Chapter07

Business Business Market Market

ManagementManagement

33rdrd edition edition

Business Channel Business Channel ManagementManagement

Chapter 7

Copyright © 2009 Pearson Education Publishing as Prentice Hall

Business Market Management, 3rd edition Chapter 7-2

Section III: Section III: Creating ValueCreating Value



Chapter 7: Chapter 7: Business Channel Business Channel

ManagementManagementOverviewOverview

I. Designing Superior Value-Adding Marketing

Channels

II. Creating Value Through Direct Channels

III. Strengthening Reseller Performance

IV. Summary



OverviewOverview Marketing channels are a source of

competitive differentiation as products and services become commodity-like

Channels augment market offerings by creating a highly valued total customer total customer experience (TCE)experience (TCE) Marketing ChannelMarketing Channel—a set of interdependent

organizations involved in the process of making a product or service available for use or consumption.

(Stern and El-Ansary)



Business Channel ManagementBusiness Channel Management

The process of designing a set of marketing and distribution arrangements that create superior customer value for targeted market segments and customers, and executing those arrangements directly through supplier firm sales forces and logistics systems or indirectly through resellers and 3rd-party service providers



Create Value for Targeted Market

Segments &Customer Firms





Designing SuperiorValue-Adding

Marketing Channels

Hybrid Channel

Arrangements

Construct Channel

Offering(s)

Build Marketplace

Equity

Craft Reseller Value

Proposition(s)

Design Logistics Systems

Create ValueMerchants

DeployValue Merchants

Creating Value Through Direct ChannelsCreating Value Through Direct Channels

Strengthening Reseller PerformanceStrengthening Reseller Performance



I. Designing Superior I. Designing Superior Value-Adding Marketing Value-Adding Marketing

ChannelsChannels



Designing Superior Designing Superior Value-Adding Marketing ChannelsValue-Adding Marketing Channels

Total Customer Experience (TCE)Entails all aspect of a customer firm’s Entails all aspect of a customer firm’s

encounter with a supplier firmencounter with a supplier firm

• TCE Goals:

– Positive experience

– Seamless

– Memorable interaction that matches customer firm’s

purchasing requirements and preferences



Immediacy of fulfillment

Breadth & depth of products & services

Availability of products and services

Timing and reliability of delivery

Installation

Payment terms and conditions

Extent of augmenting value-added services

Pre-sale Point-of-sale Post-sale services or

“for-fee options”

Research indicates Research indicates that firms that focus on “fulfillment”that firms that focus on “fulfillment”

are more profitable. are more profitable. ((GroveGrove))



Four TCE-Based PositionsFour TCE-Based PositionsEfficient, low-cost

transaction experienceThe high-touch,

consultative experienceInexpensive, convenient, self-service Minimal value-added service

Internet Web sitesInternet Web sitesDirect marketingDirect marketing

Extensive consultation and adviceCustomization of offeringsFrequent face-to-face encountersComplete range of value-added services

The flexible, multi-

access-point experience

The one-stop shopping experience

Customer free to purchase supplier's offerings intact or piecemeal from several integrated or stand-alone channels on a transaction-by- transaction basis

Customer can purchase a wide variety of complementary products and services from a single source



Designing a Superior Value-Adding Designing a Superior Value-Adding Marketing ChanelMarketing Chanel

1. Specify goals and objectives of the marketing

channel(s)

2. Assess customer value of TCE

3. Envision value proposition for each targeted

market

4. Reformulate the TCE for each targeted market

5. Configure the channel network

6. Finalize marketing and distribution arrangements



Specify Goals and Objectives of Specify Goals and Objectives of Marketing ChannelsMarketing Channels

Three Predominant GoalsMaximize Market AccessMaximize Market Access

• How business channels enable a supplier to reach, develop, and serve targeted segments and customer firms

Optimize Value-AddedOptimize Value-Added• This entails the augmenting products and services that

channel partners contribute to the supplier firm’s market offering

Minimize Cost-to-ServeMinimize Cost-to-Serve• The total expenditures required

to deliver the intended TCE to

targeted segments and

customers

Caution:Caution: Channel goals often work Channel goals often work at odds with one another.at odds with one another.

