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11 Cards in this Set
- Front
- Back
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• Industrial distributors vs. manufacturers’ reps
(1st part) |
o Distributors: full-service intermediaries; they take the title to the products they sell, and the perform the full range of marketing functions
• Providing credit, offer wide product assortments, deliver goods, offer technical support, meeting emergency requirements • Viewed as extension of “buying arm” because they provide service, technical advice, and product application suggestions A Service Focus • Value is delivered through various supply chain and inventory management services, including automatic replenishment, product assembly, in-plant stores, and design services • Most popular includes helping customers design, construct, and operate supply network |
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o Classification of Distributors
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General-Line Distributors: cater to a broad array of industrial needs; stock an extensive variety of products and could be likened to the supermarket in consumer-goods market
• Specialists: focus on one line or on a few related lines; trend toward increased specialization as a result of increasing technical complexity of products and the need for higher levels of precision and quality control • Combination House: operates two markets: industrial and consumer |
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o Classification of Distributors
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General-Line Distributors: cater to a broad array of industrial needs; stock an extensive variety of products and could be likened to the supermarket in consumer-goods market
• Specialists: focus on one line or on a few related lines; trend toward increased specialization as a result of increasing technical complexity of products and the need for higher levels of precision and quality control • Combination House: operates two markets: industrial and consumer |
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o Choosing a Distributor
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• Selection depends on the manufacturer’s requirements and the needs of target customer segments
• General-line distributor offers the advantage of one-stop purchasing • Best option if do not need high level of service and technical expertise • Specialist provides a high level of technical capability and a well-developed understanding of complex customer requirements |
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• Channel design process ( Stage 1)
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o Stage 1: Channel Objectives
• Business firms formulate their marketing strategies to appeal to selected market segments, to earn targeted levels of profits, to maintain or increase sales and market share growth rates, and to achieve all this within specified resource constraints • Channel objectives and design must reflect profit considerations and asset utilization • Channel structures must be compatible with all marketing strategy elements • Specific distribution objectives are established on the basis of broad marketing objectives • Distribution objectives force the manager to relate channel design decisions to broader marketing goals • Marketing and distribution objectives guide the channel design process and actually limit the range of feasible structures • Channel structures need to be developed to reflect both strategic goals ( to achieve market share) and efficiency goals (reduce administrative costs) • Management decision models have emphasized effectiveness criteria (strategy issues) and evaluate channel arrangements on the basis of their ability to accomplish certain functions |
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o Channel Design Process
Stage 2: Channel Design Constraints |
Availability of Good Intermediaries
• Competitors often “lock up” the better intermediaries • Established intermediaries are not always receptive to new products Traditional Channel Patterns • Established patterns of distribution are difficult to violate • Large customers may demand direct sales Product Characteristics • Technical complexity dictates direct distribution • Extensive repair requirements may call for local distributors to service the product line Company Financial Resources • Capital requirements often preclude direct distribution Competitive Strategies • Direct service by competitors may force all firms to sell direct Geographic Dispersion of Customers • A widely dispersed market of small customers often requires low-cost representation afforded by intermediaries |
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o Channel Design Process
Stage 3: Pervasive Channel Tasks |
• Each channel structure is evaluated on its ability to perform the required channel activities effectively and efficiently
• The concept of a channel as a sequence of activities rather than as a set of institutions I essential to channel design • Business marketing manager must creatively structure the tasks necessary to meet customer requirements and company goals rather than merely accepting existing channel structures or traditional distribution patterns • Increasing manufacturer power may diminish the distributor’s role in the channel as the manufacturer assumes more channel activities; the distributor’s share of profits and revenues could be reduced accordingly • The backbone of channel design is the analysis of objectives, constraints, and channel activities |
