Business-to-Business Marketing

1. Business-to-Business Marketing Chapter 11 Routes to Market

2. Learning outcomes • Understand the tasks performed by intermediaries in reconciling the interests of supplier and customer companies; • Know about the different types of intermediaries and kinds of exchanges that they handle; • Be able to explain conditions under which companies will choose to use the different types of intermediaries; • Be able to describe the various channel structures and reasons for the use of multiple routes to market;

3. Learning outcomes • Know about the effect of market and company factors on the role of intermediaries and on channel structures; • Be able to explain the impact of information technology on routes to market; • Be able to describe the challenges involved in managing relationships and coordinating activities between the parties involved in a marketing channel.

4. Intermediaries • Intermediaries can reconcile the needs of suppliers and end customers by: • sourcing relatively high volumes of products from a number of suppliers • offering customers a broader product choice and order levels that suit their specific requirements

5. Distributors • Distributors take title to the original supplier’s products and assume principal responsibility for initiating and handling all exchanges with end customers in a specified geographic territory • Communication • Modification and assembly • Product supply • Service and repair

6. Industrialcustomer Industrialcustomer Industrialcustomer Industrialcustomer Distributor Industrialcustomer Agent Agent Distributor Figure 11.1 Routes to business markets Producer Franchisee Producer Producer Producer Producer

7. Routes to market • Pluralistic multi-channel system • In this system, a company uses multiple routes to market but they are organized so that each channel has responsibility for a separate group of products and in doing so targets quite distinct market segments (pluralistic system)

8. Routes to market • Monolothic multi-channel system • In this system, a company uses one structure, consisting of direct and indirect channels to reach customers, with each channel member adjusting the functions that it performs according to the segment that it is dealing with

9. Figure 11.2 Pluralistic multi-channel system Ingersoll-Rand Stationary air compressor division President SACD VP sales and marketing air centres (19) reciprocators below 250 hp rotaries below 450 hp manufacturer’s rep firms (5) both reciprocators and rotaries below 25 hp to retail customers independent distributors (100) reciprocators below 250 hp rotaries below 450 hp direct sales (35) reciprocators above 250 hp rotaries above 450 hp different geographical areas (Cespedes and Corey, 1990)

10. Figure 11.3 Monolithic multi-channel system Beckton Dickinson Vacutainer Systems Division President BDVS VP sales and marketing 55 sales representatives (each assigned to a territory) c. 450 distributors lab products distributors medical/surgical distributors hospitals buying groups HMOs and physicians’ offices non-hospital healthcare sites commercial labs (Cespedes and Corey, 1990)

11. Outsourcing and channels • Many organizations outsource non-value adding activities • Outsourcing has had a significant effect on the role of the parties that contribute to the value chain that delivers product to the end customer, and this includes intermediaries

12. Coordination: handling channel partners • selection of channel members • support provided to channel partners • means of controlling channel behaviour • dealing with channel conflict

13. Figure 11.4 Considerations in a monolithic multi-channel system Overall Qualifications Facilitating factors Contacts with key industry players Experience and performance with other suppliers Financial and company strengths Ability to fund - sales start-up and growth - communications activities Ability to maintain inventory Product and market expertise Company standing amongst customers Marketing planning capability Quality of management team Product factors Product familiarity Product lines - complementarity - quality and sophistication Condition of physical facilities Patent security Commitment Product mix volatility % business with single supplier Commitment to targets Willingness to - keep adequate stock - invest in communication - invest in sales training - drop competing product lines • Marketing skills • Market share • Geographic • coverage • Experience with • target customers • Salesforce • Delivery performance • Customer service • Trade show • participation • Trade association • membership (Adapted from Tamer-Cavusgil et al., 1995)

14. Channel conflict • Principal causes are: • Differences in objectives • Differences in desired product lines • Multiple routes to market • Inadequate performance

15. Questions for discussion • Under what conditions might a supplier choose to use a) direct and b) indirect channels of distribution? • Compare and contrast the tasks performed by distributors and agents. • Are franchise operations a suitable route to accessing business customers ? • How are market and firm-specific factors affecting routes to market ?

16. Questions for discussion • What impact has information technology had on marketing channels? • How might a company go about recruiting intermediaries? • Describe the ways in which channel activities can be coordinated. • Does the growth in partnerships mean that channel conflict is a thing of the past?