Designing
and Managing Integrated Marketing Channels
Successful
value creation needs successful value delivery. Holistic marketers are
increasingly taking a value network view of their businesses. Instead of
limiting their focus to their immediate suppliers, distributors, and customer,
they are examining the whole supply chain that links raw material, components,
and manufactured goods and shows how they move toward the final consumers. Companies
are looking at their suppliers ‘suppliers upstream and their distributor’
customers downstream. They are looking at customer segments and considering a
wide range of new and different means to sell, distribute, and service their
offering.
Convinced
that DVDs were the home video medium of the future, Netflix founder Reed
Hastings came up with a form of DVD rental distribution in 1997 different from
the brick and mortar stores used by market leader Blockbuster. Netflix’s strong
customer loyalty and positive word of mouth is a result of the service’s
distinctive capabilities: modest subscription
fees (as low as $9 a month), no late fees, (mostly) overnight mail delivery, a
deep catalog of over 100,000 movie titles, and a growing library of over 12,000
movies and television episodes. The service also has proprietary software that
allows customers to easily search for obscure films and discover new ones. To
improve the quality of its searches, Netflix sponsored a million-dollar contest
that drew thousands of entrants. The winning team consisted of seven members
with diverse backgrounds and skills whose solution was estimated to make
Netflix’s recommendation twice as effective. With new competition from Redbox’s
thousands of DVD-rental kisosk in Mc Donald’s and locations, Netflix is putting more
emphasis on streaming videos and instantaneous delivery mechanisms. But it
still sees growth in DVD rentals from its over 11 million subsriber base.
Netflix’s success has also captured Hollywood’s attention. Its online
commnunities of customers who provide and read reviews and feedback can be an
important source of fans for film.
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 function. These intermediaries contitu a marketing chanel (also called a
trade channel or distribution channel). Formally, marketing channels are set of
interdependent organizations particiipating in the process of making a product
or service follows after production, culminating in purchase and consumtion by
the final end user.
Some
intermediaries-such as wholesales and retailes-buy, take title, to and resell
the merchandise; they are called merchant. Others-brokers, manufactures’
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 agent.
Still others-transportation companies, independent warehouse, banks,
advertising agencies-assist in the distribution process but neither take title
to googs not negotiate purchases or sales they are called facilitators.
Channels
of all types play an important role in the success of a company and affect all
other marketing decisions.Marketers should judge them in the context of the
entire process by which their products are made, distributed, sold, and
serviced. We consider all these issues in the following sections.
The Importance of Channels
A marketing channel system is the particular set of
marketing channels as firm employs, and decisions about it are among the most
critical one management faces. In United States, channel members collectively
have earned margins that account for 30 percent to 50 percents of the final
price. Marketing channel also represent a substantial opportunity cost. One of
their chief roles is to convert potential buyers into profitbale customers.
Marketing channels must not serve markets, they must also make markets.
The
channels chosen affect all other marketing decisions. The company’s pricing
depends on whether it uses online discounters or high-quality boutiq, Its sales
force and advertising decisions depends on how much training and motivation
dealers need. In addition, channel decisssion include relatively long-term
commitments with other firms as well as a set of policies and procedure. When a automaker sign up
independent dealers to sell its automobiles, it cannot buy them out the next
day and replace them with company-owned outlets. But at the same time, channel
choices themselves depend on the company’s marketing strategy with respect to
segmentation, targeting, and positioning. Holistic marketers ensure that
marketing decisions in all these different areas are made to collectively
maximize value.
In managing its intermediaries, the firm
must decide how much effort to devote to push versus pull marketing. A push
strategy uses the manufacture’s sales force, trade promotion money, other means
to induce intermediaries to carry, promote, and sell the product to end users.
A push strategy is particularly appropriate when item and product benefits are
well understood. In a pull strategy the manufacturer uses advertising,
promotion, and other forms of communication to persuade consumers to demand the
product from intermediaries, thus inducing the intermediaries involvement in
the category, when consumers are able to perceive differences between brand,
and when they choose the brand before they go to store.
Top marketing companies such as
Coca-Cola, Intel, and Nike skillfully employ both push and pull strategies. A
push strategy is more effective when accompanied by a well-designed and
well-executed pull strategy that activates consumer demand. On the other hand,
without at least some consumers’ interest, it can be very difficult to gain
much channel acceptance and support, and vice versa for that matter.
