Session 7 & 8 2018 Fs

27-01-2018
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
B2B Marketing Channels
Manufacturer
Direct Channels Indirect Channels
Direct Online Telemarketing

Sales Marketing
Manufacturers’
Representatives
Industrial
Distributors
Customer Segments
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Why use distributors ?
• What marketing function (e.g. service) is critically important ?

Critical • Which function involves weakness in the firm (scarcity of
functions resources such as financial or manpower) ?
and • Can these critical functions be performed cost-effectively and
weaknesses efficiently by an outside agency ?
Customer • Why firms choose their distributors?

expectations • Detailed in the next slide
5-3
Customer expectations
• Dependable local service
• One-stop shopping
• Keeps an inventory for us
• Prompt telephone services
• Immediate availability of variety of parts
• Consistently low-priced
• Expedites factory for us
• Good technical support
• Always ships accurately
• Can suggest cost-effective alternatives
• Various services offered
5-4
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Distributors are true middlemen
Seller benefit Buyer benefit
– Carry inventory – Provide fast delivery
– Combine supplier outputs – Provide product assortment
– Share credit risk – Provide local credit
– Share selling task – Assist in buying decisions
– Forecast market needs – Anticipate needs
– Provide market information – Provide product information
– Enhance customer service
– Enhance customer service
6-5
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Direct Sales Force Required When:
• Sale is complex • Then, seller must control

• Product/service is highly the process to ensure
customized proper implementation of
• Customers are large total product package and
to guarantee quick
• Products are complex
responses to market
• Sales involve extensive conditions
negotiations
• Professionalism is required
• Customer requires direct
contact
Indirect distribution
Distributors are more readily acceptable to both
suppliers and customers when
• Product is relatively simple and inexpensive
• Customers total buying potential is modest
• Overall market is made up of many customers
geographically dispersed.
5-8
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Business Marketing
Channels and Market
Logistics
Chapter 9
Chapter Questions
• What factors make Business Marketing Channels Different?

• Which channels are used in Business Marketing(BM)?
• Who are the participants in BM Channels?
• What is the process of channel design in BM?
• How channel members are managed or administered?
• What are the concepts of supply chain management, logistics
and market logistics?
• What tasks are performed in market logistics?
• What decisions are made in major cost centres of logistics?
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Factors Making BM Channel
Different? (from those of consumer marketing)
• Geographical concentration of intermediaries
• Short channels
• Different characteristics and types of
intermediaries
• Multi-channel or mixed system used often
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Channels Used in BM
• Broad classification: Direct and Indirect
– Direct channels consist of:

• Direct sales or personal selling
• Direct marketing: Direct mail, Internet, and
telemarketing
– Indirect channels include:

• Distributors, manufacturer’s reps., brokers, commission
merchants, jobbers, VARs
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Participants in BM Channels
• Manufacturer’s branch and regional sales offices
• Distributors or dealers
• Manufacturer’s representatives or agents
• Brokers
• Commission merchants
• Value – added resellers (VARs)
• Jobbers 13
Channel Design:
Framework Used
Channel
Objectives
Channel Channel
Constraints Tasks
Channel
Alternatives
Evaluation of
Alternatives
Selection of
Channel
Structure
14
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Channel Design
• Developing Channel Objectives - Based on following factors:
– Marketing objectives
– Customer needs
– Product characteristics
• Analysing Channel Constraints - Factors constraining selection
of ideal channel structure are:
– External environment (legal issues)
– Competitive tactics
– Company’s constraints
– Product characteristics
– Customers’ geographic locations
• Analysing Channel Tasks
– Which tasks the company can perform effectively and efficiently, and
which by intermediaries 15
Channel Design
• Identifying Channel Alternatives - Involves

four major issues:
– Types of Intermediaries
• Distributors or dealers
• Manufacturer’s representatives (reps) or agents
• Brokers
• Commission merchants
• Jobbers
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Channel Design
• Identifying Channel Alternatives - Involves four major issues:
– Number of Intermediaries - Three alternative strategies
available:
• Intensive distribution
• Selective distribution
• Exclusive distribution
• Manufacturer should consider following three factors for
selecting one of the three strategies:
– End – users’ willingness to search
– Do the intermediaries make enough money ?
– Price competition among intermediaries
• Judgment to be used for exact number of intermediaries
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Channel Design
• Identifying Channel Alternatives - Involves four major
issues:
– Number of Channels
• Depending on needs of market segments, Multi-channel
system is used often
– Terms and Responsibilities of Channel Members

• Agreements between marketer and channel members to
include:
– Objectives
– Responsibilities / tasks of both parties
– Sales policy
– Territory or market segment to be covered 18
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Channel Design
• Evaluation of Channel Alternatives
– Criteria used:
• Economic performance
• Degree of control
• Adaptability to changing market situations
• Superior value to target customer
• Selection of Channel Structure

