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Business Market Management, 3rd edition

 BOOKS
• James C. Anderson (2009).
Business Market management:
Understanding, Creating and
Delivering Value, 3rd edition.
Prentice Hall.
• Ten Deadly Marketing Sins:
Signs and Solutions. John Wiley
& Sons.
• Philip Kotler (2003). Marketing
insights from A to Z: 80
concepts every manager needs
to know. John Wiley & Sons,
Inc.

Business Market Management, 3rd edition

Chapter 7
Business Channel
Management

Business Market Management, 3rd edition

 SECTION III

CREATING VALUE

Business Market Management,

Chapter 7-4
3rd edition
 CHAPTER 7:
BUSINESS CHANNEL MANAGEMENT
Overview

I. Designing Superior Value-Adding

Marketing Channels
II. Creating Value Through Direct Channels
III. Strengthening Reseller Performance
IV. Summary

Chapter 7-5 Business Market Management, 3rd edition

 OVERVIEW
• Marketing channels are a source of
competitive differentiation as products
and services become commodity-like

• Channels augment market offerings by

creating a highly valued total customer
experience (TCE) Marketing Channel—a set of
interdependent organizations involved
in the process of making a product or
service available for use or
consumption.
Business Market Management,
3rd edition
(Stern and El-Ansari)
Chapter 7-6
BUSINESS CHANNEL MANAGEMENT

The process of designing a set of

marketing and distribution arrangements
that create superior customer value for
targeted market segments and customers,
and executing those arrangements
directly through supplier firm sales forces
and logistics systems or indirectly through
resellers and 3rd-party service providers
Business Market Management,
Chapter 7-7
3rd edition
 Creating Value Through Direct Channels

Create Value Deploy Create Value for

Merchants Value Merchants Targeted Market
Segments &
Design Logistics Systems Customer Firms

Create Value for

Targeted Market
Designing Superior Hybrid
Segments &
Value-Adding Channel
Customer Firms
Marketing Channels Arrangements

Strengthening Reseller Performance

Create Value for
Targeted Market
Craft Segments &
Build Construct
Reseller Customer Firms
Marketplace Channel
Value
Equity Offering(s)
Proposition(s)

Business Market Management,

Chapter 7-8
3rd edition
 I. DESIGNING SUPERIOR
VALUE-ADDING MARKETING
CHANNELS

Business Market Management,

Chapter 7-9
3rd edition
 DESIGNING SUPERIOR
VALUE-ADDING MARKETING CHANNELS

• Total Customer Experience (TCE)

• Entails all aspect of a customer firm’s
encounter with a supplier firm

• TCE Goals:
• Positive experience
• Seamless
• Memorable interaction that matches the customer
firm’s purchasing requirements and preferences

Business Market Management,

Chapter 7-10
3rd edition
Immediacy of The extent of
fulfillment augmenting value-
• Breadth & depth of products added services
& services
• Availability of products and
services • Pre-sale
• Timing and reliability of • Point-of-sale
delivery
• Post-sale services or
• Installation
“for-fee options”
• Payment terms and
conditions

Research indicates
that firms that focus on “fulfillment”
are more profitable. (Grove)
Business Market Management,
Chapter 7-11
3rd edition
 FOUR TCE-BASED POSITIONS
Efficient, low-cost
transaction experience
▪Inexpensive, convenient, self-service
▪Minimal value-added service
❖Internet Web sites
❖Direct marketing
The flexible, multi-
access-point experience
▪Customer free to purchase supplier's
offerings intact or piecemeal from
several integrated or stand-alone
channels on a transaction-by-
transaction basis
Chapter 7-12
The high-touch,
consultative experience
▪Extensive consultation and advice
▪Customization of offerings
▪Frequent face-to-face encounters
▪Complete range of value-added
services
The one-stop shopping
experience
▪Customer can purchase a wide
variety of complementary products
and services from a single source
Business Market Management,
3rd edition
 DESIGNING A SUPERIOR VALUE-
ADDING MARKETING CHANEL
1. Specify goals and objectives of the marketing
channel(s)
2. Assess customer value of TCE
3. Envision value proposition for each targeted
market
4. Reformulate the TCE for each targeted market
5. Configure the channel network
6. Finalize marketing and distribution arrangements
Business Market Management,
Chapter 7-13
3rd edition
 SPECIFY GOALS AND OBJECTIVES OF
MARKETING CHANNELS
• Three Predominant Goals
• Maximize Market Access
• How business channels enable a supplier to
reach, develop, and serve targeted segments
and customer firms
• Optimize Value-Added
• This entails the augmenting products and services
that channel partners contribute to the supplier
firm’s market offering
• Minimize Cost-to-Serve
• The total expenditures required Caution:
to deliver the intended TCE to Channel goals often work
targeted segments and at odds with one another.
Trade-offs & adjustment
customers may be needed.
Business Market Management,
Chapter 7-14
3rd edition
 ASSESS CUSTOMER VALUE OF POTENTIAL TCE
ELEMENTS

