Managing Business Marketing

Channels
 Introduction
 The effective go-to-market (channel) strategy is
important for the company to generate:
◦ Sales
◦ Market share
◦ Profit

 Thebusiness market channel strategy has 2 important

dimensions:
◦ 1. Channel structure
◦ 2. Channel Management (design & administration)
 Channel Structure
 Appropriate channel structure is required to achieve
marketing objectives of the firm.
 However selecting the best channel structure is
difficult due to:
◦ The alternatives are numerous
◦ Marketing goals differ between channel and mfg.
◦ Multiple markets segments are targeted, thus it may
require numerous channels concurrently. E.g. Loctite
adhesive products, Atlas Copco air compressors.
 Channel Management
 Oncea channel structure is specified and goals are set,
marketing managers need to:
◦ Develop procedures for selecting intermediaries
◦ Motivate them to meet goals
◦ Resolve conflict between them
◦ Evaluate performance
 Channel Structure
 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
 The question is: “What is the best way to execute the
tasks?”
 Channel Tasks
 Contacting potential  Financing
buyers  Servicing the product
 Negotiating
 Inventorying
 Selling
 Transporting
 Contracting
 Storage
 Transferring title
 Training
 Channel Structure: direct & indirect
 Channel structure depends on who perform the
marketing tasks.
 These tasks may be entirely performed by
manufacturer or by intermediaries or may be shared
between them.
 Direct is when the manufacturer performs all the
marketing functions.
 E.g. online marketing or direct sales force.
 Indirect is when some type of intermediary sells or
handles the product.
 E.g. distributor sells products.
 Objective: to structure the channel so that tasks are
performed optimally.
 B2B Marketing Channels

Manufacturer

Direct Channels Indirect Channels

Direct Online Telemarketing

Sales Marketing
Manufacturers’
Representatives

Industrial
Distributors

Customer Segments
 Direct Channel
 Direct channel is a strategy that does not use
intermediaries.
 Manufacturer's own sales force deals directly with the
customers and has the responsibility to perform all the
channel tasks.
 Direct sales approach is used when:
◦ Sale and Products are complex
◦ Product/service is highly customized and
◦ Customers are large/major accounts
◦ Sales involve extensive negotiations
◦ Customer requires direct contact
◦ Superior selling skills and product knowledge
◦ Relationships building is important
◦ E.g. selling ERP, Compressor, Production system etc.
 Indirect Channel
 Indirect channel uses at least one type of
intermediaries. E.g. distributor
 Business marketing channel generally include lesser
number of intermediaries than consumer market.
 Indirect sales approach is used when:
◦ Markets are fragmented and widely dispersed.
◦ Low transaction amounts prevail.
◦ Buyers typically purchase a number of items.
◦ E.g. industrial motors, electrical switches, industrial
paints, maintenance and repair items.
 Multi-Channel Approach
 Generally marketers use multiple channels:
combination of direct and indirect.
 It is used when company wants to reach a large
business market that is composed of large, mid- and
small-sized customers. E.g. industrial paints, tires
 Goal: coordinate the activities of the many channels
e.g. sales person, distributor, call center and web in
order to enhance experience, profitability and reduce
costs.
 In a multi-channel approach, different channels
perform different tasks within a single transaction
with a customer.
 Multi-Channel Approach
 Typical sales cycle include the following tasks:
◦ Lead generation – web, tele-channel, direct mail (low
cost)
◦ Lead qualification – distributor (medium cost)
◦ Negotiation and sales closure – direct sales force (high
cost)
◦ Product delivery - distributor
◦ Customer care and support - internet
 Distributor
 There are two types of intermediaries:
◦ Industrial distributors
◦ Manufacturers’ representatives
 Distributors are full-service intermediaries, that is
they take title and carry inventory for the products
they sell.
 They provide credit, deliver, offer an assortment, offer
technical skills, maintain customers and find new
ones.
 Distributors are in every industry - MRO supplies,
Hardware, Electronics and Fabrication, Furniture,
Automobile etc.
 Distributor
 Responsibilitiesof distributor
 Contact – reach to customers through own sales force.
 Product availability – provide local availability of
products and support services – credit, delivery, order
processing and advice.
 Repair/service – provide easy access to local repair
facilities.
 Assembly and light manufacturing - purchase
material in bulk and assemble it for the customers.
E.g. computer distributors.
 Types of Distributor
 General-Line Distributors
 Stock extensive variety of standard products.
 Cater to diverse customers.
 E.g. Medical instruments distributor, hardware
products distributor.
 Specialists
 Focus on one or few related product lines.
 Target around specialized industry or customers.
 E.g. cutting tools, oil free compressors, cement
distributor.
 Combination House
 Operates in two markets: industrial and consumer
 E.g. auto parts and paints distributors
 Manufacturer's Representative
 Manufacturer's representative are sales people who
work independently or (for a different company)
represent several companies in the same geographical
area and sell noncompeting but complementary
products. E.g. computer products and software
 In simple words, out sourcing of sales force from the
other company.
 They perform a much higher level of service. They
◦ Are technically advanced
◦ Know their territory better
◦ Are able to sell professionally
◦ Are experienced in the industry
◦ Usually represent several companies
 Manufacturer's Representative
 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 to an area not covered by their sales force.
 They are cost effective relative to own sales force.
Little or no training costs, no benefits, and Reps are
highly motivated.
 Reps do not take title nor hold inventory
 Reps are normally paid commission – 7 to 15 %.
 Used when market potential is limited.
 Servicing distributors.
Channel Design Process
 Channel Functions
Channel Function Customer Need
1. Product Information Customer seeks more information for new or more complex
products especially in rapidly changing environments.

2. Product Customization Some products must be technically modified or need to be

adapted to meet the customer’s unique needs.

3. Product Quality Because of its importance to a customer’s operation, product

Assurance integrity & reliability might be given special emphasis.

4. Lot Size Purchase of products with a high-unit value or those used

extensively represents a large dollar outlay, thus being
important.
5. Assortment Customer may need a broad range of products and may assign
special importance to “one-stop shopping.”

6. Availability Some customers’ environment demands that the seller support a

high level of product availability.

7. After-Sale Service Customers require a range of services from installations and

repair to maintenance and warranty.

8. Logistics Customer may require special transportation and storage

services to support its operations strategy.
 Channel Administration
 How to select good channel members?
 Finding and selecting good people is a very difficult
tasks.
 Business marketers can identify potential channel
members through:
◦ Existing sales people
◦ Existing and potential customers
◦ Industrial Distribution magazines
◦ Manufacturers’ Rep Directory
◦ Advertisements in business newspapers
 Criteria: financial stability, market coverage, product
lines, personnel, growth, experience etc.
 Channel Administration
 How to motivate channel members?
 Distributors and Manufacturers’ Reps are:
◦ Independent and profit oriented
◦ More concerned about their customers’ situation than
the manufacturer’s state of affairs.
 Motivate them through:
◦ 1. Relationships and partnerships
◦ 2. Involving in decision making e.g. policy formation
◦ 3. Margin and incentives
◦ 4. Cooperative marketing program
Thank You

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