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Chapter Nine

Chapter Nine

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Chapter Nine

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  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 channelsare 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 firm’s 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


  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. Identify andforecastuser service needs Create a vision of the ideal channel Evaluate current channels and other options Gap Analysis Implement the best option and manage the system How to Design a Channel

  10. How to protect distributors from a newcomer • Require larger stacks (to make adding a new line less attractive/feasible) – loading up potential distributors with inventory • 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 • Disparage the newcomer’s 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 • EXIT—Can leave the relationship • VOICE—Can 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) • LOYALTY—Can continue to persevere in face of conflict • AGGRESSION—Can openly or covertly take actions to injure the conflict party, it is the least desirable response to channel conflict • NEGLECT—Can 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 REFEREES—Panel 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 SOLUTIONS—Mediated resolution (Engaging a mediator/arbitrator) • EMPATHIC MECHANISMS • Use of a specialist • Join Partner’s Industry Association • Exchange personnel

  14. Sources of Channel Power Power is a property of a relationship deriving from one member’s 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/effectiveness over the long run

  15. Sources of Channel Power • Information Power - Ability to obtain information others do not have • Expert Power - Ability to gain an advantage by what you know (based on the source’s reputation) • 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 arm’s 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.