D E S IG N IN G A N D

M A N A G IN G
M A R K E T IN G
C H A N N E LS A N D
V A LU E N E T W O R K S
By:
Fredrick Justin V. Gatchalian
Marketing Channels and
Value Networks
Marketing channels are sets
of interdependent
organizations involved in the
process of making a product
or service available for use
or consumption
 The Importance of
Channels

A marketing channel system
are sets of marketing channels
by a firm.
Marketing channels must not
serve markets, they
 must also make markets.
In managing its intermediaries, the firm must


decide how much effort to devote to push

versus pull marketing.


Push strategy involves the manufacturers

using its sales force and trade promotion
money to induce intermediaries to carry,
promote , and sell
 the product to end users.
Pull strategy involves the manufacturing
using advertising and promotion to induce
customers to ask intermediaries for the
product , thus inducing the intermediaries
to order it.

Channel Development
A few manufacturers’ sales
agents, a few wholesalers,
several establishment
retailers, few trucking
companies, and a few
warehouses.
 Hybrid Channels
The channel is a three-tier model involving
selling directly to large accounts and large
resellers, and through three distributors
for smaller accounts.

To allow customers request products
shipped directly from its factory.
Customers still have to make such orders
with the channels.

Customers can also buy directly from SIA
over the phone (called Electronic
 Channel Integration:


The ability to order a product online and

pick it up convenient retail location,

The ability to return an online-product to
a nearby store of the retailer.

the right to receive discounts based on
total online and offline purchases.
Understanding Customer
Needs

1.Habitual Shoppers
2.High value deal seekers
3.Variety-loving shoppers
4.High-involvement shoppers
 Value Networks
This view has been called demand chain
planning.
“A demand chain manage approach does
not push things through the system. It
emphasizes what solutions consumers are
looking for, not what products we are
trying to sell them.”
That the traditional marketing “four Ps” be
placed by a new acronym , SIVA, which
stands for solutions, information, value
and access.
An even broader view sees a company at
the center of a value networks-a system of
Managing value networks has required
companies to make increasing
investments in information technology
(IT) and software. They have invited
such software firms as SAP and Oracle
to design comprehensive Enterprise
Resource Planning (ERP) systems to
manage cash flows, manufacturing,
human resources, purchasing, and
other major functions within the
unified network. They hope to break up
development silos and carry out core
business processes more seamlessly.
The Role of Marketing
Channels
They may lack the financial
resources to carry out direct
marketing.

They can often earn a greater
return by increasing investment in
their main business.

In some cases direct marketing
simply is not feasible.

 Channel functions and
flows
Channel member functions:


 Gather information about potential and current customers,

competitors, and other actors and forces in the marketing
environment.
 Develop and disseminate persuasive communications to
stimulate purchasing.
 Reach agreements on price and other terms so that the
transfer of ownership or possession can be effected.
 Place orders with manufacturers.
 Acquire funds to finance inventories at a different levels in
the marketing levels in the marketing channel.
 Assume risk connected with carrying out channel work.
 Provide for the successive storage and movement of physical
products.
 Provide buyer’s payment of their bills through banks and
other financial institutions.
 Oversee actual transfer of ownership from one organizations
 Channel Functions and Flows
1

M C M C
2
1 4
3

M 5 C M 2 D 5 C
6

7
8 3 6
M C M C
9
( a ) Number of Contacts ( b ) Number of Contacts
M x C =3 x M + C =
3=9 3+3 =6
M = manufacturer Figure 15 . 1 How a
C = Customer distributor Increases
D = Distributor Efficiency
 1. Physical Flow

Transporters
Suppliers Transporters, warehouses Dealers
Manufacturers Transporters Customers
Warehouses

2. Title Flow

Suppliers Manufacturers Dealers Customers

3. Payment flow

Suppliers Banks Manufacturers Transporters, Dealers

Warehouses, Banks Customers
Banks

Fig. 15.2 Five MarketingTools for the Marketing Channel of Forklift Trucks
 4. Information
Flow

