Business Marketing Channel Participants

Business Marketing Channel Members A set of independent companies that form cooperative buyer-seller relationships involving transactions (such as raw material, components, process materials, and finished goods for resale), all leading to getting a particular product line to the final user.

Do Middlemen Cause Increases in Consumer prices? Yes If not adding value to product offering No If adding value thru creation of utilities Form Time Place Possession

Functions of the Channel Intermediary Buying: An intermediary buys products for resale to other intermediaries or to final business users. Selling: An intermediary with a capable sales force supported by established warehouse distribution centers, which is already serving other product needs of a wide user customer base, would be a valuable channel addition. (continued)

Functions of the Channel Intermediary Storing: An inventory commitment is composed of products to satisfy customer purchase requirements in a timely manner. Transporting: A vast array of transportation alternatives are available for intermediaries to use to manage the physical flow of the product to the business user. (continued)

Functions of the Channel Intermediary Sorting: Most intermediaries buy in large quantities and then sort (breaking of bulk) shipments into smaller lots (often in combinations) for resale to business users. Financing: Intermediaries may invest in inventory, sell and deliver merchandise to business user, and provide credit terms, then finance the exchange process. (continued)

Functions of the Channel Intermediary Risk taking: Because of obsolescence and deterioration, risk is inherent in the ownership of inventory; additional risk comes from uncollectable customer accounts. Providing market information: Importance of continuous and accurate flow of market information concerning final user needs, pricing conditions, competitive conditions, and user satisfaction is critical to the success of the channel.

Channel Alternatives Issues 1. Number of levels to be included in the channel. 2. Types of intermediaries to employ. 3. Number of channel intermediaries. 4. Number of channels to employ.

Basic Channel Options Direct Channel of Distribution Producer sells directly to the user Accounts for roughly 70% of all B2B transactions Indirect Channel of Distribution At least one intermediary (middleman) exists in the channel between the producer and the user

Repair and Maintenance Market BMW Direct distribution Indirect distribution Rockwell Automation Inc. (car image courtesy of BMW USA) (continued)

Direct Sales Approach is Viable When: Customers are large & well defined. The customers insist on direct sales. Sales involve extensive negotiations. Control of selling job is necessary to ensure proper implementation of the total product package and to guarantee a quick response to market conditions.

Indirect Distribution is Generally Found Where Markets are fragmented and widely dispersed. Low transaction amounts prevail. Buyers typically purchase a number of items.

Distributors Full-service intermediaries Take title to the products they sell Perform full range of marketing functions Compensated by their profit margins Classification of Distributors General-line Distributors Cater to broad array of industrial needs Stock extensive variety of products Specialists Focus on one line or a few related lines Combination House Operates in 2 markets: industrial and consumer

Manufacturers’ Representatives Do not take title to the products Do not hold inventory of the products Usually limited to defined geographic areas Typically represent several companies in the same geographic area Sell noncompeting, but complementary products Compensated on a commission basis

Sales Branches Part of the manufacturer’s organization Can be on-site or off Typically do not carry inventory Role is to sell the organization’s products

Do not take title to the products Sales Agents & Brokers Do not take title to the products Do not hold inventory of the products Usually no limit on geographic areas May represent several companies in the same geographic area Sell competing products Compensated on commission basis

Channel Transaction Facilitators Do not take title Do not carry inventory Provide services such as storage, transportation, or arranging of sales. Includes independent warehouses Carriers manufacturer’s representatives Can be very important to success of the channel.

Channel Conflict Channel conflict may result when channel members have mutually exclusive values, interests, or goals. Manufacturers may want control of distribution channels for better execution of their marketing strategies. Intermediaries may not see the manufacturer-determined strategies as in their best interest. The Key to remember: Channel conflict cannot be fully eliminated It can be properly managed

Types of Channel Width Intensive distribution: Selective distribution: Gain access to as many resellers as possible within a particular geographic area. Selective distribution: Distribute product to limited number of resellers in a particular geographic region; highly chosen based on distinctive capabilities and high-quality service. Exclusive distribution: Only one channel member can sell a manufacturer’s products in a given geographic area.