Creating Offerings & Using Channels to Create Value for Customers

Material in slides 2-14 of this overview adapted from Principles of Marketing. (2015). University of Minnesota Libraries Press.

https://open.lib.umn.edu/principlesmarketing/

Using Marketing Channels & Price to Create Value for Customers

Where the offering is and how it is priced communicates value to the customer

6.1 Marketing channels and channel partners

6.2 Typical marketing channels

6.3 Functions performed by channel partners

6.4 Marketing channel strategies

6.5 Channel dynamics

6.6 Demand planning and inventory control

6.7 Warehousing and transportation

6.8 The pricing framework and a firm’s pricing objectives

6.9 Factors that affect pricing decisions

Marketing channels and channel partners

Goal = get a product to the customer when, where and how the customer wants it.

Requires cooperating channel partners (or intermediaries) that actively promote and sell the product as it travels through the channels to the end customer.

Typical marketing channels

• Two major types of channel systems

• Direct channel— from producer to consumer with no intermediaries (farmer’s market, internet if direct from the manufacturer)

• Indirect channel — Any number of intermediaries between producer and consumer

• Many products have multiple channels

Question: Wouldn’t fewer intermediaries be more efficient and effective to get products to consumer when, where and how they want them?

Answer: Some large retailers have been able to own more of the channels themselves (disintermediation).

But, the channel member functions have to be performed by some firm, but one firm can perform more than one channel functions.

Only include channel members that add value for the customer.

Functions performed by channel partners

• Disseminating marketing communications and promote brands

• Push versus pull strategy

• Sorting and regrouping products

• Storing and managing inventory

• Distributing products

• Assume ownership risk and extend credit

• Share marketing and other information

Marketing channel strategies

Factors affecting the marketing channel strategy decisions

• Type of customer

• Type of product

• Channel partner capabilities

• Business environment and technology

Channel integration • Vertical marketing system — formal agreements to cooperate

• Conventional marketing system — no formal relationships, all independent operators

• Horizontal marketing system — Two companies at same channel level agree to cooperate (usually for compatible but non competing products)

Channels versus supply chains — supply chains are channels that includes the firms involved in distributing the raw materials for manufacturing.

Value chain — another term for supply chain BUT acknowledges the value adding role of the intermediary.

Factors that affect a product’s intensity of distribution

• intensive distribution = want to sell product in as many outlets as possible

• selective distribution = selling products at select outlets in specific locations.

• exclusive distribution = selling products through one or very few outlets

Demand planning and inventory control

• Demand planning — process of estimating how much product customers will buy from you so can plan production capacity to not run out

• Inventory control — process of ensuring have adequate supply of products on hand and in sufficient assortment to meet customer needs

• Product tracking — process to knowing where inventory is at all times

Warehousing & transportation

• Warehousing — handles fluctuations in demand

• Distribution centers — a warehouse that focuses on moving product to various wholesalers, retailers or consumers

• Transportation — the logistics of moving goods via air, boat, rail, pipeline, plane or truck

Pricing framework and a firm’s pricing objectives

A framework for how to set prices

Factors that affect pricing decisions

• How will customers perceive the price?

• How does it compare to competitors?

• Are there any external factors such as the economy, government laws or regulations that impact the price?

• How much does it cost to create the offering?

Pricing strategies

Introductory pricing strategies

• skimming

• penetration

• everyday low price

Sample pricing approaches

cost plus markup

markdown odd/even pricing prestige pricing leader pricing

sealed bid pricing online auction

going rate price price bundling captive pricing

product mix pricing two-part pricing payment pricing

promotional pricing price discrimination

Questions?

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otherwise seek the advice and assistance of your faculty member.