Transporters, Transporters, Transporters

Suppliers Warehouses, Manufacturers Warehouses, Dealers Customers
banks
Banks Banks

5. Promotion Flow

Advertising
Suppliers Dealers
Advertising agency Manufacturers
agency Customers

Fig. 15.2 Five Marketing Tools for the Marketing Channel of Forklift
Trucks (cont.)
 Channel levels
A zero-level channel (also called a direct-
marketing channel) consist of a manufacturer
selling directly to the final customer. The major
examples are door to door sales, home parties,
mail order, telemarketing, TV selling, Internet
selling and manufacturer-owned stores.
A one-level channel contains one selling
intermediary, such as a retailer .
A Two-level channelcontains two intermediaries,
typically a wholesaler and retailer.
A Three-level channel contains three
intermediaries. In the meatpacking industry,
wholesalers sell to jobbers, who sell to small
retailers.
 0 - Level 1 - Level 2 - Level 3 - Level

Manufacturer Manufacturer Manufacturer

Manufacturer

Wholesaler
Wholesaler

Jobber

Retailer
Retailer Retailer

Consumer Consumer Consumer

Consumer

( a ) Consumer Marketing Channels

 0-Level 1-Level 2-Level 3-Level

Manufacturer Manufacturer Manufacturer Manufacturer

Manufacturer’s Manufacturer’s
Representative Sales Branch

Industrial
Distributors

Industrial Industrial Industrial

Industrial
customer customer customer
customer

( b ) Industrial Marketing Channel

Service Sector
Channels
Producers of services and
ideas also face the problem
of making their output
available and accessible to
target population.
 Channel-Design
Decisions
Designing a marketing channel
system involves analyzing
customer needs , establishing
channel objectives, identifying
major channel alternatives, and
evaluating major channel
alternatives.
 Analyzing Customer’s
Desired Service output
levels
1.Lot size
2.Waiting and delivery time
3.Spatial convenience
4.Product variety
5.Service backup
6.
 Establishing Objectives
and Constrains
1.The underdevelopment of
infrastructure in Asia’s larger
emerging market.
2.Economic factors
3.Legal regulations and restrictions
4.Consumer lifestyle and
population density.
 Identifying
Major Channel
Alternatives
Types of
Intermediaries
Expand the companies ‘s
direct sales force.
Hire manufacturer’s agents
Find distributors

 Number of
Intermediaries
Exclusive distributionmeans severely
limiting the number of intermediaries. It is
used when the producer wants to
maintain control over the service level
and outputs offered by the resellers.
Often involves exclusive dealing
arguments.
Selective distribution involves the use of
more than a few but less than all of the
intermediaries who are willing to carry out
a particular product. It is used by
established companies and by new
companies seeking distributors.
Intensive distribution consist of the
manufacturers placing the goods or
 Terms and
Responsibilities of
Channel Members
Price policy
Conditions of sale
Distributors' territorial rights
Mutual services and
responsibilities
Evaluating the
Major
Alternatives
Economic Criteria
High
Sales Force

Value-Added partners
Direct
Sales
of

Channels
Distributors
Value - add

Retail Stores
“ Indirect ”
Channels
Sale

Telemarketing

Direct
Internet Marketing
Channels
Low
Low Cost per High
transaction
The Value adds versus Cost of Different
 Manufacturer ’ s
Sales Agency

Company
Sales Force
Selling Cost
( Dollars )

Break - even Cost Chart for

the choice between a Company
Sales Force and
Manufacturer ’ s Sales Agency

SB
Level of Sales ( dollars )
Channel –
Management
Decisions
Selecting Channel
Members
Companies need to select
their channels members
carefully. To customers , the
channels are the company
Training and Motivating
Channel Members
Coercive power
Reward power
Legitimate power
Expert power
Referent power
Evaluating Channel
Members
Producers must periodically
evaluate intermediaries’
performance against such
standards as sales quota
attainment, average inventory
levels, customer delivery time,
treatment of damaged or lost
goods, and cooperation in
promotional and training
programs.
 Modifying Channel
Design and
Arrangements
A producer must periodically
review and modify its channel
arrangements
 Channel
Integration and
System
 Vertical Marketing
Systems
Convetional marketing channel
comprises an independent producer,
wholesaler(s), and retailer (s).

