MANAGING BUSINESS

MARKETING CHANNELS
LECTURE 2
  Importance of Marketing channels in B2B
 Role of industrial distributors and
manufacturers’ representatives
LEARNING
OBJECTIVES  Channel design
 Strategic importance of marketing channels
  The link between the manufacturer and the customer is called
the Channel of Distribution
 The channel accomplishes all the tasks necessary to get the
Distribution product/service to market
channel and  Business market segments vary, so several channel types
its importance may be required for serving customers
 Competition and technology influences channel decisions
 Marketing goals differ across channel types
 Changes in customer requirements and expectations
  JSW One - has been launched to combine the
distribution network and supply chain
expertise of its steel and cement businesses.
Under the new programme, the dealers could
act as JSW One sales points for cement and
Jindal South TMT steel. The group is looking to engage
West (JSW) 1,500 JSW One dealers in a year. There are
3,800 dealers in the cement business and
around 950 steel distributors and retailers in
the region that will slowly be integrated in the
program.
 A good distribution network adds value to the product by
increasing utility.
Channel is firm’s major link with its customers.
Choice of channel influences the rest of marketing mix
elements.
Building appropriate channel takes time and commitment and
Strategic Issues is difficult to change.
in Distribution Distribution system determines segmentation and targeting
decisions.
Conflicts may arise between firm’s goals and those of
intermediaries.
Intermediaries in foreign market may weaken the control of the
supplier.
  Place utility- making the product available at a place
where it is convenient for the customer. Snap-on Tools
offers tool service to light engineering companies by
using vans as mobile tool warehouse.
 Time utility-making goods available to customers when
they need it. Just-in-time ordering and delivery is
Added Utility planned to make components arrive at regular intervals.
 Ownership utility-goods are transferred to the purchaser
immediately after purchase.
 Information utility-distributors can answer questions
directly
  GE’s DER-aware ADMS moves beyond the traditional
bounds of SCADA, DMS and OMS and provides
software for the safe and secure management and
orchestration of the distribution grid. GE’s ADMS
Advanced combined with Grid Analytics enables grid operations to
Distribution drive new business value and outcomes from real-time,
Management historic and forecast data across the distribution business.
Solutions GE’s Grid Analytics not only delivers additive predictive
insights, but also drives better operational performance
through a growing suite of customer use cases for
advanced simulation and network level optimization. 
 Buy and build stock
Combine manufacturers’ outputs
Distributors
Share credit risk
Add Value and
serve Share selling risk
Manufacturers Forecast market needs
Provide market information
  Sale is complex
 Product/service is highly customized
 Customers are large
Direct sales force  Products are complex
is required…  Sales involve extensive negotiations
 Customer requires direct contact
 Markets are fragmented and widely dispersed.

Indirect Low transaction amounts prevail.

channels are
important…
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.
  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.

Customer  Firms arrange customers in terms of “relative cost of

sales” from top to bottom. They use:
Contact points 1. Direct sales for large accounts
2. Indirect distribution for middle and smaller
accounts.
 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
 Industrial distributors- are primarily into the
Maintenance, Repair and Operations (MRO) supplies
businesses. Generally about 75% of all business
marketers sell some product through distributors. Most
are small, independent businesses serving narrow
Distributors geographic markets

Manufacturers’ representatives
  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
Distributors  They employ both inside and outside sales people
 Most are small but some are very large
  Inventory management
 Automatic replenishment
Expanded  Product assembly
Distributor  In-plant stores
roles  Design services
  General-Line Distributors
Stock extensive variety of low tech
(commodity) products
 Specialists
Distributor Focus on one or few related lines geared
Classification around high tech or industries demanding
complex customer requirements
 Combination House
Operates in two markets: industrial and
consumer
 Manufacturers’ Reps fill a different role than Industrial
Distributors.

 They perform a much higher level of service.

Manufacturers’  Are more technically advanced
Representatives  Know their territory better
 Are able to sell professionally
 Are experienced in the industry
 Usually represent several companies
  Periscope provides intuitive solutions and expert support
to commercial teams at heavy equipment and machinery
manufacturers. The firm helps them deal with two
primary pricing challenges: how to price complex
projects, such as a new assembly line for a car

Periscope manufacturer, in a way that balances customer value with

profitability, and how to price spare parts. Leveraging
their competency in big data integration and advanced
analytics, Periscope put competitive intelligence and
price erosion alerts at the fingertips of sales teams for
better decisions and higher profits.
 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
Manufacturer Commission rates can range from 3%, 20% or more
Reps are used Gross margin is not large
when….
Relatively few customers or concentrated
geographically or concentrated in few industries

Customers order relatively infrequently and allow fairly

long lead times
  Define target market segments by isolating each segments’
buying and usage behavior.
 Identify and prioritize channel functions requirements for
each segment. Align the function with the customer’s needs.
 Analyze the segment’s channel strengths and weaknesses and
Channel Design identify gaps between what the segment functionally desires
Process and what the channel is providing
 Benchmark to competitors by understanding what
competitors are doing, or not doing.
 Create channel solutions for customers’ latent needs
 Evaluate and select channel options
 Customers’ Channel Needs by Segment
Channel Function Customer Need
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.
 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

Channel achieve channel objectives.
Administration
Process 3. Controlling inter-channel conflict.

4. Controlling and evaluating performance.

  The channel is motivated by the understanding that
the relationship is a partnership.

 Relationship Marketing demands:

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