Hybrid
Channel and Multichannel Marketing
Today’s
successful companies typically employ hybrid channels and multichannel
marketing multiplying the number of “go-to-market” channel in any one market
area. Hybrid channels or multichannel marketing accurse when a single firm uses
two or more marketing channels to reach customer segment. HP has used its sales
force to sell to large accounts, outbound telemarketing to sell to medium-sized
accounts, direct mail with an inbound number
to sell to small accounts, retailers to still smaller accounts, and the
Internet to sell specialty item. Philip also is a multichannel marketer.
Philips
Royal Philips Electronics of the Netherlands is one of the world’s biggest
electronics companies and Europe’s largest. With sales of over $66 billion in
2009. Philips’s electronic products are a channel toward the customer primarily
through local and international retailers. The company offers a broad range of
products from high to low price/value quantities, relying on a diverse
distribution model that include mass merchants, retail chain, independts, and
small specially stores. To work most effectively with these retail channels,
Philips has created an organization designed
around its customers, with dedicated global key account managers serving
leading retailers such as Best Buy, Carefour, Costco, Dixons, and Tesco. Like
many modern firms, Philips also sells via the Web thorough its own online store
as well as through a number of other online retailers.
In multichannel marketing, each
channel targets a different segment of buyers, or different need state for one
buyer, and delivers the right products in the right place in the right way at
the least cost. When this doesn’t happen, there can be channel conflict,
excessive cost, or insufficient demand .
Launched in 1976, Dial-a-Mattress successfully grew for three decades by
selling mattress directly over the phone and, later, the internet. A major
expansion into 50 brick-and-mortar stores in major metro areas was a failure,
however. Secondary locations, chosen because
management considered prime locations too expensive, could not generate
enough customer traffic. The company eventually declared bankruptcy.
On the other hand, when a major
catalog and Internet retailer invested significantly in brick-and-mortar
stores, different result emerged. Customer near the store purchased through catalog
less frequently, but their Internet purchases were unchanged. As it turned out
customers who like spend time browsing were happy to either use a catalog or
visit the store; those channels were interchangeable. Customers who used the
Internet, on the other hand, were more transaction focused and interested in
efficiency, so they were less affected by the introduction of stores. Returns
and exchanges at the stores were found to increase because of ease and
accessibility, but extra purchase made by customers returning of exchanging at
the store offset any revenue deficit.
Companies that manage hybrid channels
must take sure their channels work well together and match each target
customer’s preferred ways of doing business. 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.
Here’s
a company that has carefully managed its multiple channels. We discuss the topic
of optimal channel integration in greater detail later.
REI
Outdoor supplier REI has been lauded by industry analysts for the seamless
integration of its retail store, Web site, Internet kiosk, mail-order catalog,
value-price outlet, and toll-free order number. If an item is out of stock in
the store, all customers need to do is tap into the store’s Internet kiosk to
order it from REI’s Web site. Less Internet-savvy customers can get clerks to
place the order for them all the checkout counters. And REI not only
generates store-to-Internet traffic, it also sends Internet shoppers
into its stores. If a customer browses REI’s site and stops to read an REI
“Learn and Share” article on backpacking, the site might highlight an REI
“Learn and Share” article on backpacking, the site might highlight an in-store
promotion on hiking boots. Like many retailers, REI has found that dual-channel
shoppers spend significantly more than single-channel shoppers, and tri-channel
shopper spend even more.
Value
Networks (Chapter 15)
A
supply chain view of a firm sees markets as destination points and amount to a
linear viwe of the flow of ingredients and components through the production
process to their ultimate sale to customers. The company should first think of
the target market, however, and then desigin the supply chain backward from
that point. This strategy has been called demand chain planning.
A broader view sees a company at the
center of a value network-a system of partnership and alliances that a firm
creates to source,augment,and deliver its offering. A value network includes a
firm’s suppliers and its suppliers, and its immediate customers and their end
customers. The value network includes valued relationships with other such as
university researchers and gonverment approval agencies.
A company needs to orchestrate these
parties in order to deliver superior value to the target market. Oracle relies
on 5.2 milion developers and 400.000 discussion forum threads to advance its
products. Apple’s Developer Connection-where folks create iPhone apps and the
like-has 50.000 members at different levels of membership. Developers keep 70
percent of any revenue thier products generate, and Apple gets 30 percent.
