Industrial distribution channel

• Defined as a set of interdependent organizations that make a product / service available to customers for use • Decisions on marketing channels are long term decisions

Factors affecting the nature of Industrial channels
• • • • Geographical distribution Channel size Characteristics of intermediaries Mixed systems -Use direct/ indirect channels -own sales force – large volume customers -independent distributors / dealers –small scale org. - resource constraints-agents(mfr. Rep) – market segments consisting of geographical territories

Channel Alternatives in Industrial marketing
MANUFACTURER

Mfr’s Mfr’s sales force VAR Distributors/ Direct Representatives/ mkg. Dealers Agents

Brokers

Commission merchants

Telemarketing Direct mail

Online

Distributors/ Dealers
Marketing

INDUSTRIAL CUSTOMERS

Direct Channel
• Mfr’s perform all functions to create sales & to deliver products to industrial customers • Tasks : Contacting potential customers,negotiating,communicating,selling,financing, product storage,transportation & servicing • Eg: Online marketing,Telemarketing,Direct mail • Approach:  value of each transaction is large  Selling includes technical & commercial negotiation at various levels  Buying process is lengthy  Industrial buyers insist on direct buying from mfrs.

Channel Design
Channel Objectives Channel Constraints Channel Tasks

Channel Alternatives Evaluation of Alternatives Selection of Channel

Indirect Channel
• Mfr’s & intermediaries share the task b/w them • Approach:  Value of transaction or sales are low  Mfr has limited resources  Industrial buyers are widely dispersed  Industrial buyers purchase many product items in one transaction Eg : Chemicals, Construction materials,machinery,Iron& steel products……..

Channel objectives
• Focus : Service levels required by target market segments • Objectives depend on product characteristics • Channel objectives are derived from firm’s marketing objectives

Channel constraints - Analyze
• Constraint factors to be considered on channel structure selection - External envt. (legal issues) - Competition - Company - Product characteristics & - Customer (direct/indirect distribution)

Channel Tasks - Analyze
• List various tasks to move the product from mfr. To industrial customer • Identify the critical tasks • Analyze – Task which can perform /cannot perform due to constraints w.r.t. objectives

Identify – Channel Alternatives
Involves four major issues TYPES OF INTERMEDIARIES • Factors : Tasks to be performed , product & market conditions • Types : VAR, Industrial distributors/Dealers, Mfr’s representatives/ agents, Brokers,Commission merchants • Industrial firm can identify more than one channel for the same product to serve different market segments

Channel Alternatives
NUMBER OF INTERMEDIARIES 3 STRATEGIES: Selective distribution • Selects few intermediaries to cover a particular geographical area • Selection : product characteristics & customer needs Intensive Distribution • Place goods to as many distributors as possible in the given market • Mfr loose control on service levels & pricing • Appropriate: low unit value & frequent purchase

Channel Alternatives
NUMBER OF CHANNELS • Based on the needs of various segments industrial marketers use more than one channel • Benefits of multichannel marketing:  Increased market coverage  More customized selling Problem : Possibility of conflict b/w channels

Channel Alternatives
TERMS & RESPONSIBILITIES OF CHANNEL MEMBERS • Responsibilities & Tasks –Both parties to avoid conflicts • Sales policy - % of trade discounts to distributors on price list - to agents or brokers on sales value of commission invoices should be agreed along with cash/ quantity discounts - payment or replacement of defective parts during warranty period should be spelt out • Territory or market segments – to be covered by intermediary

Evaluation – Channel Alternatives
Factors : Economic , control , adaptive factor ECONOMIC FACTOR
• Economic performance of channel alternatives is compared • Estimate the sales revenue level & selling cost of each channel alternative & plot in a graph
Mfr’s representative channel company sales force channel

Total selling cost (Rs)

Break even level

Sales Revenue(Rs)

Selection - Channel
• Selection – channel design framework • Industrial marketer should understand the degree of importance given by customers to service in their purchasing factors • Select the channel which can effectively satisfy the customer needs better than competitors • Create an ideal channel which can be modified according to channel constraints & evaluation factors

Functions of channel intermediaries
Holds Holds Inventory Title Brokers Mfr’s Agents Selling Agents Commission merchants yes Promotes Negotiates Provide credit yes yes yes yes Partial yes yes yes -

Economics of direct & indirect distribution
Distribution cost per unit

Indirect Distribution

Direct Distribution Volume

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