Business Marketing Channels

Ali Heydari

MBA - IV Semester

Importance of Channel Component

• Selecting the channel design mix is challenging

1.Marketing goals differ between channel members

2.Business markets segments vary, thus it may require numerous channels concurrently

3.Business market environment constantly changes

4.Customer requirements change

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

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

Channel Tasks

• Contacting potential buyers

• Negotiating

• Selling

• Contracting

• Transferring title

• Training

• Financing

• Servicing the product

• Inventorying

• Transporting

• Storage

Direct Channels

Direct is when the manufacturer performs all the marketing functions.

• In direct distribution system the marketer reaches the target consumer directly without the use of any intermediary.

• The distribution chain is small and no other party can take ownership of the product being distributed.

• The direct distribution system can be further sub-divided on the basis of the methods of communication that takes place during sale between marketer and consumer.

Indirect Channels

• Indirect is when some type of intermediary sells or handles the product.

• In indirect distribution system the marketer includes intermediaries or other members in his distribution chain.

• These resellers make sure the product reaches the end user, while performing their duties they take complete ownership of the product.

• However the reseller may sell products on a consignment basis wherein the reseller pays for the product only when the product is sold.

• The resellers may be expected to take up a few responsibilities to help boost the sales of the product.

B2B Marketing Channels

Manufacturer

Direct Channels Indirect Channels

DirectSales

OnlineMarketing

Telemarketing

Manufacturers’Representatives

IndustrialDistributors

Customer Segments

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.

• Or he buys based on information gathered through some personal communication with a customer service personnel who is not a salesperson and can be reached through a toll-free number.

Direct Retail System

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

Direct methods

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).

• He persuades the buyers into placing an order.

• The sales person plays a vital role here in generating sales.

Direct methods

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.

• However he needs assistance from others to spread awareness about his product among the customers.

• An example of assisted marketing system is e-bay, here the buyers and sellers are brought together for a fee. Agents and brokers can also be included in this category.

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

• The organisation may only have contacts in a localised geographical area, and it maybe difficult to penetrate markets outside of that area, due to a lack of contacts/external market knowledge.

• 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.

Advantages of indirect distribution channels

Eases logistics for buyers who purchase a number of different items

• General line distributors can stock a broad array of industrial goods, for example industrial cleaning products.

• 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) productsSpecialists

• Focus on one or few related lines geared around high tech or industries demanding

complex customer requirementsCombination 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.

Manufacturer’s Rep’s 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.

• Multi-million corporations are in the hunt to acquire popular social networking sites because they understand the potential and the impact social networking has on Internet users.

• Treating social networks such as Facebook and Myspace as your distribution channels mean reaching to more people and increasing awareness of your website.

E-Channels

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.

• And because social bookmarks are created by users who understand the content of the website they bookmark, it makes it easier for other users to find stuff related to an interest.

E-Channels

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.

•Using a social media like YouTube or Flickr as a medium to promote your business could bring a lot of traffics to your website.

4. Blogs

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

•By using blog as a distribution channel, businesses can build a loyal readership and interact with their customer base.

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.

•They leverage the website’s content to create new opportunities, extend users and strengthen the presence of your brand.

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.

•It is an effective distribution channel for both the business and end users as it maximizes access and visibility for both parties.

E-Channels

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.