Vertical marketing sytem (VMS), by
contrast, comprises the producer,
wholesaler(s), and retailer(s) acting
as a unified system.
Corporate VMS
Combines successful stages
of production and
distribution under single
ownership
 Administered VMS
An VMS coordinates successive stages of
production and distribution through the size
and power of one of the members.

Administrative VMS involves distribution
programming, which can be defined as
building a planned, professionally managed,
vertical marketing system that meets the
needs of both manufacturer and distributors.
 Contractual VMS
A contractual VMS consist of independent
firms at different levels of production and
distribution integrating their programs on
a contractual basis to obtain more
economies or sales impact than they can
achieve alone. There are three types:

1.Wholesaler-sponsored voluntary chains
2.Retailer cooperatives
3.Franchise organizations

 THE NEW COMPETITION
IN RETAILING
The new competition in retailing
is no longer between
independent business units but
between whole systems of
centrally programmed networks
(corporate, administered, and
contractual) competing against
one another to achieve the best
economies and customers
response.
 Horizontal Marketing
Systems
In which two or more
unrelated companies put
together resources or
programs to exploit an
emerging market
opportunity.
Multichannel Marketing
Systems
Multichannel marketing occurs
when a single firm uses two or
more marketing channels to
reach one or more customer
segments.
An Integrated marketing channel
system is one in which the
strategies and tactics of selling
through one channel reflect the
strategies and tactics of selling
through other channels.
Conflict, Cooperation and
Competition
Channel conflict is generated
when one channel member’s
action prevent the channel
achieve its goal.
Channel coordination occurs
when channel members are
brought together to advance the
goals of the channel, as opposed
to their own potentially
incompatible goals.
Types of Conflict and
Competition
Vertical Channel Conflict
Horizontal Channel Conflict
Multichannel Channel Conflict
 Causes of Channel
Conflict
Goal incompatiblility
Unclear roles and rights
Differences in perception
Intermediaries' dependence
on the manufacturer
 Managing Channel
Conflict
One is the adaptation of superordinate goals.
Channel members come to an agreement on the
fundamental goal they are jointly seeking,
whether it is survival, market share, high quality
or satisfaction.

Co-optationis an effort by one organization to win
the support of the leaders of another
organization by including them in advisory
council boards of directors, and the like. As long
as initiating organization treats the leaders
seriously and listens to their opinions, co-
optation can reduce conflict, but the initiating
organization may have to compromise its policies
 Managing Channel
Conflict (cont.)
Diplomacy takes place when each side sends a
person or group to meet with its counterpart
to resolve the conflict.

Mediation means resorting to a neutral third
party who is skilled in conciliating the two
parties’ interest.

Arbitration occurs when the two parties
disagree to present their arguments to one
or more arbitrators and accept the
arbitration decision.
 Dilution
and
Cannibalization
 Legal and Ethics Issues
in Channel Relations
Tying arguments are not necessary illegal, but may
violate in certain countries if they tend to lessen
competition substantially.

A strategy in which the seller allows only certain
outlets to carry its products is called exclusive
distribution, and when the seller requires these
dealers not handle competitors’ products this is
called exclusive dealing.
 Legal and Ethics Issues in
Channel Relations (cont.)
Four Factors of gray market:
1.Differential pricing to different channel members
may lead to a distributor over ordering to
obtain a discount and selling off excess to
unauthorized channels.
2.Manufacturers may price differently to different
geographic markets due to differences in tax,
exchange rates or price sensitivity.
3.Products may be sold through high-service, high-
price channels, providing an opportunity to
induce gray markets through discount retailers.
4.The development of emerging markets and
worldwide trade liberalization create incentives
for firm to capitalize on their brand equity and
 Legal and Ethics Issues in
Channel Relations (cont.)
Manufacturer’s tolerate gray market when:

