Transcript Managing Business Marketing Channels

Chapter 11:
Managing Business
Marketing Channels
PowerPoint by:
Ray A. DeCormier, Ph.D.
Central Connecticut State University
Go to Market Strategy
Lawrence G. Friedman’s influential book states
that:
 The ability to make smart decisions about going to the
market depends on how well you understand your
customer.
Who are they?
What do they buy?
How do they buy?
How do they want to buy?
What would motivate them to buy from you?
Importance of Channel Component
• Selecting the channel design mix is challenging
1. The alternatives are numerous
2. Marketing goals differ between channel members
3. Business markets segments vary, thus it may require
numerous channels concurrently
4. Business market environment constantly changes
5. Competition is stiff
6. Customer requirements change
7. Internet technology is changing the landscape
•
All of this creates new opportunities and the need
for fresh channel strategies
Managing the Channel
• Once a channel structure is specified and goals set,
marketing managers need to:
a.
b.
c.
d.
Develop procedures for selecting intermediaries
Motivate them to meet goals
Resolve conflict between them
Evaluate performance
• The following discussion centers around
designing and administering the business
marketing channel.
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?”
Channel Tasks Include:
•
•
•
•
•
•
Contacting potential buyers
Negotiating
Selling
Contracting
Transferring title
Training
•
•
•
•
•
Financing
Servicing the product
Inventorying
Transporting
Storage
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. 11.1 – B2B Marketing Channels
Manufacturer
Direct Channels
Direct
Sales
Online
Marketing
Indirect Channels
Telemarketing
Manufacturers’
Representatives
Industrial
Distributors
Customer Segments
Direct Sales Force Required When:
• Sale is complex
• Product/service is highly
customized
• Customers are large
• Products are complex
• Sales involve extensive
negotiations
• Professionalism is required
• Customer requires direct
contact
• Then, seller must
control the process to
ensure proper
implementation of total
product package and to
guarantee quick
responses to market
conditions
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
Sales Closure
Negotiation of prices, terms, and conditions, followed by agreement on
a binding contract.
Fulfillment
For standardized product or service, delivery of offering to customer.
Configuration, customization, and installation for more complex sales.
Customer Care and Support
Post-sale problem resolution, customer guidance, and ongoing contact
to 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. 234236.
Multi-Channel Integration Map
Simple Example of High-Coverage Partnering Model
Sales
task
Channel
Lead
generation
Qualification
Bid &
proposal
Negotiation/
sale closure
$$$
Direct sales
channel
(field reps)
Business
partners
Tele-channels
Direct mail
$
Occasional support
by sales reps to
help partners
close key
strategic deals
Internet
Sales Cycle
Fig. 11.3
Fulfillment
Customer care
& support
Distributors
• Industrial Distributors are:
a. Most pervasive (10,000+)
b. Sales exceed $50b
c. They are heavy into the Maintenance, Repair and
Operations (MRO) supplies businesses
d. Generally about 75% of all business marketers sell
some product through distributors
e. Most are small, independent businesses serving
narrow geographic markets
Distributors
• 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
• Sales average $2m
• Profits around 4% ($80-$100K)
• They employ both inside and outside sales people
• Most are small but some are very large
14
Expanded Distributor Roles
 To add more value for their customers
many large distributors have expanded
their roles to include more services:
1.
2.
3.
4.
5.
Inventory management
Automatic replenishment
Product assembly
In-plant stores
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
• In other words, “What can they do & who do they know?”
• E-collaboration between manufacturer and distributor
from planning to servicing is a critical strategic force in the
B2B arena
Manufacturers’ Reps
• Manufacturers’ Reps fill a different role than
Industrial Distributors.
• They perform a much higher level of service.
• They:
1.
2.
3.
4.
5.
Are more technically advanced
Know their territory better
Are able to sell professionally
Are experienced in the industry
Usually represent several companies
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
Channel Design Process
•
Channel design is a dynamic process:
1. They can be developed (new channels) where
none existed (i.e., Internet)
2. Or modify existing channels
•
Channel design is a vigorous activity rather than
passive one.
One of the most difficult jobs in marketing is to
develop a channel(s) of distribution
•
Customers’ Channel Needs by Segment
Channel Function
Customer Need
Table 11.2
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.
Customer may require special transportation and storage services to
support its operations strategy.
Logistics
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.
Dealer Advisory Councils
• This approach to motivating the distribution channel
is to bring in the players for the purposes of:
1. Developing policy
2. Developing strategy
3. Attaining advice to correct problems
4. Taking advantage of opportunities
• Progressive companies bring them into the decisionmaking process as much as possible (AMAP).
26
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