Designing and Managing Integrated Marketing Channels.
Successful value creation
needs successful value delivery.Holistic marketers are increasingly taking a
value network view of their businesses. Instead of limiting their focus to
their immediate suppliers, distributors, and customers, they are examining the
whole supply chain that links raw materials,components,and manufactured goods
and shows how they move toward the final consumers. Companies are looking at
their suppliers’ suppliers upstream and at their distributors’ customers
downstream. They are looking at customer segments and considering a wide range
of new and different means to sell,distribute,and service their offerings.
Marketing channels and
Value Networks
Most producers do not
sell their goods directly to the final users; between them stands a set of
intermediaries performing a variety of functions.These intermediaries
constitute a marketing channel (also called a trade channel or distribution
channel). Formally, marketing channels are sets of interdependent organizations
participating in the process of making a product or service available for use
or consumption.They are the set of pathways a product or service follows after
production, culminating in purchase and consumption by the final end user.
Some intermediaries such
as wholesalers and retailers buy, take title to, and resell the merchandise;
they are called merchants. Others brokers, manufacturers’ representatives,
sales agents search for customers and may negotiate on the producer’s behalf
but do not take title to the goods;they are called agents. Still others transportation
companies,independent warehouses, banks, advertising agencies assist in the
distribution process but neither take title to goods nor negotiate purchases or
sales; they are called facilitators.
Channels ofall types play
an important role in the success ofa company and affect all other marketing
decisions.Marketers should judge them in the context ofthe entire process by
which their products are made,distributed,sold,and serviced.We consider all
these issues in the following sections.
The Importance of
Channels
A marketing channel
system is the particular set of marketing channels a firm employs,and decisions
about it are among the most critical ones management faces. 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.3 Marketing channels also represent a substantial opportunity cost.One of
their chief roles is to convert potential buyers into profitable customers.
Marketing channels must not just serve markets,they must also make markets.
The channels chosen
affect all other marketing decisions. The company’s pricing depends on whether
it uses online discounters or high-quality boutiques. Its sales force and
advertising decisions depend on how much training and motivation dealers need.
In addition, channel decisions include relatively long-term commitments with
other firms as well as a set of policies and procedures.When an automaker signs
up independent dealers to sell its automobiles,it cannot buy them out the next
day and replace them with company-owned outlets. But at the same time, channel
choices themselves depend on the company’s marketing strategy with respect to
segmentation, targeting,and positioning.Holistic marketers ensure that
marketing decisions in all these different areas are made to collectively
maximize value.
In managing its
intermediaries,the firm must decide how much effort to devote to push versus
pull marketing. A push strategy uses the manufacturer’s sales force, trade
promotion money, or other means to induce intermediaries to carry, promote, and
sell the product to end users.A push strategy is particularly 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 strategythe manufacturer uses advertising,promotion,and other forms of
communication to persuade consumers to demand the product from
intermediaries,thus inducing the intermediaries to order it. Pull strategy is
particularly 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.
Top marketing companies
such as Coca-Cola, Intel, and Nike skillfully employ both push and pull
strategies. A push strategy is more effective when accompanied by a
well-designed and well executed pull strategy that activates consumer demand.On
the other hand,without at least some consumer interest,it can be very difficult
to gain much channel acceptance and support,and vice versa for that matter.
Hybrid Channels and
Multichannel Marketing.
Today’s successful
companies typically employ hybrid channels and multichannel marketing, multiplying
the number of go to market channels in any one market area. Hybrid channel or multichannel
marketing occurs when a single firm uses two or more 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. Philips also is a
multichannel marketer.
In multichannel
marketing,each channel targets a different segment of buyers,or different need
states for one buyer, and delivers the right products in the right places in
the right way at the least cost. When this doesn’t happen, there can be channel
conflict, excessive cost, or insufficient demand. Launched in 1976,
Dial-a-Mattress successfully grew for three decades by selling mattresses
directly over the phone and,later,the Internet.A major expansion into 50
brick-and-mortar stores in major metro areas was a failure, however. Secondary
locations, chosen because management considered prime locations too expensive,
could not generate enough customer traffic. The company eventually declared
bankruptcy.
On the other hand, when a
major catalog and Internet retailer invested significantly in brickand-mortar
stores, different results emerged. Customers near the store purchased through
the catalog less frequently, but their Internet purchases were unchanged. As it
turned out, customers who liked to spend time browsing were happy to either use
a catalog or visit the store;those channels were interchangeable.Customers who
used the Internet,on the other hand,were more transaction focused and
interested in efficiency,so they were less affected by the introduction of
stores.Returns and exchanges at the stores were found to increase because of
ease and accessibility, but extra purchases made by customers returning or exchanging
at the store offset any revenue deficit.
