Channel Management in B2B Markets - Essay Example

Channel Management in B2B Markets – a case of DELL and Section # of This paper aims at analyzing how various channels are managed while dealing with business customers at DELL. Introduction Coe (2003) states that businesses have been split by the gurus of marketing as B2B and B2C, whereby the formers are those that deal with businesses, while the later are those that directly interact with the customers, with prime examples being wholesalers and retailers respectively. Accordingly, Minett (2001) states that for a business or a firm, there can be two customers i.e. the business customers or the individual consumers. Major chunk of sales definitely comes from a consumer, since customers are present in masses, but huge share of profits for a firm come from the business customers who are present in small numbers but have higher budgets allocated for activities. Consider the example of computers; computers are mass marketed products, but when it comes to a firm buying computers, it would not just look for standard specifications but beyond that, it would also look for the warranties and after sales services and technical support availability and a list of wholesome menu to be associated with one purchase deal. Subsequently, the price of a personal computer quoted to an individual buyer would definitely be on the lower side compared to the cost of a similar computer quoted to a business-customer. Conclusively, businesses cannot afford to run down on any of the two – individual customers provide volumes while business customers provide the higher profit per unit. Since the margins are on the higher side, it is important that channels of reaching the business customer are managed appropriately to ensure that the higher profits remain on the higher side. Nature of B2B Market for Computers Industry & DELL Computers today have become a necessity rather than an accessory; there would hardly be businesses that do not have a computer in any form – from groceries to automobile sector, and from offices to warehouses. In accordance with Thurbin (2001), he states that computers have literally revamped and ‘technologisized’ the human life by all means. Not just the individual customer’s life has been revamped but also the business processes of individuals working in various organizations. Today, in real terms, terminologies such as computers, networking, data cables, IPs, etc. are fairly common in our daily lives, but this all ultimately moves back to purchase of systems (computer systems) from particular vendors by the IT department of a firm. Such customers comprise of the business-to-business markets for computer manufacturers or suppliers. In accordance with Bly (1998), there is a definite advantage of dealing directly with the manufacturer mainly enhanced reliability, tremendous support structure and after sales support activities. When referring to the case of DELL, any business that would want to buy computer or computers for its operational purposes would fall in the category of a business customer. Vitale (2010) states that the business customer market was largely captured by IBM in the past days, but in recent times, business customers are moving towards DELL and HP as other options, primarily since after IBM changed its face to LENOVO. The business customers are definitely more demanding compared to an individual customer. According to Vitale (2010), a business customer, as a part of their purchase deal, would definitely look for: Appropriate after sales services team Quicker response time when need be Faster availability of replacements if need be Better warranty options and deals Temporary replacements in case any amendments or reinstallations are needed Such and many more variables define the fundamental needs of business customers, allowing a quick view of the competitiveness associated in this industry being a need for DELL. Developments & History of Channel Management at DELL The development of channel management at DELL had traditionally been the same as prevalent throughout the computer manufacturers, however, DELL has now moved beyond traditions towards applying the benefits of the technology that it sells for its own uniqueness, being the leader in the industry at what it innovated. In accordance with Bovee (2009), traditionally, computer manufacturers reached the business customers, as they did for the individual customers, through indirect channels of distribution such as authorized selling agents or designated retailers. This approach had its advantages and disadvantages. Advantages of this approach included, but were not restricted to: The manufacturer could forget the worries about sales, and focus on its core competency that is manufacturing computers No huge investment was needed for developing sales channels for reaching the customers, but in fact the customers were reached through specialized ‘sale agents’ or channels Effectively, outsourcing is like a contract position and an existing contract can be terminated (with due conditions fulfilled) and another can be constructed Apart from these, and many more advantages, there were disadvantages as well: Literature reviews lead to the conclusion that intermediary has a cost associated, and more often than not, the cost of intermediary is beard by the customer as it is piled up with the actual cost and the margin of the intermediary Often