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Ch10 bus mktg channels

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RakeshNimhan

The document discusses channels of distribution and go-to-market strategies for business markets. It describes selecting channels based on understanding customer needs and segments. Direct channels involve no intermediaries while indirect channels use representatives or distributors. Distributors take inventory and provide services like delivery. Representatives sell for multiple companies and are paid on commission. The channel design process involves defining customer segments, identifying their needs, and aligning channel functions to satisfy those needs.

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BUSINESS MARKETING CHANNELS
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.  Who are they?  What do they buy?  How do they buy?  How do they want to buy?  What 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. Develop procedures for selecting intermediaries b. Motivate them to meet goals c. Resolve conflict between them d. Evaluate performance • The following discussion centers around designing and administering the business marketing 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  Direct is when the manufacturer performs all the marketing functions  Indirect is when some type of intermediary sells or handles the product
Manufacturer Direct Channels Indirect Channels Direct Sales Online Marketing Telemarketing Manufacturers’ Representatives Industrial Distributors Customer Segments
 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… Markets are fragmented and widely dispersed. Low transaction amounts prevail. Buyers typically purchase a number of items.
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. 234-236.
 Multi-channel strategy is used when it is necessary to reach a large business market that is composed of large, mid- and small-sized customers.  First, arrange customers in terms of “relative cost of sales” from top to bottom. Use: 1. Direct sales for large accounts 2. Indirect distribution for middle and smaller accounts.
 A key role is to generate leads for channel members.  They can do it by:  Internet  Direct mail  Tele-channels, etc.  More complex roles will be performed by more sophisticated members (professional sales people – direct or indirect)
Simple Example of High-Coverage Partnering Model Sales task Channel Lead generation Qualification Bid & proposal Negotiation/ sale closure Fulfillment Customer care & support Direct sales channel (field reps) Business partners Tele-channels Direct mail Internet Sales Cycle High Expenses Low Expenses Occasional support by sales reps to help partners close key strategic deals
Distributors  There are two primary intermediaries: 1.Industrial distributors 2.Manufacturers’ representatives  These two groups handle a very sizeable share of B2B sales.
Distributors  Industrial Distributors are: a.Most pervasive b.They are heavy into the Maintenance, Repair and Operations (MRO) supplies businesses c.Most are small, independent businesses serving narrow geographic markets
Distributors 17  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  They employ both inside and outside sales people  Most are small but some are very large
 Distributors are in every industry. For example they are in: 1. Food and Beverage 2. Maintenance, Repair and Operations (MRO) supplies 3. Hardware, Electronics and Fabrication 4. Furniture, Clothing, and Personal products
EXPANDED DISTRIBUTOR ROLES  To add more value for their customers many large distributors have expanded their roles to include more services: 1. Inventory management 2. Automatic replenishment 3. Product assembly 4. In-plant stores 5. 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
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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 B2B arena
 Outsourcing of manufacturing, high cost of salaried people and for other reasons, the result is that B2B is substantially increasing.  This leads us into the next type of B2B player:  Manufacturers’ Representatives
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Manufacturers’ Reps  Manufacturers’ Reps fill a different role than Industrial Distributors.  They perform a much higher level of service.  They: 1. Are more technically advanced 2. Know their territory better 3. Are able to sell professionally 4. Are experienced in the industry 5. Usually represent several companies
Manufacturers’ Reps  Used by small, medium and large firms.  Small and medium firms cannot support a full time salesperson.  Large firms use them to supplement their direct force for introducing new products to an area not covered by their sales force.  The main reason for using Reps is because it is economically correct to do so. Little or no training costs, no benefits, no outrageous risks, and Reps are highly motivated vs. employees.
• 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 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 Channel Design Process
Ch10 bus mktg channels
 Primary goal is to satisfy (solve) end users’ needs (problems)  Define target market segments  Isolate each segments’ buying and usage behavior  What do they buy  How do they buy  How do they use their purchases
 Don’t consider channel members as customers. Instead, look beyond them to the buying unit who has the real need.  Example: A manufacturer of ball bearings should not consider the wholesaler as their customer. They should consider the various OEMs or repair shops that need good bearings as their customer.
STEP 2: CUSTOMERS’ CHANNEL NEEDS BY SEGMENT  Identify and prioritize channel functions requirements for each segment.  Next, align the function with the customer’s needs.  Example: One customer may need product information as their top priority while another may need product quality assurance as their top priority.
STEP 2: CUSTOMERS’ CHANNEL NEEDS BY SEGMENT –CON’T. Channel Function Customer Need 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. Logistics Customer may require special transportation and storage services to support its operations strategy. Table 11.2
Step 3: Assess the Firm’s Channel Capabilities  Once segment is defined, functional requirements isolated and prioritized, the next step is to:  Analyze the segment’s channel strengths and weaknesses  Identify gaps between what the segment functionally desires and what the channel is providing  Fill that gap!  Customers base their choice on the bundle of benefits (channel functions) the channel offers.
Step 4: Benchmark to Competitors  What go-to-market strategies are key competitors using?  Understanding what competitors are doing, or not doing, offers opportunities to discover gap(s) that might need to be closed.
Step 5: Create Channel Solutions for Customer's Latent Needs  Sometimes, by reviewing what competitors are doing, or not doing, latent customer needs emerge.  Latent needs are those that are not obvious. Sometimes discovering them can even lead to a whole new service.  Example: An office products supplier that mainly sold print cartridge products to the copy repair industry noticed that some of their customer also supplied “magnetic platters” (hard drives) to mainframe users. They informed some of their other copy repair customers about this related service. Some of them decided to try it and became successful. These customers now had a new service to sell, and the office products supplier had a new product (platters) to market
 Channel options need to be considered in light of a cost/benefit analysis.  Some gaps may offer opportunities.  More often, channel members can work together to better align themselves with their customers.  The idea is to enhance value for their customers.  Channels must be open to change as customers and competitors change.  Channel management is an ongoing process.

