B2B Chapter 7

Business Market
Management

3
rd
edition
Business Channel
Management
Chapter 7
Copyright 2009 Pearson Education
Publishing as Prentice Hall

Business Market Management, 3
rd
edition Chapter 7-2
Section III:
Creating Value

rd
edition Chapter 7-3
Chapter 7:
Business Channel
Management
Overview

I. Designing Superior Value-Adding Marketing
Channels
II. Creating Value Through Direct Channels
III. Strengthening Reseller Performance
IV. Summary

rd
edition Chapter 7-4
Overview
Marketing channels are a source of
competitive differentiation as products and
services become commodity-like

Channels augment market offerings by
creating a highly valued total customer
experience (TCE)

Marketing Channela set of interdependent
organizations involved in the process of
making a product or service available for use
or consumption.
(Stern and El-Ansary)

rd
edition Chapter 7-5
Business Channel Management
The process of designing a set of marketing
and distribution arrangements that create
superior customer value for targeted market
segments and customers, and executing those
arrangements directly through supplier firm
sales forces and logistics systems or indirectly
through resellers and 3
rd
-party service
providers

rd
edition Chapter 7-6
Create Value for
Targeted Market
Segments &
Customer Firms
Create Value for
Targeted Market
Segments &
Customer Firms
Create Value for
Targeted Market
Segments &
Customer Firms

Designing Superior
Value-Adding
Marketing Channels
Hybrid
Channel
Arrangements
Construct
Channel
Offering(s)
Build
Marketplace
Equity
Craft
Reseller
Value
Proposition(s)
Design Logistics Systems
Create Value
Merchants

Deploy
Value Merchants
Creating Value Through Direct Channels
Strengthening Reseller Performance

rd
edition Chapter 7-7
I. Designing Superior
Value-Adding Marketing
Channels

rd
edition Chapter 7-8
Designing Superior
Value-Adding Marketing Channels
Total Customer Experience (TCE)
Entails all aspect of a customer firms
encounter with a supplier firm

TCE Goals:
Positive experience
Seamless
Memorable interaction that matches customer firms
purchasing requirements and preferences

rd
edition Chapter 7-9
Immediacy of fulfillment

Breadth & depth of
products & services
Availability of products and
services
Timing and reliability of
delivery
Installation
Payment terms and
conditions

Extent of augmenting value-
added services

Pre-sale
Point-of-sale
Post-sale services or
for-fee options

Research indicates
that firms that focus on fulfillment
are more profitable. (Grove)

rd
edition Chapter 7-10
Four TCE-Based Positions
Efficient, low-cost
transaction experience
The high-touch,
consultative experience
Inexpensive, convenient, self-service
Minimal value-added service
Internet Web sites
Direct marketing

Extensive consultation and advice
Customization of offerings
Frequent face-to-face encounters
Complete range of value-added
services
The flexible, multi-
access-point experience
The one-stop shopping
experience
Customer free to purchase supplier's
offerings intact or piecemeal from
several integrated or stand-alone
channels on a transaction-by-
transaction basis
Customer can purchase a wide
variety of complementary products
and services from a single source

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Designing a Superior Value-Adding
Marketing Chanel
1. Specify goals and objectives of the marketing
channel(s)
2. Assess customer value of TCE
3. Envision value proposition for each targeted
market
4. Reformulate the TCE for each targeted market
5. Configure the channel network
6. Finalize marketing and distribution arrangements

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Specify Goals and Objectives of
Marketing Channels
Three Predominant Goals
Maximize Market Access
How business channels enable a supplier to reach, develop,
and serve targeted segments and customer firms
Optimize Value-Added
This entails the augmenting products and services that
channel partners contribute to the supplier firms market
offering
Minimize Cost-to-Serve
The total expenditures required
to deliver the intended TCE to
targeted segments and
customers
Caution:
Channel goals often work
at odds with one another.
Trade-offs & adjustment
may be needed.


