This document provides an overview of industrial product and service distribution channels. It discusses key concepts like channel functions, objectives, alternatives, and systems. The major question for manufacturers is who will perform various channel functions to balance efficiency, effectiveness, and the potential for functions to shift among members. Distribution strategies like exclusive, selective, and intensive distribution are outlined. Developing cooperative relationships and managing conflict between manufacturers and distributors is also addressed to motivate channel members and improve system performance. The document provides a framework to analyze, implement, and modify distribution channels based on product/market factors and member responsibilities.

1. 1
Service Partner Channel Opportunities
Part 1, Background
Redacted Customer Service Business Unit
Redacted, Inc.
Brian Solomon

2. 2
Table of Contents
CHANNEL FUNCTIONS...............................................................................................................................3
CHANNEL DESIGN......................................................................................................................................3
CHANNEL OBJECTIVES.............................................................................................................................3
IDENTIFYING CHANNEL ALTERNATIVES................................................................................................4
RESPONSIBILITIES OF CHANNEL MEMBERS.........................................................................................5
EVALUATION OF CHANNEL MEMBERS...................................................................................................6
WHY CHANNEL PROGRAMS FAIL............................................................................................................7
MODIFYING THE DISTRIBUTION CHANNEL ............................................................................................7
CHANNEL SYSTEMS ..................................................................................................................................7
HORIZONTAL MARKETING SYSTEM........................................................................................................7
VERTICAL MARKETING SYSTEMS...........................................................................................................7
MULTI-CHANNEL MARKETING SYSTEM..................................................................................................8
CHANNEL COOPERATION, CONFLICT AND COMPETITION .................................................................8
FOUR TYPES OF CHANNEL COMPETITION ............................................................................................8
END-USER PERSPECTIVE .......................................................................................................................10
CONCLUSION ............................................................................................................................................11
EXHIBIT 1 PRODUCT SERVICE COMPLEXITY MATRIX
EXHIBIT 2 DISTRIBUTION MATRIX
EXHIBIT 3 BENEFITS AND BURDENS OF VARIOUS MARKETING SYSTEMS
EXHIBIT 4 CHANNEL POWER AND INFLUENCE MATRIX
EXHIBIT 5 QUICK REFRENCE FOR DISTRIBUTION PLANNING
GRAY MARKET ATTACHMENT
BIBLIOGRAPHY

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Summary
This document covers a general outline of industrial product and service distribution channels. It is
designed to provide a format for viewing, framing, and implementing distribution channel issues and
policies. Included are brief discussions of the channel functions, channel design, channel objectives,
manufacturer and distributor relationships, and gray markets.
Channel Functions
 Information: gathering and distributing market research and intelligence about forces in the marketing
environment needed for planning and aiding exchange.
 Promotion: developing and spreading persuasive communications about an/the offer.
 Contact: finding and communication with prospective buyers.
 Matching: shaping and fitting the offer to the buyer’s needs including manufacturing, grading,
assembling, and packaging.
 Negotiation: reaching an agreement on price and other terms of the offer so that ownership or
possession can be transferred.
 Physical distribution: transporting and storing goods.
 Financing: acquiring and using funds to cover the costs of channel work.
 Risk taking: assuming the risks of carrying out the channel work, including taking title and possession
of goods.i
Physical product manufactures need at least three channels: sales, delivery and service. The major
question facing manufacturers is who will perform the various functions. This decision should be based on
relative efficiency and effectiveness and three related issues: use of scarce resources, segmentation of
channel functions via specialization, and possibilities of the functions being shifted among channel
members.
Channel Design
In designing a channel system managers must consider what is ideal, what is feasible and what is
available.ii The channel must be flexible enough to respond to local opportunities and conditions. It is also
necessary to analyze customer needs, establish channel objectives, set criteria for achieving those
objectives, and identify and evaluate the major channel alternatives. Finally the manufacturer must
question whether the system designed will meet the three criteria of customer acceptance, financial
objectives, and administrative reality.
Driving all of these channel decisions are the nature of the product, the market segment demographics,
buyer behavior, and distribution costs.iii
 Product factors: necessary for technical information exchange between manufacturers, distributors
and end-users; weight-to-value ratio; customization needed for end-user requirements; amount of
service required; whether the product custom made or mass-produced; whether market may be
segmented by use of product.