• Business market managers should focus on

value elements that contribute to the total
customer experience
• Service Outputs & their Monetary Value
• Integrated supply These services strongly
• Local customization suggest the type of
• Emergency delivery channel network the supplier
• Technical support should adopt
• Product standardization
• Assess Customer Preferences for
• Learning These are critical
• Shopping as they shape the
• Buying “soft” side of TCE
• Getting help

Business Market Management,

Chapter 7-15
3rd edition
 ENVISION A VALUE PROPOSITION FOR EACH
TARGETED MARKET SEGMENT

• Customer Value Proposition serves as a

beacon for all the supplier firm’s
channel network design effort

Business Market Management,

Chapter 7-16
3rd edition
 REFORMULATE THE INTENDED TCE FOR EACH
TARGETED MARKET SEGMENT

• Add, delete, or modify products and valued-

added services as well as fulfillment and
communication processes to more closely
meet the critical TCE requirements and
preferences of the targeted segment

Business Market Management,

Chapter 7-17
3rd edition
 CONFIGURE THE CHANNEL NETWORK

• Managers simultaneously consult and consider

the classic channel strategies related to
exposure and coverage, postponement and
speculation, and functional acquisition and
functional spin-off

• Managers meld their strategic preferences into

a channel network design that can profitably
deliver the intended TCE to targeted segments

Business Market Management,

Chapter 7-18
3rd edition
 FINALIZE MARKETING AND
DISTRIBUTION ARRANGEMENTS
• To gain market access, channels must provide
sufficient exposure and coverage
• Exposure: degree targeted customer firms
are reached and served by the
appropriate kind and number of channels
• Single-channel strategy
• Multiple-channel strategy
• Coverage: number of resellers or direct
sales persons assigned per geographic
trade area
• Distribution intensity strategy: exclusive,
Chapter 7-19
selective, or intensive Business Market Management,
3rd edition
DISTRIBUTION INTENSITY STRATEGIES Chapter 7-20

Exclusive Supplier authorizes one reseller per trade area

Selective Supplier authorizes a limited number of resellers per trade area

Intensive Supplier authorizes all resellers who want to carry its line

The above
three
distribution
intensity 1. The reseller sells only the supplier’s offering
strategies can
be 2. The reseller sells one of the supplier’s line along with other
differentiated firm’s lines
in terms of the
supplier’s
3. The reseller sells only one of the supplier’s products and an
share of the
assortment of other firms’ products
reseller’s
business

Business Market Management, 3rd edition

 CHANNEL EXPOSURE & COVERAGE MODEL
FOR AN ELECTRONIC CONTROLS SUPPLIER FIRM

Electronic ▪3 electronic
Components No Coverage component
Manufacturers distributors

Direct Sales
Scientific Testing ▪8 scientific
▪20 field sales
Equipment Indirect Sales equipment
persons
Manufacturers distributors
▪10 service reps

Direct Marketing
Process Control ▪10 machine tool
▪Supplier Website
Manufacturers distributors
▪5 Inside Sales Reps

Segment
Small Orders Medium-Sized Large Orders of
of Standard Order of Customized
Items Specialty Items Solutions
Offering Source: Adapted from Friedman & Furey 1999

