Channels of Distribution

Dr. Dawne MartinBusiness MarketingNovember 1, 2011

Administrative Things

Assignments

Presentation Dates Assigned Thursday

Part III of Paper: Due November 18, 2011

Part IV of Paper: Due November 29, 2011

For Next Time Read Chapter 11 Aget case for markets and

channels discussion

Learning Objectives

To explore the importance and marketing of business services

To assess channel options and channel management approaches.

Identify potential problems and issues

Part III and Part IV of Paper

Part III: Competitive & Customer AnalysisAnalysis of 3 CompetitorsCustomer Segment Analysis

Definition with segmentation variables Size and growth of market Needs Value issues

Part IV: Marketing Program – Executive Interview

Channels of Distribution Unique combination of distribution and sales

effort that creates a way to reach the target customer with customer’s desired point of purchase service level sought producing effective sales opportunities for

business in a cost effective manner Strategic Benefits

Sales growth Customer value Competitive advantage

KEY OBJECTIVES OFMARKETING CHANNELS

DELIVER THE NEEDED GOOD/SERVICE

PLACE THE GOOD/SERVICE WHERE IT IS WANTED

HAVE THE GOOD/SERVICE

WHEN IT IS WANTED

9-5

Steel Service Center (Case 9.1)

Traditional approach - small distributors to supply small metalworking shops

Today – Metal service centers – cut, stamp and transform plate steel, coiled metal, bars and other semi-finished metal

Why has this change in distribution taken place?

MARKETING CHANNEL DIFFICULTIES

CHANNELS AREEXPENSIVE TO ESTABLISH

CHANNELS ARECOSTLY TO COORDINATE

CHANNELS ARESLOW TO ADAPT TO ENVIRONMENTAL CHANGES

9-7

WHAT DISTRIBUTORS DO

CONTRIBUTIONTO MANUFACTURERS

MARKET COVERAGE

SALES CONTACTS

INVENTORY AVAILABILITY

ORDER PROCESSING

MARKET INTELLIGENCE

CUSTOMER SUPPORT

CONTRIBUTIONTO CUSTOMERS

PRODUCT AVAILABILITY

PRODUCT ASSORTMENT

FITTING ORDER QUANTITY

CREDIT

SERVICE

TECHNICAL SUPPORT

9-8

Types of Channels Merchant Wholesalers

(Distributors/Value-Added Resellers)- own goods Full-function Limited-function

Single Line Specialty Cash & Carry Drop Shippers/Desk

Jobber Truck Jobber

Agents Intermediaries Agents – represent buyer

Industry or technical expertise

Established relationships with buyers

Brokers – bring buyers & sellers together

Manufacturer’s sales branches or offices

Alternative Channel Structures

Identifying Alternatives

Number of Levels Intensity of

Distribution Types of

Intermediaries

Variables Affecting Design

Market Product Company Intermediary Environmental Behavioral

Rockwell Automation Inc.

Direct distribution

Indirect distribution

BMW

(car image courtesy of BMW USA)

(continued)

Grainger’s advantage is one-stop shopping, which means convenience for the customer.

• Grainger is the nation's leading business-to-business distributor of maintenance, repair, and operating (MRO) supplies and related information. Its customers have access to over 560,000 products available to them through on-line ordering, phone ordering, and stopping by branch locations. One stop shopping with one invoice and one delivery.

• Rockwell Automation Inc. may agree that Grainger will be its exclusive distributor in the state of South Carolina.

• That is, of course, except for BMW’s South Carolina assembly plant, which Rockwell will supply directly (as house account).

• www.grainger.com

A MODEL FOR CHANNEL DESIGN

Identify andforecast

user serviceneeds

Identify andforecast

user serviceneeds

Evaluatecurrent channels

and otheroptions

Evaluatecurrent channels

and otheroptions

Createa vision ofthe idealchannel

Createa vision ofthe idealchannel

Implementthe best option

and managethe system

Implementthe best option

and managethe system

GapAnalysis

GapAnalysis

Exhibit 9-5

9-13

Choosing a Channel Structure Performance

Transaction CostsMarket CoverageTask PerformanceCompetitive Advantage

Flexibility Control

Selection Criteria For Channel Members

Credit & Financial Conditions

Sales Strength Product Lines

Competitive Compatible Complementary Quality

Market Coverage

Reputation Customers Other Manufacturers

Sales Performance Management

Succession Management Ability Attitude Size

10-6

Types of Conflict•Means•Ends (Goals)•Perceptions

Potential Problems and Issues

Tough CompetitorsDisruption of channel tasks in carrying out

marketing plans Saboteurs

Resistance and aggression when changes are required

Speed and RedundancyFast changes & realignment of tasks

HOW CHANNEL MEMBERS CANRESPOND TO CONFLICT

EXIT—Can leave the relationship

VOICE—Can find a means to articulate dissatisfaction

LOYALTY—Can continue to persevere in face of

conflict

AGGRESSION—Can openly or covertly take actions

to injure the conflict party

NEGLECT—Can leave the conflict untreated and fade

away

9-18

SOURCES OF CHANNEL POWER

1. REWARD POWER — Ability to provide days off for specific outcome/behavior

2. COERCIVE POWER — Ability to punish for failure to perform

3. INFORMATION POWER — Ability to obtain information others do not have

4. EXPERT POWER — Ability to gain an advantage by what you know

5. REFERENT POWER — Ability to influence by serving as the model of best practices

6. LEGITIMATE POWER — Explicit authority granted by tradition or contract

9-19

How are e-Channels Used?

Information Platforms Product specifications, features, availability

Transactional Platform Streamline sales process Provide contact with smaller customers

Customer Relationship Management Platform Creates on-going dialog with the customer Supports traditional channels

Internet Channel Issues Tasks performed electronically

Information & frequently asked questions Ordering and order tracking Customer support Transaction processing

Shift in channel role Customer education Customer sales Consultation Customer relationships On-site service

Trends - B2B Distribution

Consolidation of channel options Production outsourcings - often offshore Managing multi-channel marketing Globalization of purchasing Increasing customer emphasis on total value Distributor offerings becoming more sophisticated Distributors expecting more services from supplier

manufacturers Peer to peer networking -- Twitter

Questions

Why did Federal Express buy Kinko’s? Why would a new technology company opt to

using manufacturers’ representatives for distribution rather than developing their own sales force?

Why did pharmaceutical companies decide to use missionary sales people to supplement their distributor’s selling effort?