 Demographic factors: whether the segment concentration is on individual buyers or corporate
purchasing departments; level of demand; the diversity of user applications.
 Buyer purchasing behavior: frequency of purchase; whether the product is sold singularly or
bundled; how the product is purchased by various end-users (e.g. centralized within a company
versus decentralized within each department); whether the product or products are used at a central
site within the company or at various sites?
 Distribution costs: If the manufacturer wishes to service a product, what are the geographic costs.
Do they want to provide on site service for a single unit in Truth or Consequences, New Mexico? If
so, should a distributor or the manufacturer service the product? How many units does the
manufacturer or distributor want in their inventory?
Channel Objectives
Channel objectives should be stated in terms of targeted levels of service output. Channel members

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should arrange their functional tasks to minimize total channel costs with respect to desired levels of
service outputs. If many market segments are involved, planning requires choosing which market
segments to serve and the best channels to use in each case.
Channels produce five service outputs: Lot size, waiting time, spatial convenience, product variety, and
service backup.
 Lot Size: the number of units that the channel permits a typical customer to purchase on a purchase
occasion.
 Waiting Time: the average time that customers of the channel wait for the receipt of goods.
 Spatial Convenience: the degree to which the marketing channel makes it easy to purchase the
product.
 Product Variety: assortment and breadth provided by the channel.
 Service Backup: add on services such as warranty, return, onsite repair etc.
Criteria for channel objectives should be based on product attributes and customer need. Some products
may need a more direct channel to avoid risk of repeated delays. Large or bulky products may require
channels of shorter distance and fewer intermediaries (channel members who handle the product or
service before it reaches the end user) from manufacturer to end-user. Non-standardized, highly
specialized products, or products that require installation and onsite maintenance may need a channel
that is maintained by the manufacturer or specialty distributor. How the target customer buys must be
taken into consideration. This includes who is making the purchase decision, what and why (know your
product and the need it is satisfying), and how the target customer will make the purchase. Strengths and
weaknesses of the intermediaries and the influence of competitor channels must be taken into
consideration.
Identifying Channel Alternatives
Channel alternatives are differentiated by three elements: types of intermediaries, number of
intermediaries needed, and the terms of responsibility of each channel participant.
Types of intermediaries
The type of intermediary used depends on the service outputs desired by the target market, the channel’s
transaction costs, and the special attributes of the intermediaries.
 Manufacture’s sales force, direct sales to end-users.
 Value added reseller, adding additional services and value to the customer (see also industrial
distributors).
 Industrial distributors. From a customer perspective there are four categories of distributors based on
the complexity of the solution that they provide and the amount of responsiveness required by the
customer.iv
Customers with a high degree of problem complexity but with a low need for fast response may
choose a Solution Advisor. Solution Advisors configure and implement a solution and collaborate with
the customer on a solution design.
Customers with a high degree of problem complexity and need for a high degree of responsiveness
may choose a Service Specialists. Service Specialists deliver real-time remote trouble shooting and
provide immediate onsite repair and maintenance.
Customers with a low degree of problem complexity and a low need for response may choose an
Inventory Hub. Inventory Hubs streamline product flow. They manage timely delivery of (usually) non-
mission critical supplies.
Customers with a low degree of problem complexity and a high need for responsiveness may choose
a Product Outlet. Product Outlets deliver time-critical products -- like industrial circuit breakers or
measurement devices. Some resellers will develop a single-minded focus on getting goods to the
exact point where customers need them when they need them.

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(see Exhibit 1)
Strategies for Distribution
The number of channel intermediaries at each level must support the channel strategy and objectives.
Three common strategies are exclusive distribution, selective distribution, and intensive distribution
(see Exhibit 2).
 Exclusive distribution involves severely limiting the number of distributors handling a manufacturer’s
goods and services. This strategy is useful when the manufacturer wishes to maintain tight control
over the distribution of goods and level of service the distributor can offer. Manufacturers with
complex specialty goods that consumers will specifically seek out often choose this form of
distribution.
 Selective distribution involves the use of more than a few, but less than all, of the distributors who are
willing to carry a particular product. The benefit to the manufacturer is adequate access to markets
with more control than intensive distribution. Manufactures with products that consumers will compare
across distributors often choose this form of distribution.