Business Market Management,

Chapter 7-21
3rd edition
 OPTIMIZE VALUE-ADDED THROUGH
POSTPONEMENT OR SPECULATION
• Strategies hinge on:
• Predictability of demand
• Quantity of production
• Inventory held in reserve
• Required proximity of customization
activities & inventory to customer
location
Business Market Management,
Chapter 7-22
3rd edition
 Chapter 7-23

POSTPONEMENT VS. SPECULATION STRATEGIES

Postponement Strategy Speculation Strategy

Supplier firm undertakes
product design,
customization, and value-
added service
geographically close to
customer firm
Suppler firm manufactures
standard products in large
quantities well in advance of
demand at a distance from the
customer

❖Direct sales ❖Indirect sales

❖Design-to-order offerings ❖Intensive distribution
❖Technically competent and ❖Reseller firm stocks inventories
consultative ❖Takes orders
sales team ❖Makes deliveries
❖Just-in-time inventory ❖Provides minimum valued-added
❖High level end-to-end service
customer
Business service3 edition
rd
Market Management,
 POSTPONEMENT VS. SPECULATION
MANUFACTURING & LOGISTICS
Manufacturing Postponement
▪ Indirect sales
▪ Local assembly, fabrication,
compounding, or extrusion firms
▪ Customize supplier’s production to
unique requirement for regional firms
Logistics Postponement
▪ Indirect sales
▪ 24-hour delivery
▪ Reserve stock in local warehouse
▪ Provide immediate emergency
deliveries
▪ Leave item on consignment at
customer’s plant
Chapter 7-24
Manufacturing Speculation
▪ Direct marketing via telephone or
Internet
▪ Build-to-order
▪ Mass customizing products
▪ Ships directly to customer via 3rd party
logistics
Logistics Speculation
▪ Direct sales
▪ Reserved for largest, most profitable
customers
▪ Vendor-managed inventory program
▪ Supplier firm takes responsibility for
customer inventories
▪ Emergency delivery of bottleneck
items
Business Market Management,
3rd edition
 MINIMIZE COST-TO-SERVE VIA
FUNCTIONAL ACQUISITION & FUNCTIONAL SPIN-OFF

• Lean enterprise: group of individuals, functions, and

legally separate but operationally synchronized
companies

• To improve business processes:

• Allocate functions to the most capable partner
• Bolster their partners’ ability to perform tasks
• Coordinate and integrate efforts of all firms in
the lean enterprise
• Eliminate redundancies in efforts

Business Market Management,

Chapter 7-25
3rd edition
LEAN ENTERPRISE APPROACH TO THE DESIGN OF A
FIRM’SCHANNEL NETWORKS

• Conceptualized channel networks:

• Horizontally Within Each Channel Level: Functions
or Tasks Performed by a Specific Channel Partner
• Focus on functions when incremental channel
improvement needed
• Functional acquisition & functional spin-off helps to lower
system costs
• Vertically across All Channel Levels: Business
Processes
• Appropriate for radical channel redesign
• Eliminate resources & effort redundancies within the
entire channel network
• Lowers total system costs
• Maximizes the total value delivered

Business Market Management,

Chapter 7-26
3rd edition
 Chapter 7-27
Functional Allocation Charts for Electrical Products Supplier
Channel Firms Channel Firms
Manufacturer Manufacturer’
Electrical
Manufa ’s
Electrical Function Manufactur s
Functions cturer Representati
Wholesal
s er Representativ
Wholesaler
s
ers es
ves
Manufacturing
Manufacturing
Advertising
Advertising
Lead
Lead Generation Generation

Field Sales
Field Sales Calls Calls

Fulfillment Fulfillment

Customer
Customer Credit Credit

Repair Work Repair Work

Marketing Channel After to

Functional Acquisition and Spin-Off
Marketing Channel Prior to
Firm Performs Function
Functional Acquisition and Spin-Off

Business Market Management, 3rd edition

 Integrated Multi-Channel Process Model
Chapter 7-28
Firms After-the-
Initial Relationsh
or Lead Prospect Order Sale
Sales Negotiatio Fulfillme ip
Generati Qualificati Processin Customer
Groups Conta n & Close nt Manageme
on on ct g Support &
nt
Service