rd
Assess Customer Value of
Potential TCE Elements

Business market managers should focus on value
elements that contribute to the total customer experience
Service Outputs & their Monetary Value
Integrated supply
Local customization
Emergency delivery
Technical support
Product standardization
Assess Customer Preferences for
Learning
Shopping
Buying
Getting help

These services strongly
suggest the type of
channel network the supplier
should adopt
These are critical
as they shape the
soft side of TCE

rd
Envision a Value Proposition for
Each Targeted Market Segment
Customer Value Proposition serves as a
beacon for all the supplier firms channel
network design effort

rd
Reformulate the Intended TCE for
Each Targeted Market Segment

Add, delete, or modify products and valued-
added services as well as fulfillment and
communication processes to more closely meet
the critical TCE requirements and preferences of
the targeted segment

rd
Configure the Channel Network

Managers simultaneously consult and consider
the classic channel strategies related to
exposure and coverage, postponement and
speculation, and functional acquisition and
functional spin-off

Managers meld their strategic preferences into a
channel network design that can profitably
deliver the intended TCE to targeted segments

rd
Finalize Marketing and
Distribution Arrangements
To gain market access, channels must provide sufficient
exposure and coverage
Exposure: degree targeted customer firms are
reached and served by the appropriate kind and
number of channels
Single-channel strategy
Multiple-channel strategy
Coverage: number of resellers or direct sales
persons assigned per geographic trade area
Distribution intensity strategy: exclusive, selective, or
intensive

rd
Distribution Intensity Strategies
Exclusive Supplier authorizes one reseller per trade area
Selective Supplier authorizes a limited number of resellers per trade area
Intensive Supplier authorizes all resellers who want to carry its line
The above
three
distribution
intensity
strategies can
be
differentiated
in terms of the
suppliers
share of the
resellers
business

1. The reseller sells only the suppliers offering

2. The reseller sells one of the suppliers line along with other
firms lines

3. The reseller sells only one of the suppliers products and an
assortment of other firms products

rd
Channel Exposure & Coverage Model
for an Electronic Controls Supplier Firm
Electronic
Components
Manufacturers
No Coverage
3 electronic
component
distributors
Direct Sales
20 field sales
persons
10 service reps
Scientific Testing
Equipment
Manufacturers
Indirect Sales
8 scientific
equipment
distributors
Process Control
Manufacturers
Direct Marketing
Supplier Website
5 Inside Sales Reps
10 machine tool
distributors
Segment

Offering
Small Orders
of Standard
Items
Medium-Sized
Order of Specialty
Items
Large Orders of
Customized
Solutions
Source: Adapted from Friedman & Furey 1999

rd
Optimize Value-Added Through
Postponement or Speculation
Strategies hinge on:
Predictability of demand
Quantity of production
Inventory held in reserve
Required proximity of customization activities
& inventory to customer location


rd
Postponement vs. Speculation
Strategies
Postponement Strategy
Supplier firm undertakes
product design, customization,
and value-added service
geographically close to
customer firm
Speculation Strategy
Suppler firm manufactures standard
products in large quantities well in
advance of demand at a distance
from the customer

Direct sales
Design-to-order offerings
Technically competent and consultative
sales team
Just-in-time inventory
High level end-to-end customer service

Indirect sales
Intensive distribution
Reseller firm stocks inventories
Takes orders
Makes deliveries
Provides minimum valued-added service

rd
Postponement vs. Speculation
Manufacturing & Logistics
Manufacturing Postponement Manufacturing Speculation
Indirect sales
Local assembly, fabrication,
compounding, or extrusion firms
Customize suppliers production to
unique requirement for regional firms

Direct marketing via telephone or Internet
Build-to-order
Mass customizing products
Ships directly to customer via 3
rd
party
logistics
Logistics Postponement Logistics Speculation
Indirect sales
24-hour delivery
Reserve stock in local warehouse
Provide immediate emergency deliveries
Leave item on consignment at
customers plant
Direct sales
Reserved for largest, most profitable
customers
Vendor-managed inventory program
Supplier firm takes responsibility for
customer inventories
Emergency delivery of bottleneck items


rd
Minimize Cost-to-Serve via
Functional Acquisition & Functional Spin-Off
Lean enterprise: group of individuals, functions, and legally
separate but operationally synchronized companies