Trade-offs & adjustment Trade-offs & adjustment may be needed.may be needed.



Assess Customer Value of Assess Customer Value of Potential TCE ElementsPotential TCE Elements

Business market managers should focus on value elements that contribute to the total customer experiencetotal customer experience Service Outputs & their Monetary ValueService Outputs & their Monetary Value

• Integrated supply• Local customization• Emergency delivery• Technical support• Product standardization

Assess Customer Preferences for Assess Customer Preferences for • Learning• Shopping• Buying• Getting help

These services These services stronglystrongly suggest the type of suggest the type of

channel network the supplier channel network the supplier should adoptshould adopt

These are These are criticalcritical as they shape the as they shape the ““soft” side of TCEsoft” side of TCE



Envision a Value Proposition for Envision a Value Proposition for Each Targeted Market SegmentEach Targeted Market Segment

Customer Value PropositionCustomer Value Proposition serves as a

beacon for all the supplier firm’s channel

network design effort



Reformulate the Intended TCE for Reformulate the Intended TCE for Each Targeted Market SegmentEach Targeted Market Segment

Add, delete, or modify products and valued-

added services as well as fulfillment and

communication processes to more closely meet

the critical TCE requirements and preferences of

the targeted segment



Configure the Channel NetworkConfigure the Channel Network

Managers simultaneously consult and consider the classic channel strategies related to exposure and coverage, postponement and speculation, and functional acquisition and functional spin-off

Managers meld their strategic preferences into a channel network design that can profitably deliver the intended TCE to targeted segments



Finalize Marketing and Finalize Marketing and Distribution ArrangementsDistribution Arrangements

To gain market access, channels must provide sufficient exposure and coverageExposure:Exposure: degree targeted customer firms are degree targeted customer firms are

reached and served by the appropriate kind and reached and served by the appropriate kind and number of channelsnumber of channels

• Single-channel strategy• Multiple-channel strategy

Coverage:Coverage: number of resellers or direct sales number of resellers or direct sales persons assigned per geographic trade areapersons assigned per geographic trade area

• Distribution intensity strategy: exclusive, selective, or intensive



Distribution Intensity StrategiesDistribution Intensity StrategiesExclusive Supplier authorizes one resellerauthorizes one reseller per trade area

Selective Supplier authorizes a limited number of resellersauthorizes a limited number of resellers per trade area

Intensive Supplier authorizes all resellersauthorizes all resellers who want to carry its line

The above three distribution intensity strategies can be differentiated in terms of the supplier’s share of the reseller’s business

1. The reseller sells only the supplier’s offering

2. The reseller sells one of the supplier’s line along with other firm’s lines

3. The reseller sells only one of the supplier’s products and an assortment of other firms’ products



Channel Exposure & Coverage ModelChannel Exposure & Coverage Modelfor an Electronic Controls Supplier Firmfor an Electronic Controls Supplier Firm

ElectronicComponents

ManufacturersNo Coverage

3 electroniccomponent distributors

Direct Sales20 field sales persons10 service reps

Scientific TestingEquipment

ManufacturersIndirect Sales

8 scientific equipmentdistributors

Process Control Manufacturers

Direct MarketingSupplier Website5 Inside Sales Reps

10 machine tooldistributors

Segment

OfferingOffering

Small Orders of Standard

Items

Medium-SizedOrder of

Specialty Items

Large Orders ofCustomized

Solutions

Source: Adapted from Friedman & Furey 1999



Optimize Value-Added Through Optimize Value-Added Through Postponement or SpeculationPostponement or Speculation

Strategies hinge on:

Predictability of demandPredictability of demand

Quantity of productionQuantity of production

Inventory held in reserveInventory held in reserve

Required proximity of customization activities Required proximity of customization activities

& inventory to customer location& inventory to customer location



Postponement vs. SpeculationPostponement vs. SpeculationStrategiesStrategies

Postponement StrategySupplier firm undertakes Supplier firm undertakes product design, customization, product design, customization, and value-added service and value-added service geographically close to geographically close to customer firmcustomer firm

