Designing and Managing Integrated Marketing Channels

Successful value creation depends on successful value delivery. Holistic marketers are increasingly taking a value network view of their business, examining the entire supply chain that links raw materials, components, and manufactured goods and shows how they move toward the final consumers.

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 are marketing channels (also called trade channels or distribution channels), sets of interdependent organizations participating in the process of making a product or service available for use or consumption.

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 managing its intermediaries, the firm must decide how much effort to devote to push versus pull marketing.

A push strategy uses the manufacturer's sale force, trade promotion money, or other means to induce intermediaries to carry, promote, and sell the product to end users. In a pull strategy the manufacturer uses advertising and other communications to persuade consumers to demand the product from intermediaries, thus inducing the intermediaries to order it.

Hybrid Channels and Multichannel Marketing

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 must make sure their multiple channels work well together and match each target segment's preferred ways of doing business.

Value Networks

The company should first think of the target market, however, and then design the supply chain backward from that point, a strategy called demand chain planning. A value network is a system of partnerships and alliances that a firm creates to source, augment, and deliver its offerings.

The Role of Marketing Channels

Through their contacts, experience, specialization, and scale of operation, intermediaries make goods available and accessible to target markets, and usually more effectively and efficiently than the producer can achieve on its own.

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.

Channel Levels

The producer and the final customer are part of every channel. A zero-level channel, also called a direct marketing channel, consists of a manufacturer selling directly to final customers through door-to-door sales, home parties, mail order, telemarketing, TV selling, Internet selling, manufacturer-owned stores, and other methods. A one-level channel contains one selling intermediary. A two-level channel contains two intermediary typically a wholesaler and a retailer. A three-level channel contains three intermediaries. Obtaining information about end users and exercising control becomes more difficult for the producer as the number of channel levels increases.

Service Sector Channels

As Internet and other technologies advance, service industries such as banking and travel are operating through new channels. Marketing channels also keep changing in "person marketing."

Channel-Design Decisions

To design a marketing channel system, marketers must analyze customer needs and wants, establish objectives and constraints, and identify and evaluate major channel alternatives.

Channel-Management Decisions

After a firm has chosen a channel system, it must select, train, motivate, and evaluate individual intermediaries for each channel. It may also modify channel design and arrangements over time.

Channel Integration and Systems
Vertical Marketing Systems

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.

Horizontal Marketing System

A 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

It is a system in which the strategies and tactics of selling through one channel reflect the strategies and tactics of selling through one or more other channels. One benefit of adding more channels is increased market coverage. Not only are more customers able to shop for the company's products in more places, but those who buy in more than one channel are often more profitable than single-channel customers. A second benefit is lower channel cost - selling by phone is cheaper than personal selling to small customers. A third benefit is more customized selling, such as by adding a technical sales force to sell complex equipment. However, new channels typically introduce conflict and problems with control and cooperation.

Conflict, Cooperation, and Competition

Channel conflict is generated when one channel member's actions prevent other channel member from achieving its goal. Channel coordination occurs when channel members are brought together to advance the channel's goals, as opposed to their own potentially incompatible goals.

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 two or more channels that sell to the same market.

Causes of Channel Conflict

One major cause of channel conflict is goal incompatibility. Another cause is unclear roles and rights. Conflict can also stem from differences in perception, as when a producer is optimistic about the economy and wants dealers to carry higher inventory, but its dealers are pessimistic. At times, conflict can occur because of intermediaries' dependence on the manufacturer such as auto dealers are profoundly affected by the manufacturer's product and pricing decisions.

Managing Channel Conflict

Some channel conflict can be constructive and lead to better adaptation to a changing environment, but too much is dysfunctional.

Dilution and Cannibalization

Marketers must be careful not to dilute their brands through inappropriate channels. This particularly important for luxury brands whose images often rest on exclusivity and personalized service.

Legal and Ethical Issues in Channel Relations

Companies are generally free to develop whatever channel arrangements suit them. In fact, the law seeks to prevent them from using exclusionary tactics that might keep competitors from using a channel.

E-Commerce and M-Commerce Marketing Practices

E-Commerce uses a Web site to transact or facilitate the sale of goods and services online. Online retailers compete in three key aspects of a transaction: (1) customer interaction with the Web site, (2) delivery, and (3) ability to address problems when they occur. Pure-click companies are those that have launched a Web site without any previous existence as a firm; brick-and-click companies are existing companies that have added an online site for information or e-commerce.

M-commerce (m for mobile) channels and media can keep consumers connected and interacting with a brand throughout their day-to-day lives. However, mobile marketing and the fact that a company can potentially pinpoint a customer or employee's location with GPS technology also raises privacy issues.

Summary

Successful value creation depends on successful value delivery. 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 are marketing channels (also called trade channels or distribution channels), sets of interdependent organizations participating in the process of making a product or service available for use or consumption. 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 managing its intermediaries, the firm must decide how much effort to devote to push versus pull marketing. Three main marketing channels are Horizontal, Vertical, and Integrating Multichannel Marketing systems. Channel conflict is generated when one channel member's actions prevent other channel member from achieving its goal.

Personal Point of View

In my opinion, unless a manufacturer is a very well-known brand such as Coca-Cola, most of the brands goes through the middle-man to sell their products. It is a safe pathway to go through from middle channel to reach out to customers because they know which target segments and strings to pull. Majority of customer these days shop online not only because it is convenience but also some sellers do not charge for sale tax. M-Commerce is a good way to lure in more customers to their original website but baby boomers and elderly population will prefer to use the PC and laptop to shop rather than on a mobile due to their declining health restrict them able to see fine prints and details of the products they are looking for. I personally prefer to shop online using my laptop for both security purpose and internet speed of loading web pages. Thus by far, in order to overcome from e-commerce to m-commerce, I think mobile needs the speed which is faster than LTE or 4G otherwise young population will not appreciate the m-commerce shopping.