MARKETING MANAGEMENT

Dr. Prasanna Kumar Y N

BBM, MBA(HR&FINANCE), (PhD-MANAGEMENT),
D.LITT
 MODULE FOUR
DELIVERING CUSTOMER VALUE
MODULE FOUR: DELIVERING CUSTOMER
VALUE
• Marketing channels and value networks
• Decisions on design and management of channels
• Channel conflict and competition
• Channel integration
• E-Commerce marketing practices
• New retail environment
• Market logistics
• Supply chain management
Marketing channels and value networks
Marketing channels
Marketing channels
 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.
• Marketing channels are the ways that goods and services are
made available for use by the consumers.

• All goods go through channels of distribution, and marketing depends

on the way goods are distributed.

• The route that the product takes on its way from production to the
consumer is important because a marketer must decide which route
or channel is best for his particular product.
 Wholesalers and Retailers—buy, take title to, and resell the
merchandise; they are called merchants.

 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.

 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
Channel Levels
• Zero-level channel, also called a direct marketing channel, consists of
a manufacturer selling directly to the final customer.
• One-level channel contains one selling intermediary, such as
a retailer.
• Two-level channel contains two intermediaries. In consumer markets,
these are typically a wholesaler and a retailer.
• Three-level channel contains three intermediaries. In the
meatpacking industry, wholesalers sell to jobbers, essentially small-
scale wholesalers, who sell to small retailers
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.

• 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.

• 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
Push Vs Pull Strategy

• In a push strategy the 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
Hybrid channels or multichannel
Hybrid channels or multichannel marketing occurs when a single firm uses two or
more marketing channels to reach customer segments.

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.

Companies that manage hybrid channels clearly must make sure their
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
Value Networks
Traditional:
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.

supply chain flow

Value Networks
Value Networks
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.

The primary purpose of value networks comes in the form of creating partnership and
value during the supply chain process.

Namely, a value network creates those values during production, purchasing, and selling of
products. And of course, the primary goal of value networks is to achieve an increase in
productivity, and as a result of that, increased revenue and a decrease in costs.

A company needs to orchestrate these parties in order to deliver superior value to the
target market

Intermediaries that help get the product from producer to consumer

or end users
form the Marketing Channel.
Value Networks
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.
DECISIONS ON DESIGN AND MANAGEMENT OF CHANNELS
Channel Design Decisions
To design a marketing channel system, marketers analyze customer
needs and wants, establish channel objectives and constraints, and
identify and evaluate major channel alternatives. Analyzing Customer
Needs and Wants
1. Analyzing Customer Needs and Wants
2. Establishing Objectives and Constraints
3. Identifying Major Channel Alternatives
4. Evaluating Major Channel Alternatives
1. Analyzing Customer Needs
and Wants
Consumers may choose the channels they prefer based on price, product
assortment, and convenience, as well as their own shopping goals (economic,
social, or experiential).

As with products, segmentation exists, and marketers must be aware that different
consumers have different needs during the purchase process.
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.
Customers increasingly prefer faster delivery channels.
3.Spatial convenience—The degree to which the marketing channel makes it easy for
customers to purchase the product. Toyota offers greater spatial convenience than Lexus
because there are more Toyota dealers, helping customers save on transportation and
search costs in buying and repairing an automobile.
4.Product variety—The assortment provided by the marketing channel. Normally,
customers prefer a greater assortment because more choices increase the chance of
finding what they need, although too many choices can sometimes create a negative
effect.
5.Service backup—Add-on services (credit, delivery, installation, repairs) provided by the
channel. The greater the service backup, the greater the work provided by the channel.
2.Establishing Objectives and
Constraints
Marketers should state their channel objectives in terms of service output levels
and associated cost and support levels.
Under competitive conditions, channel members should arrange their functional
tasks to minimize costs and still provide desired levels of service.
Channel objectives vary with product characteristics.
 Bulky products, such as building materials, require channels that minimize
the shipping distance and the amount of handling.
 Nonstandard products such as custom-built machinery are sold directly by
sales
representatives.
 Products requiring installation or maintenance services, such as heating and cooling
systems, are usually sold and maintained by the company or by franchised dealers.
 High-unit-value products such as generators and turbines are often sold through a
company sales force rather than intermediaries.
3.Identifying Major Channel Alternatives
• 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 client
Channel alternatives differ in three ways:
1. TYPES OF INTERMEDIARIES
• Wholesalers
• Directly to distributors
• Sales team
• Value-added reseller
• Retail agency
• Counselor
• Manufacturer representative
• Direct Internet
• Direct catalogue
2.NUMBER OF INTERMEDIARIES
 Exclusive distribution means severely limiting the number of intermediaries. It’s
appropriate when the producer wants to maintain control over the service level
and outputs offered resellers, and it often includes exclusive dealing
arrangements

 Selective distribution relies on only some of the intermediaries willing to carry a

particular product.

