What are two reasons an intermediary might be better suited to lead a channel than a producer check all that apply?
Magazine Summer 2002 Research Feature July 15, 2002 Reading Time: 29 min Show
Not long ago companies embracing the Internet thought e-commerce meant cutting out intermediaries. Businesses would go directly to customers and save money. Times change and perceptions crumble. Companies discovered it isn’t so easy to do everything alone. Middlemen are still needed. However, their role is changing. Only those middlemen and producers who understand just exactly how the intermediary role is changing can make good on the promise of e-commerce. Intermediaries add value. Three of the nine ways they currently add value (providing information about buyers, sellers, and goods or services) probably will change; middlemen will have to provide all that gratis. Another set of functions (economies of scale, economies of scope, arranging convenient times and places) will survive in a new form. The final three activities (reducing uncertainty about quality, preserving anonymity and tailoring offerings) represent growth opportunities for specialist companies and supplier partners. Consider the upstream company, the one that expected to use the Web to cut out middlemen. How does it succeed today? It weaves a distribution partnership and finds new ways of compensating members. It moves away from selling wholesale and leaving the channel partner to fight for a markup. The proper response to the Web for suppliers is to embrace channel partners, not replace them; the proper response for channel intermediaries is to leverage, rather than dread, Web-enabled commerce. Providers will get closer to their customers, all right, but not by a direct path. The Travels of a Light BulbResearch in the 1950s established that even General Electric didn’t know how a light bulb got from factory to kitchen fixture. The product took a complex route through multiple downstream organizations.1 Today many producers regard the opaqueness of distribution channels as covering inefficiency. Their own output they deem desirable and certain to find its market. Downstream channel members don’t add value; they add costs, snatch margin and muffle the voice of the customer. The shorter, simpler and more linear the distribution chain, the better, producers say. The Internet was supposed to enable simplicity. Business gurus predicted it would bring manufacturers in direct contact with end customers. Channel partners looked upstream fearfully, less worried about competition from new, Internet-only channels than the prospect of competing with suppliers. Mistrust flourished. The idea was that the Internet would help both consumers and industrial buyers make purchases like the rational (RAT) economic actors who populate economics textbooks. RATs are bargain hunters. TopicsAbout the AuthorsPhilip Anderson is the director of 3i Venturelab and the IAA Chaired Professor of Entrepreneurship at INSEAD in Fontainebleau, France, where Erin Anderson is the John H. Loudon Chaired Professor of International Management and a professor of marketing. Contact the authors at and . References1. R. Cox and C.S. Goodman, “Marketing of Housebuilding Materials,” Journal of Marketing 21 (July 1956): 36–61. 2. A.T. Coughlan, E. Anderson, L.W. Stern and A.I. El-Ansary, “Marketing Channels,” 6th ed. (Englewood Cliffs, New Jersey: Prentice Hall, 2001), 88–99. 3. Anonymous, “To Have and To Hold,” The Economist, June 16, 2001, 9–11. 4. For a review of those reasons, see J.B. Quinn and F.G. Hilmer, “Strategic Outsourcing,” Sloan Management Review 35 (summer 1994): 43–55. 5. For more on replacing gross margins with fees for service, see A.J. Fein, “Facing the Forces of Change: Future Scenarios for Wholesale Distribution” (Washington, D.C.: National Association of Wholesaler-Distributors, 2001). 6. S. Buel, “Searching for the Retail Trifecta,” The Industry Standard 6 (October 2000): 108–116. More Like ThisComment (1)Good article. Thank you for sharing articles that are very useful for everyone. Keep sharing information at any time. Regards The last element of the marketing mix is the place. Also called placement or distribution, this is the process and methods used to bring the product or service to the consumer.
© Entrepreneurial Insights In this section we will take a look at 1) an introduction of place, 2) distribution channels and intermediaries, 3) making channel decisions, 4) managing distribution channels, 5) the impact of the marketing mix on place, and 6) an example of Dell Computers’ distribution strategy. PLACE – AN INTRODUCTIONIn the marketing mix, the process of moving products from the producer to the intended user is called place. In other words, it is how your product is bought and where it is bought. This movement could be through a combination of intermediaries such as distributors, wholesalers and retailers. In addition, a newer method is the internet which itself is a marketplace now. Through the use of the right place, a company can increase sales and maintain these over a longer period of time. In turn, this would mean a greater share of the market and increased revenues and profits. Correct placement is a vital activity that is focused on reaching the right target audience at the right time. It focuses on where the business is located, where the target market is placed, how best to connect these two, how to store goods in the interim and how to eventually transport them. [cp_modal id=”cp_id_75506″] DISTRIBUTION CHANNELS & INTERMEDIARIESWhat is a Distribution Channel?A distribution channel can be defined as the activities and processes required to move a product from the producer to the consumer. Also included in the channel are the intermediaries that are involved in this movement in any capacity. These intermediaries are third party companies that act as wholesalers, transporters, retailers and provide warehouse facilities. Types of Distribution ChannelsThere are four main types of distribution channels. These are: Direct
Indirect
Dual Distribution In this type of channel, a company may use a combination of direct and indirect selling. The product may be sold directly to a consumer, while in other cases it may be sold through intermediaries. This type of channel may help reach more consumers but there may be the danger of channel conflict. The user experience may vary and an inconsistent image for the product and a related service may begin to take hold. Reverse Channels The last, most non tradition channel allows for the consumer to send a product to the producer. This reverse flow is what distinguishes this method from the others. An example of this is when a consumer recycles and makes money from this activity. Types of Intermediaries
