Channel Management in Industrial Markets

Vinod Puri

Marketing Channels:
Interdependent Organisations Orchestrated Networks Making Offerings for use

Primarily used to satisfy and also to stimulate

Economic Utility
Form The quantity/mode of the product most preferred by the customer

Time

The availability of the product when the customer needs it. The availability of the product where it is needed. In B2B, it involves rapid/frequent product delivery. The process by which the customer obtains ownership or the right to use a product/service.

Place

Possession

Marketing Flows
Commercial Subsystem
Physical Possessions Ownership Physical Possessions Ownership Physical Possessions Ownership

Wholesaler

Negotiations Financing Risking Ordering Payment

Negotiations Financing Risking Ordering Payment

Retailer

Promotions

Promotions

Promotions Negotiations Financing Risking Ordering Payment

Consumer

Producer

Marketing Flows

Functions have to be performed These can be interchanged or changed among channel members, depending upon the specialisation & division of labour Interdependence of the participants is the core

Marketing Channel Flows from Customer to Supplier

Channel Roles

Improve Efficiency: Reducing Transactions Sorting: Accumulation, Allocation, Break-bulk Assorting

Routinisation: to reduce bargaining and speeding up Facilitator Search

Provide fast delivery Provide segment-base product assortment Provide local credit

Why Do Some

End Users

Prefer Distributors? Distributors Can

Provide product information

Assist in buying decisions

Anticipate needs

Buy and hold inventory

Combine manufacturers outputs

Why Do Some

Suppliers

Prefer Distributors? Distributors Can

Share credit risk

Share selling risk

Forecast market needs

Provide market information

Channel Participants

Participants participate in the performance of the flows Assistance has to improve the performance for the end user Intermediaries include those who may not be obvious End user can also be opted in as a participants Channels in a state of constant flux New members can always move in

Fluidity in the Channels

Channels always evolving Fluidity a function of Changing demands of customers Availability of Technology Entry of the new participants Shifting power within the channels

Channel Design
What kind of services
What kind of Functions Who is in the best position

Customer Intimacy

To deliver superior customer value

Operational Excellence

Critical Issues in Channel Design

Channel Design Decisions

Intensity of distribution issues:
Through marketing intermediaries or a direct channel? 1) Kinds of channel partners 2) Structure of channel flows 3) How competitive advantage can be built One channel, dual distribution or multidistribution?

Channel Control (contd)

To Overcome Divergence Communication Cooperation across the channel Inducements for suitable behaviour Clearly defined authority system

Control in the Channel segments

Power: Rewards, coercion, expert, identification, legitimate Channel Power: Current sources of leverage would combine various components Channel Conflicts: Arising out of Goal Divergence Domain Issues: which customer which area how to satisfy

Understanding Dependence

Dependence a function of Utility Value, benefit and satisfaction Alternatives available Imbalance can lead to Feeling of exploitation

Direct Sales Approach is Viable When:

1. The customers are large and well defined.

2. The customers insist on direct sales.

3. Sales involve extensive negotiations.

4. Control of the selling job is necessary to ensure proper implementation of the total product package and to guarantee a quick response to market conditions.

Three Primary Distributor Classifications

General-line distributors They stock and extensive variety of products. Specialists Focus on one line or on a few related lines. Combination House Operates in two markets: industrial and consumer.

 Frequently, the manager has little flexibility in the selection of channel structures because of trade, competitive, company, and environmental factors. The decision on channel design may be imposed on the manager.

Factors Limiting Choice of Industrial Channel 1. Availability of Good Intermediaries Traditional Channel Patterns 3. Product Characteristics 1. Company Financial Resources 2. Competitive Strategies 3. Geographic Dispersion of Customers

Channel Alternatives Issues

1. The number of levels to be included in the channel. 2. The types of intermediaries to employ. 3. The number of channel intermediaries. 4. The number of channels to employ.