– Based on satisfying needs of target segments
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Managing or Administering
Channel Members
• It includes:
– Selecting intermediaries / channel members
– Motivating channel members
– Controlling or managing channel conflicts
– Evaluating performance of channel members
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Selecting Channel Members
• Selection process consists of :
1. Generating a list of intermediaries through ads., database firms, trade
associations
2. Visiting prospective channel members
3. Negotiating with short-listed intermediaries
4. Finalising agreements
• Selection criteria generally used:
– Location
– Relevant experience
– Financial standing
– Infrastructure
Specific criteria may differ for different types of intermediaries
and product – market situations of companies.
21
Motivating Intermediaries
• First understand intermediaries’ needs

• Then use appropriate techniques:
– Partner relationship management (PRM) system
– Vendor managed inventory (VMI) system
– Reasonable discount / margins
– Distributor council meetings
– Training and coaching
– Developing channel positioning
– Quick response system
– Computer aided management techniques
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Controlling Channel Conflicts
• Undertake surveys of intermediaries to assess sources of
conflicts, such as:
– Differences in objectives, interests, perceptions
– Dealings with customers
– Compensation
– Unclear territory boundaries
• Methods for managing / controlling conflicts

– Effective communication network
– Joint goal – setting
– Diplomacy, mediation, or arbitration
23
Evaluating Channel Member’s

Performance
• Purpose
– Know good / bad performing channel members
– Reward / counsel, retrain, re-motivate, or terminate
• Evaluation Criteria / factors

– Sales achieved vs quota
– Customer service / satisfaction
– New customers generated
– Market feedback
Assign weights to above factors

Use weighted factor method for evaluation 24
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Supply Chain Management (SCM)
• Definition
– The process of planning, implementing, and controlling flow and
storage of raw materials, finished goods, and related information
from the supplier to the customers for the purpose of conforming to
customer requirements
• SCM Framework
Information Flow
Cash Flow
Product and Service Flow
R.M. and
Compone Planning Purchase Producti- Distribut- Customer Perform- Business
and on ion Service ance Customers
nt
Suppliers forecasti- Evaluati-
ng on
25
• SCM Objectives
– Customer satisfaction by superior value
– Reduce cost, waste, duplication
– Minimise order-to-delivery time
– Superior delivery service
• Functions Integrated in SCM
– Purchase, design, planning, production, order processing,
inventory control, warehousing, material handling, customer
service
• Organisations involved in integration of functions, processes,
policies, databases are:
– Suppliers, distributors, transporters, IT firms, supplier’s supplier,
customer’s customer 26
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• Components of a Supply Chain

– Upstream supply chain
– Internal supply chain
– Downstream supply chain
• Trends in Supply Chain Management

– Use of technology
– World class supply chain management
– Lean and agile supply chains
27
Logistics Management
• Definition
– Design and management of all activities (mainly
transportation, warehousing, inventory) necessary to make
materials available for manufacturing and finished goods
available to customers as needed
• Scope of logistics
– To manufacturing and service companies interested in
maximising customer service
– Includes inventory control, customer service, transportation,
warehousing, order processing, communication, packaging,
material handling
• Trend in Logistics
– Outsourcing to a third party logistics (3PL) service provider
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Market Logistics (ML)
• Also called as Physical Distribution (PD)
• ML/PD includes delivering finished goods to business
customers and distributors / dealers
Logistics
Market
Raw Materials
Manufacturer
Logistics
Components Material Storage
Supplies Manufacturing
Finished Goods Business Customers

Storage Distributors
29
Market Logistics (ML)

• Tasks of Market Logistics (ML)

– Major tasks of ML /PD:
• Transportation, warehousing,
• Inventory control, customer service
– Other tasks:
• Packaging, Order processing, material handling
• Communication, locating factory and warehouses
• Complex / conflicting relationship between tasks
– Approaches for managing conflicts:
• Minimising total distribution cost
• ROI / Total systems / Channel integration
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Decisions in Major Cost
Centres of Logistics
• Major Cost Centres of Logistics and
Marketing Logistics are:
– Transportation
– Warehousing
– Inventory
– Order Processing
31

– Transportation Decisions • Selection criteria:

• Affect customer satisfaction – Speed
– Availability
• Objectives
– Cost
– Superior delivery service
– Dependability
– Lowest cost
– Capability
• Decisions include selection – Frequency
of:
– Transportation modes
• Individual carriers:
– Common
– Individual carriers
– Contract
• Transportation modes: – Private
– Rail, air, truck, waterway,
pipeline
– Combination / Intermodel
transportation
32
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• Warehousing Decisions
– Objectives to be achieved:
• Improve customer delivery service
• Increase sales
– Channel structure of a company influences warehousing
decisions
– Factors considered to decide if a company should use
• Private or
• Public warehousing facility:
– Customer service level required
– Investment to be made
– Operating cost
– Private warehousing by owning warehouse space
– Public warehousing by renting warehousing space 33

• Inventory Decisions
– Objectives
• Minimise harmful effects due to deficiencies in the logistical
system
• Meet customer service needs
• Minimise costs
– Inventory cost includes
• Storage space charges
• Cost of capital
• Taxes and insurance
• Inventory risk cost
34
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• Inventory decisions include:
– When to order?
• Formula: Recorder point (R)= average delivery lead time
(T) x average daily demand requirement (D). i.e. R=TxD
– How much to order?

