Product Marketing

Choosing your Sales Channels

written by Tim Berry of Palo Alto Software http://www.paloalto.com

1 Comment

Channel marketing proves to be a “fit” if the process better responds to the desires of the target market than the organization could do alone. An organization must answer the question, “Will our customers or clients be better served by channel members rather than having us perform these functions?”

Lot size

How many “units” does the end user want per transaction? A household may purchase one personal computer per transaction. The customer service department of Eddie Bauer may purchase 20 personal computers at a time. Channel members may have systems designed to address the needs of both.

Waiting time

The speed of providing faster service may be magnified through the systems that channel members offer.

Location

Getting the product in the right place and time is important. Arranging for “authorized dealerships” throughout a wide geographic area allows products to be conveniently and affordably accessible to customers.

Product variety

The ability to purchase other products from a retail store may enhance the sales and/or margins of all products offered by attracting customers who appreciate the variety of products.

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Service support

Channel members may be better equipped to offer add-on services. This may include advertising, credit, delivery, installation, and repair to enhance the overall value provided to the customer.

The first step is to select intermediaries that complement the product or service. These channel members should have the goal of offering attractive attributes to the end user. Channel members also need to be motivated to continue to provide value. Motivation typically exists in the form of profitability through stimulating sales. The overall goal is to build long-term and supportive relationships among channel members that are successful for all involved.

Channel Conflict

Marketing channels inherently have the potential for conflict. However, with proper planning it can be minimized or avoided.
Of all the factors, the most common source of channel conflict relates to pricing. It is important that the producer creates the foundation for a pricing structure where each member is able to make a profit from the value they bring to the marketing channel process. Each member’s price must reflect his or her role within the channel. For example, if a retailer is able to purchase directly from the producer at a cost equal to or less than what they buy from their distributor, channel conflict will occur.

Other sources of channel conflict may result from goal incompatibility, poorly defined roles and rights, perceptual differences, and interdependent relationships. All of these factors must be taken into consideration, addressed when necessary, and “managed” whenever possible.

The member that has the greatest control–and that may not be the producer–is in the best position to influence the channel.

Roles and Functions

Channel marketing has its own set of terminology regarding each of the players. It often varies by industry. Here is a list of some of the most common terms:

TITLE ROLE CARRY INVENTORY OFFER FINANCING
Broker Brings buyers and sellers together No No
Distributor Allocates goods to wholesalers or to retailers, depending on the industry Yes Potentially
Facilitator Assists in the distribution process No No
Manufacturer’s Representative Represents and sells for several manufacturers to perform the same functions of an internal salesforce No No
Merchant Purchases inventory to resell Yes Potentially
OEM Original Equipment Manufacturer: Initial producer of a product who agrees to allow another entity to include, remanufacture, or label products or services under their own name and sell through their distribution channels No Potentially
Retailer Sells directly to the end user Yes Potentially
Sales Agent Searches for customers and negotiates on the producer’s behalf No No
Wholesaler Sells to merchants who then resell to end users Yes Potentially
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Tim Berry

about the author

Tim Berry

Founder and President of Palo Alto Software and a renowned planning expert. He is listed in the index of "Fire in the Valley", by Swaine and Freiberger, the history of the personal computer industry. Tim contributes regularly to the bplans blog, the Huffingtonpost.com as well as his own blog, Planning, Startups, Stories. His full biography is available at www.timberry.com. Follow Tim onGoogle +

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1 Comment

AHMED IBN LAUWAL June 6, 2013 at 5:25 pm

The article on 'choosing your sales channels' is concise and easy to follow by a marketing student. Thank you for adding value to scholarship.

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