Designing and Managing

integrated Marketing
Channels:

TEXT CHAPTER#17

Julia Parveen
BBA, 4th Semester,
Section –B
PUC, DBA, FBS.

Marketing Management, 15th ed

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.
 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.
A value network includes a firm’s suppliers and its
suppliers’ suppliers and its immediate customers
and their end customers.
It also incorporates valued relationships with
others such as university researchers and
government approval agencies.
 OMNICHANNEL MARKETING

• Omni channel marketing, in which multiple

channels work seamlessly together and match
each target customer’s preferred ways of doing
business, delivering the right product information
and customer service regardless of whether
customers are online, in the store, or on the
phone.
 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.
 Channel-Design Decisions

Analyze customer needs

Establish channel objectives

Identify major channel alternatives

Evaluate major channel alternatives

 Analyze customer needs

 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).
 Channel segmentation exists, and marketers must be
aware that different consumers have different needs
during the purchase process.
 Even the same consumer, though, may choose different
channels for different reasons
Channels service outputs:

Lot size

Waiting/delivery time

Spatial convenience

Product variety

Service backup
 Channels service outputs

1. Desired lot size—The number of units the channel

permits a typical customer to purchase on one occasion. In
buying cars for its fleet, Hertz prefers a channel from which
it can buy a large lot size; a household wants a channel that
permits a lot size of one.
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.
 CHANNELS SERVICE OUTPUTS:

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, though too many choices can
sometimes create a negative effect.
5. Service backup—Add-on services (credit, delivery,
installation, repairs) provided by the channel. The more
service backup, the greater the benefit provided by the
channel.
 ESTABLISHING OBJECTIVES AND CONSTRAINTS

• Marketers should state their channel objectives in terms

of the service output levels they want to provide and the
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.
 ESTABLISHING OBJECTIVES AND CONSTRAINTS:

• 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
 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 for complex
products.
 Identifying Channel Alternatives

Types of
intermediaries

Number of
intermediaries
Terms and
responsibilities
 TYPES OF INTERMEDIARIES

• Consider the channel alternatives identified by a

consumer electronics company that produces
satellite radios.
• It could sell its players directly to automobile
manufacturers to be installed as original equipment,
auto dealers, rental car companies, or satellite radio
specialist dealers through a direct sales force or
through distributors.
• It could also sell its players through company
stores, online retailers, mail-order catalogs, or mass
merchandisers such as Best Buy.
 NUMBER OF INTERMEDIARIES

• Three strategies based on the number of intermediaries

are exclusive, selective, and intensive distribution.
 Number of Intermediaries:

• Exclusive distribution severely limits the number

of intermediaries.
• It’s appropriate when the producer wants to
ensure more knowledgeable and dedicated efforts
by the resellers, and it often requires a closer
partnership with them.
• Exclusive distribution is used for new
automobiles, some major appliances, and some
women’s apparel brands
 Number of Intermediaries

Selective distribution relies on only some of the

intermediaries willing to carry a particular product.
Whether established or new, the company does not need
to worry about having too many outlets;
it can gain adequate market coverage with more control
and less cost than intensive distribution.
High-end companies that produce exceptional quality
clothing and accessories are likely to use selective
distribution.
 Number of Intermediaries

• Intensive distribution: • Snack foods

places the goods and • Soft drinks
services in as many • Newspaper
outlet as possible • Candy

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 15-19

 TERMS AND RESPONSIBILITIES
OF CHANNEL MEMBERS

• 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.
 TERMS AND RESPONSIBILITIES
OF CHANNEL MEMBERS
• 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.
Such as, 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, as well as
pay monthly franchisee fees.
 EVALUATING MAJOR CHANNEL ALTERNATIVES

• Each channel alternative needs to be evaluated against economic,

control, and adaptive criteria.
• ECONOMIC CRITERIA: Every channel member will produce a
different level of sales and costs.
• Figure 21.4 shows how six different sales channels stack up in terms
of the value added per sale and the cost per transaction.
• For example, in the sale of industrial products costing between
$2,000 and $5,000, the cost per transaction has been estimated at
$500 (field sales), $200 (distributors), $50 (telesales), and $10
(Internet). A Booz Allen Hamilton study showed that at one time the
average transaction at a full-service branch cost a bank $4.07, a
phone transaction $.54, and an ATM transaction $.27, but a typical
online transaction cost only $.01
 Figure 21.4
The Value-Adds vs. Costs of Different Channels
 Consider the following situation:

