Indirect Channel Relationships in Industrial Marketing

The manufacturer’s choice of indirect channel relationships may be  separated into those of a strategic nature and those which are matters of  policy. In the former instance there are two basic alternatives: selective  distribution is one in which the firm sells through one or a limited number  of outlets in each market area or segment, or intensive, is one in which all  outlets in a given market segment will be utilized. The decision to pursue a  selective rather than an intensive strategy, or vice versa, based on a number  of circumstances.

  1. Intensive distribution: If the manufacturer elects to market through  all outlets of the chosen type or types that will buy his products, he may be able to gain complete coverage of his total market rather quickly. Merely  by the laws of chance at least one outlet in each market area should be willing to handle his product. Moreover, there is apt to be fairly uniform  quality of distributor performance throughout a manufacturer’s market, since  one could expect to find both good and poor distributors in every market  area, many of whom would be handling his product. However, the degree of  cooperation the manufacturer receives from his several outlets covering the  same territory is likely to be small because none receives preferential  treatment and each is competing with the others in the sale of the  manufacturer’s product.
  2. Selective distribution: If the manufacturer pursues a selective strategy, he  must fit the chosen outlets into mosaics of areas in which they operate to be  sure that all parts of the market are covered. He also has the problem of  adjusting claims to territories where the trading areas of two or more  selected outlets overlap. Perhaps the most serious drawback is that the  manufacturer puts all his marketing eggs in one basket. The manufacturer  who follows a selective strategy constantly faces the risk of losing an outlet in  at least one of his marketing areas, and in the meantime being without good  representation there.

The manufacturer can designate one distributor as his sole outlet  in a given area and make a valid contract to this effect; he cannot legally  make a contract that requires the distributor to refrain from handling the  products of a competitor. The selective strategy when carried to the extent  of the exclusive franchise can be exclusive on only one side, that of the  manufacturer.

On the other hand, a selective strategy tends to generate a much close  working relationship with the manufacturer. The spirit of cooperation  between manufacturer and middleman tends to produce a higher quality of  marketing effort by selected distributors and agents than under an intensive  strategy. This manifests itself in more aggressive and active cooperation in  promotional programs, and greater willingness to equip him to render the  kind of service called for by the  manufacturers.

The manufacturer whose pursues a selective strategy can expect  some savings in marketing cost. The savings will probably not be  commensurate with the reduction in number of accounts. Salesmen can  usually spend more of their calling time in constructive effort to move the  product into the hands of users and less of it in the struggle to get an order.  Since the outlets would be fewer, the average order is likely to be larger,  with resulting reductions in order-handling costs.  The selective strategy also is likely to provide the manufacturer with a  better distributor sales force to sell his product than would be possible with  any other indirect alternative. If a distributor knows that the business he  develops for a product in his territory belongs to him and can be served by no  one else, it is clearly to his benefit to have his salesmen properly trained by  sending them to the producer’s factory and by cooperating in other training  programs the manufacturer may develop. This is especially important to the  maker of highly technical products or those that require technical service.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.