To improve business processes:
Allocate functions to the most capable partner
Bolster their partners ability to perform tasks
Coordinate and integrate efforts of all firms in lean
enterprise
Eliminate redundancies in efforts


rd
Lean Enterprise Approach to the
Design of a FirmsChannel Networks
Conceptualized channel networks:
Horizontally Within Each Channel Level: Functions or
Tasks Performed by a Specific Channel Partner
Focus on functions when incremental channel improvement
needed
Functional acquisition & functional spin-off helps to lower
system costs
Vertically across All Channel Levels: Business
Processes
Appropriate for radical channel redesign
Eliminate resources & effort redundancies within entire
channel network
Lowers total system costs
Maximizes the total value delivered


rd
Functions
Manufacturer
Manufacturers
Representatives
Electrical
Wholesalers
Manufacturing
Advertising
Lead Generation
Field Sales Calls
Fulfillment
Customer Credit
Repair Work
Functions
Manufacturer
Manufacturers
Representatives
Electrical
Wholesalers
Manufacturing
Advertising
Lead Generation
Field Sales Calls
Fulfillment
Customer Credit
Repair Work
Firm Performs Function
Channel Firms Channel Firms
Marketing Channel Prior to
Functional Acquisition and Spin-Off
Marketing Channel After to
Functional Acquisition and Spin-Off
Functional Allocation Charts for Electrical Products Supplier

rd
Firms or
Groups Lead
Generation
Prospect
Qualification
Initial
Sales
Contact
Negotiation
& Close
Order
Processing
Fulfillment
Relationship
Management
After-the-
Sale
Customer
Support &
Service
Resellers
Suppliers
Operational
Group
Suppliers
Field Sales
Force
Suppliers
Inside
Sales Force
Suppliers
Direct
Marketing
Suppliers
Internet
Web Site
All Customers
Suppliers
Strategic customers
Resellers targeted
customers
Manufacturers Process

Distributors Process
Integrated Multi-Channel Process Model

rd
Channel Network Model
Maps out the business processes and functions
required to provide the reformulated TCE to
targeted customer firms

Model specifies who will complete the required
processes and functions
Supplier firm
Resellers
Third-party service providers
Customer firms

rd
General Network Models
Conventional Modular
Products and services flow from supplier firm
resellers market segment or customer
firms
Channel captain: a dominant firm emerges
Manages and coordinates distribution
Invests in and cultivates brand or
reseller equity
Emerging information and logistics
technologies
Complex networks of relationships
among firms
Direct or indirect channels
Manager from one firm is system
integrator
Envision channel network
Select participating firms
Manage ongoing relationships
Hybrid Integrated Multi-Channel
Combination of conventional and modular
Adaptive channels: special hybrid
Suppliers, resellers, 3
rd
-party service
providers and customer firms agree to
share complementary capabilities
Internet customers
Empower customers to select from
different resellers or channels formats
Rather than compete for customer
loyalty, suppliers and reseller work
together to serve mutual customer


rd
Finalize Marketing & Distribution

1. Devise feasible profit model
Cost-to-Serve (CTS) model
Payments cover the actual wholesalers cost plus a
prespecified profit
2. Carefully select channel partners
Market research survey to assess customer
preferences for and satisfaction with reseller firms
Validate research with on-site visits

rd
3. Consider e-business and wireless technology
Infomediary: broker that finds, retrieves, sorts, processes &
analyzes information from the web (comparison agent)
Metamediaries: Web sites that furnish multivendor,
multiproduce, multi-service market place
Electronic transaction formats
Communities
Catalogs
Electronic auctions
B2B exchange
Wireless technologies:
Remote, 24X7 order tracking, payment, and delivery
Contact Management


rd
4. Build International Marketing Channels
Requires longer business processes and additional functions
in marketing channel
Division of functions among channel members vary
From region to region
From country to country

