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MARKETING CHANNEL PARTICIPANTS

Group-5, Abhas, Chandra Prakash, Gargi

Discussion topics
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Internal and external factors that indicate that a marketer should probably use distributors. The services that industrial customers require of distributors. The characteristics that a marketer should consider in choosing a distributor the steps that the industrial marketer must take to ensure that indirect channels are effective. The circumstances that dictate the use of manufacturers reps instead of an employee sales force.

Why use distributors?

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Distributors are often viewed as a cost rather than a contribution to profit. Distributors serve markets that are already developed by the manufacturer Make no effort to develop either new market or new product applications in existing markets. Distributors traditionally sell not only complementary products but also identical products from competing manufacturers.

Critical functions and weaknesses

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Analyse as to whether quick delivery or exceptional service for the success of marketing strategy Finding out which functions involves weakness in the firm in the form of scarcity (financial resources, manpower, expertise, or time) or opportunity trade offs And finally whether the critical functions be performed efficiently and cost effectively by an outside agency?

Customer expectations
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Buyers are more concerned with service rather than with price They gauge the quality of service by prompt and accurate communications coupled with adequate inventories. Do not expect distributors to be the primary source of technical assistance. local service provided consistently and dependably is the primary reason that buyers do business with a particular distributor.

Distributors are true middlemen

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Distributors often perceived as customer agents. Successful distributors appear to be customer oriented because of their emphasis on service. Distributors are as strong as the product lines they carry. Desirable franchises are essential to a distributors success.

Dual Channel Strategies

Indirect versus direct distribution
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Majority of manufacturers utilize both direct and indirect channels of distribution. Distributors are acceptable to both supplier and consumer when  The product is relatively simple & inexpensive  Customers total buying potential is modest  The overall market is made up of many customers who are geographically dispersed.  Industry slump also affects the involvement of middlemen both directions.

Actual market circumstances

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Market data in 2 market conditions during the period of 1982-87 substantiates theory regarding:  Less use of direct sales given product simplicity  Increased use of distributors in mature markets But oppositions to it was made that the largest portion of equipment with higher price tags is sold directly. Distributors can and do play a significant role in the sale of complex evolving technologies.

Choosing the right Distributor

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Important Considerations  What marketing Functions would be assigned to Distributor  What portion of product line to be sold through this channel  What type and size of distributor to be chosen  Multiple or Exclusive Distribution  How to divide the selling function between Distributor and company Sales Force  Formulation of required policies...

Assigning Marketing Functions

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1.

2.

Distributors are expected to carry Sufficient inventory to meet the expectations. Customers are divided into two categories. Served by company and served by distributor.

Product Line coverage

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Fragmented channels:- Different channel for different product line. Specialized product:- Marketer can deal better in tailor made product as compared to distributor. Distributor Size:-Trade off between no. of distributor and size of distributor.

Distributor Type
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1. 2. 3. 4. 5.

Factors worth consideration:Market/customer coverage Market Development Product Concentration Exclusive or multiple distribution Problems anticipation

Manufacturers Representatives
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Reps
Independent entrepreneurs Primary selling organisations Do not buy products or carry inventory (rarely), sell at price dictated by manufacturer Sell complementary products

Distributors
Independent entrepreneurs Primary selling organisations Buy and stock inventory & resell at prices of their own choosing Sell competing products

Develop new markets and applications Cannot be expected to do more than through persuasive selling skill & technical providing the customer with catalog competence information Handles 5-8 product lines Operate under an excusive franchisee in their assigned territory Deals in 50-100 different product lines. Manufacturer frequently uses more than one distributor in a geographical market.

What to Expect from a Rep

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Purest form of sales practitioner Not lacking in self-confidence and motivation Has product and market knowledge, customer acceptance and the ability to compete.

Potential Problem in Dealing through Rep

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Lack of Control  Independent entrepreneurs are not as easy to direct and control as company employees.  Some manufacturers believe that reps are difficult to motivate. Competing Product lines  Marketers face competition at 2 levels viz competition from other manufacturers product lines and also from other firms selling products through same reps.  They compete for time and attention.

Franchise agreements for reps

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As the functions of reps and a distributor differ their agreements also differ in operational details. In the reps agreement the manufacturer wants that the agreement should spell out the range and limitations of the reps delegated authority. In the agreement shared or mutual responsibilities as well as individual rights and protection is to be clearly mentioned.

Participation of Reps in the industrial market

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In 1984 an estimated 45000 to 50000 U.S. manufacturers were selling through reps. About 60% of those reps operated in the industrial market. Reps are stereotypically defined as to how and where they function. Usually pictured as handling the products of smaller manufacturers or serving large manufacturers only in secondary markets Their tenure with small manufacturers is described as short and tenuous for as their business increases they go for their own sales force

Large Manufacturers also use Reps

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Not all firms using reps are small nor are the relationships always short. National semiconductor, ITT, Corning, Monsanto, Teledyne and Mobil Oil are some big manufacturer that use reps. In electronics industry rep participation is the highest because of many small manufacturers competing for market share. These kind of firms lack financial resources, market acceptance or breadth of line to support their own sales force. Whereas computer/software industry is dominated by large firms that employ their own sales force. In summary (1) those firms that represent the bulk of industrial wholesale trade dollars have opted to use their own sales force rather than reps (2) indirect sales, the combined total of distributors and reps, is the dominant industrial channel.

Other Channel Participations

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Brokers commissioned middlemen may represent seller or buyer or both. Term of service shorter than rep. Often involved in buying and selling of surplus inventory. Value-Added Resellers (VARs) gained prominence since 1970s because of the computer industry. Computer manufacturers refer them as OEMs to differentiate them from industrial end users. Specialists dealing with a particular market segment (retailers, banks, accounting offices, medical labs, etc.). Gather together the separate products of individual firms and design an operating system tailored to the needs of their specialty market.

Maintaining Indirect Channel effectiveness

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Realistic goals no distributor or rep is attracted to a manufacturer producing inferior or uncompetitive products. Equally unattractive is the manufacturer with unrealistic goals for a desirable product. The manufacturer who wants 30% market share in 6 months when reality would suggest 15% in 2 years . Objectivity must be an ingredient of any successful channel strategy. Objectivity should encompass not only quantitative goals but also the level of commitment expected from middlemen and the factory support necessary to earn it.

Maintaining Indirect Channel effectiveness

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Two way communications - Establishment of a distributor and/or rep council is an excellent first step in creating an effective two way communication flow. This allows management to meet informally on an equal footing to discuss mutual goals and problems. Proprietary information is more likely to be exchanged and respected in this type of forum.

Maintaining Indirect Channel effectiveness

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Essential training- reps do not require sales training but they will certainly require training in new products and will benefit from greater knowledge of product competition and market or industry trends. Distributors often require some assistance in training new sales people in effective selling techniques and products. Compatibility includes compatible positions regarding the importance of growth, pricing philosophy, target markets and customer service levels. Incompatibility in size may prove inevitable, depending on the availability of distributor or reps. Other issues are independent of size and a suitable choice should be available to the marketer willing to devote sufficient time and energy to the search.

Maintaining Indirect Channel effectiveness

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Compensation and Support a manufacturer must use objectivity when evaluating the functions performed by middlemen. The compensation should realistically reflect the costs and benefits involved. Manufacturers overall image in the market depends upon the service provided by middlemen, but the middlemans ability to serve customers depends on the manufacturers support.

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