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Channel Design Process
o Stage 4: Channel Alternatives |
• Specification of channel alternatives involves four primary issues
- The number of levels in the channel (that is, the degree of “directness”) - The types of intermediaries to use - The number of channel intermediaries at each level of the channel - The number of channels to use • The decision made for each are predicted on the objectives, constraints, and activities previously analyzed • Degree of directness • The issue of directness concerns whether products are marketed directly to customers or through intermediaries |
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hannel Design Process
Stage 4 - Continued • Assessing Product/Market Factors |
• Assessing Product/Market Factors
- The number of channel levels depends on a host of company, product, and market variables - The length of business marketing channels is influenced by availability of capable intermediaries, market factors, an customer characteristics - Market factors: number of customers, geographic concentration, and the industry concentration - Customer Characteristics: customer perceptions of the significance of the purchase and customer’s volume potential - Channel length increases with greater availability of effective intermediaries and with the number of customers; it decreases when the purchase becomes more significant, when customer potential increases, and when market or industry concentration increases - There is a greater tendency in business than in consumer-goods marketing o sell directly to customer |
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Channel Design Process
Stage 4 Continued Types of Intermediary & The number of Intermediary, How customers Buy |
• Types of Intermediary
- Direct Market Segments • The primary reason for using more than one type of intermediary for the same product is that different market segments require different channel structures • Large accounts are called on by the firm’s own sales force, distributors handle small repeat orders and manufacturer’s reps develop medium-sized firm market - How Customers Buy • Differences in purchase behavior may also dictate using more than one type of intermediary • If a firm produces a wide line of industrial products, some may require high-caliber selling to numerous buying influences in a single buyer’s firm - The Number of Intermediaries o For a rep channel, the business marketer would select the single best rep organization in each of the geographic areas to be covered o Companies that use industrial distributors may require two, three, or even more distributors in a geographic market to ensure adequate coverage o Intensive • A firm that requires a number of distributors in each geographic market is following an intensive distribution policy o Selective • The policy of carefully choosing one or two channel members in a particular area – selective distribution • The nature of the product and the purchasing process usually dictate a selective process |
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o Channel Design Process
Stage 5: Channel Selection & Evaluating Alternative Channels |
• Most channel design decisions are only slight modifications of the channel structure in response to changing markets, expanding geographic coverage new customer requirements, or new products.
Evaluating Alternative Channels • Procedure discovered by Louis Stern and Frederick Sturdivant; takes into account all the elements of channel design as well as important customer requirements; create and “ideal” channel system that fully addresses customer needs; once this system is specified, it is compared with the ”feasible” channel system created on the basis of management objectives and constraints o Step 1: Determine customer requirements - Assess desire for sales assistance, locational convenience, one-stop buying, depth of assortment, and the whole range of possible services Step 2: Evaluate potential intermediaries - Asses which type of intermediaries are possible, including direct sale Step 3: Analyze costs - Involves three dimensions: (1) is it feasible for the company to satisfy all customer requirements? (2) What types of supplier support are required? (3) What are the costs of the support systems for each type of channel alternative? Step 4: Specify constraint – create the “bounded” system - Develop management input on key constraints and company long-term objectives; specify the channel system structure based on these constraints Step 5: Compare options - Compare the “ideal system” specified by customers which the “feasible” system specified by constraints and objectives; if an existing channel is being reviewed, compare it with the ideal and feasible systems Step 6: Review constraints and assumptions - Use experts – lawyers, consultants, accountants – to evaluate assumptions Step 7: Evaluate gaps - If gaps exist between the existing, ideal, and feasible systems, analyze the underlying reasons Step 8: Implementation - Modify the ideal system according to objective and constraints • Channel selection is facilitated by looking at “gaps” that may exist between the systems – existing, deal, and feasible; 3 conclusions o All three systems resemble each other; the existing system is about as good as it can be o Existing and feasibly systems are similar but differ from ideal; management constraints and objectives may be causing the gap o All three systems are different; if the feasibly system lies between the ideal and existing system. The existing system can be changed without sacrificing management goals |