1)Violations are difficult to detect or document.
2)The potential for one channel to free-ride on
another member is low.
3)The product is mature.
4)The parallel importer is a high-performing
dealer loyal to the manufacturer rather
than the one which carries competing
brands in the manufacturer’s product
category.
5)
 E-Commerce Marketing
practices
E-business describes the use of electronic
means and platforms to conduct a company’s
business
E-commerce means that the company or site
offers to transact or facilitate the selling of
products and services online E-commerce has
given rise to e-purchasing and e-marketing.
E-purchasing means companies decide to
purchase goods, services, and information
from various online suppliers.
E-marketingdescribes company effort to
inform, communicate, promote, and sell its
products and services over the internet.
 E-Commerce Marketing
practices (cont.)
The eterm is also used in terms as e-finance,
e-learning, and e-service.
Pure-click companies, those that have
launched a Website without any previous
existence as a firm.
Brick-and-click companies, exixting companies
that have added an online site for
information and/or e-commerce.

 Pure-Click Companies
There are several kinds of pure –click
companies:
o Internet service Providers (ISP)
o Commerce sites
o Transaction sites, and
o Enabler sites
Commerce sites sell all types of products
and services , notably books, music,
toys, insurance, stocks , clothes,
financial services and so on.
 Brick-and-Click
Companies
Many brick-and-mortar companies
have agonized over whether to add
an online e-commerce channel.

 M-Commerce
Consumer and business people no longer
need to be near a computer to send and
receive information. All they need is a
cellphone or Personal Digital Assistant (PDA).
The whole field is called telematics places
wireless Internet-connected computers on
dashboards of cars and trucks, and makes
more home appliances (such as computers)
wireless so they can be used anywhere in or
near the home.
Many see a big future in what is now called m-
commerce (m for mobile)

Retailing
 Retailing
Retailing includes all the activities
involved in goods or services directly
to final consumers for personal, non-
business use.
A retailer or retail store is any
business enterprise whose sales
volume comes primarily from
retailing.
 Types of Retailers
Major Retailer
Types
Specialty Store: Narrow product line. E.g., The Body Shop
Department Stores : Several product lines . E . g ., Isetan
Supermarket: low-cost, low-margin, high-volume, self –service store designed to meet total needs for food
and household products. E.g., Wellcome
Convenience Store: Small store in residential area, often open 24/7, limited line of high-turnover
convenience products plus take out. E.g., 7-Eleven
Discount Store: Standardor specialty merchandise; low-price, low-margin, high-volume stores. E.g.,
Wal-mart.
Off-price retailer: Leftover good, overruns, irregular merchandisesold at less than a retail. E.g., Reject
Shop
Superstore: Huge selling space, routinely purchased food and household items, plus services (laundry,
shoe repair, dry cleaning and check cashing ). Category Killer (Deep assortment in one category) such as
Toys “R”Showroom:
Catalog Us; hypermarket
Broad (huge stores
selection that markup,
of high combine fast-moving,
supermarket,brand-name
discount, and warehouses
goods retailing)
sold by catalog at
such as Carrefour
discount. Customers can pick up merchandise at the store.
 Levels of service
Retailers can position themselves as
offering one of four levels of service:


1.Self service
2.Self selection
3.Limited service
4.Full-Service
 Retail Positioning Map
Broad
B re a d th o f th e p ro d u ct

Ta k a sh im a y C a rre fo u r
a

Shanghai This
Ta n g Fashion
lin e

Narrow

High Value Added Low

 Levels of service
(cont.)
By combining these different service levels with
different assortment breadths, we can distinguish
the four broad positioning strategies available to
retailers.
1.Takashimaya
2.Shanghai Tang
3.This Fashion
4.Carrefour
5.
6.


