CHAPTER 7

INDUSTRIAL CHANNEL STRATEGY

Definition of channel

Distribution management deals with the ‘place’ part of the marketing mix. It is the management
of all activities which facilitates movement and coordination of supply and demand in the
creation of time and place utility in goods. It includes the aspects of transportation, storage and
inventory management (physical distribution). It is also defined as a sequence of marketing
institutions, including intermediaries, that facilitates transactions between producers and
customers.

1.1. Channel level and channel intensity

Channel level indicates the length of the channel. Channel level can be direct or indirect. Direct
marketing channel (zero level channels) is when no marketing intermediaries involved between
the producer and buyer. Indirect marketing channel contains one or more marketing
intermediaries between the producer and the buyer.

Channel intensity (width) is the number of independent intermediaries at any stage of

distribution. It is of three types;

 Exclusive distribution: this is when one outlet in a market may keep the product. This
gives intermediary the exclusive right to distribute the company’s products in their
territories. Exclusive dealing arrangement is when resellers agree not to carry competing
brands. Under this type of distribution system channel control will be effective but there
is low degree of market coverage.
 Selective distribution: this is the use of only a few selected outlets (intermediaries) to
keep (carry) the company’s’ products. The company can gain adequate market coverage
with more control and less cost than intensive distribution.
 Intensive distribution: the manufacture places the goods or services in as many outlets as
possible.
Industrial market uses indirect and exclusive channel strategy because of the following reasons:

1
  Market concentration
 Fewer market size
 Bulkiness and expensiveness of the product
 Technical nature of the product
 The buyers are key/profitable customers
 Sales volume (larger volume of sales)
 Breadth and depth of the product line
 The amount of business that can be expected etc.

Marketing intermediaries are those independent firms who facilitate marketing activities between
the manufacturer and the buyer. They can be merchants and agents. Merchants can take title to
the products they carry whereas agents do not.

1.2. Major types of industrial channel

This is classified in to two broad categories – direct channel and indirect channel.

o Direct channels: involve ‘’direct’’ selling to the industrial users, with or without the use
of sales branches/offices. A sales branch is broadly defined as an off-site manufacturer’s
sales office, operating within a major market area, staffed with some technical personnel,
and having the ability to ship most orders immediately from stock. A direct sale would
include both generalists and specialists. Generalists sell the entire product line to all
customers, whereas specialists concentrate on particular products, customers, or
industries.
o Indirect channel: involves selling to the industrial user through an external intermediary.
This includes the following:
Industrial distributors: these are merchant intermediaries who take title to the
product. They are endowed with product expertise, market knowledge, and
customer contacts. The compensation they received is trade discount. They are of
two types:
 Genera - line distributors: handle a wide variety of business supplies
and minor equipment, and selling to a broad spectrum of customers.

2
  Limited – line distributors (jobbers): handle fewer, high-volume items
such as steel, paper, or chemicals. Although jobbers take title, they do
not necessarily carry the goods in inventory.

Limitations of using Industrial distributors:

• Overlapping territories
• Distributors usually carry or handle competing products, and they want manufacturers to
limit the number of distributors stocking their products. Manufacturers, on the other hand,
want distributors to carry their lines exclusively.
• The average distributor often does not possess the technical or service know-how to
handle high-tech products. Etc.
 The Manufacturers’ Representative (MR): they are agent intermediaries. They
are selling part of the output of one or more manufacturers whose products are
related but noncompetitive. They provide the same functions as a field sales
person. They operate strictly on commission basis. Let us see the advantages of
using MR:
 Predictable selling expenses (using them is more economical – the
manufacturers’ are not going to pay them commission unless they sell).
More intensive coverage of a given territory by selling multiple lines.

On the other hand using MR has the following disadvantages:

 Their sales efforts are to a defined geographic area

 MR often are difficult for the manufacturer to control MR carries
other manufacturers’ lines Lack of available inventory etc.
 Sales agents and brokers (SAB): they are agent intermediaries. They seldom
carry inventory (unless on consignment). They operate on commission basis. The
major difference between MR and SAB is that SAB may assume responsibility
for more marketing functions, including promotional and pricing responsibilities.
Additionally, SAB tend to handle the entire output of several directly

3
 competitive manufacturers’ products. SAB have no geographic restrictions on
their territories. Brokers are most prevalent in the food industry.

1.3. PLC and channel strategy

The following channel strategy can be used across the PLC

o Introduction stage: selective distribution outlet will be used. o Growth stage: Intensive
distribution outlet will be used.
o Maturity stage: More market coverage/intensive strategy will be used.
o Decline stage: selective distribution outlet will be used.