Managing value networks and channels

Delivering value -- Chapter 15 -- summary

Most producers do not sell their goods directly to final users. Between producers and final users stands one or more marketing channels, a host of marketing intermediaries performing a variety of functions.

Marketing channel decisions are among the most critical decisions facing management. The company's chosen channels profoundly affect all other marketing decisions.

Companies use intermediaries when they lack the financial resources to carry out direct marketing, when direct marketing is not feasible, and when they can earn more by doing so. The most important functions performed by intermediaries are information, permission, negotiation, ordering, financing, risk-taking, physical possession, payment, and title.

Manufacturers have many alternatives for reaching a market. They can sell direct or use 1, 2, or three level channels. Deciding which types of channel to use calls for analyzing customer needs, establishing channel objectives, and identifying and evaluating the major alternatives, including the types and numbers of intermediaries involved in the channel.

Effective channel management calls for selecting intermediaries and training and motivating them. The goal is to build a long-term partnership that will be profitable for all channel members.

Marketing channels are characterized by continuous and sometimes dramatic change. Three of the most important trends are the growth of vertical marketing systems, horizontal marketing systems, and multichannel marketing systems.

All marketing channels have the potential for conflict and competition resulting from such sources as goal incompatibility, poorly defined roles and rights, perceptual differences, and interdependent relationships. Companies can manage conflict by striving for subordinate goals, exchanging people among two or more channel levels, co-opting the support of leaders in different parts of the channel, and encouraging joint membership in and between trade associations.

Channel arrangements are up to the company, but there are certain legal and ethical issues to be considered with regards to practices such as exclusive dealing were territories, tying agreements, and dealers right.

E-commerce has grown in importance as companies have adopted "brick and click" channel systems. Channel integration must recognize the distinctive strengths of online and off-line selling and maximize their joint contributions.