• A North Carolina furniture manufacturer wants to

sell its line to retailers on the West Coast.
• One alternative is to hire 10 new sales
representatives to operate out of a sales office in
San Francisco and receive a base salary plus
commissions.
• The other alternative is to use a San Francisco
manufacturer’s sales agency that has extensive
contacts with retailers. Its 30 sales representatives
would receive a commission based on their sales.
 Marketer Evaluation

• The first step is to estimate the dollar volume of sales

each alternative will likely generate. A company sales
force will concentrate on the company’s products, be
better trained to sell them, be more aggressive, and be
more successful because many customers will prefer to
deal directly with the company. The sales agency has 30
representatives, however, not just 10; it may be just as
aggressive, depending on the commission level;
customers may appreciate its independence; and it may
have extensive contacts and market knowledge.
 Marketer Evaluation
• The marketer needs to evaluate all these factors in formulating a
demand function for the two different channels.
• The next step is to estimate the costs of selling different volumes
through each channel. The cost schedules are shown in Figure 21.5.
Engaging a sales agency is less expensive, but costs rise faster
because sales agents get larger commissions. The final step is
comparing sales and costs.
• As Figure 21.5 shows, there is one sales level (SB) at which selling
costs for the two channels are the same. The sales agency is thus the
better channel for any sales volume below SB, and the company sales
branch is better at any volume above SB. Given this information, it is
not surprising that sales agents tend to be used by smaller firms or
by large firms in smaller territories where the volume is low.
3-8bceb3d6de.webp

Figure 21.5 Break-Even Chart for the Choice Between a

Company Sales Force and Manufacturer’s Sales Agency
 RETAILING

• Retailing includes all the activities in selling goods or

services directly to final consumers for personal,
nonbusiness use.
• A retailer or retail store is any business enterprise whose
sales volume comes primarily from retailing.
• Any organization selling to final consumers—whether it is
a manufacturer, wholesaler, or retailer—is doing retailing.
It doesn’t matter how the goods or services are sold (in
person, by mail, by telephone, by vending machine, or
online) or where (in a store, on the street, or in the
consumer’s home).
• Retailing is a fast-moving, challenging
 TYPES OF RETAILERS

• Consumers today can shop for goods and services at store

retailers, non store retailers, and retail organizations.
• STORE RETAILERS Perhaps the best-known type of store
retailer is the department store.
• Japanese department stores such as Takashimaya and
Mitsukoshi attract millions of shoppers each year and
feature art galleries, restaurants, cooking classes, fitness
clubs, and children’s playgrounds
 STORE RETAILER IN BANGLADESH

• Shwapno.
• Agora.
• Meena Bazar.
• Unimart.
• Khulshi Mart.
 NONSTORE RETAILING

• NONSTORE RETAILING: Although the overwhelming bulk

of goods and services is sold through stores, nonstore
retailing has been growing much faster than store
retailing, especially given e-commerce and m-commerce.
• Non store retailing falls into four major categories: direct
marketing (which includes telemarketing and online
selling),
• direct selling,
• automatic vending, and
• buying services:

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 15-31

 TYPES OF STORE RETAILERS

• The most important types of major store retailers are

summarized in Table 22.1.
• Different formats of store retailers will have different
competitive and price dynamics. Discount stores, for
example, historically have competed much more directly
with each other than with other formats, though that is
changing, as we’ll see below. Retailers also meet widely
different consumer preferences for service levels and
specific services. Specifically, they position themselves as
offering one of four levels of service:
 Retailing

Major Store Retailer Types

• Specialty store • Discount store
• Department store • Convenience store
• Supermarket • Off-price retailer

 Superstore
 MAJOR STORE RETAILER TYPES

• Specialty store: Narrow product line. The Limited, The Body Shop.
• Department store: Several product lines. JCPenney, Bloomingdale’s.
kamal store in ctg.
• Supermarket: Large, low-cost, low-margin, high-volume, self-service
store designed to meet total needs for food and household products.
Kroger, Safeway.
• Convenience store: Small store in residential area, often open 24/7,
limited line of high-turnover convenience products plus takeout. 7-
Eleven, Circle K. khulsh imart.
• Drug store: Prescription and pharmacies, health and beauty aids,
other personal care, small durable, miscellaneous items. CVS,
Walgreens.
• Discount store: Standard or specialty merchandise; low-price, low-
margin, high-volume stores. Walmart, Kmart.
 MAJOR STORE RETAILER TYPES

