employ both push and pull
strategies.
Firm use multiple marketing channels to
reach customer segments. HP has used its sales force to sell to large accounts,
outbound telemarketing to sell to medium-sized accounts, direct mail with an
inbound number to sell to small accounts, retailers to sell to still smaller
accounts, and the Internet to sell specialty items.
Companies that manage hybrid channels
must make sure their channels work well together and match each target
customer’s preferred ways of doing business. Customers expect channel
integration, which allows them to:
•Order a product online and pick it up at
a convenient retail location
•Return an online-ordered product to a
nearby store of the retailer
•Receive discounts and promotional offers
based on total online and offline purchases
A value network is a system of
partnerships and alliances that a firm creates to source, augment, and deliver
its offerings. It includes a firm’s suppliers and its suppliers’ suppliers, and
its immediate customers and their end customers, as well as relationships with
others such as university researchers and government approval agencies.
Companies use intermediaries when they
lack the financial resources to carry out direct marketing, when direct
marketing is not feasible, and when they can earn more by doing so. The most
important functions performed by intermediaries are information, promotion,
negotiation, ordering, financing, risk taking, physical possession, payment,
and title.
Members of the marketing channel perform
a number of key functions. Some of these functions (storage and movement,
title, and communications) constitute a forward flow of
activity from the company to the customer; other functions (ordering and
payment) constitute a backward flow from
customers to the company. Still others (information, negotiation, finance, and
risk taking) occur in both directions.
Manufacturers have many alternatives for
reaching a market. They can sell direct or use one-, two-, or three-level
channels. Deciding which type(s) of channel to use calls for analyzing customer
needs, establishing channel objectives, and identifying and evaluating the
major alternatives, including the types and numbers of intermediaries involved
in the channel.
The most basic marketing channel is the zero-level
or direct
marketing channel.
Includes telemarketing, direct mail, door-to-door, TV selling (infomercials),
and home parties (such as Avon, Tupperware, etc.).
A one-level channel contains
one selling intermediary, such as a retailer.
A two-level channel contains
two intermediaries. In consumer markets, these are typically a wholesaler and a
retailer.
A three-level channel contains
three intermediaries.
To design a marketing channel system,
marketers analyze customer needs and wants, establish channel objectives and
constraints, and identify and evaluate major channel alternatives.
Different consumers have different needs
during the purchase process. One study of European costumers found that
(1)Service/quality
customers
cared most about the variety and performance of products and service;
(2)Price/value
customers were
most concerned about spending wisely;
(3)Affinity
customers primarily
sought stores that suited people like themselves or groups they aspired to
join.
Figure 15.3 shows that customer profiles
differ across three markets: In France, shoppers stressed service and quality,
in the United Kingdom, affinity, and in Germany, price and value.
Channels produce five service outputs:
1.Lot
size—The
number of units the channel permits a typical customer to purchase on one
occasion.
2.Waiting
and delivery time—The
average time customers wait for receipt of goods.
3.Spatial
convenience—The
degree to which the marketing channel makes it easy for customers to purchase
the product.
4.Product
variety—The
assortment provided by the marketing channel.
5.Service
backup—Add-on
services (credit, delivery, installation, repairs) provided by the channel.
Marketers should state their channel
objectives in terms of service output levels and associated cost and support
levels. They can identify several market segments based on desired service and
choose the best channels for each.
Channel objectives vary with product
characteristics.
Marketers must adapt their channel
objectives to the larger environment.
Each channel—from sales forces to agents,
distributors, dealers, direct mail, telemarketing, and the Internet—has unique
strengths and weaknesses. Sales forces can handle complex products and
transactions, but they are expensive. The Internet is inexpensive but may not
be as effective with complex products. Distributors can create sales, but the
company loses direct contact with customers. Several clients can share the cost
of manufacturers’ reps, but the selling effort is less intense than company
reps provide.
Channel alternatives differ in three
ways: types of intermediaries, number needed, and terms and responsibilities of
each.
Each channel—from sales forces to agents,
distributors, dealers, direct mail, telemarketing, and the Internet—has unique
strengths and weaknesses. Sales forces can handle complex products and
transactions, but they are expensive. The Internet is inexpensive but may not
be as effective with complex products. Distributors can create sales, but the
company loses direct contact with customers. Several clients can share the cost
of manufacturers’ reps, but the selling effort is less intense than company
reps provide.
Channel alternatives differ in three
ways: types of intermediaries, number needed, and terms and responsibilities of
each.