 Intensive distribution is when a manufacturer places the goods and services in as many distributors
as possible. This form is particularly useful to the customer when the customer needs location
convenience. Though many manufacturers attempt to move from exclusive or selective distribution to
intensive distribution to increase short-term sales, this strategy may not be beneficial in the long run.
Primarily, manufacturers could lose control over service quality and end-user price. Due to different
overhead costs, some distributors will be able to undercut others and encourage gray market
activities (see gray market attachment). Manufacturers often seek this form of distribution when
consumers see their products as an afterthought and normally do not seek them out and compare
them with other brands.v
Responsibilities of Channel Members
Main elements of channel member responsibilities are price policies, conditions of sale, territorial rights,
and specific services to be performed by each party.
 Price policy includes the manufacturers established price list and the schedule of discounts that the
channel members see as equitable and sufficient.
 Conditions of sale refer to payment terms and manufacturers guarantees.
 Distributors’ territorial rights include the knowledge of where, when and under what terms the
manufacturer may enfranchise other distributors.
 Mutual services and responsibilities must be agreed upon and made clear to all parties involved.
Evaluating Channel Alternatives
Each alternative should be evaluated against efficiency, effectiveness, and adaptability criteria.
 Efficiency criteria: each channel alternative will produce a different level of sales and costs. Will this
channel produce more sales, costs, or both? Do the customers (end-users) prefer to work with a
distributor that represents a variety of manufacturers? What is the cost of selling different volumes in
each channel? Can the distributor deliver quality product and service when and where the customer
needs it?
 Effectiveness criteria: Whether the distributors have the technical savvy to service and support the
product. Whether intermediaries add value to the end-user that the manufacturer can quantify, or
qualify by surveying the customer. There must be some degree of reciprocal commitment by each
member in the channel, for a specific period of time, for channel efficiency.
 Adaptability criteria: whether the channel responds quickly and effectively to the changes in the
marketplace. Unless specific channel members add value by increasing responsiveness to market
conditions, the manufacturer will be more responsive with a shorter channel.
Selection of Channel Members
Selecting channel members is a weighty task. Manufacturers should select members that have the same

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goals and market strategy. This helps reduce channel conflict and improves channel efficiency. Some
criteria that are commonly used are number of years in business, other lines carried, growth and profit
record, solvency, cooperativeness, reputation, location, number of active customer accounts, condition of
facilities, and technical capability.
Motivating Channel Members
Manufacturers sell both through, and to distributors. Because of this manufacturers must understand their
distributors’ needs and wants. Recent research has found that:
 The distributor acts as a purchasing agent for their customers and only secondarily as a selling agent
for the manufacturer. He is interested in selling any product that his customers wish to buy. This leads
to “… the tug-of-war between suppliers [manufacturers], which build brand loyalty to attract
consumers regardless of stores, and distributors, which build store loyalty to attract consumers
regardless of brands.”vi Many distributors have superior appeal to customers because of the
comprehensiveness of their assortments and superior expertise and efficiency in carrying out the
distribution function. Indeed, many distributors enjoy high customer loyalty and profitability, placing
them in a strong position vis-a-vis suppliers.vii
 The distributor may attempt to combine all offerings into a family of items that fill out a packaged
assortment, the whole product concept. In literature on channel relationships, a distributor is viewed
as an independent purchasing agent acting on behalf of anticipated customers rather than as a hired
link in a value-added chain on behalf of a powerful manufacturer.
Motivation in Channel Relationships
Relationships can be based on cooperation, partnership, distribution programming or a combination of the
three.
 Cooperation: manufacturers gain cooperation from their distributors via many methods. They may use
higher margins, special deals, premiums, cooperative advertising allowances etc. The disadvantage
of this type of motivation is that it’s based on stimulus and response thinking. There is no consistency
to the pattern nor is it efficient.
 Partnerships: manufacturers will establish a clear vision of what they want from their distributor. This
includes market coverage, inventory levels, marketing development, account solicitation, technical
expertise, and market information. However, inherently, both manufacturer and distributor are
compromising their goals to achieve a beneficial relationship. Some goals are foregone on both sides
to have other needs met.