Distribution channel intermediaries are middlemen who play a crucial role in the distribution process. These middlemen facilitate the distribution process through their experience and expertise. There are four main types of intermediaries: 1. Agents 2. Wholesalers 3. Distributors 4. Retailers Importance of Distribution ChannelsIt may seem simplistically possible and smarter for a company to directly distribute its own products without the help of a channel and intermediaries. This is especially so because the internet allows sellers and buyers to interact in real time. But in actual practice it may not make business sense for a company to set up its own distribution operation. Large scale producers of consumer goods for example, need to stock items of basic necessity such as soap, toilet paper and toothpaste in as many small and large stores in as many locations as possible. These locations may be as close together as two on the same street. They may also be remote rural convenience stores, rest stops and petrol stations. It would be counterproductive and costly for the company to attempt to achieve this without a detailed distribution channel. Even in cases where a company does sell directly, there remain activities that are performed by an outside company. A laptop may be sold from a company website to a consumer directly, but it will be sent out using an existing courier service. This is why, in some form or the other, all producers must rely on a distribution channel. MAKING CHANNEL DECISIONSSetting Goals and DirectionThe first step to deciding the best distribution channel to use, a company needs to:
Some key questions to ask in finalizing these three areas include:
Selecting Distribution StrategiesA company may need to use different strategies for different types of products. Three main strategies that can be used are:
Assessing Benefits of Distribution ChannelsWhile making channel decisions, a company may need to weigh the benefits of a partner with the associated costs. Some potential benefits to look out for include:
Assessing Possible Channel CostsWith the benefits in mind, here are some costs that a producer may have to weigh in order to make channel decisions
MANAGING DISTRIBUTION CHANNELSChannel management is an essential activity for the manufacturer. Intermediaries need to be kept motivated and offered incentives to ensure timely and efficient delivery of products and services. Clear messages regarding products and their functionalities need to be passed on to attempt to keep clear communication regarding a product or brand all the way to the end user. Channel SegmentationJust as a customer base is segmented and addressed according to their specific needs and requirements, distribution channels can also be segmented. Now all intermediaries or the markets they serve will be similar. There may be a need to foster stronger relationships with a retailer that sells in a knowledgeable and discerning urban market with high competition. Similarly, if a product is expensive and highly specialized, a retailer may need to be trained and given the relevant information. Benefits of Channel SegmentationA company may achieve one of more of the following benefits through channel segmentation:
IMPACT OF MARKETING MIX ON PLACENo element of the marketing mix works in isolation. Information from each of them acts as input to the others. This is why when shaping a distribution strategy, input needs to be taken from all other elements of the mix and any considerations need to be addressed or incorporated. Product, price and promotion may have the following impacts on the distribution strategy: Impact of Product IssuesThe type of product being manufactured is often the deciding factor in distribution decisions. A delicate or perishable product will need special arrangements while sturdy or durable products will not require such delicate handling. Impact of Pricing IssuesAn assessment of the right price for a product is made by the marketing team. This is the price at which the customer will be willing to make the purchase. This price will often help decide the type of distribution channel. If this price does not allow a high margin, then a company may choose to use less intermediaries in its channel to ensure that everyone gets their cut at a reasonable cost to the manufacturer. Impact of Promotion IssuesThe nature of the product also has an impact on the type of promotions required to sell it. These promotion decisions will in turn directly affect the distribution decisions. Disposable goods or those of everyday use do not require too many special channels. But for a car, there needs to be extensive salesperson and user interaction. For this type of product, a specialist channel may be needed. EXAMPLE – DIRECT SELLING AT DELL COMPUTERSDell Computers was founded by a college freshman Michael Dell. By 1985, the company had developed its unique strategy of offering made to order computers. As a result of this, sales went from 6 million dollars in 1984 to 70 million in 1985. In another 5 years the sales jumped to 500 million dollars and by the end of 2000 they had crossed 25 billion dollars. A superior supply chain and innovative manufacturing had an important role to play in this phenomenal success. Another important contributing factor was the unique distribution strategy employed by the company. Identifying and capitalizing on an emerging market trend, Dell eliminated the middleman or retailers from their distribution channel. This was done after studying and analyzing the personal computer value chain. Dell became a strong direct seller, by using mail-order systems before the spread of the internet. After the internet became more mainstream, an online sales platform was established. Early on in the internet era, Dell began providing order status reports and technical support to their customers online. Online sales reached 4 million dollars a day in 1997. While competitors sold pre-configured and assembled PCs in retail stores, Dell offered something new and attractive to the customers by providing the option to pick desirable features and that too at a discounted price. This was possible because Dell did not have to bear the costs of the middleman. Another useful aspect of this model was the information available regarding customers and their needs and requirements. This helped the company predict market trends and segment its market. This segmentation helped product development efforts and an understanding of what creates value for each segment. Through careful analysis of the target market, a study of available channel options and effective use of a novel idea, Dell computers managed to reach early success in its industry. What are the benefits of using intermediaries in the service distribution channel?Intermediaries often provide valuable benefits: They make it easier for buyers to find what they need, they help set standards, and they enable comparison shopping—efficiency improvements that keep markets working smoothly.
Why are marketing intermediaries used?Marketing intermediaries work to promote the product through marketing channels, which builds customer relationships and ultimately increases brand loyalty and awareness. The proper development of a marketing plan, promotion and packaging ensures repeat customers and can affect the success or failure of a product.
Why do producers use intermediaries?Producers use intermediaries because they create greater efficiency in making goods available to target markets.
Which of the following is a reason that producers use marketing channels and channel intermediaries?Which of the following is a reason that producers use marketing channels and channel intermediaries? Marketing channel members are able to transform the assortments of products made by producers into the assortments wanted by consumers.
|