Download Business Marketing Channels

Business Marketing
Channels of Distribution
Business Marketing Channel Members
• Channel members:
–A set of independent companies
–that form cooperative buyer-seller
relationships
–involving transactions
• (such as raw materials, components, process
materials, & finished goods for resale),
–all leading to getting a particular
product line to the final user.
Rationale for Channel Design
Channels Can Create Efficiency
Direct:
V x C transactions
Via Reseller:
V + C transactions
V1
C1
V1
C1
V2
C2
V2
C2
V3
C3
V3
V4
C4
V4
RS
V = Vendors; C=Customers; RS=Reseller
C3
C4
Do Middlemen Cause Increases in
Consumer prices?
• Yes
–If not adding value to product offering
• No
–If adding value thru creation of utilities
• Form
• Time
• Place
• Possession
Functions of the Channel Intermediary
• Buying:
– Intermediary buys products for resale
• to other intermediaries or to final business users.
• Selling:
– Intermediary with
• capable sales force
• supported by established warehouse distribution
centers,
• which is already serving other product needs of a
wide user customer base.
(continued)
Functions of the Channel Intermediary
• Storing:
– Inventory commitment composed of
products to satisfy customer purchase
requirements in a timely manner.
• Transporting:
– Vast array of transportation alternatives are
available for intermediaries to use to
manage the physical flow of the product to
the business user.
(continued)
Functions of the Channel Intermediary
• Sorting:
– Many intermediaries buy in large quantities
and then
• Breaking the bulk of the shipments into smaller lots
• Typically sort into combinations for resale to business
users.
• Financing:
– Intermediaries may
• provide credit terms and/or,
• finance the exchange process.
(continued)
Functions of the Channel Intermediary
• Risk taking:
– Risk of ownership includes
• Obsolescence
• Deterioration
• Uncollectable customer accounts.
• Providing market information:
– Continuous & accurate flow of market
information necessary concerning
•
•
•
•
final user needs
pricing conditions
competitive conditions
user satisfaction
Channel Alternatives Issues
1.Number of levels to be included in
the channel.
2.Types of intermediaries to employ.
3.Number of channel intermediaries.
4.Number of channels to employ.
Basic Channel Options
• Direct Channel of Distribution
– Producer sells directly to the user
– Accounts for roughly 70% of all B2B
transactions
• Indirect Channel of Distribution
– At least one intermediary (middleman)
exists in the channel between the producer
and the user
BMW
Indirect distribution
Direct
distribution
Rockwell Automation Inc.
(car image courtesy of BMW USA)
(continued)
Direct Sales Viable When:
Highly customized product
New or innovative product
Technically sophisticated product
Significant missionary selling is required
Require control over selling function (or any 4
P element)
Buyers geographically concentrated
Indirect Sales Viable When:
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
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
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
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Product requires local stock
Small product line; unable to support direct sales
Generic product
Low unit value product
Product in PLC decline stage
Customers widely dispersed
Local repackaging, sizing, or fabrication required
Many small-volume buyers
Extensive sales effort required
Sales effort directed at buying professionals
New competition entering market
Competition uses distributors
Customers prefer distributors
Distributors Serve Buyers & Sellers
Seller Benefits
Buyer Benefits
1. Buy & Hold inventory
2. Combine supplier outputs
(reduce discrepancy of
assortment)
3. Share credit risk
4. Share selling risk
5. Forecast market needs
6. Provide market info
1. Provide fast delivery
2. Provide market segmentbased product
assortment
3. Provide local credit
4. Provide product info
5. Assist buying decisions
6. Anticipate needs
Distributors
• Full-service intermediaries
– Take title to the products they sell
– Perform full range of marketing functions
– Compensated by their profit margins
• Classification of Distributors
– General-line Distributors
• Cater to broad array of industrial needs
• Stock extensive variety of products
– Specialists
• Focus on one line or a few related lines
– Combination House
• Operates in 2 markets: industrial and consumer
Manufacturers’ Representatives
• Do not take title to products
• Do not hold inventory of products
• Usually limited to defined geographic
areas
• Typically represent several companies
in the same geographic area
– Sell noncompeting, but complementary
products
• Compensated on commission basis
Sales Branches
•
•
•
•
Part of manufacturer’s organization
Can be on-site or off
Typically do not carry inventory
Role is to sell organization’s
products
Sales Agents & Brokers
•
•
•
•
Do not take title to products
Do not hold inventory of products
Usually no limit on geographic areas
May represent several companies in
the same geographic area
–Sell competing products
• Compensated on commission basis
Channel Transaction Facilitators
• Do not take title
• Do not carry inventory
• Services such as
–
–
–
–
Storage
Transportation
Arranging of sales
Finance
• Include
–
–
–
–
Independent Warehouses
Carriers
Manufacturer’s Representatives
Financial Institutions
Channel Conflict
•Channel conflict may result when channel
members have mutually exclusive values,
interests, or goals.
– Manufacturers may want control of distribution
channels for better execution of their marketing
strategies.
– Intermediaries may not see the manufacturerdetermined strategies as in their best interest.
•The Key to remember:
– Channel conflict cannot be fully eliminated
– It can be properly managed
Bases of Power in Marketing
Channels
“Soft” Bases of Power
oExpertise
oInformation
oIdentification
“Hard” Bases of Power
oReward
oCoercion
oLegitimate