PART V Delivering Value
C H A P T E R
In this chapter, we will address the following questions:
1. What are marketing channel systems and value networks?
2. What functions do marketing channels perform?
3. What decisions do companies face in designing, managing, and integrating their channels?
4. What key issues do companies face in e-commerce?
MARKETING MANAGEMENT AT ROYAL
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall.
Copyright © 2009 by Pearson Education, Inc.
Royal Philips Electronics of the Netherlands is one of the world’s biggest electronics companies and Europe’s largest, with annual sales of over $36 billion. The company offers a broad range of products, from flat screen TVs and electric razors for consumers to medical imaging equipment and professional lighting systems for hospitals and businesses. Philips uses local distributors in some countries but relies mainly on its company sales force and its own Web sites to handle orders from institutional and industrial buyers. A hospital purchasing agent can log on, compare product specifications, enter a purchase order, check the delivery status of a previous order, or access service and support databases.
On the consumer side, Philips products reach buyers worldwide through a diverse distribution model that includes mass merchants, retail chains, independent stores, and small specialty
Chapter 13 Designing and Managing Integrated Marketing Channels stores. Philips has created an organization designed around these retail customers, with dedicated Global Key Account Managers serving leading retailers such as Best Buy, Carrefour,
Costco, Dixons, and Tesco. The company also sells to consumers via its own online store as well as through other online retailers.1
uccessful value creation needs successful value delivery. Holistic marketers are increasingly taking a value network view of their businesses, examining the whole supply chain that links raw materials, components, and manufactured goods and shows how they move toward the final consumers. This chapter discusses the strategic and tactical issues of marketing channels and value networks; Chapter 14 will examine marketing channel issues from the perspective of retailers, wholesalers, and physical-distribution agencies.
MARKETING CHANNELS AND VALUE NETWORKS
Most producers don’t sell their goods directly to the final users; between them stands a set of intermediaries performing a variety of functions. These intermediaries constitute marketing channels (also called trade channels or distribution channels), sets of interdependent organizations involved in the process of making a product or service available for use or consumption. They’re the set of pathways a product or service follows after production, culminating in purchase and use by the final end user.2
The Importance of Channels
A marketing channel system is the particular set of marketing channels employed by a firm. Decisions about the marketing channel system are among the most critical facing management. In the United States, channel members collectively earn margins that account for 30% to 50% of the ultimate selling price, whereas advertising typically accounts for less than 7% of the final price.3 Marketing channels also represent a substantial opportunity cost because they don’t just serve markets, they must also make markets.4 The channels chosen affect all other marketing decisions. The company’s pricing depends on whether it uses mass merchandisers or high-quality boutiques. The firm’s sales force and advertising decisions depend on how much training and motivation dealers need. In