Marketing Channel

Industrial distribution channel • Defined as a set of interdependent organizations that make a product / service available to customers for use • Decisions on marketing channels are long term decisions

Factors affecting the nature of Industrial channels • • • •

Geographical distribution Channel size Characteristics of intermediaries Mixed systems -Use direct/ indirect channels -own sales force – large volume customers -independent distributors / dealers –small scale org. - resource constraints-agents(mfr. Rep) – market segments consisting of geographical territories

Channel Alternatives in Industrial marketing MANUFACTURER

Mfr’s Mfr’s sales force VAR Distributors/ Direct Representatives/ mkg. Dealers Agents

Brokers

Telemarketing Direct mail

Commission merchants

Online

Distributors/ Dealers Marketing

INDUSTRIAL CUSTOMERS

Direct Channel • Mfr’s perform all functions to create sales & to deliver products to industrial customers • Tasks : Contacting potential customers,negotiating,communicating,selling,financing, product storage,transportation & servicing • Eg: Online marketing,Telemarketing,Direct mail • Approach:  value of each transaction is large  Selling includes technical & commercial negotiation at various levels  Buying process is lengthy  Industrial buyers insist on direct buying from mfrs.

Channel Design Channel Objectives Channel Tasks

Channel Constraints

Channel Alternatives Evaluation of Alternatives Selection of Channel

Indirect Channel • Mfr’s & intermediaries share the task b/w them • Approach:  Value of transaction or sales are low  Mfr has limited resources  Industrial buyers are widely dispersed  Industrial buyers purchase many product items in one transaction Eg : Chemicals, Construction materials,machinery,Iron& steel products……..

Channel objectives • Focus : Service levels required by target market segments • Objectives depend on product characteristics • Channel objectives are derived from firm’s marketing objectives

Channel constraints - Analyze • Constraint factors to be considered on channel structure selection - External envt. (legal issues) - Competition - Company - Product characteristics & - Customer (direct/indirect distribution)

Channel Tasks - Analyze • List various tasks to move the product from mfr. To industrial customer • Identify the critical tasks • Analyze – Task which can perform /cannot perform due to constraints w.r.t. objectives

Identify – Channel Alternatives Involves four major issues TYPES OF INTERMEDIARIES • Factors : Tasks to be performed , product & market conditions • Types : VAR, Industrial distributors/Dealers, Mfr’s representatives/ agents, Brokers,Commission merchants • Industrial firm can identify more than one channel for the same product to serve different market segments

Channel Alternatives NUMBER OF INTERMEDIARIES 3 STRATEGIES: Selective distribution • Selects few intermediaries to cover a particular geographical area • Selection : product characteristics & customer needs Intensive Distribution • Place goods to as many distributors as possible in the given market • Mfr loose control on service levels & pricing • Appropriate: low unit value & frequent purchase

Channel Alternatives NUMBER OF CHANNELS • Based on the needs of various segments industrial marketers use more than one channel • Benefits of multichannel marketing:  Increased market coverage  More customized selling Problem : Possibility of conflict b/w channels

Channel Alternatives TERMS & RESPONSIBILITIES OF CHANNEL MEMBERS • Responsibilities & Tasks –Both parties to avoid conflicts • Sales policy - % of trade discounts to distributors on price list - to agents or brokers on sales value of commission invoices should be agreed along with cash/ quantity discounts - payment or replacement of defective parts during warranty period should be spelt out • Territory or market segments – to be covered by intermediary

Evaluation – Channel Alternatives Factors : Economic , control , adaptive factor ECONOMIC FACTOR • Economic performance of channel alternatives is compared • Estimate the sales revenue level & selling cost of each channel alternative & plot in a graph Mfr’s representative channel

Total selling cost (Rs)

company sales force channel

Break even level

Sales Revenue(Rs)

Selection - Channel • Selection – channel design framework • Industrial marketer should understand the degree of importance given by customers to service in their purchasing factors • Select the channel which can effectively satisfy the customer needs better than competitors • Create an ideal channel which can be modified according to channel constraints & evaluation factors

Functions of channel intermediaries Holds Holds Inventory Title

Promotes Negotiates Provide credit

Brokers

-

-

yes

Partial

Mfr’s Agents

-

-

yes

-

Selling Agents

-

-

yes

yes

-

yes

-

yes

yes

yes

Commission merchants

-

Economics of direct & indirect distribution Distribution cost per unit

Indirect Distribution

Direct Distribution Volume