Business Marketing
Channel Participants
Business Marketing Channel Members
• 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
BMW
Indirect distribution
Direct
distribution
Rockwell Automation Inc.
(car image courtesy of BMW USA)
(continued)
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 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
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 manufacturerdetermined 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:
– 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.