Demand chain planning yields several
insights. First, the company can estimate whether more money is made upstream
or downstream, in case it can integrate backward or forward. Second, the
company is more aware of distubances anywhere in the supply chain that might
change costs, prices, or supplies. Third, companies can go online with their
business partners to speed communication, transactions, and payments, reduce
costs; and increase accuracy. Ford not only manager numerous supply chain but
also sponsors or operates on many B 2 B web site and exchange.
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 systems to
manage cash flow, manufacturing, human resources, purchasing, and other major
functions within a unified framewaork. They hope tp break up departemen
silos-where each departement only act in
its own self interest-and carry out core business processes more
seamlessly.Most, however, are still a long way from truly comprehensive ERP
system.
Marketers, for their part, have
traditionally focused on the side of the value network that looks toward the
customer, adopting customer relationship management (CRM) software and practise
in the future, they will increasingly participate in and influence their
companies’ upstream activities and become network managers, not just product
and customer managers.
The
Role of Marketing Channels
Why
would a producer delegate some of the selling job to intermediaries,
relinquishing control over how and to whom products are sold? Through their
contacts, experience, specialization, and scale of operation, intermediaries
make goods widely available and accessible to target markets, usually offering
the firm more effectiveness and efficiency that it can achive on its own.The
Wiliam Wrigley Jr.Compay would not find it pratical to establish small retail
gun shop work of privately owned distribution organization. Even Ford would be
hard-press to replace all the task done by its almost 12,000 dealer outlets
worldwide.
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. Members of marketing
channel perform a number of key functions (see Table 15.1).
Some of these functions (storage and
movement, title, and communications) constitute a forward flow of activity from
the company to the customer; other functions (ordering and payment)
constitute a backward flow from customers to the company. Still others
(information, negotiation, finance, and risk taking) occur in both direction.
Five flows are illustratedin Figure 15.1 for the marketing of forklift trucks.
If these flows were superimposed in one diagram, we would see the tremendous
complexity of even simple marketing channels.
A
Manufacture selling a physical product and services might require three channels:
a sales channel, a delivery channel, and a service channel. To sell its Bowflex
fitness equipment, the Nautilus Group historically has emphasized direct
marketing via television infomercials and ads, inbound/outbound call centers,
response mailings, and the Internet as
sales channels; UPS ground service as the delivery channel; and local repair
people as the service channel.
Reflecting shifting consumer buying habits, Nautilus now also sells Bowflex
through commercial, retail, and specialty retail channels.
Table 15.1 Channel Member Functions
- Gather
information about potential and current customers, competitors, and other
actors and forces in the marketing environment.
- Develop
and desseminate persuasive communications to stimulate purchasing
- Negotiate
and reach agreements on price and other terms so that transfer of ownership or
possession can be affected.
- Place
orders with manufactures
- Acquire
the funds to finance inventories at different levels in the marketing channel.
- Assume
risk connected with carrying out channel work
- Provide
for the successive storage and movement of physical products.
- Provide
for buyers payment of their bill through banks and other financial institutions
- Oversee
actual transfer of ownership from one organization or person to another.
The question for marketers is not whether various channel function need to
be performed-they must be-but rather, who is to perform them. All channel
functions have three things in common: They use up scarce resources; they can
often be performed better through specialization; and they can be shifted among
channel members. Shifting some function to intermediaries lowers the producer’s
cost and prices, but the intermediary must add a charge to cover its work. If
the intermediaries are more efficient than the manufacturer, prices to
consumers should be lower. If consumers perform some function themselves, they
should enjoy even lower prices. Changes in channel institutions thus largely
reflect the discovery of more effiecient ways to combine or separate the economic functions that provide assortments
of goods to target customers.
Figure 15.1
Five Marketing Flows in the Marketing Channel for Forklift Trucks
Channel Levels
The producer and the final customer are part of every channell. We will use
the number of intermediary levels to designate the length of a channel.Fifure
15.2)a) illustrates several consumer goods marketing channels of different
lenghs.
