B2B

Marketing Channels
Distribution Channel
• The link between the manufacturer and the customer is
called the Channel of Distribution
• The channel accomplishes all the tasks necessary to get
the product/service to market
• Tasks can be performed by the manufacturer or be
delegated throughout the channel
• The question is: “What is the best way to execute the
tasks?”
 Functions of Distribution Channel
• Contacting potential • Financing
buyers • Servicing the product
• Negotiating • Inventorying
• Selling • Transporting
• Contracting • Storage
• Transferring title
• Training
Direct and Indirect Channels
• Who performs the TASKS?

• Direct is when the manufacturer performs all the marketing functions

• Indirect is when some type of intermediary sells or handles the

product
Fig. 10.1 – B2B Marketing Channels

Manufacturer

Direct Channels Indirect Channels

Direct Online Telemarketing

Sales Marketing
Manufacturers’
Representatives

Industrial
Distributors

Customer Segments
Direct Sales Force Required When:
• Sale is complex • Then, seller must control
• Product/service is highly the process to ensure
customized proper implementation of
total product package
• Customers are large and to guarantee quick
• Products are complex responses to market
• Sales involve extensive conditions
negotiations
• Professionalism is required
• Customer requires direct
contact
 Indirect Distribution:
Generally Found Where…

Markets are fragmented and widely dispersed.

Low transaction amounts prevail.

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.
Choosing Distribution Structure
 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.

 First, arrange customers in terms of “relative cost of

sales” from top to bottom. Use:
1. Direct sales for large accounts
2. Indirect distribution for middle and smaller
accounts.
 Business Partner’s Key Role

• A key role is to generate leads for channel members.

• They can do it by:

• Internet
• Direct mail
• Tele-channels, etc.

• More complex roles will be performed by more sophisticated

members (professional sales people – direct or indirect)
Distributors
• There are two primary intermediaries:
1.Industrial distributors
2.Manufacturers’ representatives

• These two groups handle a very sizeable share of

B2B sales.
 Distributors
• Industrial Distributors are:
• 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
a.Most are small, independent businesses serving narrow
geographic markets
b.They are heavy into the Maintenance, Repair and Operations
(MRO) supplies businesses
• They employ both inside and outside sales people
a.Generally about 75% of all business marketers sell some
product through distributors
Expanded Distributor Roles

To add more value for their customers many

large distributors have expanded their roles to
include more services:

1. Inventory management
2. Automatic replenishment
3. Product assembly
4. In-plant stores
5. Design services

 Many charge a separate fee for additional

services
Primary Distributor Classifications
General-Line Distributors
• Stock extensive variety of low tech
(commodity) products

Specialists
• Focus on one or few related lines geared
around high tech or industries demanding
complex customer requirements

Combination House
• Operates in two markets: industrial and
consumer
 Choosing a Distributor
• Choosing a distributor depends upon the market a company
wishes to target

• What are some distributor qualifications?

1.Financial
2.Good functional operations
3.Skills & technical expertise
4.Contacts

• Collaboration between manufacturer and distributor from

planning to servicing is a critical strategic force in the B2B arena
Manufacturers’ Representatives
• Manufacturers’ Reps fill a different role than Industrial
Distributors.

• They perform a much higher level of service.

• They:
1. Are more technically advanced
2. Know their territory better
3. Are able to sell professionally
4. Are experienced in the industry
5. Usually represent several companies
Manufacturers’ Reps
• Used by small, medium and large firms.
• Often, small and medium firms cannot support a full
time salesperson.
• Large firms use them to supplement their direct
force for introducing new products to an area not
covered by their sales force.
• The main reason for using Reps is because it is
economically correct to do so. Little or no training
costs, no benefits, no outrageous risks, and Reps are
highly motivated vs. employees.
Manufacturers’ Reps are used when:
• 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
• Commission rates can range from 3%, 20% or more
• Gross margin is not large
• Relatively few customers or concentrated
geographically or concentrated in few industries
• Customers order relatively infrequently and allow
fairly long lead times
Factors influencing channel design
 Step 1: Define Customer Segments

• Primary goal is to satisfy (solve) end users’ needs

(problems)

• Define target market segments

• Isolate each segments’ buying and usage behavior

• What do they buy

• How do they buy
• How do they use their purchases
Step 1: Define Customer Segments – Con’t.

• Don’t consider channel members as customers.

Instead, look beyond them to the buying unit who
has the real need.