Speculation StrategySuppler firm manufactures standard Suppler firm manufactures standard products in large quantities well in products in large quantities well in advance of demand at a distance advance of demand at a distance from the customerfrom the customer

Direct salesDirect salesDesign-to-order offeringsDesign-to-order offeringsTechnically competent and Technically competent and consultativeconsultative

sales teamsales teamJust-in-time inventoryJust-in-time inventoryHigh level end-to-end customer High level end-to-end customer serviceservice

Indirect salesIndirect salesIntensive distributionIntensive distributionReseller firm stocks inventoriesReseller firm stocks inventoriesTakes ordersTakes ordersMakes deliveriesMakes deliveriesProvides minimum valued-added service Provides minimum valued-added service



Postponement vs. SpeculationPostponement vs. SpeculationManufacturing & LogisticsManufacturing & Logistics

Manufacturing PostponementManufacturing Postponement ManufacturingManufacturing SpeculationSpeculation Indirect sales Local assembly, fabrication, compounding, or extrusion firms Customize supplier’s production to unique requirement for regional firms

Direct marketing via telephone or Internet Build-to-order Mass customizing products Ships directly to customer via 3rd party logistics

LogisticsLogistics PostponementPostponement LogisticsLogistics SpeculationSpeculation

Indirect sales 24-hour delivery Reserve stock in local warehouse Provide immediate emergency deliveries Leave item on consignment at customer’s plant

Direct sales Reserved for largest, most profitable customers Vendor-managed inventory program Supplier firm takes responsibility for customer inventories Emergency delivery of bottleneck items



Minimize Cost-to-Serve viaMinimize Cost-to-Serve viaFunctional Acquisition & Functional Spin-OffFunctional Acquisition & Functional Spin-Off

Lean enterprise:Lean enterprise: group of individuals, functions, and legally separate but operationally synchronized companies

To improve business processes:

Allocate functions to the most capable partnerAllocate functions to the most capable partner

Bolster their partners’ ability to perform tasksBolster their partners’ ability to perform tasks

Coordinate and integrate efforts of all firms in lean Coordinate and integrate efforts of all firms in lean

enterpriseenterprise

Eliminate redundancies in effortsEliminate redundancies in efforts



Lean Enterprise Approach to the Lean Enterprise Approach to the Design of a Firm’sChannel NetworksDesign of a Firm’sChannel Networks Conceptualized channel networks:

Horizontally Within Each Channel Level: Functions or Horizontally Within Each Channel Level: Functions or Tasks Performed by a Specific Channel PartnerTasks Performed by a Specific Channel Partner

• Focus on functions when incremental channel improvement needed

• Functional acquisition & functional spin-off helps to lower system costs

Vertically across All Channel Levels: Business Vertically across All Channel Levels: Business ProcessesProcesses

• Appropriate for radical channel redesign• Eliminate resources & effort redundancies within entire

channel network• Lowers total system costs• Maximizes the total value delivered



Functions ManufacturerManufacturer’s

Representatives

Electrical

Wholesalers

Manufacturing

Advertising

Lead Generation

Field Sales Calls

Fulfillment

Customer Credit

Repair Work

Functions ManufacturerManufacturer’s

Representatives

Electrical

Wholesalers

Manufacturing

Advertising

Lead Generation

Field Sales Calls

Fulfillment

Customer Credit

Repair Work

Firm Performs Function

Channel Firms Channel Firms

Marketing Channel Prior to Functional Acquisition and Spin-Off

Marketing Channel After to Functional Acquisition and Spin-Off

Functional Allocation Charts for Electrical Products SupplierFunctional Allocation Charts for Electrical Products Supplier



Firms or

Groups Lead

Generation

Prospect

Qualification

Initial Sales Contact

Negotiation & Close

Order

ProcessingFulfillment

Relationship

Management

After-the-Sale

Customer Support & Service

Resellers

Supplier’s Operational Group

Supplier’s Field Sales Force

Supplier’s Inside

Sales Force

Supplier’s Direct Marketing

Supplier’s Internet Web Site

All Customers Supplier’s Strategic customers

Resellers’ targetedcustomers

Manufacturer’s Process

Distributor’s Process

Integrated Multi-Channel Process ModelIntegrated Multi-Channel Process Model



Channel Network ModelChannel Network Model Maps out the business processes and functions

required to provide the reformulated TCE to targeted customer firms

Model specifies who will complete the required processes and functionsSupplier firmSupplier firmResellersResellersThird-party service providersThird-party service providersCustomer firmsCustomer firms