5. Formalized Partnership Agreements
Handshake agreements
Written contract
Licensing agreement
Franchise agreement


rd
II. Creating Value Through
Direct Channels

rd
Creating a Sales Force of Value
Merchants
Value merchant:
Recognizes suppliers own cost
Recognizes the value to the customer in each
market
Works to obtain fair return for both supplier
firm and customer firm

rd
Creating a Sale Force of Value
Merchants
Internally promote a value-based marketing
philosophy & culture
Train value merchants
Compensate value merchants based on
profitability of accounts


rd
Deploying Values Merchants
Establish necessary sales units
Determine number of merchants needed
Designate areas of responsibility
Assign value merchants to areas of
responsibility


rd
Designing a Logistics System that
Creates Value

Segment the market into logistically distinct
businesses
A set of customers with unique physical distribution
requirements
Establish differential service standards for each
market segment
Tailor unique logistics systems to deliver differential
services
Exploit economies of scale among the different
logistics systems

rd
III. Strengthening
Reseller Performance

rd
Strengthening Reseller
Performance

The best way to ensure resellers
deliver superior value to customers is for
the supplier to create superior value for
resellers.

rd
Channel Positioning
Channel Positioning: the process of
establishing and sustaining the suppliers
reputation among targeted resellers for providing
superior value

Suppliers need to recognize resellers as
partners
Supplier and reseller must build a working
relationship founded on mutual self-respect

rd
Channel Positioning
Step 1
Determine reseller performance expectations
Step 2
Assess the reseller value of channel offering elements
Step 3
Craft a reseller value proposition and channel offering
Step 4

Communicate the reseller value proposition

rd
Decomposing Marketplace Equity
Marketplace Equity
Supplier
Reseller
Targeted
Customer
Segment
Channel
Equity
Reseller
Equity
Brand
Equity

rd
Cultivate Brand and
Reseller Equity
Supplier Firms
Develop and sustain strong brand equity
among targeted customers
Avoid the final customer syndrome where
the supplier treats the reseller as the final
customer
Reseller Firms
Strive to keep their equity strong
Customize market offerings
Continuous improvements in customer services

rd
Channel Core
Elements
Financial Returns
Quality Products
Competitive Prices
Reliable Delivery
Brand Equity
Technical Assistance
Market Research
Company Policies
Promotional Support
Responsiveness Systems Training
Manufacturer
Sales Force Incentives
Distributor
Firm Incentives
Distributor
Sales Force
Incentives
Capability-Building
Program
Incentive
Programs
The Channel Offering

rd
Reseller Value Proposition and
Channel Offering
Bundle
A collection of loosely connected products and services that a supplier
firm consolidates in a transaction for a discounted price
Solution
A deliberately engineered and integrated group of products and
services that the supplier firm markets for a premium price
Reseller-Offering
Platform
A product or service upon which the bundle or solution is assembled
(tends to be a high-turnover, lower-margin item)
Reseller-Offering
Peripheral

A component, subassembly, or complementary item that functions in
conjunction with the platform

Reseller-Offering
Accessory
An extra, noncritical item that is often added onto a transaction without
forethought. May or may not be complementary to the platform
(tends to have slower turnover but high margins).

rd

Channel Positioning Matrix (CPM)
(Figure 7.10)

CPM: a detailed comparative analysis of
what a supplier:
provides to its reseller
what its competitors provide
what are its resellers requirement
Results of CPM:
Changes for suppliers to pursue that will
contribute most to a reseller value proposition

rd
IV. Summary

rd
Summary
Business market channels augment customer value of suppliers
offering and create a competitive advantage through the delivery of
TCE.

A TCE entails all aspects of a customers firms encounter with a
supplier. It should be positive, seamless and a memorable
interactions that matches the customer firms purchasing
requirements and preferences.

Business channel management is the process of designing a set of
marketing and distribution arrangements that create superior
customer value via tailored TCE for targeted segments and
customers and executing those arrangements.

Suppliers turn to channel positioning to ensure that resellers will
enthusiastically market their products and services as well as deliver
the intended TCE.

rd
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.
Copyright 2009 Pearson Education, Inc.

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