Business Marketing Channels

Distribution Channel
The link between the manufacturer and the customer is called the Channel of
Distribution.

The channel accomplishes all the tasks necessary to get the product/service to
market

Tasks can be performed by the manufacturer or be delegated throughout the

channel

Managing the Channel

Once a channel structure is specified and goals set, marketing managers need to: 1. Develop procedures for selecting intermediaries 2. Motivate them to meet goals 3. Resolve conflict between them 4. Evaluate performance

Formulating Channel Strategy

A marketing channel is defined as a set of interdependent organizations that make a product or service available to customers for use. The market logistics consist of delivering the completed products to customers and channel intermediaries. To assist in performing the tasks of storing and moving their goods and services, the industrial firms have to engage the services of WH & Transport companies.

Distinctive nature of business marketing channels

Factors affecting the nature of business marketing channels:

Geographical Distribution:
Industrial Intermediaries are highly concentrated geographically. They are found where industrial market exist, i.e. in large cities or towns with industrial estate.

Channel Size:
Industrial Channels are short and involve a type of intermediary for selling and handling the products. Sometimes the channels are direct from the manufacturers to the customers, without intermediaries. The reason for the shorter channels in industrial markets is that the Org buyers expect product availability, technical expertise and service capabilities.

 Characteristics of intermediaries:
Industrial intermediaries are often technically qualified and close relationship with the industrial organizations.

Mixed System:
IM use a mixture of direct & indirect channels in order to meet the requirements of different market segment or when the company has resource constraints.

Distinctive nature of business electronic channels

Factors affecting the nature of business electronic channels:

Providing Information Online buying/ Selling Improved supplier-customer relationship

Alternative Structure of Business Channels

Direct Channel Indirect Channel

B u s i n e s s C u s t o m e r s

By Prof. Raghavendran V

Indirect Channel
Distributors

Manufacturer Rep Manufacturer of Industrial Goods Direct Channels

Brokers
Indirect Channels Commission Merchants

Jobbers
By Prof. Raghavendran V

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Why Business Customers Buy from Distributors?

Dependable Delivery Information Variety Liberal Credit

Participants (intermediaries) in BM channels

Intermediaries are classified on the basis of the number of functions they perform. Some of the common types of industrial middlemen are Manufacturers representative (agents) Industrial Distributors(dealers)
Brokers Commission merchants Value Added Resellers

Jobbers Manufacturer / Regional office

Direct Sales Force Required When:

Sale is complex Product/service is highly customized Customers are large Products are complex Sales involve extensive negotiations Professionalism is required Customer requires direct contact Then, seller must control the process to ensure proper implementation of total product package and to guarantee quick responses to market conditions.

Indirect Distribution Found Where

Markets are fragmented and widely dispersed. Low transaction amounts prevail. Buyers typically purchase a number of items.

Direct methods include the following:

Direct Marketing Systems In this system the consumer buys the product based on information gained from impersonal contact with the
marketer like by visiting the marketer's website or ordering from the marketer's catalogue.

Direct Retail System In this type of system the marketer operates his own retail stores. A perfect example of this system is
Starbucks.

Personal Selling Systems In this system the distribution of the product is carried forward by people whose main responsibility is creating
and managing sales (for instance a salesperson).

Assisted Marketing System In this form of distribution system the marketer handles the distribution of his product and helps it reach
directly to the end user.

Advantages of direct distribution systems

No loss of margin through intermediaries As intermediaries are providing the business with a service, they are going to charge for it. Direct distribution effectively cuts out the middlemen and enables businesses to be more
competitive on price.

Complete control over the distribution/sales process Some products are very complex, that service a niche selection of customers. These products
can be explained and sold better through the companies marketing and sales team than intermediaries.

Direct distribution allows company employees to build relationships directly with customers.
Which could possibly be stronger, and allow for better supply chain management, and the possibility for co-developed to occur.

Indirect methods include the following:

Single-Party Selling System In this system the marketer involves another party to sell and distribute his product to the end
user.

An example can be when the product is sold through large store-based retail chains or through online retailers. In this case the distribution system is also referred to as trade selling system.

Multiple-Party Selling System

In multiple-party selling system the distributor involves two or more reseller in the distribution
process before the product reaches the end user.

This is most likely to happen when a wholesaler buys the product from the manufacturer and
then sells it to the retailer.

Advantages of indirect distribution channels

Allows penetration of fragmented/widely dispersed markets Intermediaries will help to connect buyers and sellers from wider geographic regions due to the
knowledge and connections that intermediaries can provide.

Increases profitability by making low transaction amounts viable Due to the limitations of capacity with in house marketing/direct distribution it is sometimes only
viable to work on large client orders.

The payment mechanism that some intermediaries use, e.g. percentage of sales makes smaller clients
more viable.

Eases logistics for buyers who purchase a number of different items

This allows for one stop shopping and saves buyers having to order specific goods from multiple
companies.

Primary Intermediaries
There are two primary intermediaries: 1. Industrial distributors 2. Manufacturers representatives These two groups handle a very sizeable share of B2B sales.

Distributors
Industrial Distributors are:

Generally about 75% of all business marketers sell some product through
distributors.

Most are small, independent businesses serving narrow geographic markets. Distributors are full-service intermediaries, that is they take title (carry inventory)
for the products they sell.

They provide credit, deliver, offer an assortment, offer technical skills, maintain
customers and find new ones.

They employ both inside and outside sales people.

Distributors
Distributors are in every industry.