A zero-level channel, also called
a direct marketing channel, consists of a manufacturer selling directly to the
final customer. The major examples are door to door sales, home paries, mail
order, telemarketing, TV selling, Internet selling, and manufacturer owned
stores. Traditionally, Avon sales representatives sell cosmetics door to door;
Franklin Mint sells enhanced services to existing customers; Time-life music
and video collection through TV commercials or longer “infomercials”; Red
Envelope sell gift online, and Apple sells computers and other consumer
electronics through its own stores. Many of these firms now sell directly to
customers in more ways than one, via online, catalogs, etc.
A one-level channel contains one
selling intermediary, such as retailer. A two-level channel contain one selling
intermediaries. In consumer markets, these are typically a wholesaler and a
retailer. Athree-level channel contains three intermediaries. In the
meatpacking industry, wholesalers sell to jobbers, essentially small-scale
wholesalers, who sell to small retailers. In Japan, food distribution may
include as many as six levels. Obtaning information about end users and
exercising control become more difficult for the producers as the number of
channel level increases.
Figure 15.2(b) shows channels
commonly used in B2B marketing. An industrial-goods manufacturer can use its
sales force to sell directly to industrial customers; or it can sell through
manufacturer’s representatives or its own sales branches directly to industrial
customers, or indirectly to industrial customers through industrial
distributors.Zero-,one-,and two-level marketing channels are quite common.
Channels normally describe a
forword movement of products from source to user, but reverse-flow channels are
also important to reuse products or containers (such as refillable
chemical-carrying drums), to refurbish products fo resale (such as circuit
board or computers), to recycle products (such as paper), and (4) to dispose of
products and packaging. Reverse-flow intermediaries include manufacturers’
redemption centers, community group, trash collection specialists, recycling
centers, trash-recycling brokers and central processing warehousing. Many
creative solutions have emerged in this area in recent years, such as
Greenopolis.
Greenopolis Launched by Waste
Management Corporation after it acquired the code Blue Recycling, Greenopolis
is a new company with an entirely different
recycling system that allows consumers and a consortium of consumer packaged
goods (CPG) companies to “close the loop” in the recovery and reuse of
postconsumer material. With its mantra, “Rethink Recycle Reward,” Greenopolis
consists of (1) an extensive set of interactive, on-street recycling kiosk in
various retail setting, (2) a number of material reprocessing facilities, (3) a
menu of consumers recycling rewards, and (4)a significant online community and
social media network. Participating CPG companies use the Greenopolis sysmbol
on their product packaging. The kiosk system is designed to collect those
products, track and reward consumers who bring them, and put packaging into
reuse or reprocessing. An important feature is that Greenopolis if fully
accountable Innovative kiosk tecnology allows consumers to follow their recycling
contribution, as well as the rewards they earn from the partnering companies.
CPG companies, in turn, are able to measure their share of recovery. By
achieving sufficient scale and accessibility in the marketplace and making
recycling fun, easy, and personally rewarding to consumers, Greenopolis aims to
improve recycling rates and make an important environmental difference.
Service Sector Channels
As Internet and other tecnologies advance, service industries such as
banking, insurance, travel, and stock buying and selling are operating through
new channels. Kodak offers its customers four ways to print their digital
photos-minilabs in retail outlets, home printer, online service at its Ofoto
Web site, and self-service kiosks. The world leader withn 88.000 kiosks, Kodak
makes money both by selling the units and by supplying the chemical and paper
they use to make the prints.
Marketing channel also keep changing in “person marketing.”
Beside live and programmed entertainment, entertainers, musicians, and other
artist can reach prospective and existing fans online in many ways-their own
Web site, social community site such as Facebook and Twitter, and third-party
Web site. Politician also must choose a mix of channels-mass media, rallies,
coffee hours, spot TV ads, direct mail, billboard, faxes, e-mail,
blogs,podcasts, Web site, and social networking sites-for delivering their
messages to voters.
Nonprofit service organizations such as school develop “educational-dissemination
system” and hospitals develop “health-delivery system.” These institutions must
figure out agencies and locations for reaching a far-flung population.
Cleveland Clinic One of the largest and
most respected hospital in the country, Cleveland Clinic, provides medical care
in a variety of ways and settings. The main campus in Cleveland, whose 50
buildings occupy 166 acres, is the hub for patient care, research, and
education. Cleveland Clinic also operates 15 family primary-care centers in
suburbs. Eight hospitals extend the clinic’s reach in Northeast Ohio. Community
outreach programs in all these areas provide education and free health
screenings.