 Intensive distribution places the goods or services in as many outlets as possible.

This strategy serves well for snack foods, soft drinks, newspapers, candies, and
gum—products consumers buy frequently or in a variety of locations
3.TERMS AND RESPONSIBILITIES OF CHANNEL MEMBERS
Each channel member must be treated respectfully and given the opportunity to be profitable. The
main elements in the “trade-relations mix” are price policies, conditions of sale, territorial rights,
and specific services to be performed by each party
 Price policy calls for the producer to establish a price list and schedule of discounts and
allowances that intermediaries see as equitable and sufficient.

 Conditions of sale refers to payment terms and producer guarantees. Most producers grant cash
discounts to distributors for early payment. They might also offer a guarantee against defective
merchandise or price declines, creating an incentive to buy larger quantities

 Distributors’ territorial rights define the distributors’ territories and the terms under which the
producer will enfranchise other distributors. Distributors normally expect to receive full credit for
all sales in their territory, whether or not they did the selling.
 Mutual services and responsibilities must be carefully spelled out, especially in
franchised and exclusive-agency channels
McDonald’s provides franchisees with a building, promotional support, a record-
keeping system, training, and general administrative and technical assistance.
In turn, franchisees are expected to satisfy company standards for the physical
facilities, cooperate with new promotional programs, furnish requested
information, and buy supplies from specified vendors
4.Evaluating Major Channel Alternatives
• ECONOMIC CRITERIA
Evaluate Sales and Cost of Channel Alternatives

• CONTROL AND ADAPTIVE CRITERIA

Sales agencies may focus on customers

Who buy the most and not necessarily
The manufacturers goods.
Channel Management Decisions
Channel Management Decisions
1. Selecting Channel Members
2. Training and Motivating Channel Members
3. Evaluating Channel Members
4. Modifying Channel Design and Arrangements
5. Channel Modification Decisions
6. Global Channel Considerations
1.Selecting Channel Members
The channels are the company.
Consider the negative impression customers would get of McDonald’s,
Shell Oil, or Mercedes-Benz if one or more of their outlets or dealers
consistently appeared dirty, inefficient, or unpleasant.
To facilitate channel member selection, producers should determine
what characteristics distinguish the better intermediaries—number of
years in business, other lines carried, growth and profit record,
financial strength, cooperativeness, and service reputation
2.Training and Motivating Channel Members
CHANNEL POWER
Producers vary greatly in their skill in managing distributors. Channel power is the
ability to alter channel members’ behavior so they take actions they would not
have taken otherwise.
After a company has chosen a channel system, it must select, train, motivate, and
evaluate individual intermediaries for each channel. It must also modify channel
design and arrangements over time. As the company grows, it can also consider
channel expansion into international markets.
Manufacturers can draw on the following types of power to elicit cooperation:
Coercive power: A manufacturer threatens to withdraw a resource or terminate a
relationship if intermediaries fail to cooperate
Reward power: The manufacturer offers intermediaries an extra benefit for
performing specific acts or functions
Legitimate power: The manufacturer requests a behavior that is warranted under
the contract.
Expert power: The manufacturer has special knowledge the intermediaries value.
Once the intermediaries acquire this expertise, however, expert power weakens.
The manufacturer must continue to develop new expertise so intermediaries will
want to continue cooperating.
Referent power: The manufacturer is so highly respected that intermediaries are
proud to be associated with it.
3.Evaluating Channel Members

Producers must periodically evaluate intermediaries’ performance

against such standards as salesquota attainment, average inventory
levels, customer delivery time, treatment of damaged and lost goods,
and cooperation in promotional and training programs.
4.Modifying Channel Design and Arrangements
No channel strategy remains effective over the whole product life cycle.
In competitive markets with low entry barriers, the optimal channel
structure will inevitably change over time.
The change could mean adding or dropping individual market channels
or channel members or developing a totally new way to sell goods.
5.Channel Modification Decisions
• A producer must periodically review and modify its channel design
and arrangements.
• The distribution channel may not work as planned, consumer
buying patterns change, the market expands, new competition
arises, innovative distribution channels emerge, and the product
moves into later stages in the product life cycle.
• Adding or dropping individual channel members requires
an incremental analysis.
6.Global Channel Considerations

