Designing and Managing Integrated Marketing

Channels
Channel Integration and Systems
• Vertical Marketing System

• Horizontal Marketing System

• Multichannel Marketing System

Vertical Marketing Systems
• 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.

• Vertical Marketing System - 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.“
Channel Steward Take Charge
Channel Stewardship

• Rangan defines channel stewardship as the ability of a given participant in a

distribution channel - a steward - to create a go-to-market strategy that
simultaneously addresses customers’ best interests and drives profits for all
channel partners.

• accomplishes channel coordination without issuing commands or directives by

persuading channel partners to act in the best interest of all.

• might be the maker of the product or service

Channel stewardship two important outcomes

• expands value for the steward’s customers, enlarging the market or existing
customers’ purchases through the channel.

• to create a more tightly woven and yet adaptable channel, in which valuable
members are rewarded and the less valuable members are weeded out.
Rangan outlines three key disciplines of
channel management:
• Mapping - at the industry level provides a comprehensive view of the key
determinants of channel strategy and how they are evolving. It identifies current
best practices and gaps, and it projects future requirements.

• Building and editing - assesses the producer’s own channels to identify any
deficits in meeting customers’ needs and/or competitive best practices to put
together a new and improved overall system.
Rangan outlines three key disciplines of
channel management:

• Aligning and influencing - closes the gaps and works out a compensation
package in tune with effort and performance for channel members that add or
could add value.
 Three Types of VMS
Administered VMS - coordinates
Corporate VMS - combines
successive stages of production and
successive stages of production
Vertical Marketing distribution through the size and power
and distribution under single
System of one of the members.
ownership.

Corporate VMS Contractual VMS Administered VMS

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.
Vertical Marketing Systems
• Corporate Systems – total ownership

• Administered Systems – strong leadership

• Contractual System – legal relationship

 Vertical Marketing
System

Corporate VMS Contractual VMS Administered VMS

Wholesaler-Sponsored Retailer-Sponsored
Voluntary Chains
Franchise Program Cooperatives
Three Types of Contractual VMS
Wholesaler-sponsored voluntary
chains - Wholesalers organize
voluntary chains of independent
retailers to help standardize their
selling practices and achieve buying
economies in competing with large
chain organizations.
Retailer cooperatives - Retailers
take the initiative and organize a
new business entity to carry on
wholesaling and possibly some
production. Members concentrate
their purchases through the retailer
co-op and plan their advertising
jointly.

Franchise organizations - A channel member called a franchisor might link

several successive stages in the production-distribution process.
 Vertical Marketing
System

Corporate VMS Contractual VMS Administered VMS

Wholesaler-Sponsored Retailer-Sponsored
Voluntary Chains
Franchise Program Cooperatives

manufacturer- manufacturer- service-firm-sponsored

sponsored retailer sponsored wholesaler retailer
 Service Firm Sponsored
Manufacturer Sponsored
Retailer – Service firm licenses
Retailer – Manufacturer license
retailers to bring its service to
dealer to sell its product subject
consumers.
to various sales and services
condition.

Manufacturer Sponsored wholesaler – Manufacturer allows wholesalers to

purchase the product and promote, distribute, and alter it anyway they chose.
Vertical Marketing Systems
Advantages Disadvantages
• It is easier to control channel behavior • Involves some cost
• It is easier to eliminate conflicts that • Marketers lose some flexibility
results when independent channel
members pursue their own objectives.
• It improves distribution efficiency by
combining the efforts of individual
channel member
• The economies of scale through the
size, bargaining power and eliminating
of duplicating services can be
achieved
Horizontal Marketing Systems

• 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.
Horizontal Marketing Systems

Partnership between General Mills and

Nestle
Horizontal Marketing Systems

Partnership between McDonald's and

Sinopec. McDonald's establishment in
every petrol station of Sinopec
Horizontal Marketing Systems

Partnership between Yahoo! and

Microsoft
Horizontal Marketing Systems
Advantages Disadvantages
• Horizontal integration of related • Integration of business may result in
businesses allows them to achieve problems related to size such as lack
economies of scale by selling more of of coordination.
the same product through geographic • Conflicts between members
expansion. • Decrease in Flexibility
• Horizontal marketing system includes
the economies of the scope through
synergies achieved by sharing of
resources common to different
products, and reduction in the cost of
international trade by operating
factories in foreign countries
Integrating Multichannel Marketing Systems

Multichannel Marketing - refers to the practice by which companies interact with

customers via multiple channels, both direct and indirect, in order to sell them goods and
services.

