A marketing channel and growth perspective on 3M Canada
Introduction
This essay will address the case study of 3M Canada with relations to evaluating the
opportunities and challenges of its Industrial Business Division (IBD) via changing
the customer focus from OEM to MRO. It will also differentiate the sales relationship
between Original Equipment Manufacturer (OEM) and Maintenance, Repairs and
Overhaul (MRO) customers. It is also necessary to identify how and why the IBD’s
current sales model has to be changed to effectively reach national distributors.
Crucially, the company has to develop a plan of action for IBD, addressing the issues
of targeting national distributors or other viable marketing models. The plan of action
must consist of suitable recommendations to meeting the aggressive revenue growth
objectives.
Fundamentally, channels provide the means by which the firm moves the goods and
services it produces to ultimate users. It facilitate the exchange process by cutting the
number of contacts necessary. It adjust for discrepancies in the market’s assortment
of goods and services via sorting, standardize exchange transactions and facilitate
searches by both buyers and sellers. It also takes legal title of the products and extends
credit.
Opportunities and challenges for OEM and MRO
This involved growing the core business, pursuing acquisitions, doubling investments
in emerging markets for both the OEM and MRO segments. MRO segments currently
provide a lower cost of investment due to its cheaper based products.
The supply chain players are of paramount importance to 3M’s long term strategical
challenges. They involve the manufacturer’s sales agents which control the customers
through having to avoid double selling. The supplier vendors are also key to supply
cheaper items during economic downturn. They sometimes produce patented products
such as polymers and abrasives, which would incur higher costs for 3M. The
increased use of intermediaries in the exchange process is explained by their great
efficiency. They can be more efficient at performing channel tasks and flows due to
specialization and scale economy (Semenik and Bamossy, 1995). Their importance is
also emphasized because they adjust assortment discrepancies between supply and
demand. This is in the case of OEM products which offer value to customers.
In the MRO segments, the distributors are responsible for supplying labour that have
risen in Canada due to exchange rates and Asian competition. They are competitors of
3M, wherein the products are brand-less items that do not see loyalty of a brand.
There are 4 types under 3M classification: national, special, general, niche. They play
different roles which must be complementary to 3M, or skills where 3M lacks.
Special and niche distributors are easier to control since they are smaller with
technocrats that can fit into 3M’s culture. In a nutshell:-
Opportunities from OEM to MRO

Business to business key account professionals are required since the products are
more specialized and need demonstration

OEM skills are transferable to MRO markets, retaining higher learning curve and
customer retention rates

specialized and niche customer markets that encourage commoditization, which
deserves low price commodities.

distributors and suppliers are growing, provide greater bulk-breaking for end
users to buy their product or service in their desired number of unit of lot size.
Also allows for decentralization of wholesale or retail outlets, reducing
transportation requirements and search costs

production systems such as six sigma, lean manufacturing, global direct
purchasing systems are opened to all players in the supply chain, giving lower
costs to research and development.

Expansion through acquisition of boutique distributors and outsourcing
possibilities should be encouraged since more of the 3M’s products are produced
in Canada.

Generic products in MRO segments give a good chance to become a top brand
with the advent of ecommerce.
Challenges from OEM to MRO

The growing distributors for MRO provides good opportunities since it is a
growing market which 3M has not readily tapped into.

Changing customer focus for MRO products which are less custom-based
targeted at end-user public consumers unlike OEM, which is more personalized
for business customers. This means doing more general consumerables instead of
investing in high research costs.

IBD has less exposure to the MRO markets, thus therefore with less mature
channel and production systems since the products are low costs consumables.

Changing from key account global account managers to local level salesforce that
will ultimately own the products in the MRO segments.

The declining OEM markets in Canada due to economic downturn and high
labour costs. Vendors are usually first to hurt when the economy is exported to
cheaper countries like China and India, resulting in grey markets.

