Channel Relationships

1
Chapter 12 Channel Relationships
Prepared by John T. Drea, Western Illinois
University
2
Basic Channel Terms
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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.
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Why Do Some End Users Prefer Distributors?Distri
butors Can
Provide fast delivery
Provide segment-base product assortment
Provide local credit
Provide product information
Assist in buying decisions
Anticipate needs
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Why Do Some Suppliers Prefer Distributors?Distri
butors Can
Buy and hold inventory
Combine manufacturers outputs
Share credit risk
Share selling risk
Forecast market needs
Provide market information
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Exhibit 12-5 A Value Network
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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.
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The Physical Distribution Concept Focuses on
Three Elements
Inventory Management
Transportation
Warehousing
It is a balancing of cost and service.
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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.

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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.

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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.

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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?
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FactorsFavoringthe Use ofDistributorChannels
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.
Local repackaging, sizing, or fabrication is
required
Product is somewhat generic.
Product has low unit value.
Many small buyers.
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Factors notFavoringthe use ofDistributorChanne
ls
Product is highly customized.
Significant missionary selling is required.
Manufacturer requires control over
product application.
Product is new or innovative.
Geographic concentration of large buyers.
Product is technically sophisticated.
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Selecting Caring for DistributorsPoints 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.
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Bases of Power in Marketing Channels
Soft Bases of Power
Hard Bases of Power
Expertise
Information
Coercion
Reward
Legitimate
Identification
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New Types of Channels
Someone with a special link on its web site that
refers a viewer to a product or service
suppliers site. The affiliate downloads a
special code from the suppliers 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