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 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

7. What Distributors Do? CONTRIBUTIONTO MANUFACTURERS MARKET COVERAGE SALES CONTACTS INVENTORY AVAILABILITY ORDER PROCESSING MARKET INTELLIGENCE CUSTOMER SUPPORT CONTRIBUTIONTO CUSTOMERS PRODUCT AVAILABILITY PRODUCT ASSORTMENT FITTING ORDER QUANTITY CREDIT SERVICE TECHNICAL SUPPORT

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.