395 channels

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Business Marketing

Channel Participants

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Business Marketing Channel Members

Channel members: ±A set of i ndependent i ndependent companies

±that form cooperat iv ecooperat iv e 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.

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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

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EXHIBIT 7-1

Basic Channel Functions

Marketing

information

Buying Selling

Storage

Transportation

Financing Sorting

Risk taking

Basic

channel

functions

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Functions of the Channel Intermediary

Buy i ng Buy i ng : ±An intermediary buys products for resale to

other intermediaries or to final business

users. S ell i ng S ell i ng :

±An intermediary with a capable sales for ce

supported by established warehousedistribution centers, which is already

serving other product needs of a wide user

customer base, would be a valuable

channel addition. (continued)

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S ort i ng S ort i ng : ±Most intermediaries buy in large quantities

and then sort (break i ng of bu lk ) shipments

into smaller lots (often incombinations) for resale to business users.

F i nanc i ng F i nanc i ng : ± Intermediaries may invest in inventory, sell

and deliver mer chandise to business user,and provide credit terms, then finance the

exchange process.


(continued)

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R i sk tak i ng R i sk tak i ng : ±Because of obsolescence and deterioration,

risk is inherent in the ownership of

inventory; additional riskcomes fromuncollectable customer accounts.

P rovi d i ng market i nformat i onP rovi d i ng market i nformat i on: ± 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.


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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

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Basic Channel Options

Di rect Channel of Di str i bu t i onDi rect Channel of Di str i bu t i on

±Producer sells directly to the user

±Accounts for roughly 70% of all B2Btransactions

Ind i rect Channel of Di str i bu t i onInd i rect Channel of Di str i bu t i on

±At least one intermediary (middleman)exists in the channel between the producer

and the user

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Rockwell Automation Inc.

Direct

distributionIndirect distribution

BMW

(car image courtesy of BMW USA)

(continued)

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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 necessar y

to ensure proper implementation of

the total product package and

to guarantee a quick response to

market conditions.

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Indirect Distribution

is Generally Found Where

Markets are fragmented and

widely dispersed.Low transaction amounts

prevail.

Buyers typically purchase a

number of items.

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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 ± ± G eneral G eneral- -l i ne Di str i bu torsl i ne Di str i bu tors

Cater to broad array of industrial needs

Stock extensive variety of products

± ± S pec i al i stsS pec i al i sts Focus on one line or a few related lines

± ± Combi nat i on Hou seCombi nat i on Hou se Operates in 2 markets: industrial and consumer

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Manufacturers¶ Representatives

D

o 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 complementaryproducts

Compensated on a commission basis

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Sales Branches

Part of the manufacturer¶sorganization

Can be on-site or off Typically do not carry inventory

Role is to sell the organization¶s

products

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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

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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.

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Channel Conflict

Channel confl i ct may result when channel

members have mutually exclusive values,

interests, or goals. ± Manufacturers may want control of distribution

channels for better exe

cution of their marketingstrategies.

± 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

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Types of Channel Width

Intensiv e d i str i bu t i onIntensiv e d i str i bu t i on: ± Gain access to as many resellers as possible

within a particular geographic area.

S elect iv e d i str i bu t i onS elect iv e d i str i bu t i on: ± D

istribute produc

t to limited number of resellersin a particular geographic region; highly chosen

based on distinctive capabilities and high-quality

service.

Ex cl u siv e d i str i bu t i onEx cl u siv e d i str i bu t i on: ± Only one channel member can sell a

manufacturer¶s products in a given geographic

area.

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