 Levels of service
(cont.)
Non-store Retailing
Non-store retailing falls into four
major categories:
1. Direct Selling
2.Direct Marketing
3.Automatic Vending
4.Buying service
 Corporate Retailing
Corporate retail organizations achieve
economies of scale, greater purchasing
power , wider brand recognition better
trained employees.


The major types of corporate retailing :

Corporate Chain stores
Voluntary chains
Retailer Cooperatives
Franchises
Merchandise Conglomerates
 The New Retail
Environments
1.New retail forms and combinations
2.Growth intertype competition
3.Competition between store-based and
nonstore-based retailing
4.Growth of giant retailers
5.The traditional trade is alive and well
6.Growing investment in technology
7.Global presence of major retailers
8.Upgrading of Asian retailers
Marketing
Decisions
 Target Market
Is defined and profiled, the retailer
cannot make consistent decisions on
product assortment, store décor,
advertising messages and media,
price and service levels.
 Product Assortment
The retailer’s product assortment
match the target market’s shopping
expectations.

The retailer has to decide on product
–assortment breadth and depth
 Retail Category
Management
1.Define the category.
2.Figure out its role.
3.Assess performance.
4.Set goals.
5.Choose the audience.
6.Figure out tactics.
7.Implement the plan.
8.
 Product differentiation
Strategy
Feature exclusive national brands that are
not available competing retailer.
Feature mostly private branded
merchandise.
Feature blockbuster distinctive
merchandise events.
Feature surprise or ever-changing
merchandise.
Feature the latest or newest merchandise
first.
Offer merchandise customizing services.
 Procurement
After deciding on the product-
assortment strategy, the retailer
must establish merchandise
resources, policies and
practices.
 Prices
Prices are key positioning key
factor and must be decided in
relation to the target market,
the product-and-service
assortment mix, and the
competition.
 Services
The services mix is a key tool for
differentiating one store from another .
Prepurchase services include accepting
telephone and mail orders, advertising,
window and interior display, fitting rooms,
shopping hours, fashion shows, and trade-
ins.
Post purchase services include shipping and
delivery, giftwrapping, adjustments and
returns, alternations and tailoring,
installations and engraving.
Ancillary services include general information,
check cashing, parking, restaurants, repairs,
interior decorating, credit, restrooms and
 Store Atmosphere
Every store has a physical layout that
makes it difficult or easy to move
around. Every store has a “look”.
The store must embody a planned
atmosphere that suits the target
market and draws customers
towards purchase.
 Store Activities and
Experiences
The growth of e-commerce has forced traditional
brick-and-mortar retailers to respond. In addition to
their additional to their natural advantages, such
as products that shoppers can actually see, touch
and test, real-life customers service, and no
delivery lag time for a small-or-medium-sized
purchases, they also provide a shopping
experience as a strong differentiator.

 Communication
Retailers use a variety of
communication tools to generate
traffic and purchases. They place
Ads, run special sales, issue money-
saving coupons, and run frequent
shopper-reward programs, in-store
food sampling, and coupons on
selves or at check-out points.
 Location
Retailers are accustomed to saying
that the keys to success are
“location, location, and location”.
Retailers can locate their stores in:
General Business Districts
Regional shopping centers
Community shopping centers
Strip malls (also called shopping
strips)
A location within a larger store
 Location (cont.)
Retailers can assess a particular
store’s sales effectiveness by
looking at four indicators :
1.Number of people passing by on
an average day
2.Percentage who enter the store
3.Percentage of those entering who
buy
4.Average amount spent per sale
 Private Labels
A private label brand (also called a
reseller, store house, or distributor
brand) is one retailer and
wholesalers develop.
 Role of Private Labels
They are more profitable
Retailer develop exclusive store
brands to differentiate themselves
from competitors.
Generics are unbranded, plainly
packaged, less expensive versions of
common products

 The Private Label
Threat
The price have to be somewhat
higher to cover the higher
promotion cost.
Mass distributors pressure
manufacturers to put more
promotional money into trade
allowances and deals if they
want adequate shelf space.

THE
END