International markets pose distinct challenges, including variations in customers’

shopping habits, but opportunities at the same time.
In India, sales from “organized retail”—hypermarkets, supermarkets, and
department stores—make up only 4 percent of the $322 billion market.
Most shopping still takes place in millions of independent grocery shops or kirana
stores, run by an owner and one or perhaps two other people.
Many top global retailers such as Germany’s Aldi, the United Kingdom’s Tesco, and
Spain’s Zara have tailored their image to local needs and wants when entering a
new market.
Channel Integration
Channel Integration
A conventional marketing channel consists of an independent producer,
wholesaler(s), and retailer(s). Each is a separate business seeking to
maximize its own profits, even if this goal reduces profit for the system
as a whole. No channel member has complete or substantial control
over other members.

A vertical marketing system (VMS), by contrast, 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. “
 Vertical Marketing Systems
CORPORATE VMS
A corporate VMS combines successive stages of production and distribution under
single ownership. Years for years obtained over half the goods it sells from
companies it partly or wholly owned.

ADMINISTERED VMS
An administered VMS coordinates successive stages of production and distribution
through the size and power of one of the members. Manufacturers of dominant
brands can secure strong trade cooperation and support from resellers.

CONTRACTUAL VMS
A contractual VMS consists 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 could achieve alone
Horizontal Marketing Systems
Another channel development is the horizontal marketing system, in which two or
more unrelated companies put together resources or programs to exploit an
emerging marketing opportunity.

Each company lacks the capital, know-how, production, or marketing resources to

venture alone, or it is afraid of the risk. The companies might work together on a
temporary or permanent basis or create a joint venture company.
Integrating Multichannel Marketing Systems
Most companies today have adopted multichannel marketing.
Disney sells its DVDs through five main channels: movie rental stores
such as Blockbuster, Disney Stores (now owned and run by The
Children’s Place), retail stores such as Best Buy, online retailers such
as
Disney’s own online stores and Amazon.com, and the Disney catalog
and other catalog sellers.
This variety affords Disney maximum market coverage and enables it
to offer its videos at a number of price points
Channel conflict and competition
Channel conflict and competition
Channel conflict is generated when one channel member’s actions
prevent another channel from achieving its goal.
Types of Conflict and Competition
Horizontal channel conflict occurs between channel members at the
same level.
Vertical channel conflict occurs between different levels of the
channel.
Multichannel conflict exists when the manufacturer has established
two or more channels that sell to the same market. It’s likely to be
especially intense when the members of one channel get a lower price
(based on larger-volume purchases) or work with a lower margin
Causes of Channel Conflict
Goal incompatibility: The manufacturer may want to achieve rapid
market penetration through a low-price policy. Dealers, in contrast,
may prefer to work with high margins and pursue short-run
profitability.
Unclear roles and rights: HP may sell personal computers to large
accounts through its own sales force, but its licensed dealers may also
be trying to sell to large accounts. Territory boundaries and credit for
sales often produce conflict.
Differences in perception: The manufacturer may be optimistic about
the short-term economic outlook and want dealers to carry higher
inventory. Dealers may be pessimistic. In the beverage category, it is
not uncommon for disputes to arise between manufacturers and their
distributors about the optimal advertising strategy.

Intermediaries’ dependence on the manufacturer: The fortunes of

exclusive dealers, such as auto dealers, are profoundly affected by the
manufacturer’s product and pricing decisions. This situation creates a
high potential for conflict.
Managing Channel
Conflict
• Strategic Justification In some cases, a convincing strategic justification that they
serve distinctive segments and do not compete as much as they might think can
reduce potential for conflict among channel members.

• Dual Compensation Dual compensation pays existing channels for sales made
through new channels.

• Superordinate Goals Channel members can come to an agreement on the

fundamental or superordinate goal they are jointly seeking, whether it is survival,
market share, high quality, or customer satisfaction.

• Employee Exchange A useful step is to exchange persons between two or more

channel levels.
• Joint Memberships Similarly, marketers can encourage joint memberships in
trade associations.

