Chapter 11 Managing Business Marketing Channels Power Point

Chapter 11: Managing Business Marketing Channels Power. Point by: Ray A. De. Cormier, 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. üWho are they? üWhat do they buy? üHow do they want to buy? üWhat 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 – B 2 B 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… ü Markets are fragmented and widely dispersed. ü Low transaction amounts prevail. ü 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 $50 b 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 $2 m • Profits around 4% ($80 -$100 K) • 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 B 2 B 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