• Use inventory software
2𝑃𝐷
• Use formula: 𝐸𝑂𝑄 = √ 𝐶𝑉 , where
P= Cost of ordering, D=Annual Demand, C=Annual inventory

cost (% of product cost), V=Average inventory cost
35

• Order Processing (OP) Decisions
– OP Starts with order receipt from a customer and ends
when the customer receives the product as per delivery
schedule and quantity in the order.
– Functions involved in OP:
• Sales, marketing, finance, marketing logistics, production
planning and control (PPC) and production
– Effective coordination and communication ensured by:
• Training relevant people
• Rewarding OP group
• Appointing a head of OP
• Customer satisfaction depends on success of OP, which is
possible with effective coordination and communication 36
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The Total Cost Approach
Management of Logistical Activities focuses on two essential variables:
1. Total Distribution Costs
2. Level of service provided to the customers
• Seeks to achieve efficiency of the entire system, not

just one activity
Interactive Costs • The cost of logistical activities interact, often in
inverse manner
• Each aspect and level of logistical activities must be

Evaluating Cost evaluated in relation to the revenue generated from
Trade offs the desired customer service level
• Example – Xerox, Walmart
Customer Service
Determining • Before the transaction

• Part of the transaction
Customer • After the transaction has been completed
Service Levels • Not all customers need same level of Service
• Relates to Industry Service Standards

The • When many competing products are there, Good Service is an
Competitive essential competitive tool.
• If product is innovative with low competition, high level of
Environment service not necessary
• Higher the level of service, greater the cost

Profitability • Information on alternate service levels and resultant sales
revenue to be developed
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Customer Service
Assessing & • Customer service levels can be optimised by:
Optimizing • (1)Researching the customer needs (2) setting service
Customer levels that realistically balance revenues & expenses, (3)
making use of latest technology in order processing
Service system, and(4) measuring and evaluating the
Requirements performance of individual logistical activities
Customer • Quantitative & qualitative information pertaining to the

Service Audits target market’s perceptions of and desires for service
Impact of • Inefficient service to middlemen either increases their

Logistical service costs, by forcing them to carry higher inventory levels, or
results in stock-outs, leading to a loss of business.
on Channel • 5% decrease in service at this levels leads to 20%
Members decrease in sales
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27-01-2018

Direct Channels Indirect Channels

Direct Online Telemarketing

• What marketing function (e.g. service) is critically important ?

Customer • Why firms choose their distributors?

Distributors are true middlemen

• Sale is complex • Then, seller must control

• What factors make Business Marketing Channels Different?

Factors Making BM Channel

• Geographical concentration of intermediaries

• Broad classification: Direct and Indirect

– Direct channels consist of:

– Indirect channels include:

• Manufacturer’s representatives or agents

• Value – added resellers (VARs)

• Identifying Channel Alternatives - Involves

– Terms and Responsibilities of Channel Members

• Selection of Channel Structure

– Motivating channel members

– Controlling or managing channel conflicts

– Evaluating performance of channel members

Selecting Channel Members

• First understand intermediaries’ needs

Controlling Channel Conflicts

• Methods for managing / controlling conflicts

Evaluating Channel Member’s

• Evaluation Criteria / factors

Assign weights to above factors

• Components of a Supply Chain

• Trends in Supply Chain Management

Market Logistics (ML)

Components Material Storage

Finished Goods Business Customers

Market Logistics (ML)

• Tasks of Market Logistics (ML)

Decisions in Major Cost

Decisions in Major Cost

– Transportation Decisions • Selection criteria:

Decisions in Major Cost

Decisions in Major Cost

Decisions in Major Cost

– How much to order?

P= Cost of ordering, D=Annual Demand, C=Annual inventory

Decisions in Major Cost

The Total Cost Approach

• Seeks to achieve efficiency of the entire system, not

• Each aspect and level of logistical activities must be

Determining • Before the transaction

• Relates to Industry Service Standards

• Higher the level of service, greater the cost

Customer • Quantitative & qualitative information pertaining to the

Impact of • Inefficient service to middlemen either increases their

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