Part 6: Delivering value
Chapter 15: Designing and managing integrated marketing
channels
Discussion questions:
1. What is a marketing channel system and value network?
2. How do marketing channels perform and how should they be designed: Push vs Pull Strategy?
1. Marketing channels
Sets of interdependent organizations participating in the process of making a product or service available for
use or consumption
2. 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. 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 production, culminating in purchase and consumption by the end
user. Some intermediaries such as wholesalers and retailers buy, take title to, and resell the merchandise; they
are called merchants. Other 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. Still others
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.
2.1 The Importance of Channels
A marketing channel system is the set of marketing channels a firm employ, and decisions about it are among
the most critical one’s management faces. 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.
The channels chosen to affect all other marketing decisions. The company’s pricing depends on whether it
uses online discounters or high-quality boutiques. Its sales force and advertising decisions depend on how
much training and motivation dealers need. In addition, channel decisions include relatively long-term
commitments with other firms as well as a set of policies and procedures. Holistic marketers ensure that
marketing decisions in all these different areas are made to collectively maximize value.
2.2 Push- and Pull Strategy
A push strategy uses the manufacturer’s resources to carry, promote, and sell the product to end users. A
push strategy is appropriate when there is low brand loyalty in a category, brand choice is made in the store,
the product is an impulse item, and product benefits are well understood.
In a pull strategy the manufacturer persuades consumers to demand the product from intermediaries, thus
inducing the intermediaries to order it. Pull strategy is appropriate when there is high brand loyalty and high
involvement in the category, when consumers can perceive differences between brands, and when they
choose the brand before they go to the store.
1
, 2.3 Hybrid Channels and Multichannel Marketing
Today’s successful companies typically employ hybrid channels and multichannel marketing, multiplying the
number of “go-to-market” channels in any one market area. Hybrid channels or multichannel marketing
occurs when a single firm uses two or more marketing channels to reach customer segments. 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 sell to still smaller accounts, and the Internet to sell
specialty items. 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.
When this doesn’t happen, there can be channel conflict, excessive cost, or insufficient demand.
On the other hand, when a major catalog and Internet retailer invested significantly in brick and- mortar
stores, different results emerged. Customers near the store purchased through the catalog less frequently, but
their Internet purchases were unchanged. As it turned out, customers who liked to 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 purchases made by customers returning or exchanging at the store offset any
revenue deficit. Companies that manage hybrid channels clearly must make 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
2.4 Value networks
A value network is a system of partnerships and alliances that a firm creates to source, augment, and deliver
its offerings. It includes a firm’s suppliers and its suppliers’ suppliers, and its immediate customers and their
end customers, as well as relationships with others such as university researchers and government approval
agencies. 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 disturbances anywhere in the
supply chain that might change costs, prices, or supplies. Third, companies can go online with their business
partners to speed communications, transactions, and payments; reduce costs; and increase accuracy.
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. 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 practices.
2
Chapter 15: Designing and managing integrated marketing
channels
Discussion questions:
1. What is a marketing channel system and value network?
2. How do marketing channels perform and how should they be designed: Push vs Pull Strategy?
1. Marketing channels
Sets of interdependent organizations participating in the process of making a product or service available for
use or consumption
2. 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. 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 production, culminating in purchase and consumption by the end
user. Some intermediaries such as wholesalers and retailers buy, take title to, and resell the merchandise; they
are called merchants. Other 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. Still others
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.
2.1 The Importance of Channels
A marketing channel system is the set of marketing channels a firm employ, and decisions about it are among
the most critical one’s management faces. 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.
The channels chosen to affect all other marketing decisions. The company’s pricing depends on whether it
uses online discounters or high-quality boutiques. Its sales force and advertising decisions depend on how
much training and motivation dealers need. In addition, channel decisions include relatively long-term
commitments with other firms as well as a set of policies and procedures. Holistic marketers ensure that
marketing decisions in all these different areas are made to collectively maximize value.
2.2 Push- and Pull Strategy
A push strategy uses the manufacturer’s resources to carry, promote, and sell the product to end users. A
push strategy is appropriate when there is low brand loyalty in a category, brand choice is made in the store,
the product is an impulse item, and product benefits are well understood.
In a pull strategy the manufacturer persuades consumers to demand the product from intermediaries, thus
inducing the intermediaries to order it. Pull strategy is appropriate when there is high brand loyalty and high
involvement in the category, when consumers can perceive differences between brands, and when they
choose the brand before they go to the store.
1
, 2.3 Hybrid Channels and Multichannel Marketing
Today’s successful companies typically employ hybrid channels and multichannel marketing, multiplying the
number of “go-to-market” channels in any one market area. Hybrid channels or multichannel marketing
occurs when a single firm uses two or more marketing channels to reach customer segments. 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 sell to still smaller accounts, and the Internet to sell
specialty items. 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.
When this doesn’t happen, there can be channel conflict, excessive cost, or insufficient demand.
On the other hand, when a major catalog and Internet retailer invested significantly in brick and- mortar
stores, different results emerged. Customers near the store purchased through the catalog less frequently, but
their Internet purchases were unchanged. As it turned out, customers who liked to 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 purchases made by customers returning or exchanging at the store offset any
revenue deficit. Companies that manage hybrid channels clearly must make 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
2.4 Value networks
A value network is a system of partnerships and alliances that a firm creates to source, augment, and deliver
its offerings. It includes a firm’s suppliers and its suppliers’ suppliers, and its immediate customers and their
end customers, as well as relationships with others such as university researchers and government approval
agencies. 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 disturbances anywhere in the
supply chain that might change costs, prices, or supplies. Third, companies can go online with their business
partners to speed communications, transactions, and payments; reduce costs; and increase accuracy.
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. 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 practices.
2
