Role and Selection and Motivation of Intermediaries

Channels of distribution are essential for getting products to consumers Most companies would encounter administrative and logistical problems in tr ying to deliver their goods and services to each of their end-consumers. Instead, companies more often than not use intermediaries to distribute their products. This chapter aims to develop an understanding of the "place" element of the marketing mix and the role of intermediaries in marketing channels. Approaches Approaches to designing a channel of distribution and issues in the management management and control of intermediaries are discussed.

Definition of a channel intermediary A marketing channel channel has been defined as "a system system of relationships existing among among businesses that participate in the process of buying and selling products and services". Channel intermediaries are those organisations which facilitate the distribution of goods to the ultimate customer. The complex roles of intermediaries may include taking physical ownership of products, collecting collecting payment, and offering after-sales after-sales service. Marketing channel management management refers to the choice and control of these intermediaries. As more and more tasks t asks are passed onto intermediaries, the producing company starts to l ose control and power over its products and how they are sold. A key part of channel managementtherefore involves the recognition that networks of intermediaries represent social systems aswell as economic ones.

The role of intermediaries in a value chain The generic generic Value Chain Chain of an an organisation organisation describes describes the activities involved in the manufacture, marketing and delivery of a product or service by the firm In order to decide whether a firm should undertake its own distribution direct to consumers or whether it would be more efficient and effective to use intermediaries, it is necessary to understand the functions of these intermediaries. Consumers often want want only a limited quantity quantity of a wide range of goods, goods that are conveniently made available under one roof (i.e. in a retail supermarket). Intermediaries can help overcome this discrepancy of assortment by reducing dramatically the number of contacts required between suppliers and the end customers . In many cases, intermediaries can have superior knowledge of a target market compared to manufacturers. Retailers Retailers can therefore add value to the producer’s goods by tailoring their offerings more closely to the t he specific requirements of consumers. Intermediaries help to overcome two types of gap: • A location gap occurs due to the geographic separation of producers and the consumers of their goods. • A time gap takes place between when consumers want to actually purchase products and when manufactures produce them (e.g. manufacturers may prefer to produce on Monday to Friday, but consumers may prefer to buy at weekends). Intermediaries help to reconcile this gap.

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Types of intermediary A variety of types of intermediary can participate in the value chain. Wholesalers and retailers take title to products, typically building up stocks and thereby assuming risk. Other intermediaries such as agents and brokers do not take title to goods. Instead they arrange exchanges between between buyers and sellers and in return receive commissions or fees. A number of different types of retailer may be identified :

- department stores, e.g. Debenhams. - supermarkets, e.g. Sainsburys. - discount sheds or "category killers", e . g . T o y s ’R ’ U s - speciality shops, e.g. clothing (Next), music (HMV), newsagents (WHSmiths). - convenience or "c" stores, e.g. 7-Eleven - markets and cash and carry warehouses, e.g. Makro. - catalogue showrooms, e.g. Argos. Ar gos. Multiples are usually defined as retailers with over ten outlets. They have tended to grow atthe expense of independent retailers, but have also eroded the market share of the cooperatives.Retailers have their own set of strategic choices. Location is usually the most critical issue since it is central to attracting the right kind of customer in sufficient volume to make trade viable. Retailers Retailers are using increasingly sophisticated sophisticated geodemographic methods methods to determine the optimum locations for their outlets. Strategic decisions need to be made about what product assortment to provide and market segments should be served .As East (1997) has pointed out, retailers spend large sums of money in attracting customers, but despite offering factors such as value, choice, friendly service and quality, the main reason cited by supermarket users for patronage is close location.

Designing a channel of distribution Channel objectives will be determined by the organisation’s positioning strategy. The "place" element of the marketing mix must be consistent with the remaining marketing tools used by the marketing manager to gain a sustainable competitive advantage. advantage. Three options can be identified • intensive distribution. Generally used for FMCGs and other relatively low-priced or impulse purchases



distribution. The manufacturer is looking for adequate market coverage, but still hopes to select supportive dealers. There are a number of key influences on channel selection strategies: • buyer behaviour (what do customers expect inn terms of location and assortment etc.?),

• producer’s needs , (an important constraint is the resources that are available to the manufacturer to bring the product to market. Some companies will lack the finances to recruit and reward a salesforce and so will use a wholesaler instead. • product type (e.g. fresh produce that is highly perishable requires fairly short channels)

• competition (e.g. if competitors have exclusive deals deals with certain intermediaries, intermediaries, then the support of other channel members with similar marketplace penetration may be sought)

A systematic process for design of a channel is important. An "end-user" analysis will result in the creation of an "ideal" channel system which offers a multi-channel format catering for the service level demands of each customer segment. This should be evaluated in terms of the company’s objectives and its positioning relative to the competition. A constraints analysis is needed to identify limits which have to be built into any proposed channel structure. Managers can choose from among a mong three generic marketing channels :