Food and Beverage Maintenance, Repair and Operations supplies Hardware, Electronics and Fabrication Furniture, Clothing, and Personal products

Distributor Classification
General-Line Distributors Stock extensive variety of low tech (commodity) products Specialists Focus on one or few related lines geared around high tech or industries demanding
complex customer requirements

Combination House Operates in two markets: industrial and consumer

Manufacturers Reps
Manufacturers Reps fill a different role than Industrial Distributors.
They: Perform a much higher level of service. Are more technically advanced Know their territory better Are able to sell professionally Are experienced in the industry Usually represent several companies

Manufacturers Reps
Used by small, medium and large firms. Often, small and medium firms cannot support a full time salesperson. Large firms use them to supplement their direct force for introducing new
products to an area not covered by their sales force.

The main reason for using Reps is because it is economically correct to do

so. Little or no training costs, no benefits, no outrageous risks, and Reps are highly motivated vs. employees.

Manufacturers Reps are used when

1. Reps do not take title nor hold inventory 2. Reps are normally paid commission, however deals can be made to be paid a
monthly minimum

3. Commission rates can range from 3%, 20% or more 4. Gross margin is not large 5. Relatively few customers or concentrated geographically or concentrated in few
industries

6. Customers order relatively infrequently and allow fairly long lead times

E-Channels
There are a number of different distribution channels available on the Internet which could be utilised
efficiently.

1. Social networks (Facebook, Myspace, Friendster)

The current trend of the Internet is social interactions, and the trend is here to stay for a while.
2. Social bookmarks (del.icio.us, Stumble Upon, Digg)

Social bookmarks enable users to share, organise and store URLs of websites they like and/or find
useful.

3. Social media (YouTube, Flickr, Podcasts)

As with social networks and social bookmarks, social media has become increasingly popular among Internet users for the same reasons.

4. Blogs

Blogs are popular because they provide up-to-date information and enables readers to engage in
discussions via comments.

E-Channels
5. Widgets and gadgets (Yahoo! widgets, Google gadgets, Facebook APIs)

Widgets and gadgets deliver dynamic and updated content to the users at any time.

6. Browser extensions
Browser extensions such as customised search engine, add-ons, and toolbars provide users with an easy access to your website and the functionalities that it offers instantly from their favourite browser.

7. Search engines

According to a survey conducted in 1998 by Georgia Institute of Technology, 85% of users found websites through search engines (Tri-Media). Therefore, the power of search engine optimisation (SEO) and search engine marketing (SEM) should be used to drive targeted and qualified traffic to your website and improve visibility of your business.

Channel Component Dimensions

First, the channel structure must be designed to accomplish desired marketing objectives.

Difficulty to selecting channel

the alternatives are numerous marketing goals differ the variety of business market segments often requires that separate channels must
be employed concurrently. Second, once the channel structure has been specified, the business marketer must manage the channel to achieve prescribed goals.

The Channel Design Process

Channel design is the dynamic process of developing new channels where none existed and modifying existing channels.

Channel design is an active rather than a passive task.

Channel Design
It is a dynamic process. It deals with developing new marketing channels and
modifying the existing ones. For designing a channel, the industrial marketer must go through certain steps: A. Developing the channel objectives B. Analyzing channel constraints C. Analyzing channel tasks D. Identifying the feasible channel alternatives E. Evaluation of alternatives F. Selecting the marketing channel

Developing Channel Objectives

Channel Objectives is derived from the firms marketing objectives. The channel objectives should focus on customers need in terms of service levels required by the target market segments. The channel objectives vary from product characteristics & they are developed 1. Marketing objectives 2. Product characteristics 3. Customer needs

Analyzing the channel constraints

IM have to consider some constraining factors a. External Environment b. Competition c. Company d. Product characteristics e. Customer
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Analyzing the channel Tasks

The critical task must be identified. It should
realistic decisions on which tasks can be performed effectively and efficiently

Identifying the channel alternatives

Identifying the channel alternatives involves four major issues. A. The types of intermediaries B. The number of intermediaries C. The number of channels D. The terms and responsibilities of channel members

Types of Intermediaries:

VARs Industrial Distributors' dealers Manufacturer's representatives or agents Brokers Commission merchants Jobbers

The number of intermediaries: 1. Selective distribution 2. Intensive Distribution 3. Exclusive Distribution

Number of Channels: The IM use of more than one marketing channels. The benefits of multichannel marketing are:
Increased marketing coverage Lower channel costs more customized selling

Evaluating the Channel Alternatives

The factors that are used for evaluating each of the channel alternatives are: I. Economic Performance II. Degree of control III. Adoptability to changing market situations IV. Superior Value.

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Managing or Administering Channel Members

After particular channel is selected, the industrial marketer must manage or administer the channel members, Managing channel members include:

Selecting Intermediaries Motivating channel members Controlling or managing channel conflicts Evaluating performance of channel members
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Selecting intermediaries
General applicable criteria for selecting intermediaries are:

Location Relevant experience Financial Standing Infrastructure

Channel Administration
Channel participants must be selected, and arrangements must be made to
ensure that all obligations are assigned.

Members must be motivated to perform the tasks necessary to achieve

channel objectives.

Conflict within the channel must be properly controlled. Performance must be controlled and evaluated.

Controlling Channel Conflicts

Source of conflict:

Difference in objectives Dealings with customers Difference in interests Difference in perception Compensation Unclear territory boundaries

Evaluating performance of channel members

The factors or criteria to be used for an evaluation of middlemens performance can include

Sales achieved Vs Sales Quota Average inventory levels Customer delivery performance Customer Complaints Cooperation in market feedback Support for new products New customers generated

Motivating Channel Members

A Partnership Dealer Advisory Councils / Margins & Commission