Chapter Nine

1
Chapter Nine

• Business Marketing Channels
• Partnerships for Customer Service

2
Learning Objectives

• Describe reasons for channels
• Classify the various intermediaries used in B2B
• Design a channel system
• Channel management The Politics of Distribution
• Relationship Forms in Channels

3
Reasons for Channels

• Marketing channels are systems organized to
  deliver products and related services
• Channel intermediaries are organizations that
  facilitate the transfer of title between the
  producer and user of a product
• Key objectives of marketing channels
• Deliver needed good and service
• Place the good/service where it is wanted
• Have the good/service when it is wanted

4
Reasons for Channels

• Marketing channels difficulties
• Channels are expensive to establish
• Channels are costly to coordinate
• Channels are slow to adapt to environmental
  changes
• A justification for channels channel
  intermediaries may achieve channel efficiencies
  by
• Reducing the total number of transactions needed
• Buying in larger quantities
• Specializing in specific skills/activities

5
Types of Channel Intermediaries

• Intermediaries are categorized according to
  whether they take title / ownership of the goods
  they handle or do not
• Wholesalers taking ownership of the goods
• entails acceptance of the risks of ownership
  spoilage, theft, or obsolescence
• increases the firms investment cash or
  financing to purchase, proper storage and
  handling
• Agents and brokers do not buy or own the goods
  they sell
• Tend to be more specialized by industry / region
• Agents are paid by commission on the sales they
  produce, making their efforts a variable cost to
  their manufacturers
• Brokers are matchmaker, to bring buyers and
  sellers together and facilitate a sale
• Manufacturers sales branches and offices
  independent businesses owned and operated by the
  manufacturer

6
Types of Channel Intermediaries

• Among merchant wholesalers, there are other
  distinguishing functions
• Full-service wholesalers provide a broad array
  of services for their suppliers and customers
• Limited-function wholesalers do not provide full
  spectrum of services
• Specialty wholesaler firms carrying a very
  narrow line and supporting that with technical
  expertise and consultative selling (High Ocean
  Products Co.)
• Drop shipper (desk jobber) buys products from a
  supplier but never takes physical possession
  products are delivered directly to the user
  (coal)
• Catalog wholesaler relies exclusively on mail,
  phone, and fax orders from its catalog and does
  not have a field sales force
• Cash-and-carry distributors provide no buyer
  financing or delivery

7
What Distributors Do?
8
Types of Channel Intermediaries

• B2B Market Hubs
• Internet sites that allow business suppliers and
  buyers to communicate and execute business
  transactions Alibaba. Such sites offer speed and
  low cost
• Aggregator hubs allow sellers and buyers to
  connect and transact in highly fragmented
  markets provide wide exposure to participants on
  the hub and simplify transactions prices are
  preset
• Exchange hubs a spot market for commodity
  products such as fossil fuels and bulk chemicals
• Auction hubs provide a market for unusual,
  tightly specified, or surplus products and
  services

9
How to Design a Channel
10
How to protect distributors from a newcomer

1. Require larger stacks (to make adding a new line
   less attractive/feasible) loading up potential
   distributors with inventory
2. Negotiate/re-interpret exclusive dealing
   arrangements promising to restrict their use of
   competitive distributors, claiming violation of
   exclusivity contracts, demanding more
   sales/service support from distributors
3. Disparage the newcomers product, reputation, or
   practices

11
Channel Management

• Sources of Conflict in Marketing Channels
  Channel conflict reduces the efficiency of the
  channel and its ability to provide satisfaction
• Goals Conflict sales growth vs. profits
• Means Conflict How things get done (Who does
  what When is it done)
• Perceptions/ theories Conflict Our viewpoint
  vs. Your viewpoint

12
How Channel Members Can React to Conflict

• EXITCan leave the relationship
• VOICECan find a means to articulate
  dissatisfaction (most likely to have positive
  results because it is a critical process for
  uncovering the origin of a conflict)
• LOYALTYCan continue to persevere in face of
  conflict
• AGGRESSIONCan openly or covertly take actions to
  injure the conflict party, it is the least
  desirable response to channel conflict
• NEGLECTCan leave the conflict untreated and fade
  away this response to conflict indicates a lack
  of interest or perceived importance of the issues

13
Options for Resolving Conflict

• PRIVATE REFEREESPanel of channel members serve
  as a forum (Creating a distributor advisory
  panel they air complaints, underscore
  competitive threats, identifying opportunities
  for better coordination)
• THIRD PARTY SOLUTIONSMediated resolution
  (Engaging a mediator/arbitrator)
• EMPATHIC MECHANISMS
• Use of a specialist
• Join Partners Industry Association
• Exchange personnel

14
Sources of Channel Power

• Power is a property of a relationship deriving
  from one members dependence on another for
  valued resources
• In exchange relationship, one party can depend on
  the other for a variety of resources discounts,
  selling assistance, promotional ideas,
  affiliation, access to new markets
• Two most common means to coordinate channel
  behavior
• Reward Power - Ability to provide payoffs for
  specific outcome/behavior (e.g., a distributor
  might be given 12 cases for the price of 10 for
  ordering during a particular period)
• Coercive Power Ability to punish for failure to
  perform (e.g., delaying payments withholding
  sales efforts trimming inventories) least
  effective in building channel efficiency/effective
  ness over the long run

15
Sources of Channel Power

1. Information Power - Ability to obtain information
   others do not have
2. Expert Power - Ability to gain an advantage by
   what you know (based on the sources reputation)
3. Referent Power - Ability to influence by serving
   as the model of best practices

16
Relationship Forms in Channels

• Transactional Channels feature the least
  coordination between the members the members
  trade at arms length, each firm operates on its
  own with no significant coordination with its
  channel partners.
• Administered Channels Coordination results from
  an ad hoc division of labor and informal
  leadership recognize their participation in a
  larger system, but interact without a formal
  chain of command or a set of rules
• Contractual Channels Formal pledges and
  procedures provide tight coordination in
  contractual channels
• Corporate Channels High degrees of vertical
  integration are the hallmark of corporate
  channels Manufacturers have the greatest control
  over corporate channels.
• Owning a channel can reduce the sources of
  conflict. But it does not guarantee lower costs
  and greater efficiency, but can provide more
  control for the manufacturer than other
  approaches.