• Off-price retailer: Leftover goods, overruns, irregular merchandise

sold at less than retail. Factory outlets; independent off-price
retailers such as TJ Maxx; Ross, warehouse clubs such as Costco.
•

• .
 MAJOR STORE RETAILER TYPES

• Superstore: Huge selling space, routinely purchased food

and household items, plus services (laundry, shoe repair,
dry cleaning, check cashing). Category killer (deep
assortment in one category) such as Staples.
 Wholesaling

• Wholesaling includes all the activities in selling goods or services to

those who buy for resale or business use.
• It excludes manufacturers and farmers because they are engaged
primarily in production, and it excludes retailers.
• The major types of wholesalers are described in Table 22.4.
Wholesalers (also called distributors) differ from retailers in a
number of ways:
• First, wholesalers pay less attention to promotion, atmosphere, and
location because they are dealing with business customers rather
than final consumers.
• Second, wholesale transactions are usually larger than retail
transactions, and wholesalers usually cover a larger trade area than
retailers.
• Third, wholesalers and retailers are subject to different legal
regulations and taxes.
 Major Wholesaler Types

• Merchant • Brokers
wholesalers • Agents
• Full-service • Manufacturers’ and
wholesalers retailers’ branches and
• Limited-service offices
wholesalers • Miscellaneous
• Brokers & agents wholesalers

Slide 38 in Chapter 15
 Major Wholesaler Types

• Merchant wholesalers: Independently owned

businesses that take title to the merchandise they
handle. They are full-service and limited-service
jobbers, distributors, and mill supply houses.
• Full-service wholesalers: Carry stock, maintain a
sales force, offer credit, make deliveries, provide
management assistance. Wholesale merchants sell
primarily to retailers: Some carry several
merchandise lines, some carry one or two lines,
others carry only part of a line. Industrial distributors
sell to manufacturers and also provide services such
as credit and delivery.
 Major Wholesaler Types

• Limited-service wholesalers: Cash and carry wholesalers sell a

limited line of fast-moving goods to small retailers for cash.
Truck wholesalers sell and deliver a limited line of semi
perishable goods to supermarkets, grocery stores, hospitals,
restaurants, and hotels. Drop shippers serve bulk industries
such as coal, lumber, and heavy equipment. They assume title
and risk from the time an order is accepted to its delivery.
• Brokers and agents: Facilitate buying and selling, on
commission of 2 percent to 6 percent of the selling price;
limited functions; generally specialize by product line or
customer type. Brokers bring buyers and sellers together and
assist in negotiation; they are paid by the party hiring them—
food brokers, real estate brokers, insurance brokers.
 Major Wholesaler Types

• Manufacturers’ and retailers’ branches and offices:

Wholesaling operations conducted by sellers or buyers
themselves rather than through independent
wholesalers. Separate branches and offices are dedicated
to sales or purchasing. Many retailers set up purchasing
offices in major market centers. Specialized wholesalers:
• Specialized wholesalers: Agricultural assemblers (buy the
agricultural output of many farms), petroleum bulk plants
and terminals (consolidate the output of many wells), and
auction companies (auction cars, equipment, etc., to
dealers and other businesses).
 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

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
 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)? and
(4) How should we ship goods (transportation)?
1. ORDER PROCESSING Most companies today are trying to shorten the
order-to-payment cycle —that is, the time between an order’s receipt,
delivery, and payment.
This cycle has many steps, including order transmission by the
salesperson, order entry and customer credit check, inventory and
production scheduling, order and invoice shipment, and receipt of
payment.
The longer this cycle takes, the lower the customer’s satisfaction and the
lower the company’s profits.
 MARKET-LOGISTICS DECISIONS

2. WAREHOUSING Every company must store finished goods until

they are sold because production and consumption cycles rarely
match.
More stocking locations mean goods can be delivered to
customers more quickly, but warehousing and inventory costs are
higher.
To reduce these costs, the company might centralize its inventory
in one place and use fast transportation to fill orders.
3. INVENTORY Salespeople would like their companies to carry
enough stock to fill all customer orders immediately. However,
this is not cost effective.
 MARKET-LOGISTICS DECISIONS

4. TRANSPORTATION- this choices affect product pricing, on-

time delivery performance, and the condition of the goods
when they arrive, all of which affect customer satisfaction.

In shipping goods to its warehouses, dealers, and customers,

a company can choose rail, air, truck, waterway, or pipeline.