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Ch10 bus mktg channels

  • 2. 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.  Who are they?  What do they buy?  How do they buy?  How do they want to buy?  What would motivate them to buy from you?
  • 3. 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
  • 4. Managing the Channel • Once a channel structure is specified and goals set, marketing managers need to: a. Develop procedures for selecting intermediaries b. Motivate them to meet goals c. Resolve conflict between them d. Evaluate performance • The following discussion centers around designing and administering the business marketing channel.
  • 5.  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?”
  • 6. Channel Tasks Include:  Contacting potential buyers  Negotiating  Selling  Contracting  Transferring title  Training  Financing  Servicing the product  Inventorying  Transporting  Storage
  • 7. Direct and Indirect Channels  Direct is when the manufacturer performs all the marketing functions  Indirect is when some type of intermediary sells or handles the product
  • 8. Manufacturer Direct Channels Indirect Channels Direct Sales Online Marketing Telemarketing Manufacturers’ Representatives Industrial Distributors Customer Segments
  • 9.  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
  • 10. Indirect Distribution: Generally Found Where… Markets are fragmented and widely dispersed. Low transaction amounts prevail. Buyers typically purchase a number of items.
  • 11. 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. 234-236.
  • 12.  Multi-channel strategy is used when it is necessary to reach a large business market that is composed of large, mid- and small-sized customers.  First, arrange customers in terms of “relative cost of sales” from top to bottom. Use: 1. Direct sales for large accounts 2. Indirect distribution for middle and smaller accounts.
  • 13.  A key role is to generate leads for channel members.  They can do it by:  Internet  Direct mail  Tele-channels, etc.  More complex roles will be performed by more sophisticated members (professional sales people – direct or indirect)
  • 14. Simple Example of High-Coverage Partnering Model Sales task Channel Lead generation Qualification Bid & proposal Negotiation/ sale closure Fulfillment Customer care & support Direct sales channel (field reps) Business partners Tele-channels Direct mail Internet Sales Cycle High Expenses Low Expenses Occasional support by sales reps to help partners close key strategic deals
  • 15. Distributors  There are two primary intermediaries: 1.Industrial distributors 2.Manufacturers’ representatives  These two groups handle a very sizeable share of B2B sales.
  • 16. Distributors  Industrial Distributors are: a.Most pervasive b.They are heavy into the Maintenance, Repair and Operations (MRO) supplies businesses c.Most are small, independent businesses serving narrow geographic markets
  • 17. Distributors 17  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  They employ both inside and outside sales people  Most are small but some are very large
  • 18.  Distributors are in every industry. For example they are in: 1. Food and Beverage 2. Maintenance, Repair and Operations (MRO) supplies 3. Hardware, Electronics and Fabrication 4. Furniture, Clothing, and Personal products
  • 19. EXPANDED DISTRIBUTOR ROLES  To add more value for their customers many large distributors have expanded their roles to include more services: 1. Inventory management 2. Automatic replenishment 3. Product assembly 4. In-plant stores 5. Design services  Many charge a separate fee for additional services
  • 20. 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
  • 21. 21
  • 22. 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 B2B arena
  • 23.  Outsourcing of manufacturing, high cost of salaried people and for other reasons, the result is that B2B is substantially increasing.  This leads us into the next type of B2B player:  Manufacturers’ Representatives