General Network ModelsGeneral Network ModelsConventional Modular

Products and services flow from supplier firm resellers market segment or customer firmsChannel captain: a dominant firm emerges

Manages and coordinates distributionManages and coordinates distribution Invests in and cultivates brand or Invests in and cultivates brand or reseller equityreseller equity

Emerging information and logistics technologies Complex networks of relationships among firmsDirect or indirect channelsManager from one firm is system integrator

Envision channel networkEnvision channel networkSelect participating firmsSelect participating firmsManage ongoing relationshipsManage ongoing relationships

Hybrid Integrated Multi-ChannelCombination of conventional and modularAdaptive channels: special hybrid

Suppliers, resellers, 3Suppliers, resellers, 3rdrd-party service -party service providers and customer firms agree to providers and customer firms agree to share complementary capabilitiesshare complementary capabilities

Internet customers

Empower customers to select from different resellers or channels formats

Rather than compete for customer loyalty, suppliers and reseller work together to serve mutual customer



Finalize Marketing & DistributionFinalize Marketing & Distribution

1. Devise feasible profit model Cost-to-Serve (CTS) modelCost-to-Serve (CTS) model

Payments cover the actual wholesaler’s cost plus a Payments cover the actual wholesaler’s cost plus a

prespecified profitprespecified profit2. Carefully select channel partners

Market research survey to assess customer Market research survey to assess customer preferences for and satisfaction with reseller firmspreferences for and satisfaction with reseller firms

Validate research with on-site visitsValidate research with on-site visits



Finalize Marketing & DistributionFinalize Marketing & Distribution

3. Consider e-business and wireless technology Infomediary:Infomediary: broker that finds, retrieves, sorts, processes & broker that finds, retrieves, sorts, processes &

analyzes information from the web (comparison agent)analyzes information from the web (comparison agent) Metamediaries:Metamediaries: Web sites that furnish multivendor, Web sites that furnish multivendor,

multiproduce, multi-service market placemultiproduce, multi-service market place Electronic transaction formatsElectronic transaction formats

• Communities

• Catalogs

• Electronic auctions

• B2B exchange

Wireless technologies: Wireless technologies: • Remote, 24X7 order tracking, payment, and delivery

• Contact Management



Finalize Marketing & DistributionFinalize Marketing & Distribution4. Build International Marketing Channels

Requires longer business processes and additional functions Requires longer business processes and additional functions in marketing channelin marketing channel

Division of functions among channel members varyDivision of functions among channel members vary• From region to region

• From country to country

5. Formalized Partnership Agreements Handshake agreementsHandshake agreements Written contractWritten contract Licensing agreementLicensing agreement Franchise agreementFranchise agreement



II. Creating Value Through II. Creating Value Through Direct ChannelsDirect Channels



Creating a Sales Force of Value Creating a Sales Force of Value MerchantsMerchants

Value merchant: Recognizes supplier’s own cost Recognizes supplier’s own cost

Recognizes the value to the customer in each Recognizes the value to the customer in each

marketmarket

Works to obtain fair return for both supplier Works to obtain fair return for both supplier

firm and customer firmfirm and customer firm



Creating a Creating a SaleSale Force of Value Force of Value MerchantsMerchants

Internally promote a value-based marketing

philosophy & culture

Train value merchants

Compensate value merchants based on

profitability of accounts



Deploying Values MerchantsDeploying Values Merchants

Establish necessary sales units

Determine number of merchants needed

Designate areas of responsibility

Assign value merchants to areas of

responsibility



Designing a Logistics System that Designing a Logistics System that Creates ValueCreates Value

Segment the market into logistically distinct Segment the market into logistically distinct businessesbusinessesA set of customers with unique physical distribution A set of customers with unique physical distribution

requirementsrequirementsEstablish differential service standards for each Establish differential service standards for each

market segmentmarket segmentTailor unique logistics systems to deliver differential Tailor unique logistics systems to deliver differential

servicesservicesExploit economies of scale among the different Exploit economies of scale among the different

logistics systemslogistics systems



III. Strengthening III. Strengthening Reseller PerformanceReseller Performance



Strengthening Reseller Strengthening Reseller PerformancePerformance

The best way to ensure resellers deliver superior value to customers is for the supplier to create superior value for

resellers.