 Distribution Programming: building a planned, professionally managed vertical marketing system that
incorporates the needs of both the manufacturer and the distributors. This helps the distributors
operate as efficiently as possible. The manufacturer and distributors jointly plan the merchandising
goals, inventory levels, space and visual merchandising plans, sales-training requirements, and
advertising (if any) and promotional plans. The aim is to convert the distributor from thinking that they
make their money primarily on the buying side (via negotiation with the manufacturer) to seeing they
make their money on the selling side (by being a part of a sophisticated vertical marketing system).
Distributors should be seen as working partners not just customers.
What does your intermediary or distributor want?viii
 Quality products that work well with his/her product mix.
 Compensation to meet margin demands.
 Committed manufacturer that will stand behind the product and the distributor in times of conflict
 Training for distributor’s staff.
 Brand equity.
 Trust.
Evaluation of Channel Members
Various methods are used to evaluate members such as sales quota attainment, average inventory
levels, customer delivery time, treatment of damaged or lost goods, cooperation in promotional and

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training goods, and customer satisfaction.
Why Channel Programs Fail
 Ignoring end-user buying patterns and needs.
 Assuming your direct sales force will support indirect channels for the good of the company.
 Expecting channels to change for you; distributors can be very happy in their comfort zone.
 Staying with traditional channels too long.
 Not realizing your potential/importance/power/influence in the channel.
 Poor selection and evaluation of channel members, distributors, reps, etc.
 Believing that one channel can be all things to all customers.
 Avoiding channel conflict instead of managing it.
 Not developing a close relationship with your channel members.
Modifying the Distribution Channel
The process for moving from an obsolete distribution channel to a more efficient channel.
 Review existing materials and conduct research on channels.
 Understand the current distribution system fully.
 Conduct existing channel workshops and interviews.
 Conduct competitor channel analysis.
 Assess near-term opportunities in existing channels.
 Develop a near-term plan of attack.
 Conduct quantitative end-user need analysis by way of focus groups and one on one interview.
 Analyze industry standards and systems currently in use.
 Develop the “ideal” channel system.
 Design a management-bounded system, an ideal constrained by reality.
 Conduct a gap analysis. Determine the gaps that exist among the current system from the ideal
system and the management-bounded system.
 Identify and develop strategic options.
 Design optimal channels.
 Any channel member who is not adding value, and cannot be integrated, should be dropped from the
channel.
Channel Systems
There are three different types of marketing systems: horizontal, vertical, and multi-channel.
(see Exhibit 3)
Horizontal Marketing System
A horizontal marketing system exists between two or more distributors. A distributor may sell excess
goods to other authorized or unauthorized distributors. This system can be planned or unplanned
between distributors (with or without the manufacture’s approval), or it maybe necessary for doing
business in some countries. Proper management in this area my help reduce gray market interference.
Vertical Marketing Systems
This type of system comprises manufacturers, wholesalers or VARs, distributors, and retailers working as
a unified entity toward a common purpose. The system can be controlled by any member of the channel
depending on which member has the power. “They are professionally managed and centrally
programmed networks, pre-engineered to achieve operating economies and maximum market impact”ix
Vertical Marketing System Support
A critical prerequisite for success in the marketplace: the implementation of an integrated value chain that
extends across - and beyond - the enterprise.x Value chain integration is the process in which channel
members within a shared market cooperatively plan, implement, and manage (electronically and
physically) the flow of goods, services, and information from point of origin to point of consumption.

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Furthermore, they do so in a manner that increases customer-perceived value and optimizes the
efficiency of the chain, creating competitive advantage for all members.xi
Multi-Channel Marketing System
A multi-channel marketing system comprises a number of different vertical channels to meet end-user
demands. This strategy is designed to make it as easy as possible for end-users to make purchases and
receive delivery of the good or services in the manner which is most convenient for them.
Channel Cooperation, Conflict and Competition
Relationships between manufacturers and distributors are both cooperative and adversarial. Each
member of the channel has a stake in the potential profits. So how profits are shared is a major source of
contention. Manufacturers attempt to engage distributors’ full support for their products. Distributors wish
to control their own product-market strategies without manufacturer interference. Generally the conditions
that manufacturers place on distributors are perceived as constraints on the distributor’s business
strategies.
