B2B MKTG Chapter 12 Channel Relationships Vitale and Giglierano 2002 Edition Vitale and Giglierano Chapter 12 Channel Relationships Prepared by John T. Drea, Western Illinois University

Basic Channel Terms Direct Channel Participants Wholesalers, distributors, retailers, etc. who are part of the proactive marketing design of the channel Ancillary Channel Participants Business and service providers who are necessary for the channel to function (trucking, JIT, 3PL, etc.) Direct Channel A channel in which the supplier markets and sells directly to the buying organization

Exhibit 12-1 Channels Can Create Efficiency Direct: V x C transactions Via reseller: V x C transactions V1 V2 V3 V4 C1 C2 C3 C4 V1 C1 C2 C3 C4 V2 RS V3 V4 V = Vendors C = Customers RS = Reseller

Economic Utility Form The quantity/mode of the product most preferred by the customer

Economic Utility Form The quantity/mode of the product most preferred by the customer Time The availability of the product when the customer needs it.

Economic Utility Form The quantity/mode of the product most preferred by the customer Time The availability of the product when the customer needs it. Place The availability of the product where it is needed. In B2B, it involves rapid/frequent product delivery.

Economic Utility Form The quantity/mode of the product most preferred by the customer Time The availability of the product when the customer needs it. Place The availability of the product where it is needed. In B2B, it involves rapid/frequent product delivery. Possession The process by which the customer obtains ownership or the right to use a product/service.

Exhibit 12-2b Marketing Channel Flows from Customer to Supplier

Why Do Some End Users Prefer Distributors? Distributors Can… Provide fast delivery Provide segment-base product assortment Provide local credit Provide product information Assist in buying decisions Anticipate needs

Why Do Some Suppliers Prefer Distributors? Distributors Can… Buy and hold inventory Combine manufacturers’ outputs Share credit risk Share selling risk Forecast market needs Provide market information

Exhibit 12-5 A Value Network

Product Support and Delivery Different target markets have different expectations of the total offering User Training Think about the different training needs of corporate customers vs. consumers Product Information Dealers are likely to emphasize what an offering can accomplish, rather than how it can accomplish it Product Support and Delivery Institutional buyers expect more than consumers. Financing Institutional buyers are likely to expect suppliers/distributors to arrange credit.

The Physical Distribution Concept Focuses on Three Elements Inventory Management Transportation Warehousing It is a balancing of cost and service.

Inventory Management Often the largest logistics cost. Inventory management tools are important for reducing logistics costs. While lower inventory levels result in lower costs, lower inventory levels may result in more frequent and costly transportation.

Transportation Involves the choice of water, air, truck, rail, or pipeline. Slower transportation methods usually have lower costs, but imply larger safety stocks and longer lead times.

Warehousing As inventory increases, so do warehousing costs. Lowering inventory levels and warehousing costs can lead to stockouts. Channels that focus on rapid movement of goods (as opposed to storage of large quantities) are likely to utilize distribution centers.

Channel Design Decisions Through marketing intermediaries or a direct channel? Intensity of distribution issues: Kinds of channel partners Structure of channel flows How competitive advantage can be built One channel, dual distribution or multidistribution?

Factors Favoring the Use of Distributor Channels Product requires local stock. Product is near the end of its product life cycle. Customers are widely dispersed. Small product line, unable to support a direct sales force. Factors Favoring the Use of Distributor Channels Local repackaging, sizing, or fabrication is required Product is somewhat generic. Product has low unit value. Many small buyers.

Factors not Favoring the use of Distributor Channels Product is highly customized. Significant missionary selling is required. Factors not Favoring the use of Distributor Channels Manufacturer requires control over product application. Product is new or innovative. Product is technically sophisticated. Geographic concentration of large buyers.

Selecting & Caring for Distributors: Points to Remember Train and support them well and often, at both your facilities and theirs. Make calls on them. Make calls with them. Determine which distributor fits your marketing plan goals. Ask potential customers who they recommend.

Bases of Power in Marketing Channels Soft Bases of Power Hard Bases of Power Expertise Information Reward Coercion Legitimate Identification

New Types of Channels Affiliates Hubs Someone with a special link on its web site that refers a viewer to a product or service supplier’s site. The affiliate downloads a special code from the supplier’s web site that allows the supplier to track referrals. A commission is paid for each referral. Affiliates An intermediate that brings buyers and sellers together to make a market. These can include catalog hubs, auction hubs, exchange hubs, and barter hubs. Hubs