• direct marketing . This involves reaching customers via communications media such as telesales, mailshots, catalogues catalogues or advertisements with tear-off reply slips . • salesforce. Here a company might might build its own team of salespeople, or perhaps perhaps hire an independent independent contract sales force. • channel intermediary

:alternative channels used in order to reach industrial

(organisational) customers. In general, these channels are shorter than those for consumer goods. In the case of services, it is not possible to "own" a service and their delivery cannot be easily separated from the service provider. These factors, and the inability to hold an "inventory" ofunsold services, means that the role of channel intermediary can be very different for services compared to goods. Companies in both consumer and business-tobusiness markets use a variety of channels to distribute their products.

Motivating intermediaries



goods). The situation is further complicated by b y the fact that intermediaries and producers often have different perceptions about their own roles in the supply chain. Doyle suggests two levels levels of motivator: promotional promotional and partnership. partnership. Promotional channel motivators are usually short-term inducements to support the supplier’s goods (e.g. trade discounts for large order volumes or providing point-of-sale display materials). Partnership motivators, on the other hand, seek to build a longer-term relationship between suppliers and channel participants (e.g. through sharing of market research information and providing training to a distributor’s sales staff).

Evaluation and control of intermediaries Evaluation of channel performance is necessary to decide which intermediaries to r etain and which to motivate, or even, where necessary, to discard. Criteria for evaluation are obviously similar to those used in the initial selection decision (see above). Once the relationship between organisations has been established, criteria can include: the sales volume and value of the producer’s goods that are generated through the intermediary’s outlets, the profitability of servicing that intermediary, the stock levels the intermediary is prepared to hold, the quality of customer service offered, feedback provided about the marketplace and the intermediary’s attitude attitude to inter-channel co-operation. However, the scope for evaluation may be severely limited if power lies with the channel member rather than the producer.

DISTRIBUTION ANALYSIS AND MANAGEMENT A strong focus should be placed by marketing departments on relationship management with channel participants. A possible way forward for manufacturers is Category Management. This is described by Harlow (1995) as "joint strategic planning with retailers to build total category sales and profit for mutual benefit" and is based on the fact that the retailer wishes to maximise the profits from an overall category rather than from a specific brand. A category is seen as a group of products all satisfying the same consumer need, e.g. toothpaste as opposed to, say, Crest. Category management is an advance on the "push" policies of trade marketing (i.e. to the retailer) and provides "pull" by sharing the ownership of brand strategy with the intermediary. Partnerships between producers and intermediaries are also evident in the Efficient Consumer Response (ECR) initiative. ECR involves members of the total supply chain working together to respond to customers’ purchasing patterns, thereby ensuring the the right products are delivered to store shelves on time.



competitive advantage advantage (Doyle 1998). 1998). Administered systems arise when participants are are financially independent but are effectively controlled by the most powerful channel member. In contractual systems channel members’ members’ rights and obligations are defined by legal agreements. These can include collaborative agreements such as the voluntary chains discussed earlier in this Chapter, where separate firms fi rms share resources and agree to joint purchasing initiatives, and franchise arrangements.

Franchising Systems In a franchise system a seller s eller (the franchisor) gives an intermediary (the franchisee) specific services (such as marketing support) and rights to market the sel ler’s product or service within an agreed territory. In return, the franchisee agrees to follow certain procedures and not to buy from unauthorised sellers. The franchisor also typically offers assistance in management and staff training, merchandising and operating systems. This support is usually provided in exchange for a specified fee or royalties on sales from the franchisee. Examples of businesses which are predominantly franchised include McDonald’s, Body Shop, Benetton, Tie Rack and Pronuptia. Franchising offers both manufacturer/ retailers and entrepreneurial intermediaries the opportunity to undertake relatively rapid market development at relatively l ow risk. Consequently, Consequently, for many internationally operating companies, franchising has become the cornerstone of their global expansion activity. Having said this, problems in controlling standards amongst individual franchisees can occur, e.g. the failure of some of The Body Shop’s outlets in France. When this takes place, the image of the franchisor can be seriously dented.

Global Retailing The growth of channel intermediaries across national boundaries. Pelligrini suggests that retail companies have three options for growth: vertical integration, retail diversification and internationalisation. Retailing has often been slow to expand globally because of the high level of investment needed to set up in another country, especially when this involves organic growth or risky acquisitions, e.g. the failure of Marks & Spencer to turn around the fortunes of the Brooks Brothers menswear chain in the US. Nevertheless, due to the limited possibilities for growth in national markets, many of the more dynamic retailers have increasingly internationalised their operations.

Role and Selection and Motivation of Intermediaries

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