Business Marketing

Channels
Go to Market Strategy
Lawrence G. Friedman’s influential book states
that:

The ability to make smart decisions about going to the

market depends on how well you understand your
customer.

Who are they?

What do they buy?
How do they buy?
How do they want to buy?
What would motivate them to buy from you?
 Importance of Channel Component

• Selecting the channel design mix is challenging

1. The alternatives are numerous

2. Marketing goals differ between channel members
3. Business markets segments vary, thus it may require
numerous channels concurrently
4. Business market environment constantly changes
5. Competition is stiff
6. Customer requirements change
7. Internet technology is changing the landscape

• All of this creates new opportunities and the need for

fresh channel strategies
Managing the Channel
• Once a channel structure is specified and goals set,
marketing managers need to:
a. Develop procedures for selecting intermediaries
b. Motivate them to meet goals
c. Resolve conflict between them
d. Evaluate performance

• The following discussion centers around designing

and administering the business marketing channel.
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

• The question is: “What is the best way to execute the

tasks?”
 Channel Tasks Include:
• Contacting potential • Financing
buyers • Servicing the product
• Negotiating • Inventorying
• Selling • Transporting
• Contracting • Storage
• Transferring title
• Training
Direct and Indirect Channels
• Who performs the TASKS?

• Direct is when the manufacturer performs all the marketing functions

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

product
Fig. 10.1 – B2B Marketing Channels

Manufacturer

Direct Channels Indirect Channels

Direct Online Telemarketing

Sales Marketing
Manufacturers’
Representatives

Industrial
Distributors

Customer Segments
Direct Sales Force Required When:
• Sale is complex • Then, seller must control
• Product/service is highly the process to ensure
customized proper implementation of
total product package
• Customers are large and to guarantee quick
• Products are complex responses to market
• Sales involve extensive conditions
negotiations
• Professionalism is required
• Customer requires direct
contact
 Indirect Distribution:
Generally Found Where…

Markets are fragmented and widely dispersed.

Low transaction amounts prevail.

Buyers typically purchase a number of items.

Typical Sales Cycle:
Tasks Performed Through Sales Process

Lead Generation Triggered by sales call, by customer’s response to direct mail, or by Web
request for information; firm makes initial contact with prospect.

Lead Qualification Potential customer screened: prospect’s need for product or service,
buying interest, funding, and timeframe for making the purchase are
assessed.

Bid and Proposal Bid and proposal prepared to meet customer’s requirements (a complex
task for large technical projects).

Negotiations and Negotiation of prices, terms, and conditions, followed by agreement on a

Sales Closure binding contract.

For standardized product or service, delivery of offering to customer.

Fulfillment Configuration, customization, and installation for more complex sales.

Post-sale problem resolution, customer guidance, and ongoing contact to

Customer Care and Support ensure customer retention, loyalty, and growth.

SOURCE: Adapted from Lawrence G. Friedman, Go To Market Strategy: Advanced Techniques and Tools for Selling More Products, To More Customer, More Profitably (Boston: Butterworth-Heinemann, 2002), pp. 234-236.
Customer Contact Points
 Multi-channel strategy is used when it is necessary
to reach a large business market that is composed of
large, mid- and small-sized customers.

 First, arrange customers in terms of “relative cost of

sales” from top to bottom. Use:
1. Direct sales for large accounts
2. Indirect distribution for middle and smaller
accounts.
 Business Partner’s Key Role

• A key role is to generate leads for channel members.

• They can do it by:

• Internet
• Direct mail
• Tele-channels, etc.

• More complex roles will be performed by more sophisticated

members (professional sales people – direct or indirect)
 Multi-Channel Integration Map
Simple Example of High-Coverage Partnering Model
Sales
Lead Qualification Bid & Negotiation/ Fulfillment Customer care
task
generation proposal sale closure & support
Channel

$$$
Direct sales
channel
(field reps)

Business
partners

Tele-channels

Occasional support
by sales reps to
Direct mail help partners
close key
strategic deals
Internet
$

Sales Cycle
Fig. 10.3
Distributors
• 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:
a.Most pervasive
b.High Sales
c.They are heavy into the Maintenance, Repair and
Operations (MRO) supplies businesses
d.Generally about 75% of all business marketers sell
some product through distributors
e.Most are small, independent businesses serving
narrow geographic markets
Distributors
• 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
• Most are small but some are very large

17
Distributors
• Distributors are in every industry.
For example they are in:

1.Food and Beverage

2.Maintenance, Repair and Operations (MRO)

supplies

3.Hardware, Electronics and Fabrication

4.Furniture, Clothing, and Personal products

Expanded Distributor Roles

To add more value for their customers many

large distributors have expanded their roles to
include more services:

1. Inventory management
2. Automatic replenishment
3. Product assembly
4. In-plant stores
5. Design services

 Many charge a separate fee for additional

services
Primary Distributor Classifications
General-Line Distributors
• Stock extensive variety of low tech
(commodity) products

Specialists
• Focus on one or few related lines geared
around high tech or industries demanding
complex customer requirements

Combination House
• Operates in two markets: industrial and
consumer
 Choosing a Distributor
• Choosing a distributor depends upon the market a company
wishes to target

• What are some distributor qualifications?

