To be effective, the provider of a product or service needs not only to be able to offer something of value to the customer, but also able to deliver it to market. Although direct marketing can do this effectively in many situations, an increasing number of organizations are offering their products or services through multiple channels -- networks involved in delivering the product or service to market. To effectively add value to the product or service for the customer and to optimize the value of the channel to all its partners, the channel needs to be effectively managed through the development and implementation of policies and procedures that gain and maintain the cooperation of the various organizations in the channel and coordinate their activities. The major factors influencing both the short-term action of the channel as well as its long-term evolution are the requirements of the demand chain, the capabilities and costs of the channel, the power of the channel, and competitive actions.
No matter how effective or efficient an organization is in producing a product, if that product can not be put into the hands of consumers, the organization will not be successful. Although cottage industries may produce goods and sell them directly to the customer, for most larger businesses this is no longer true. For example, a patient is not allowed to purchase medication directly from a pharmaceutical company and must go through a pharmacy to get a prescription filled. Similarly, although one may visit a tailor from time to time to have clothes altered or the occasional garment made, most people purchase clothes from businesses that not only offer a selection of garments, but a selection of garments from different manufacturers for comparison and convenience. Although some stores sell their own brand of products such as canned goods or over-the-counter medications, these products tend to take up a minority of their shelf space. However, it is not only tangible products that need to be delivered to the customer. Organizations in the service sector also need to market and distribute their services. For example, hotels may sell their rooms through any number of media and methods including travel agents, tour operators, tourist boards, centralized reservation systems, and on-line travel services.
The network involved in delivering a business's product or service to market is called the distribution channel. A channel is a route used by a business to market and distribute its products or services (e.g., wholesalers, retailers, mail order, Internet). The simplest channel, of course, involves only the organization itself selling directly to the consumer. However, many other channels are available. Direct marketing is a customer relationship management strategy to help the organization identify prospective customers, acquire data concerning these prospective and current customers, build relationships with customers, and influence their perceptions of the organization and its products or services. In direct marketing, the provider of the product or service delivers the promotional message directly to potential customers on a one-to-one basis rather than through the use of mass media. This can be done by the organization itself (e.g., sales call by a marketing representative) or through an agent (e.g., telephone marketing through a third party agency). Another marketing channel uses mass media (e.g., newspaper or television advertisements). Although mass marketing can reach more potential customers more economically than can direct marketing, the personal approach of direct marketing often results in a higher response rate. An organization's products can also be sold through distributors or wholesalers who sell to retailers or through retailers who sell directly to the customers. Figure 1 illustrates some of the channels that may be used by organizations.
Just as an organization needs management in order to run smoothly, so do the partnerships within a channel. Channel management -- also referred to as channel relationship management or partner relationship management -- is the development and implementation of policies and procedures to gain and maintain the cooperation of the various organizations in the channel and to coordinate their activities. Channel management helps organizations manage activities and the flow of information among the channel partners.
Although channel management is necessary for effectiveness of the marketing strategy and of the organization as a whole, many channels are dysfunctional. Stronger channel members often impose their will on other members in the channel and the weaker members suffer as a result. One of the objectives of channel management is to optimize the benefits for all members of the channel; policies and processes need to be developed and implemented that will minimize this problem. In addition, good channel management needs to consider the needs of the customer -- the ultimate user of the processes in the value chain -- which are often ignored in the design of the distribution channel.
A recent development in channel management is the concept of channel stewardship. This approach to channel management is the ability of a given participant in the distribution channel to design a strategy that addresses both problems of optimizing benefits for channel members and considering the needs of the customer. In channel stewardship, the channel processes and communication flows are design to take into account the best interests of the customer and optimize profits for all partners in the channel. A channel steward -- the channel partner given this task -- can be any member of the channel including the manufacturer or service provider, the maker of a key component of the final product, the supplier or assembler, or the distributor. Effective channel stewardship has two outcomes. First, stewardship can help increase the value of the end product or service for the customer as well as the value of the relationship for the channel steward. Second, stewardship results in a stronger yet more flexible channel. In an effectively managed channel under this paradigm, the channel partners that contribute to the utility are rewarded and the less valuable partners are weeded out.
Designing Effective Marketing Strategies
In designing an effective marketing strategy, a number of factors need to be considered. These factors tend to be the same regardless of the industry or the specifics of the channel. The major factors influencing both the short-term action of the channel as well as its long-term evolution are the requirements of the demand chain, the capabilities and costs of the channel, the power of the channel, and competitive actions.
Traditionally, demand is defined narrowly as the desire of the customer for a product or service. However, for effective channel management, demand needs to be viewed in a broader context. In addition to the desire of the customer for the product or service, demand can also include the customer's desire for supplemental or supporting products or services, maintenance of the product, training about the product's use, etc. For example, when purchasing a new computer, there may also be a demand for a new printer or other peripheral, an extended service contract, or training or consulting in how to use the new computer. Effective channel management should include consideration of all such demands,...
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