Business Marketing Channels and Market Logistics

Chapter Questions
What factors make Business Marketing Channels Different? Which channels are used in Business Marketing(BM)? Who are the participants in BM Channels? What is the process of channel design in BM? How channel members are managed or administered? What are the concepts of supply chain management, logistics and market logistics?

Factors Making BM Channel Different?

(from those of consumer marketing)
Geographical concentration of intermediaries

Short channels.
Different characteristics and types of intermediaries. Multi-channel or mixed system used often.

Channels Used in BM
Broad classification : Direct and Indirect Direct channels consist of :
Direct sales or personal selling Direct marketing : Direct mail, Internet, and telemarketing.

Indirect channels include:

Distributors, manufacturers reps., brokers, commission merchants, jobbers, value added resellers (VARs).

Participants in BM Channels
Manufacturers branch sales offices Distributors or dealers Manufacturers representatives or agents Brokers Commission merchants Value added resellers (VARs) Jobbers

Channel Design
Includes the following framework:
Channel Objectives Channel Constraints Channel Tasks

Channel Alternatives
Evaluation of Alternatives Selection of Channel Structure

Developing Channel Objectives

Based on following factors: Marketing objectives

Customer needs
Product characteristics

Analysing Channel Constraints

Factors constraining selection of ideal channel structure External environment (legal issues) Competitive tactics Companys constraints Product characteristics Customers geographic locations

Analysing Channel Tasks

Which tasks the company can perform effectively and efficiently, and which by intermediaries.

Identifying Channel Alternatives

Involves four major issues:

(1) Types of Intermediaries

Distributors or dealers Manufacturers representatives (reps) or agents Brokers Commission merchants jobbers

(2) Number of Intermediaries

Three alternative strategies available: Intensive distribution Selective distribution Exclusive distribution Judgment to be used for exact number of intermediaries

(3) Number of Channels

Depending on needs of market segments Multi-channel system is used often.

(4) Terms and Responsibilities of Channel Members

Agreements between marketer and channel
member to include:

Responsibilities / tasks of both parties

Sales policy Territory or market segment to be covered

Evaluation of Channel Alternatives

Criteria used: Economic performance Degree of control Adaptability to changing market situations Superior value to target customer

Selection of Channel Structure

Based on satisfying needs of target segments

Managing or Administering Channel Members

It includes:
Selecting intermediaries / channel members

Motivating channel members

Controlling or managing channel conflicts

Evaluating performance of channel members

Selecting Channel Members

Selection process consists of :
1) Generating a list of intermediaries through ads., database firms, trade associations. 2) Visiting prospective channel members 3) Negotiating with short-listed intermediaries 4) Finalising agreements Selection criteria generally used: Location Relevant experience Financial standing Infrastructure Specific criteria may differ for different types of intermediaries and product market situations of companies.

Motivating Intermediaries
First understand intermediaries needs. Then use appropriate techniques:
Partner relationship management (PRM) system Vendor managed inventory (VMI) system Reasonable discount / margins Distributor council meetings Training and coaching Developing channel positioning Quick response system Computer aided management techniques

Controlling Channel Conflicts

Undertake surveys of intermediaries to assess sources of conflicts, such as: Differences in objectives, interests, perceptions Dealings with customers Compensation Unclear territory boundaries

Methods of managing / controlling conflicts

1)Effective communication network 2)Joint goal setting 3)Diplomacy, mediation, or arbitration 4)Vertical marketing system (VMS)

Evaluating Channel Members Performance

Purpose
Know good / bad performing channel members Reward / counsel, retrain, remotivate, or terminate

Evaluation Criteria / factors

Sales achieved vs quota Customer service / satisfaction New customers generated Market feedback Assign weights to above factors. Use weighted factor method for evaluation

Supply Chain Management (SCM)

Definition
The process of planning, implementing, and controlling flow and storage of raw materials, finished goods, and related information from the supplier to the customers for the purpose of conforming to customer requirements.

SCM Framework

Information Flow Cash Flow Product and Service Flow

R.M. and Component Suppliers

Planning and forecasting

Purchase

Production

Distribut- Customer Service ion

Performance Evaluation

Business Customers

SCM Objectives
Customer satisfaction by superior value Reduce cost, waste, duplication Minimise order-to-delivery time Superior delivery service

Functions Integrated in SCM

Purchase, design, planning, production, order processing, inventory control, warehousing, material handling, customer service.

Logistics Management
Definition
Design and management of all activities (mainly transportation, warehousing, inventory) necessary to make materials available for manufacturing and finished goods available to customers as needed.

Scope of logistics
To manufacturing and service companies interested in maximising customer service. Includes inventory control, customer service, transportation, warehousing, order processing, communication, packaging, material handling.

Trend in Logistics
Outsourcing to a third party logistics (3PL) service provider.

Tasks of Market Logistics (ML)

Major tasks of ML /PD:
Transportation, warehousing, Inventory control, customer service

Other tasks:
Packaging, Order processing, material handling. Communication, locating factory and warehouses. Complex / conflicting relationship between tasks.

Approaches for managing conflicts:

Minimising total distribution cost ROI / Total systems / Channel integration

Decisions in Major Cost Centres of Logistics

Major Cost Centres of Logistics and Marketing Logistics
Transportation
Warehousing Inventory Order Processing

Transportation Decisions
Affect customer satisfaction Objectives: (1) Superior delivery service,(2) Lowest cost Decisions include selection of (1)Transportation modes, and (2) Individual carriers. Transportation modes: rail, air, truck, waterway, pipeline. Combination / Intermodel transportation : rail truck, waterway-truck, waterway rail, air-truck. Selection criteria : (1) speed, (2) availability, (3) cost, (4) dependability, (5) capability, (6) frequency Individual carriers: (a) common, (b) contract, (c) private

Warehousing Decisions
Objectives to achieved Improve customer delivery service Increase sales Channel structure influences warehousing decisions Factors considered to decide if a company should use (1)Private or (2) public warehousing facility: Customer service level required Investment to be made Operating cost Private warehousing by owning warehouse space Public warehousing by renting warehousing space

Inventory Decisions
Objectives
(1) Minimise harmful effects due to deficiencies in the logistical system; (2) Meet customer service needs; (3) Minimise costs

Inventory cost includes

Storage space charges Cost of capital Taxes and insurance Inventory risk cost

Inventory decisions include: (1) when to order, (2) how much to order when to order? Based on recorder point = delivery lead time X average daily
sales / production requirement. How much to order? (1) use inventory software, (2) use formula; ,where P= Cost of ordering, D=Annual Demand, C=Annual inventory cost (% of product cost), V=Average inventory cost.

Order Processing (OP) Decisions

OP Starts with order receipt from a customer and ends when the customer receives the product as per delivery schedule and quantity in the order.

Functions involved in OP:

Sales, marketing, finance, marketing logistics, production planning and control, production

Effective coordination and communication ensured by

Training relevant people Rewarding OP group Appointing a head of OP Customer satisfaction depends on success of OP, which is possible with effective coordination and communication.