Resellers

Supplier’
s
Operatio
nal
Group
Supplier’
s Field
Sales
Force
Supplier’
s Inside
Sales
Force
Supplier’
s DirectAll Customers Supplier’s Resellers’ targeted Manufacturer’s Process
Marketin Strategic customers customers
Distributor’s Process
g
Supplier’
Business Market Management, 3rd edition
s Internet
 CHANNEL NETWORK MODEL

• Maps out the business processes and

functions required to provide the
reformulated TCE to targeted customer
firms

• Model specifies who will complete the

required processes and functions
• Supplier firm
• Resellers
• Third-party service providers
• Customer firms

Business Market Management,

Chapter 7-29
3rd edition
 GENERAL NETWORK MODELS
Conventional
▪Products and services flow from supplier
firm → resellers → market segment or
customer firms
▪Channel captain: a dominant firm emerges
❖ Manages and coordinates distribution
❖ Invests in and cultivates brand or
reseller equity
Hybrid
▪Combination of conventional and modular
▪Adaptive channels: special hybrid
❖Suppliers, resellers, 3rd-party service
providers and customer firms agree to
share complementary capabilities
Chapter 7-30
Modular
▪Emerging information and logistics
technologies
▪Complex networks of relationships among
firms
▪Direct or indirect channels
▪Manager from one firm is system
integrator
❖Envision channel network
❖Select participating firms
❖Manage ongoing relationships
Integrated Multi-Channel
▪Internet customers
▪Empower customers to select from
different resellers or channels formats
▪Rather than compete for customer loyalty,
suppliers and reseller work together to
serve mutual customer
Business Market Management,
3rd edition
 FINALIZE MARKETING &
DISTRIBUTION
1. Devise a feasible profit model
• Cost-to-Serve (CTS) model
• Payments cover the actual wholesaler’s cost
plus a prespecified profit
2. Carefully select channel partners
▪ Market research survey to assess customer
preferences for and satisfaction with reseller
firms
▪ Validate research with on-site visits

Business Market Management,

Chapter 7-31
3rd edition
 FINALIZE MARKETING & DISTRIBUTION
3. Consider e-business and wireless technology
• Infomediary: broker that finds, retrieves, sorts,
processes & analyzes information from the web
(comparison agent)
• Metamediaries: Websites that furnish multivendor,
multiproduct, multi-service marketplace
• Electronic transaction formats
• Communities
• Catalogs
• Electronic auctions
• B2B exchange
• Wireless technologies:
• Remote, 24X7 order tracking, payment, and delivery
• Contact Management

Business Market Management,

Chapter 7-32
3rd edition
 FINALIZE MARKETING & DISTRIBUTION

4. Build International Marketing Channels

• Requires longer business processes and
additional functions in the marketing channel
• Division of functions among channel members
vary
• From region to region
• From country to country
5. Formalized Partnership Agreements
• Handshake agreements
• Written contract
• Licensing agreement
• Franchise agreement

Business Market Management,

Chapter 7-33
3rd edition
 II. CREATING VALUE THROUGH
DIRECT CHANNELS

Business Market Management,

Chapter 7-34
3rd edition
 CREATING A SALES FORCE OF VALUE
MERCHANTS

Value merchant:
• Recognizes supplier’s own cost
• Recognizes the value to the customer
in each market
• Works to obtain fair return for both
supplier firm and customer firm

Business Market Management,

Chapter 7-35
3rd edition
 CREATING A SALE FORCE OF
VALUE MERCHANTS

• Internally promote a value-based

marketing philosophy & culture
• Train value merchants
• Compensate value merchants based on
the profitability of accounts

Business Market Management, 3rd edition

Chapter 7-36
DEPLOYING VALUES MERCHANTS
• Establish necessary sales units
• Determine the number of merchants
needed
• Designate areas of responsibility
• Assign value merchants to areas of
responsibility
Business Market Management,
Chapter 7-37
3rd edition
 DESIGNING A LOGISTICS SYSTEM THAT
CREATES VALUE

Segment the market into logistically distinct

businesses
• A set of customers with unique physical
distribution requirements
• Establish differential service standards for
each market segment
• Tailor unique logistics systems to deliver
differential services
• Exploit economies of scale among the
different logistics systems

Business Market Management,

Chapter 7-38
3rd edition
 III. STRENGTHENING
RESELLER PERFORMANCE

Business Market Management,

Chapter 7-39
3rd edition
 STRENGTHENING
RESELLER PERFORMANCE

The best way to ensure resellers

deliver superior value to customers is for
the supplier to create superior value for
resellers.