Ecommerce systems play a small role in the MRO markets reduced to bill paying
transactions.
Customer focus
OEM’s customers differ from MRO’s. I would like to use the model of Coughlan et al.
(2002) that evaluates the costs of flows and the value added by each member
performing these flows, which would affect all customers. The model describes the
kinds and quantities of tasks performed by members, the importance of each flow to
provide services demanded by consumers and the profit share that members should
receive for performing the flows. Using this model to apply to OEM and MRO
customers, there are goal and tasks incompatibility differences. OEM manufacturers
may want value for price, but dealers want high margins. There are unclear unclear
roles and rights as 3M sells through large accounts through their own sales force, and
3M’s licensed dealers are also trying to sell to those large accounts at different prices.
3M’s intermediaries may be too dependent on 3M and exclusive dealers are intimately
affected by the manufacturer’s product and pricing decisions. MRO customers are
different, and can tend to be retail based as well. Thus the retail based customers are
not so affected and are not tied down by conditions of price, since they are handled in
bulks. The product category differences play a huge factor for MRO. It is more
business-to-business like under OEM. Customer relations are perceived as on-going.
Key account managers are specialized in local and global sales with key account
management systems. They are able to track customers’ needs and instantly respond.
There is less customer defection and referrals are always in-kind. For MRO segments,
the customers may react and respond differently since the products are less expensive
and 3M will serve the retail sectors. MRO channel service outputs create a set of
benefits to consumers by delivering a number of logistical and informational service
outputs. This increase in service outputs is “likely to find a warm reception with the
time-starved consumer” (Coughlan, 2001). Therefore, channels will survive and
develop to the extent to which they are able to meet the needs of a significant number
of consumers. Thus, multi-channel designs must consider the characteristics of the
target market and their needs for service outputs.(Stern et al, 1993). Salesforce are not
generally motivated. Customers know that they can get similar items in bulks through
distributors rather than from 3M exclusive retailers. Thus ground understanding of
customers are really crucial that tend to be uniform. The producer factor of desiring to
produce number of items and control will also affect 3M. It may decide to directly sell
to retail customers and end users.
Changing current sales model
A change in the sales model must be considered carefully for MRO segment to reach
national distributors. This must involve national distribution specialists linking up
with product specialists that form one single channel with 3M in a global division.
Outsourcing is one alternative. It is not done because 3M thinks it is a channel fad, but
rather, according to Stern et al (2006), the “ideal” distribution system or the normative
distribution channel can be determined by exploring what the consumers want in
terms of service outputs from the distribution channel, how much they are willing to
pay for a given service level, how the services can be provided to them, and what the
costs of the alternative distribution channels are. This is the adaptation process of the
distribution channel that will involve changing and aligning the roles of the supplier,
distributors and customers. This will also likely use a distribution system most
efficiently that meets the customers’ wants. Thus, an economic distribution channel
model takes a customer perspective, analyses the output from the commercial part of
the different distribution channels and relates it to the customers’ costs and benefits
from the different levels of service output offered by the available distribution
channels. This must not differ from global and national levels, although it will since
service levels will deviate. The implementation and coordination costs of such a
global channel must also be feasible, since not all vendors and distributors will
subscribe to 3M’s plethora of distribution channels. In one instance for the MRO
segment, doing private labels is a cost effective way of producing products. But
would this mean offending their local distributors carrying similar products.
Commission can be given to distributors’ salesforce, but this would cannibalize the
3M’s and the distributors’ own sales. Focus will then be on the private labels and not
on 3M items. This would reduce 3M’s brand equity for all the products that are
produced. Telephone and internet sales are not so suitable in Canada’s low density
population, and will not drastically increase the service levels for consumerable items.
The issue of demand and supply must be weighed carefully as such in changing to an
MRO model. Demand and supply gaps can occur when demand and supply services
are not in equilibrium due to differences in perceived expectations. For instance Stern
et al (2006), suggests where service output supplied is more than service output
demanded, there is demand side gaps occur, and increased value and experience for
3M’s distributors. In contrast, supply side gaps occur when the total cost of perform
the channel activities is too high, such as retraining salesforce to sell MRO products.
But can this be replicated for MRO via OEM as adding more added value via cross
training? Channel gaps can be analyzed if the existing OEM channels can service the
output demands of MRO distributors, since OEM distributors may operate at high
costs. A zero based channel may be used where minimum costs are used to service
demand. Would it be possible to use existing OEM channels into MRO’s? Other
source of gaps involve environmental and managerial boundary gaps such as in
implementing electronic bill payment system.
At the OEM level, there is not such a huge scale of e-payments, but the MRO segment
require extensive customer and customer reverse servicing in payments.
Transportation gaps based on Coase (1937), the nature of transaction efficiency is
deeply rooted in the minimization of transaction costs. The field of economics has
used transaction costs to study the boundaries of the firm and governance transactions
between firms. As transaction costs of the distribution channels increase, market
transaction efficiency decreases. These inefficiencies may result in higher market
prices. Transaction costs may affect the supply side of the market, the demand side of
the market, or both. Such costs are ultimately defrayed by customers. Some
supply-side transaction costs for 3M include customer-demand data collection outlays,
marketing expenses, and inventory control costs stemming from uncertainty in the
level of material supplies and product distribution operations. Some demand-side
transaction costs include the existence of imperfect and costly information available
to buyers, search activities needed to identify sellers and discover their prices and
resource expenditures needed to overcome location boundaries to transact with sellers
(Rosenbloom, 1999).
An analysis for 3M would show the need to change in demand for MRO segment,
offering multi-tiered services, changing specialists distributors instead of using
long-time partners, improving technology. Supply gaps for mass production must be
narrowed since demand and supply do not always match and may always be uncertain.
Areas include lead time production, since certain business cannot afford the time.
Operational imbalances between what has been ordered and what is delivered may not
satisfy customers. (Coyle, 1996)
Targeting plan
The implementation plan must be considered using the model for marketing channel
design suggested by (Stern et al, 2006). The main feature of this model is the
orientation to the needs of consumers. The model suggests to identify the needs of
consumers and to group them into the separate segments at the very beginning of the
process of channel design. It includes i)analysis of segmenting, targeting and
positioning, ii)establish new channels; and iii) eliminating old channels.
The markets of MRO should be segmented into 2 groups of private labeling for
business-to-business customers (distributors according to their size, strength and
relationship loyalty. Other items for the retail market can also be segmented through
their reputation, number of items carried and costs of carrying. Targeting can take
place once segmentation is done, and positioning of the products can be done using
customer care and cheap effective products. Such implementation as recommended
and justified can take place in a phase approach