Four types of channel competition
 Between channel members: wholesaler versus wholesaler, retailer versus retailer, manufacturer
versus manufacturer.
 Among channel members: wholesaler versus manufacturer, retailer versus wholesaler, manufacturer
versus retailer.
 Between channel members for the use of channel members: manufacturer versus manufacturer for
the use of a wholesaler, wholesaler versus wholesaler for the use of a retailer - this is really a special
case because it is non-price competition between channel members.
 Between channels: manufacturer-wholesaler-retailer channel versus manufacturer-retailer channel.
The fourth form of competition is not one of which the manufacturer usually feels it is a part. It appears
that direct channels are gaining in this struggle.xii
Manufacturer and Distributor Relationship
There are two different areas of focus within the manufacturer and distributor relationship: Product-centric
and service-centric. A product-centric focus has been the domain of the manufacturer and concentrates
specialties on the product. These specialties include inventory management expertise, economies of
scale, research and development. Manufactures’ primarily concentrate on the physical product to afford
maximum leverage of these attributes. Distributors and Value Added Resellers (VAR) have historically
concentrated on service-centric specialties. These specialties include delivery of high-value technical
expertise, coordination of customer solution design, management of product and project complexity, and
choice of products. However, distributors may only concentrate on one or a few of these areas
depending on their level of skill.
There are three important points in the manufacturer and distributor relationship: control, continuity, and
communication. First, the length of the distribution channel and the nature of the relationship determine
the amount of control the manufacturer has over pricing, promotion, and placement of the product.
Second, the manufacturer needs to consider the distributor's view of the length of the relationship (weeks,
months, or years), and any advantages that may arise from the continuity of a longer-term relationship.
Finally, proper communication helps to convey the company's goals to the distributor, solve conflicts, and
aid in the overall marketing of the product. Communication must be a two-way process and should not
involve dictating orders to distributors.
A word about communication: In a recent survey of 250 manufacturers, the Industrial Performance Group
(IPG) found that poor communication was the major contributor for problems in the
manufacturer/distributor relationships. Over half of the manufacturers surveyed said they do not help their
distributors develop local marketing strategies. “The survey also found that nearly half of manufacturers
do not have written agreements with distributors; 60 percent do not formally evaluate distributor
performance; and 74 percent have no distributor advisory council or other formal mechanism for getting

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input from distributors. Robert Nadeau, research director for IPG, says despite their shortcomings,
manufacturers continue to be displeased with distributor performance.”xiii
Manufacturer and Distributor Influence
Channel relationship influence (power) is defined as the ability of a channel member (manufacturer
intermediary or distributor) to control decision variables in the marketing strategy of any other member in
a channel. Power relationships are relative. One channel element is more powerful relative to another or
a set of others. The pattern of power or control in a distribution channel changes, as there are changes in
the demand or supply system.
There are six forms of channel power Reward, Coercion, Legitimate, Identification (or Referent), Expert,
and Information. Reward power is the perceived ability of one channel member to distribute rewards to
another based on desired performance. Coercion is the opposite of reward, stemming from the perceived
ability of a channel member to impose punishment on others who do not conform to performance
expectations. Legitimate power exists when a channel member is perceived to have the right to influence
another channel member who accepts that influence. This is usually exercised in the form of contracts.
Identification (or referent) power results from the desire of one channel member to be identified with
another. Intermediaries can increase their own brand recognition by leveraging the association with the
manufacturer. Distributors can “ride the coat-tails” of the manufacturer’s brand equity. Expert power exists
when a channel member is perceived to possess special knowledge or expertise. Informational power is
possessed when a channel member has the ability to provide information not previously available
(customer, market or competitor information) to the other channel members.xiv
(see Exhibit 4)
Manufacturers’ Purpose for Channel Control
The manufacturers purpose for channel control can be both strategic and tactical depending on the needs
and constraints of the market. Possible goals are:
 Achieving breadth and/or depth of market access through widespread or focused distribution
 Ensuring product flow-through in fulfillment of end-user demand
 Gaining distributor sales support for its product line with the distributor’s customer base
 Ensuring that its distributors devote their primary efforts to the manufacturer line as opposed to
competing brands
 Maintaining orderly end-market price conditions and thus safeguarding product line profits and
avoiding deterioration in the distribution network as a result of price wars and gray market activities.