  • 24. 24
  • 25. Manufacturers’ Reps  Manufacturers’ Reps fill a different role than Industrial Distributors.  They perform a much higher level of service.  They: 1. Are more technically advanced 2. Know their territory better 3. Are able to sell professionally 4. Are experienced in the industry 5. Usually represent several companies
  • 26. Manufacturers’ Reps  Used by small, medium and large firms.  Small and medium firms cannot support a full time salesperson.  Large firms use them to supplement their direct force for introducing new products to an area not covered by their sales force.  The main reason for using Reps is because it is economically correct to do so. Little or no training costs, no benefits, no outrageous risks, and Reps are highly motivated vs. employees.
  • 27. • 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
  • 28.  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 Channel Design Process
  • 30.  Primary goal is to satisfy (solve) end users’ needs (problems)  Define target market segments  Isolate each segments’ buying and usage behavior  What do they buy  How do they buy  How do they use their purchases
  • 31.  Don’t consider channel members as customers. Instead, look beyond them to the buying unit who has the real need.  Example: A manufacturer of ball bearings should not consider the wholesaler as their customer. They should consider the various OEMs or repair shops that need good bearings as their customer.
  • 32. STEP 2: CUSTOMERS’ CHANNEL NEEDS BY SEGMENT  Identify and prioritize channel functions requirements for each segment.  Next, align the function with the customer’s needs.  Example: One customer may need product information as their top priority while another may need product quality assurance as their top priority.
  • 33. STEP 2: CUSTOMERS’ CHANNEL NEEDS BY SEGMENT –CON’T. Channel Function Customer Need 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. Logistics Customer may require special transportation and storage services to support its operations strategy. Table 11.2
  • 34. Step 3: Assess the Firm’s Channel Capabilities  Once segment is defined, functional requirements isolated and prioritized, the next step is to:  Analyze the segment’s channel strengths and weaknesses  Identify gaps between what the segment functionally desires and what the channel is providing  Fill that gap!  Customers base their choice on the bundle of benefits (channel functions) the channel offers.
  • 35. Step 4: Benchmark to Competitors  What go-to-market strategies are key competitors using?  Understanding what competitors are doing, or not doing, offers opportunities to discover gap(s) that might need to be closed.
  • 36. Step 5: Create Channel Solutions for Customer's Latent Needs  Sometimes, by reviewing what competitors are doing, or not doing, latent customer needs emerge.  Latent needs are those that are not obvious. Sometimes discovering them can even lead to a whole new service.  Example: An office products supplier that mainly sold print cartridge products to the copy repair industry noticed that some of their customer also supplied “magnetic platters” (hard drives) to mainframe users. They informed some of their other copy repair customers about this related service. Some of them decided to try it and became successful. These customers now had a new service to sell, and the office products supplier had a new product (platters) to market
  • 37.  Channel options need to be considered in light of a cost/benefit analysis.  Some gaps may offer opportunities.  More often, channel members can work together to better align themselves with their customers.  The idea is to enhance value for their customers.  Channels must be open to change as customers and competitors change.  Channel management is an ongoing process.