Satellite
radio manufacturer have multiple options to sell its product. OEMs (Car
manufacturers); dealers; or consumers through various channels such as direct
mail, internet, retailers, etc.
Exclusive distribution limits
the number of intermediaries. Exclusive deals are becoming a mainstay for
specialists looking for an edge in markets increasingly driven by price.
Selective distribution relies
on only some of the intermediaries willing to carry a particular product.
Company does not need to worry about having too many outlets; while gaining
adequate market coverage.
Intensive distribution places
the goods or services in as many outlets as possible. This strategy serves well
for products consumers buy frequently or in a variety of locations.
Each channel alternative needs to be
evaluated against economic, control, and adaptive criteria.
Economic Criteria:
Each channel alternative will produce a different level of sales and costs.
Firms will try to align customers and channels to maximize demand at the lowest
overall cost. The first step is to estimate how many sales each alternative
will likely generate. The next step is to estimate the costs of selling
different volumes through each channel. The final step is comparing sales and
costs.
Figure 15.4 shows how six different sales
channels stack up in terms of the value added per sale and the cost per
transaction.
Effective channel management calls for
selecting intermediaries and training and motivating them. The goal is to build
a long-term partnership that will be profitable for all channel members.
When select channel members, producers
should determine what characteristics distinguish the better intermediaries.
Carefully implemented training, market
research, and other capability-building programs can motivate and improve
intermediaries’ performance.
Producers must periodically evaluate
intermediaries’ performance against set standards in promotional and training
programs.
Marketing channels are characterized by
continuous and sometimes dramatic change. Three important trends are:
A vertical marketing system (VMS)
includes the producer, wholesaler(s), and retailer(s) acting as a unified
system. One channel member, the channel captain, owns
or franchises the others or has so much power that they all cooperate.
In a horizontal marketing system, two
or more unrelated companies put together resources or programs to exploit an
emerging marketing opportunity. The companies might work together on a
temporary or permanent basis or create a joint venture company.
In an integrated marketing channel
system, the
strategies and tactics of selling through one channel reflect the strategies
and tactics of selling through one or more other channels. Adding more channels
gives companies such benefits as
increased market coverage, lower channel cost, and more customized selling.
Companies need to think through their
channel architecture and determine which channels should perform which
functions. Figure 15.6 shows a simple grid to help make channel architecture
decisions.
Channel conflict is
generated when one channel member’s actions prevent another channel from
achieving its goal.
Multichannel Conflict exists when the
manufacturer has established two or more channels that sell to the same market.
When Goodyear began selling its popular tire brands through Sears, Walmart, and
Discount Tire, it angered its independent dealers and eventually placated them
by offering exclusive tire models not sold in other retail outlets.
Horizontal Channel Conflict occurs
between channel members at the same level. Some Pizza Inn franchisees
complained about others cheating on ingredients, providing poor service, and
hurting the overall brand image.
Vertical Channel Conflict occurs between
different levels of the channel. When Estée Lauder set up a Web site to sell
its Clinique and Bobbi Brown brands, the department store Dayton Hudson reduced
its space for Estée Lauder products
Multichannel Conflict exists when the
manufacturer has established two or more channels that sell to the same market.
When Goodyear began selling its popular tire brands through Sears, Walmart, and
Discount Tire, it angered its independent dealers and eventually placated them
by offering exclusive tire models not sold in other retail outlets.
All marketing channels have the potential
for conflict and competition resulting from such sources as goal
incompatibility, poorly defined roles and rights, perceptual differences, and
interdependent relationships. There are a number of different approaches
companies can take to try to manage conflict.
E-commerce has grown in importance as
companies have adopted “brick-and-click” channel systems. Channel integration
must recognize the distinctive strengths of online and offline selling and
maximize their joint contributions.
There are several kinds of pure-click
companies: search engines, Internet service providers (ISPs), commerce sites, transaction sites,
content sites, and enabler sites.
B2B sites make markets more efficient,
giving buyers easy access to a great deal of information, change the
supplier–customer relationship in profound ways.
Adding an e-commerce channel creates the
possibility of a backlash from retailers, brokers, agents, and other
intermediaries. Managing the online and offline channels has thus become a
priority for many firms.
An area of increasing importance is
m-commerce and marketing through cell phones and PDAs that allow people to
connect to the Internet and place online orders on the move. The existence of
mobile channels and media can keep consumers connected and interacting with a
brand throughout their day-to-day lives. GPS-type features can help identify
shopping or purchase opportunities for consumers for their favorite brands.
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