1.Financial
2.Good functional operations
3.Skills & technical expertise
4.Contacts

• In other words, “What can they do & who do they know?”

• E-collaboration between manufacturer and distributor from

planning to servicing is a critical strategic force in the B2B arena
Manufacturers’ Reps
• Manufacturers’ Reps fill a different role than Industrial
Distributors.

• They perform a much higher level of service.

• They:
1. Are more technically advanced
2. Know their territory better
3. Are able to sell professionally
4. Are experienced in the industry
5. 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.
Manufacturers’ Reps are used when:
• Product is not standard—closer to made-to-order
• Reps do not take title nor hold inventory
• Reps are normally paid commission, however deals
can be made to be paid a monthly minimum
• Commission rates can range from 3%, 20% or more
• Gross margin is not large
• Relatively few customers or concentrated
geographically or concentrated in few industries
• Customers order relatively infrequently and allow
fairly long lead times
 Channel Design Process
• Channel design is a dynamic process:
1. They can be developed (new channels) where none
existed (i.e., Internet)
2. Or modify existing channels

• Channel design is a vigorous activity rather than

passive one.
• One of the most difficult jobs in marketing is to develop
a channel(s) of distribution
 Step 1: Define Customer Segments

• Primary goal is to satisfy (solve) end users’ needs

(problems)

• Define target market segments

• Isolate each segments’ buying and usage behavior

• What do they buy

• How do they buy
• How do they use their purchases
Step 2: Customers’ Channel Needs by Segment

Identify and prioritize channel functions requirements

for each segment.

Next, align the function with the customer’s needs.

Example: One customer may need product

information as their top priority while another may
need product quality assurance as their top priority.
Step 2: Customers’ Channel Needs by Segment –Con’t.
Channel Function Customer Need Table 11.2
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 Assurance Because of its importance to a customer’s operation, product 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.
 Step 3: Assess the Firm’s Channel
Capabilities

• Once segment is defined, functional requirements

isolated and prioritized, the next step is to:
• Analyze the segment’s channel strengths and weaknesses
• Identify gaps between what the segment functionally desires
and what the channel is providing
• Fill that gap!

• Customers base their choice on the bundle of benefits

(channel functions) the channel offers.
 Step 4: Benchmark to Competitors

• What go-to-market strategies are key competitors using?

• Understanding what competitors are doing, or not doing, offers

opportunities to discover gap(s) that might need to be closed.
Step 5: Create Channel Solutions for
Customer's Latent Needs
• Sometimes, by reviewing what competitors are doing, or not
doing, latent customer needs emerge.

• Latent needs are those that are not obvious. Sometimes

discovering them can even lead to a whole new service.
 Step 6: Evaluate and Select Channel Options

• Channel options need to be considered in light of a

cost/benefit analysis.

• Some gaps may offer opportunities.

• More often, channel members can work together to better

align themselves with their customers.

• The idea is to enhance value for their customers.

• Channels must be open to change as customers and

competitors change.

• Channel management is an ongoing process.

Channel Transformation

• According to V. Kasturi Rangan, channels are not a

series of product & information flow from
manufacturer to the customer.

• Instead, it is the customer who demands certain

services and it is the provider’s responsibility to
meet those needs by developing roles and rewards
to meet them.

• See Fig. 5
Channel Administration Addresses:

1. Selecting good channel participants and

making sure that all tasks and obligations are
assigned and understood.

2. Motivating members to perform tasks

necessary to achieve channel objectives.

3. Controlling inter-channel conflict.

4. Controlling and evaluating performance.

Channel Administration
• Finding and selecting good people is a very difficult
tasks manufacturers have to do. They can use:

1.Industrial Distribution magazines

2.Manufacturers’ Rep Directory
3.Advertisements in business newspapers

Convincing a rep to come on is a two-way street. The

rep asks the question, “Is this a good opportunity for
me?”
 Motivating Channel Members
• Distributors and Manufacturers’ Reps are:

A.Independent
B.Profit Oriented
C.More concerned about their customers’ situation than
the manufacturer’s state of affairs.
D.Thus, Distributors and Mfg. Reps have a different outlook
and perception than the manufacturer.
Partnership
• The channel is motivated by the understanding that the relationship is a
partnership.

• Relationship Marketing demands:

a.Trust
b.Working together
c.Open communication
d.Support during “good” and “bad” times

• This relationship leads to meeting performance goals.

 Compensation
• Margins and commissions are the driving force to motivate this
element of marketing.

• Margins and commissions must meet market norms.

• Companies and products that offer higher commissions and

margins do get the attention over those that don’t meet norms.

• Many companies ask the distributor to do more and those extra

services need to be compensated for. Example: Market
research.
Trust – The Ultimate Compliment
• Another way for trust to occur is for each member to
make the system work and to reduce channel conflict.
Techniques include:

a. Joint decision making

b. Joint goal setting
c. Cooperative programs
d. Arbitration committees to settle problems
A Successful Distribution Channel
• Needs communication and trust. To manifest this:

1.Members offer benefits and resources superior to

what other partners could offer.
2.Corporate values are similar throughout the chain.
3.Members share information on expectations,
markets and performance.
4.Members don’t take advantage of each other.
 Competitive Advantage

• By working together, business marketers

and their channel members can enjoy
sustainable competitive advantage over
their rivals and their networks.