Companies that manage
hybrid channels clearly 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 :
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Order
a product online and pick it up at a convenient retail location.
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Return
an online ordered product to a nearby store of the retailer.
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Receive
discounts and promotional offers based on total online and offline purchases.
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Here’s a company that has
carefully managed its multiple channels.We discuss the topic of optimal channel
integration in greater detail later.
Value Networks.
A supply chain view of a
firm sees markets as destination points and amounts to a linear view of the
flow of ingredients and components through the production process to their
ultimate sale to customers. The company should first think of the target
market, however, and then design the supply chain backward from that point.This
strategy has been called demand chain planning.
A broader view sees a
company at the center of a value network a system of partnerships and alliances
that a firm creates to source,augment,and deliver its offerings.A value network
includes a firm’s suppliers and its suppliers’suppliers,and its immediate customers
and their end customers. The value network includes valued relationships with
others such as university researchers and government approval agencies.
A company needs to
orchestrate these parties in order to deliver superior value to the target
market.Oracle relies on 5.2 million developers and 400,000 discussion forum
threads to advance its products.9 Apple’s Developer Connection where folks
create iPhone apps and the like has 50,000 members at different levels of
membership.10 Developers keep 70 percent of any revenue their products
generate, and Apple gets 30 percent.
Demand chain planning
yields several insights. First, the company can estimate whether more money is
made upstream or downstream, in case it can integrate backward or forward. Second,
the company is more aware of disturbances anywhere in the supply chain that
might change costs, prices, or supplies.Third, companies can go online with
their business partners to speed communications, transactions, and payments ; reduce
costs ; and increase accuracy. Ford not only manages numerous supply chains but
also sponsors or operates on many B2B Web sites and exchanges.
Managing a value network
means making increasing investments in information technology (IT) and
software. Firms have introduced supply chain management (SCM) software and
invited such software firms as SAP and Oracle to design comprehensive
enterprise resource planning (ERP) systems to manage cash flow, manufacturing,
human resources, purchasing, and other major functions within a unified
framework. They hope to break up departmental silos where each department only
acts in its own self interest and carry out core business processes more
seamlessly. Most,however,are still a long way from truly comprehensive ERP
systems.
Marketers, for their
part, have traditionally focused on the side of the value network that looks
toward the customer,adopting customer relationship management (CRM) software
and practices. In the future, they will increasingly participate in and influence
their companies’ upstream activities and become network managers,not just
product and customer managers.
The Role Of Marketing Channels
Why would a producer
delegate some of the selling job to intermediaries, relinquishing control over
how and to whom products are sold? Through their contacts, experience,
specialization, and scale of operation, intermediaries make goods widely
available and accessible to target markets, usually offering the firm more
effectiveness and efficiency than it can achieve on its own.
Many producers lack the
financial resources and expertise to sell directly on their own. The William
Wrigley Jr. Company would not find it practical to establish small retail gum
shops throughout the world or to sell gum by mail order. It is easier to work
through the extensive network of privately owned distribution organizations. Even
Ford would be hard pressed to replace all the tasks done by its almost 12,000
dealer outlets worldwide.
Channel Functions and
Flows
A marketing channel
performs the work of moving goods from producers to consumers. It overcomes the
time,place,and possession gaps that separate goods and services from those who
need or want them.Members of the marketing channel perform a number of key
functions.
Channel Member Functions
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Gather
information about potential and current customers,competitors,and other
actors and forces in the marketing environment.
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Develop
and disseminate persuasive communications to stimulate purchasing.
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Negotiate
and reach agreements on price and other terms so that transfer of ownership
or possession can be affected.
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Place
orders with manufacturers.
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Acquire
the funds to finance inventories at different levels in the marketing
channel.
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Assume
risks connected with carrying out channel work.
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Provide
for the successive storage and movement of physical products.
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Provide
for buyers’ payment of their bills through banks and other financial
institutions.
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The question for
marketers is not whether various channel functions need to be performed they
must be but rather, who is to perform them. All channel functions have three
things in common: They use up scarce resources; they can often be performed
better through specialization; and they can be shifted among channel members.
Shifting some functions to intermediaries lowers the producer’s costs and
prices, but the intermediary must add a charge to cover its work. If the
intermediaries are more efficient than the manufacturer, prices to consumers
should be lower. If consumers perform some functions themselves, they should
enjoy even lower prices. Changes in channel institutions thus largely reflect
the discovery of more efficient ways to combine or separate the economic
functions that provide assortments of goods to target customers.
Five Marketing Flows in
the Marketing Channel for Forklift Trucks.