Channel PositioningChannel Positioning

Channel Positioning:Channel Positioning: the process of establishing and sustaining the supplier’s reputation among targeted resellers for providing superior value

Suppliers need to recognize resellers as Suppliers need to recognize resellers as partnerspartners

Supplier and reseller must build a working Supplier and reseller must build a working relationship founded on mutual self-respectrelationship founded on mutual self-respect



Channel PositioningChannel Positioning

Step 1 Determine reseller performance expectations

Step 2 Assess the reseller value of channel offering elements

Step 3 Craft a reseller value proposition and channel offering

Step 4Communicate the reseller value proposition



Decomposing Marketplace EquityDecomposing Marketplace Equity

Marketplace Equity

Supplier

Reseller

Targeted CustomerSegment

ChannelEquity

ResellerEquity

BrandEquity



Cultivate Brand and Cultivate Brand and Reseller EquityReseller Equity

Supplier FirmsDevelop and sustain strong brand equity Develop and sustain strong brand equity

among targeted customersamong targeted customersAvoid the “final customer” syndrome where Avoid the “final customer” syndrome where

the supplier treats the reseller as the final the supplier treats the reseller as the final customer customer

Reseller FirmsStrive to keep their equity strong Strive to keep their equity strong

• Customize market offerings• Continuous improvements in customer services



Channel CoreChannel CoreElementsElements

Financial ReturnsQuality Products

Competitive PricesReliable Delivery

Brand Equity

Technical AssistanceMarket ResearchCompany Policies

Promotional SupportResponsiveness Systems Training

ManufacturerSales Force Incentives

DistributorFirm Incentives

DistributorSales ForceIncentives

Capability-BuildingCapability-BuildingProgramProgram

IncentiveIncentiveProgramsPrograms

The Channel OfferingThe Channel Offering



Reseller Value Proposition and Reseller Value Proposition and Channel OfferingChannel Offering

BundleA collection of loosely connected products and services that a supplier firm consolidates in a transaction for a discounted price

Solution A deliberately engineered and integrated group of products and services that the supplier firm markets for a premium price

Reseller-Offering Platform

A product or service upon which the bundle or solution is assembled (tends to be a high-turnover, lower-margin item)

Reseller-Offering

Peripheral

A component, subassembly, or complementary item that functions in conjunction with the platform

Reseller-Offering Accessory

An extra, noncritical item that is often added onto a transaction without forethought. May or may not be complementary to the platform

(tends to have slower turnover but high margins).



Channel Positioning Matrix (CPM)Channel Positioning Matrix (CPM)(Figure 7.10)(Figure 7.10)

CPM:CPM: a detailed comparative analysis of what a supplier: provides to its resellerprovides to its resellerwhat its competitors providewhat its competitors providewhat are its resellers’ requirementwhat are its resellers’ requirement

Results of CPM:Results of CPM: Changes for suppliers to pursue that will Changes for suppliers to pursue that will

contribute most to a reseller value propositioncontribute most to a reseller value proposition



IV. SummaryIV. Summary



SummarySummary Business market channels augment customer value of

supplier’s offering and create a competitive advantage through the delivery of TCE.

A TCE entails all aspects of a customers firm’s encounter with a supplier. It should be positive, seamless and a memorable interactions that matches the customer firm’s purchasing requirements and preferences.

Business channel management is the process of designing a set of marketing and distribution arrangements that create superior customer value via tailored TCE for targeted segments and customers and executing those arrangements.

Suppliers turn to channel positioning to ensure that resellers will enthusiastically market their products and services as well as deliver the intended TCE.



All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any

means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the

United States of America.

Copyright © 2009 Pearson Education, Inc. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice HallPublishing as Prentice Hall