Business Market Management,

Chapter 7-40
3rd edition
 CHANNEL POSITIONING
the process of
• Channel Positioning:
establishing and sustaining the supplier’s
reputation among targeted resellers for
providing superior value

• Suppliers need to recognize resellers as partners

• Supplier and reseller must build a working
relationship founded on mutual self-respect

Business Market Management, 3rd

Chapter 7-41
edition
 CHANNEL POSITIONING

Step 1 Determine reseller performance expectations

Assess the reseller value of channel offering

Step 2 elements

Craft a reseller value proposition and channel

Step 3 offering

Step 4
Communicate the reseller value proposition

Business Market Management,

Chapter 7-42
3rd edition
 DECOMPOSING MARKETPLACE EQUITY
Supplier Channel
Equity
Brand
Equity Reseller

Marketplace Equity
Reseller
Equity

Targeted
Customer
Segment
Business Market Management,
Chapter 7-43
3rd edition
 CULTIVATE BRAND AND
RESELLER EQUITY

• Supplier Firms
• Develop and sustain strong brand equity
among targeted customers
• Avoid the “final customer” syndrome
where the supplier treats the reseller as the
final customer
• Reseller Firms
• Strive to keep their equity strong
• Customize market offerings
• Continuous improvements in customer services

Business Market Management,

Chapter 7-44
3rd edition
The Channel Offering
Manufacturer Capability-Building
Sales Force Incentives Program

Promotional Support
Channel Core
Responsiveness Systems Training
Elements

Financial Returns
Quality Products
Competitive Prices
Reliable Delivery
Brand Equity

Technical Assistance
Market Research
Company Policies Incentive
Distributor Distributor
Sales Force
Programs
Firm Incentives
Incentives
Business Market Management,
Chapter 7-45
3rd edition
RESELLER VALUE PROPOSITION AND CHANNEL OFFERING

A collection of loosely connected products and services that a supplier

Bundle
firm consolidates in a transaction for a discounted price

A deliberately engineered and integrated group of products and services

Solution
that the supplier firm markets for a premium price

Reseller-Offering A product or service upon which the bundle or solution is assembled

Platform (tends to be a high-turnover, lower-margin item)

Reseller-Offering A component, subassembly, or complementary item that functions in

Peripheral conjunction with the platform

An extra, noncritical item that is often added onto a transaction without

Reseller-Offering forethought. May or may not be complementary to the platform
Accessory
(tends to have slower turnover but high margins).
Business Market Management,
Chapter 7-46
3rd edition
CHANNEL POSITIONING MATRIX (CPM)
(FIGURE 7.10)

• CPM: a detailed comparative analysis of what

a supplier:
• provides to its reseller
• what its competitors provide
• what are its resellers’ requirement
• Results of CPM:
• Changes for suppliers to pursue that will
contribute most to a reseller value
proposition

Business Market Management,

Chapter 7-47
3rd edition
 IV. SUMMARY

Business Market Management,

Chapter 7-48
3rd edition
 SUMMARY
• Business market channels augment customer value of supplier’s
offering and create a competitive advantage through the delivery
of TCE.

• A TCE entails all aspects of a customers firm’s encounter with a

supplier. It should be positive, seamless and a memorable
interactions that matches the customer firm’s purchasing
requirements and preferences.

• Business channel management is the process of designing a set

of marketing and distribution arrangements that create superior
customer value via tailored TCE for targeted segments and
customers and executing those arrangements.

• Suppliers turn to channel positioning to ensure that resellers will

enthusiastically market their products and services as well as
deliver the intended TCE.

Chapter 7-49 Business Market Management, 3rd edition

 EXERCISES

Business Market Management, 3rd edition