 Enabling the manufacturer to make adaptive changes in the distribution system as product-market
conditions evolve
Manufacturer Power
The end-user demand for a manufacturer’s product line is the basic source of strength for the
manufacturer in channel relationships. The demand for a particular brand is a function of superior product
performance, the manufacturer’s end-market presence, the breadth of the line and customer choice it
offers, and the availability of related services (user education, product customization, and after-sale repair
and service). The manufacturer must identify where its strengths in the distribution channel sit and how to
exploit them.
Three basic factors enhance the manufacturer strength in managing the channel:
 First, the value of the manufacturer’s brand to the distributor. This includes brand recognition by end-
users, long term reliability as a source of supply to the distributor, and the brand as a significant
source of distributor income. If the manufacturer doesn’t have recognition with end-users then the
reputation of the distributor will carry more weight and the distributor will be less reliant on the
manufacturer’s brand. When a distributor carries multiple brand then good product differentiation is a
must.xv
 Second, the quality of the day-to-day relationship. Elements influencing this quality include tactical
programs aimed at motivating and monitoring distributors (time, money, attention devoted to good

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relationships), product and sales training supplied by the manufacturer, and a clear sense of selling
strategy and long-term consistency in its implementation.xvi
 Third, distributor disincentives for switching to other suppliers or dropping the product line. Some of
these disincentives include dropping one brand for another (this communicates inconsistency and
lack of distributor stability to the market), existing preference by the end-user for the existing brand,
other manufacturers may have a satisfactory distribution system in place for that area. Other costs of
switching include the liquidation of inventory, converting record and information systems, and new
training for personnel.
Six basic factors that erode the manufacturer’s strength in managing the marketing channel:
 Conflict between the direct (manufacturer) and distributor selling effort. Clear lines should be drawn
between who the distributor and who the manufacturer can sell services to.
 Incoherent or uncertain channel policies. Channel policies such as who is the face of the front end for
services, the manufacturer or the distributor. Should all products be serviced by all distributors or
should “bleeding edge” technology products only be serviced by manufacturer? Services that are sold
should be standardized for consistency. End-users should have the confidence that they will receive
the same quality service in Europe, Asia, and the US.
 Erosion of the relationship between the manufacturer and the distributor and the consequent inability
to motivate distributors. Inability to get distributors to devote more time to selling our product than
purchasing it for customers. This is more of a push strategy, keeping our name in the mind of the
customer more than our competitors’ name
 Questioning by the distributor of the manufacturer’s commitment to the lines that are/have been sold.
This is the servicing of older products that may not remain in the product line, commitment to
warranty-regardless of how the product was purchased (e.g. gray market), and continued training of
distributor service staff on older products that may still permeate the market.
 Growth of price competition between the manufacturers distributors. This is manufacturers and
distributors competing in the same market. Either the manufacturer or distributor may lower a price,
and make up the revenue elsewhere, to gain market share.
 Abuse of manufacturer power. This is the manufacturer dictating to, or coercing, distributors.
The day to day relationships between manufacturer and distributor personnel can not be stressed
enough.. Individuals negotiate prices, verify inventory, attend sales events, collaborate on product
promotions, and have a variety of other opportunities to interact during the length of the relationship.
Because of this, a culture of mutual expectations is established through individual relationships. The
quality and stability of these relationships can effect the efficiency and effectiveness of the distribution
channel. Re-organization of the personnel that influence or compose these relationships can have
serious consequences. Effective change management is important.
In summary, the manufacturer must consider how much power it wishes to exert in the distribution
channel and how it wants to execute it. This should tie in with a clearly communicated strategy and buy in
should be achieved from all relevant parties. However, before any new strategy is formed, the
manufacturer must honestly assess the level of power it currently possesses. When the strategy is
implemented, the manufacturer must not arrogantly wield its power as this will cause resentment on the
part of the distributor or distributor. Again, the goal of the manufacturer is to get willing cooperation from
all concerned parties.
End-users Perspective
1. If the product is highly technical, end-users usually want technical information directly from the source
of the technology. This could be the OEM, VAR, or Service integrator.
2. If the purchasers are large OEMs, they will usually want service and delivery directly from the
manufacturer. This will reduce their in-process inventories, help facilitate their production schedule,
and increase the insurance of on-time, just-in-time delivery.