Implementing to national distributors would be to use wholesaler distributors
using an intensive coverage for their networks in selling MRO items. This
because these intermediaries perform essential marketing services since
manufacturers would be burdened with additional record keeping and
maintaining contact with numerous 3M’s retailers. Cooperative advertising
and display allowances can be quoted to the dealers. However, opportunities
for differentiation and control of exclusivity are diminished

Direct channel will support the chain of national distributors. These
are marketing channels that moves goods directly from a manufacturer
to the retail customer users through the use of more salesforce and
e-commerce. This can also encourage 3M to adopt private brand
strategy to increase sales. There will be less exclusive-dealing
agreements thus reducing legal suits. When adopting the MRO
segment, using an intensive and go direct strategy, there can be more
competition and conflicts, which can favor the big players like 3M
with strong finances.

Multi-channel cooperation strategies achieved via effective direct
cooperation among channel members including end consumers, is the
desired medicine to channel conflicts as well. It is best achieved when
all channel members regard themselves in the multiplicity of the same
organization. Having more options such as the elimination of
intermediaries is not without its advantage. This increases and
encourages purchases from manufacturers establishing direct sales
outlets (Stern et al. 1996). For customers, the opportunity to use
additional service channels may mean more service outputs,
convenience, time savings, and reliability, while organizational
benefits include cross-selling, service innovations

Since adopting the vertical integration aspects in the MRO market, 3M
can also increase efficiency and confidence and less wastage for
themselves and their national distributors. MRO products are
independent and supported products, a better logistical system such as
Just-In-Time would be required to maintain the vertical systems.
Many of the distributors can also have standardized programs where
end-customers can do reverse exchange of products at the counterparts.
There must also be consideration when implementing, legal problems
of exclusive distribution. For instance, arrangement between
manufacturer and e-marketing (if there is) intermediary that prohibits
the intermediary from handling competing product lines or other
arrangements that requires a marketing intermediary to carry items
other than those they want to sell

Criteria in the channel plan for selecting members include 3M should
select downstream distributors who carry a smaller array of products
and bigger geographical coverage. At the same time changing to MRO
collaborating mechanisms must be designed to contain competition
and conflict early between various dealers to avoid non-economic
satisfaction.
Conclusion
3M must be aware of the environment challenges and opportunities in the MRO
markets, but this does not mean giving up market share in the OEM market even
though it has already saturated. The channel intermediaries involved must also change
their stance of doing channel activities as the market ground expectations for MRO
products are different. 3M must add value via these distributors and must analyze the
supply and demand gaps to ensure that the overall satisfaction are met by every
quarter in the channel departments. Service outputs are also considered to be critical
in reducing customer dissatisfaction, thus recommendations for channel decisions to
be taken include adopting private labeling on MRO products, expanding channel
distributors and adopting vertical systems integrating modern systems.
References
Coase, R. H. (1937). “The nature of the firm”. Economica, 4(3), 386-405.
Coughlan, A.T., E. Anderson, L.W. Stern and A.I. El-Ansary (2001). Marketing
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Coughlan, A. T et al. (2002). Canais de Marketing e Distribuição. 6 ed. Porto Alegre:
Bookman.
Coyle, J. (1996). The Management of Business Logistics.
Rosenbloom, B. (1999). Marketing Channels: A Management View. Hinsdale, IL:
Dryden Press
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