Channel co-ordination - Marketing Management

However well designed a marketing channel may be it is important that it is organized and coordinated, otherwise activities and flows will not operate effectively, and the full potential of the system will not be realized. Emphasis should be placed on understanding behavioural dimensions of inter-organizational relationships, because through such understanding, the manager can organize, manipulate and exploit available resources.

The long-term objective of channel management is to achieve, at a reasonable cost, the greatest possible impact at the end user level, so that individual members of the channel can obtain satisfactory returns (e.g. profits, market share) as compensation for their specific contributions. The behaviour of intermediaries within any given structural arrangement should thus be directed towards achieving high yield performance.

Once the marketing management of an organization isolates the market targets to attack, and the products and services which it must supply in order to satisfy needs and wants in those various segments, the question of how best to make products and services available for consumption arises.

Identifies four major steps that represent the co-ordination process. The first step is to determine the level of service outputs demanded by end users of the commercial channel system. Service outputs that are among the most significant in distribution are, for example, lot size. Some companies insist on a minimum order level. Under this limit they will not accept the order. In contrast, often smaller companies are unable or unwilling to supply orders over a certain size. A second type of service output is delivery or waiting time, or how long it takes from order to delivery.

A third service output relates to market decentralization or spatial convenience, namely, to where the provider will deliver. For example, some suppliers will only deliver locally whereas at the other extreme some will undertake to deliver anywhere in the world. Finally, there is breadth and depth of product or service assortment. This refers to whether or not the provider is able to supply a full range of products and services or only a selected range, i.e. a ‘one -stop shopping’ facility. The second step involves identifying the marketing tasks that need to be carried out in order to achieve the service outputs, and which channel members have the capability to perform the tasks.

Management must then determine whether, through the use of channel control strategies, they will be able to control the behaviour of existing channel members or be compelled to integrate channel flow vertically so the required service outputs are provided to end users.

For example, if a desired level of service output is that orders must be fulfilled within five working days then the channel and logistics system must be designed to reach this service level.If intermediaries in the channel are unwilling or unable to meet this service output then alternative channel arrangements must be found.

Without effective channel management and control there is no guarantee that the desired service outcomes will be achieved, so a major issue in channel management relates to where, and to what extent, marketing flow participation should be assumed to generate the desired service outputs; e.g. if a car buyer needs finance, the manufacturer, the retailer or an outside intermediary should provide it, but lending services must be readily available if the consumer is going to feel comfortable in considering a specific purchase that requires finance. In a situation where no channel intermediary is willing to accept the risk of financing, the initial supplier may have to assume this, i.e. it would prefer to specialize in those flows that it can perform at a comparative advantage. The third step in the co-ordinative process is to determine which strategies should be used to achieve the desired results, irrespective of whether management decides to invest in integrating functions or whether it deals with independent companies. Essentially this is an issue of where and how ‘power’ is applied in the channel.

Power is the ability to get somebody to do a task. In the context of a marketing channel it can be defined in terms of how one channel member can exert influence on another channel member. For example, due to their size and purchasing power, many retail multiples in the UK like Marks & Spencer are able to exercise substantial power over their suppliers. Power is the mechanism by which congruent and effective roles become specified, roles become realigned when necessary, and appropriate role performance is enforced. There are several bases of power, which include reward, coercion and expertise.

Step 1

Determine service output levels required by customers

Step 2

Analyse the roles which channel members must perform to assure delivery of the required service outputs

Step 3

Use economic and other power bases to motivate channel members to carry out their assigned roles

Step 4

Devise mechanisms for dealing with conflicts that occur within the channel

Stages in the channel co-ordination process

Stages in the channel co-ordination process

The fourth step involves setting up mechanisms to deal with conflict issues that may arise so that the channel will continue to provide the desired service outputs even if channel members disagree. Very often channel members perform unique roles. Thus, manufacturers specialize in production and national promotions, while retailers specialize in merchandising, distribution and promotion at a local level. This specialization means that channel members become reliant on each other to achieve objectives. There has to be co-operation between channel members, as without it, the task will not be completed. Such co-operation does not always come easy and needs to be cultivated.

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