Chapter 14 Designing and Managing Value Networks and

Chapter 14 Designing and Managing Value Networks and Marketing Channels Power. Point by Karen E. James Louisiana State University - Shreveport © 2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2 nd Edition 0

Objectives § Identify value networks and marketingchannel systems. § Learn the type of work performed by marketing channels. § Understand the decisions companies face in designing, managing, evaluating, and modifying channels. © 2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2 nd Edition 1

Objectives § Identify trends taking place in channel dynamics. § Learn how channel conflict can be managed. © 2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2 nd Edition 2

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). © 2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2 nd Edition 3

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 © 2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2 nd Edition 4

Work Performed by Channels § Channel members perform a number of key functions: – Forward flow functions: l Develop / disseminate communication l Store and move the physical products l Oversee transfer of ownership – Backward flow functions: l Place orders with manufacturers l Facilitate payment of bills © 2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2 nd Edition 5

Work Performed by Channels § Other key functions performed by channel members include those that flow both ways: – Forward and backward flow functions: l Gather information l Negotiate price and transfer of ownership l Finance inventories l Assume risk © 2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2 nd Edition 6

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. © 2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2 nd Edition 7

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 © 2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2 nd Edition 8

Channel-Design Decisions Channel Factors § Intermediary type § Number of intermediaries § Terms and responsibilities of intermediaries © 2003 Prentice Hall, Inc. § 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 To accompany A Framework for Marketing Management, 2 nd Edition 9

Channel-Design Decisions Channel Factors § Intermediary type § Number of intermediaries § Terms and responsibilities of intermediaries © 2003 Prentice Hall, Inc. § 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. To accompany A Framework for Marketing Management, 2 nd Edition 10

Channel-Design Decisions Channel Factors § Intermediary type § Number of intermediaries § Terms and responsibilities of intermediaries © 2003 Prentice Hall, Inc. § 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 To accompany A Framework for Marketing Management, 2 nd Edition 11

Channel-Design Decisions § Channel Alternative Evaluation Criteria: – Economic criteria l Sales and costs vs. added value – Control criteria – Adaptive criteria § After choosing a particular channel alternative, firms take several actions © 2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2 nd Edition 12

Channel-Management Decisions Channel Development Process § Select channel members § Motivate channel members § Train channel members § Evaluate channel members § Modify channel arrangements © 2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2 nd Edition 13

Channel Dynamics § Channel systems are constantly evolving and developing § Vertical Marketing Systems – Corporate VMS – Administered VMS – Contractual VMS § Horizontal Marketing Systems § Multichannel Marketing Systems © 2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2 nd Edition 14

Channel Dynamics § Conflict, Cooperation, & Competition – Types of conflict l Vertical, horizontal, and multichannel – Causes of conflict l Major causes: Goal incompatibility; unclear roles and rights l Other potential causes exist – Managing channel conflict © 2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2 nd Edition 15

Channel-Management Decisions Managing Channel Conflict § Subordinate goal adoption § Cooptation § Exchange people between channel levels § Mediation © 2003 Prentice Hall, Inc. § Diplomacy § Arbitration To accompany A Framework for Marketing Management, 2 nd Edition 16

Channel Dynamics § Legal and Ethical Issues in Channel Relations – Two common distribution practices are legal as long as they don’t substantially lessen competition: l Exclusive dealing l Tying agreements © 2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2 nd Edition 17