• Co-option Co-optation is an effort by one organization to win the support of the

leaders of another by including them in advisory councils, boards of directors,
and the like. If the organization treats invited leaders seriously and listens to their
opinions, co-optation can reduce conflict, but the initiator may need to
compromise its policies and plans to win outsiders’ support.

• Diplomacy, Mediation, and Arbitration When conflict is chronic or acute, the

parties may need to resort to stronger means. Diplomacy takes place when each
side sends a person or group to meet with its counterpart to resolve the conflict.
Mediation relies on a neutral third party
In arbitration two parties agree to present their arguments to one or more
arbitrators and accept their decision
New retail
environment
 New Retail Forms and Combinations:
To better satisfy customers’ need for convenience, a variety of new retail forms have
emerged. Bookstores feature coffee shops. Gas stations include food stores. Loblaw’s
Supermarkets have fitness clubs.

 Growth of Intertype Competition:

Department stores can’t worry just about other department stores—discount chains such
as Walmart and Tesco are expanding into product areas such as clothing, health, beauty,
and electrical appliances.

 Competition between Store-Based and Nonstore-Based Retailing.

Consumers now receive sales offers through direct-mail letters and catalogs, television,
cell phones, and the Internet. The nonstore-based retailers making these offers are taking
business away from store-based retailers. Store-based retailers have responded by
increasing their Web presence and finding different ways to sell online, including through
their own Web sites, as well as creating more involving and engaging experiences in their
stores.
 Growth of Giant Retailers:
Through their superior information systems, logistical systems, and
buying power, giant retailers such as Walmart,D-Mart are able to
deliver good service and immense volumes of product to masses of
consumers at appealing prices.
 Decline of Middle-Market Retailers

 Growing Investment in Technology:

Almost all retailers now use technology to produce better forecasts,
control inventory costs, and order electronically from suppliers.
 Global Profile of Major Retailers:
Retailers with unique formats and strong brand positioning are
increasingly appearing in other countries . U.S. retailers such as The
Limited and the Gap have become globally prominent. Walmart
operates over 3,600 stores abroad where it does 25 percent of its
business.

 Growth of Shopper Marketing:

Buoyed by research suggesting that as much as 70 percent to 80
percent of purchase decisions are made inside the retail store, firms are
increasingly recognizing the importance of influencing consumers at
the point of purchase. Where and how a product is displayed and sold
can have a significant effect on sales.’
Market
logistics
Market
logistics
Market logistics includes planning the infrastructure to meet demand, then
implementing and controlling the physical flows of materials and final goods from
points of origin to points of use, to meet customer requirements at a profit.
Market logistics planning has
four steps:
1.Deciding on the company’s value proposition to its customers.
(What on-time delivery standard should we offer? What levels should we attain in ordering and
billing accuracy)

2. Selecting the best channel design and network strategy for reaching the customers.
(Should the company serve customers directly or through intermediaries? What products should we
source from which manufacturing facilities? How many warehouses should we maintain and where
should we locate them?)

3. Developing operational excellence

in sales forecasting, warehouse management, transportation management, and materials
management

4.Implementing the solution with the best information systems, equipment, policies, and
procedures
Integrated Logistics Systems The market logistics task calls for
integrated logistics systems (ILS), which include materials management,
material flow systems, and physical distribution, aided by information
technology (IT).

Information systems play a critical role in managing market logistics,

especially via computers, point-of-sale terminals, uniform product bar
codes, satellite tracking, electronic data interchange (EDI), and
electronic funds transfer (EFT).
Market-Logistics
Objectives
• Many companies state their market-logistics objective as “getting the right goods
to the right places at the right time for the least cost.”
• Given the market-logistics objectives, the company must design a system that will
minimize the cost of achieving these objectives. Each possible market-logistics
system will lead to the following cost:
Market-Logistics
Decisions
The firm must make four major decisions about its market logistics:
(1) How should we handle orders (order processing)
(2) Where should we locate our stock (warehousing)
(3) How much stock should we hold (inventory)
(4) How should we ship goods (transportation)
Supply chain management
Supply chain management starts before physical distribution and
means strategically procuring the right inputs (raw materials,
components, and capital equipment), converting them efficiently into
finished products, and dispatching them to the final destinations. An
even broader perspective looks at how the company’s suppliers
themselves obtain their inputs
What we covered in this unit:
• Marketing channels and value networks
• Decisions on design and management of channels
• Channel conflict and competition
• Channel integration
• E-Commerce marketing practices
• New retail environment
• Market logistics
• Supply chain management