Integrated marketing channel system - is one in which the strategies and tactics of
selling through one channel reflect the strategies and tactics of selling through one or more
other channels.
The grid illustrates why using only one channel is not efficient. Consider a direct sales force. A
salesperson would have to find leads, qualify them, presell, close the sale, provide service, and
manage account growth. An integrated multichannel approach would be better. The company’s
marketing department could run a preselling campaign informing prospects about the
company’s products through advertising, direct mail, and telemarketing; generate leads
through telemarketing, direct mail, advertising, and trade shows; and qualify leads into hot,
warm, and cool. The salesperson enters when the prospect is ready to talk business and invests
his or her costly time primarily in closing the sale. This multichannel architecture optimizes
coverage, customization, and control while minimizing cost and conflict.
Coach markets a high-end line of luxury handbags, briefcases,
luggage, and accessories. Roughly 84 percent of its sales are via
the Internet, catalog, company retail stores in North
America,Japan,Hong Kong,Macau and mainland China,and its
North American outlet stores. Coach also has store-in-store
offerings in Japan and China inside major department stores.
Ten percent of sales are from 930 U.S. department store
locations as well as some of those retailer’s Web sites. Five
percent of sales are from international wholesalers in 20
countries, mostly department stores. Finally, Coach has
licensing relationships with Movado (watches), Jimlar
(footwear), and Marchon (eyewear). These licensed products
are sometimes sold in other channels such as jewelry stores,
high-end shoe stores, and optical retailers.
Integrating Multichannel Marketing Systems

Advantages Disadvantages

• increased market coverage. • New channels typically introduce

• lower channel cost conflict and problems with control
• more customized selling and cooperation. Two or more may
end up competing for the same
customers.
Conflict, Cooperation, and Competition

Channel conflict - is generated when one channel member’s actions prevent another
channel from achieving its goal.

Channel coordination - occurs when channel members are brought together to advance
the goals of the channel, as opposed to their own potentially incompatible goals
 Multichannel conflict - exists
Vertical channel conflict - when the manufacturer has
occurs between different levels established two or more channels
of the channel. that sell to the same market.

Horizontal channel conflict - occurs between channel members at the same level. Some Pizza
Inn franchisees complained about others cheating on ingredients, providing poor service, and
hurting the overall brand image.
When Goodyear expanded its channels to
include mass-market retailers, it angered its
long-time independent dealers.
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.
Causes of Channel 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 - 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.
Managing Channel Conflict
• Employee Exchange - A useful step is to exchange persons between two or more
channel levels. GM’s executives might agree to work for a short time in some
dealerships, and some dealership owners might work in GM’s dealer policy
department. Thus participants can grow to appreciate each other’s point of view.
• Joint Memberships - Similarly, marketers can encourage joint memberships in
trade associations.
• Co-option - 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.
Managing Channel Conflict
• 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 skilled in conciliating the two parties
'interests. In arbitration two parties agree to present their arguments to one or more
arbitrators and accept their decision.

• Legal Recourse - If nothing else proves effective, a channel partner may choose
to file a lawsuit.
Dilution and Cannibalization
• Cannibalization - refers to a reduction in sales volume, sales revenue, or market share
of one product as a result of the introduction of a new product by the same producer.

• Dilution - is the weakening of a brand though its overuse. This frequently happens as a
result of ill-judged brand extension. Price cutting that increases volumes but moves a
brand down-market can be similarly damage a brand.
Apple cannibalized their own sales of the iPad when the
iPhone 6 was released in September 2014 (Apple
Corporation, 2014). According to a Forbes article, shipment
of iPads was down 23% since the announcement of the
iPhone 6. This is due to the new product (the iPhone) being
large enough to have a lot of the features of the iPad without
being as large making the iPad outdated and irrelevant
(Marko, 2015). While the iPhone shipped massive amounts
of product, the iPad never recovered to its previous sales
plateau. Overall, this is a positive effect as turnover of new
products allows company to get old users to spend money
and keeps their products current which is very important in
technology related fields. This is still an example of Apple
betting sales of the old product to get higher sales on a new
product in this case it was a success.
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.
Four – Legality Practices
• Exclusive dealing - only certain outlets are allowed to carry a seller’s products.
Requiring that these dealers not handle competitors 'products

• Exclusive Territories - The producer may agree not to sell to other dealers in a
given area, or the buyer may agree to sell only in its own territory.

• Tying Agreements-

• Dealer’s Right-
E-Commerce Marketing Practices
• E-commerce uses a Web site to transact or facilitate the sale of products and
services online. Online retail sales have exploded in recent years, and it is easy to
see why.

Three key aspects of a transaction

• Customer interaction with the Web site
• Delivery
• Ability to address problems when they occur
Types of E-Commerce
• Pure-click companies - are ones that conduct their business operations only online
and do not do business offline. These companies have launched themselves only on
Internet without any previous existence as a firm.

• Brick-and-Click Companies - is a business model in which a company operates both

an online store (the clicks) and an offline store (the bricks) and integrates the two into a
single retail strategy.
Jack Ma has been the visionary force behind the
highly successful Chinese online marketplace and
auction site Alibaba. Alibaba began in 1999 and
grew over the next decade to become the world’s
largest online B2B marketplace and Asia’s most
popular online auction site.
A Safeway delivery truck illustrates how some
traditional supermarkets are now pursuing a
bricks and clicks strategy.
Pure-click companies Brick-and-Click Companies
M-Commerce Marketing Practices
• The widespread penetration of cell phones and smart phones—there are currently
more mobile phones than personal computers in the world—allows people to
connect to the Internet and place online orders on the move.
THANK YOU!