11. 11
What does the customer want? Always ask the end-user. However, the literature surveyed revealed some
general trends. Most buyers want a broad range of values to choose from. Some of these are ease of
purchase, large brand choice, availability of service (including quick turn around time for product repair),
consistent delivery of product and service, and good credit terms.xvii
There are two steps that the buyer will wish to accomplish: the negotiation of the contract (ordering) and
the fulfillment of the contract. Buyers perceive four different combinations of manufacturer roles in the
completion of these objectives. Knowing what position the manufacturer and distributor hold in the minds
of their customers is beneficial for channel efficiency. Also, knowing the parameters and priorities that
customers’ use in choosing how they will receive service is beneficial for end-user satisfaction.
First, buyers may rely on a distributor as the primary source for negotiation, but rely on the manufacturer
for fulfillment of the product or service. In this instance, having a local relationship may be important to the
buyer. A manufacturer fulfills this need by selling locally only to authorized distributors. Large purchases
(negotiated locally by distributor) are shipped directly from the manufacturer. The manufacturer supports
its own network of service, repair and on-site servicing, fulfills the manufacturers warranty, and may
provide some form of financing for the buyer. This may be beneficial to a buyer purchasing large
quantities of standardized products.
Second, buyers may wish to negotiate directly with the manufacturer and have delivery of the product and
services from a distributor. This is beneficial for the buyer when purchases need frequent servicing
(predictable product requirements), the product is used at multiple locations, and quick replacement of the
product may be needed.
Third, the buyer may wish both to negotiate and have the contract filled with the distributor. This is
beneficial for the buyer when small amounts of the product are needed, the buyer may need products
from multiple manufacturers, the product needs little customization, and/or local sale and service may be
important to the buyer.
Fourth, the buyer may wish to have the contract negotiated and fulfilled by the manufacturer. The
manufacturer can handle the amount, breadth, service and customization of the product. This works well
when the demand for product is predictable, and ease of purchase is important.
Conclusion
A number of decision variables are involved with product and service distribution channels. Three general
levels of distribution to consider are: exclusive, selective, and intensive. Three general systems of
distribution are used to implement the levels of distribution: horizontal, vertical, and multi-channel. Four
general types of distributors are used to facilitate the strategy: Solution Advisors, Solution Specialists,
Inventory Hubs, and Product Outlets. Driving all of these factors are customer needs and product
attributes. A “quick reference” matrix has been developed for planning distribution channels.
(see Exhibit 5)

12. 12
Endnotes
i
Douglas Adams and Bruce Baily May 11, 1998 Medville College, Buffalo NY [WP]
ii
Kotler, Philip. Marketing Management. (Upper Saddle River, NJ. Prentice Hall, 1997): 535
iii
E, Raymond Corey, Frank V. Cespedes, V. Kasturi Rangan. Going to Market. (Boston, MA. Harvard Business
School Press. 1989)
iv
ibid.
v
Adam J. Fein, Erin Anderson “Patterns of Creditability: territory and brand selectivity in industrial distribution
channels” Journal of Marketing (April 97): 19
vi
ibid.
vii
ibid.
viii
Rolnicki, Kenneth. Channels of Distribution. (New York, NY. American Marketing Association):101
ix
McCammon, Bert C., Jr., Louis P. Bucklin. Ed. Perspectives for Distribution Programming in Vertical Market
Systems. (Glenview, Ill. Scott Foresman & Co., 1970):65
x
John Dobbs, "Competition's New Battleground: The Integrated Value Chain," White Paper, Cambridge
Management Consulting, (April 1998)
xi
George Taninecz. “Forging the Value Chain”, Intelligent Enterprise (Jan 20, 2000): 44
xii
Bruce Mallen “Selecting Channels of Distribution: a multi-phase proces”, International Journal of Physical
Distribution & Logistics Management, (May 1996): 5
xiii
Victoria Fraza “Soured Relationships - who's to blame? ”Industrial Distribution, (July 1998):19
xiv
Steve McDaniel; Joseph G. Ormsby; Alicia B. Gresham. “The Effect of JIT on Distributors” Industrial
Marketing Management, (May 1992): 145
xv
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ibid
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ibid