• Example: A manufacturer of ball bearings should

not consider the wholesaler as their customer.
They should consider the various OEMs or repair
shops that need good bearings as their customer.
Step 2: Customers’ Channel Needs by Segment

Identify and prioritize channel functions requirements

for each segment.

Next, align the function with the customer’s needs.

Example: One customer may need product

information as their top priority while another may
need product quality assurance as their top priority.

Refer to Table 10.2 for list of channel functions.

Step 2: Customers’ Channel Needs by Segment –Con’t.
Customer Need Channel Function
Customer seeks more information for new or more complex 1. Product Information
products especially in rapidly changing environments.

Some products must be technically modified or need to be 2. Product Customization

adapted to meet the customer’s unique needs.

Because of its importance to a customer’s operation, 3. Product Quality Assurance

product integrity & reliability might be given special
emphasis.

Purchase of products with a high-unit value or those used 4. Lot Size

extensively represents a large dollar outlay, thus being
important.

Customer may need a broad range of products and may 5. Assortment

assign special importance to “one-stop shopping.”

Some customers’ environment demands that the seller 6. Availability

support a high level of product availability.

Customers require a range of services from installations and 7. After-Sale Service

repair to maintenance and warranty.

Customer may require special transportation and storage 8. Logistics

services to support its operations strategy.
 Step 3: Assess the Firm’s Channel
Capabilities

• Once segment is defined, functional requirements

isolated and prioritized, the next step is to:
• Analyze the segment’s channel strengths and weaknesses
• Identify gaps between what the segment functionally desires
and what the channel is providing
• Fill that gap!

• Customers base their choice on the bundle of benefits

(channel functions) the channel offers.
 Step 4: Benchmark to Competitors

• What go-to-market strategies are key competitors using?

• Understanding what competitors are doing, or not doing, offers

opportunities to discover gap(s) that might need to be closed.
Step 5: Create Channel Solutions for
Customer's Latent Needs
• Sometimes, by reviewing what competitors are doing, or not
doing, latent customer needs emerge.

• Latent needs are those that are not obvious. Sometimes

discovering them can even lead to a whole new service.

• Example: An office products supplier that mainly sold print

cartridge products to the copy repair industry noticed that
some of their customer also supplied “magnetic platters” (hard
drives) to mainframe users. They informed some of their other
copy repair customers about this related service. Some of them
decided to try it and became successful. These customers now
had a new service to sell, and the office products supplier had a
new product (platters) to market to them.
 Step 6: Evaluate and Select Channel Options

• Channel options need to be considered in light of a

cost/benefit analysis.
Partner Evaluation Parameters
Channel Partner Agreement
Channel Administration

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 achieve channel objectives.

3. Controlling inter-channel conflict.

4. Controlling and evaluating performance.

Channel Administration
• Finding and selecting good people is a very difficult
tasks manufacturers have to do. They can use:

1.Industrial Distribution magazines

2.Manufacturers’ Rep Directory
3.Advertisements in business newspapers

Convincing a rep to come on is a two-way street. The

rep asks the question, “Is this a good opportunity for
me?”
 Motivating Channel Members
• Distributors and Manufacturers’ Reps are:

A.Independent
B.Profit Oriented
C.More concerned about their customers’ situation than
the manufacturer’s state of affairs.
D.Thus, Distributors and Mfg. Reps have a different outlook
and perception than the manufacturer.
Partnership
• The channel is motivated by the understanding that the relationship is a
partnership.

• Relationship Marketing demands:

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

• This relationship leads to meeting performance goals.

 Compensation
• Margins and commissions are the driving force to motivate this
element of marketing.

• Margins and commissions must meet market norms.

• Companies and products that offer higher commissions and

margins do get the attention over those that don’t meet norms.

• Many companies ask the distributor to do more and those extra

services need to be compensated for. Example: Market
research.
Trust – The Ultimate Compliment
• Another way for trust to occur is for each member to
make the system work and to reduce channel conflict.
Techniques include:

a. Joint decision making

b. Joint goal setting
c. Cooperative programs
d. Arbitration committees to settle problems
A Successful Distribution Channel
• Needs communication and trust. To manifest this:

1.Members offer benefits and resources superior to

what other partners could offer.
2.Corporate values are similar throughout the chain.
3.Members share information on expectations,
markets and performance.
4.Members don’t take advantage of each other.
 Competitive Advantage

• By working together, business marketers

and their channel members can enjoy
sustainable competitive advantage over
their rivals and their networks.