Business Marketing Channel Participants

Business Marketing Channel Members

• Channel members: –A set of independentindependent companies–that form cooperativecooperative 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

• BuyingBuying:– An intermediary buys products for resale to

other intermediaries or to final business users.

• SellingSelling:– 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.

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Functions of the Channel Intermediary

• StoringStoring:– An inventory commitment is composed of

products to satisfy customer purchase requirements in a timely manner.

• TransportingTransporting:– A vast array of transportation alternatives

are available for intermediaries to use to manage the physical flow of the product to the business user.

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• SortingSorting:– Most intermediaries buy in large quantities

and then sort (breaking of bulk) shipments into smaller lots (often in combinations) for resale to business users.

• FinancingFinancing:– Intermediaries may invest in inventory, sell

and deliver merchandise to business user, and provide credit terms, then finance the exchange process.

Functions of the Channel Intermediary

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• Risk takingRisk taking:– Because of obsolescence and deterioration,

risk is inherent in the ownership of inventory; additional risk comes from uncollectable customer accounts.

• Providing market informationProviding 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.

Functions of the Channel Intermediary

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.

Channel Alternatives Issues

Basic Channel Options

• Direct Channel of DistributionDirect Channel of Distribution– Producer sells directly to the user– Accounts for roughly 70% of all B2B

transactions• Indirect Channel of DistributionIndirect Channel of Distribution

– At least one intermediary (middleman) exists in the channel between the producer and the user

Rockwell Automation Inc.

Direct distributionIndirect

distribution

BMW

(car image courtesy of BMW USA)

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Direct Sales Approach is Viable When:1.Customers are large & well defined.

2.The customers insist on direct sales.

3.Sales involve extensive negotiations.

4.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 Distributionis 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 DistributorsGeneral-line Distributors

• Cater to broad array of industrial needs• Stock extensive variety of products

– SpecialistsSpecialists• Focus on one line or a few related lines

– Combination HouseCombination 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

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 distributionIntensive distribution:

– Gain access to as many resellers as possible within a particular geographic area.

• Selective distributionSelective distribution:– Distribute product to limited number of resellers

in a particular geographic region; highly chosen based on distinctive capabilities and high-quality service.

• Exclusive distributionExclusive distribution:– Only one channel member can sell a

manufacturer’s products in a given geographic area.