intermediaries tend to form a consortium to demand flexi prices and terms-and-conditions from the actual manufacturers Most critically, the manufacturer becomes dependent on the retailer’s feedback and opinion to know what the customers say, and thus, they lose the direct contact with the customers When referring to B2B scenario, an intermediary would develop ample contacts with the business customer to push another brand that would be offering better commissions but not so well in terms of quality of product and service. In the contemporary phase of business, DELL has utilized the ‘e’ world as their major tool for developing a competing edge in the industry. DELL began the move to be ‘direct’ with the customer; both individual and business customers. It started off with a make-your-own-pc proposition developed by DELL i.e. through its website, it began taking orders from individuals as well as corporate customers whereby the customers could themselves design and assemble their required computers. This gave them the roam to configure their systems based on their needs in terms of specifications as well as being within the constraints of the given budgets. Such a technique is cost effective as well as reaches the customer directly, resolving the disadvantages of indirect distribution channel, and retaining the advantages of the indirect distribution channel. Slowly and gradually, posterior to developing this website, DELL also created its own offices, having its presence in either the currently strong markets or in the markets that have existing and unleashed potential. Other than these two reasons, another reason for distribution channels was the regional presence of DELL for warranty and services issues. Thus, in accordance with Brennan (2007) it can be stated that the channel management for DELL developed from distributorship to having agents in various regions; however, in the regions where there are no agents, there distributorship still is the first choice to cut on costs, since the revenues do not match costs or there are other reasons too. The advantages and disadvantages of distributorship have been detailed previously. Following are the advantages of having agents established in a region, as stated by Hunter (1997): Agents are the manufacturer owned representation, thus, policies and procedures, are easy to implement, quality checks are easier to make, and quality assurance is easier to develop Through agents, the manufacturer directly reaches the business customers, develops relationship and thus making cross-selling easier Agents make it easy for manufacturers to develop customized proposals for the business clients, since they are direct sellers of just one brand Following are the disadvantages of the presence of an agent: Having a complete set up as an agent requires tremendous fixed cost expenses A major threat, especially today, is that agents have ample contacts to be a spin off moving towards entrepreneurship, and may be developing a sales agency for all big brands. The innovation in distribution channels that DELL has brought about in the computer manufacturing arena is what has created a significant impact on how operations are conducted and processes are applied. Often it becomes really difficult to understand the revenue model, since customization is an expensive route for product development within itself. In accordance with Kotler (2006), Information Technology (IT) has played a significant role in redefining marketing channels today. With the influence that it has created, particularly, as mentioned in the introductory paragraphs of this paper, the way DELL has utilized IT to restructure and redefine its marketing channels is a classical example of innovation within itself. Not just the development of systems that in-take customer requirements and makes their system, but the IT application lying at the back-end that actually assists the supply chain in analyzing and forecasting the demand patterns, and subsequently, shipping the required parts so that while manufacturing a computer, there is no issue of some part missing from the inventory sock or from the warehouse stock. Such a model may not be viable for all the computer manufacturers; therefore, intermediaries do still remain an easy way to keep the products available on majority shelves in the market. Subsequently, the recruitment of intermediaries in the computer industry becomes a critical aspect. While such a recruitment activity, it is critical to identify the following stand points from the intermediary profile, and these are stated by Lamons (2005): The current size of portfolio in terms of sales and services rendered to the client – the more the better The number of manufacturers and providers of computer equipment on the supplier’s list – the lesser they are, the more your product gets a push The quality of service and the value of money that the intermediary delivers to his existing customer base, and their level of satisfaction – the higher the better The existing or prospect resources for the firm that can prove handy or otherwise for selling our product and service Effectiveness and efficiency of the intermediary in terms of reaching the customer till the point of sales Today, firms not just use agents and distributors’ set up but also develop a coordinated marketing activity where direct and indirect, both distribution channels are utilized by firms for reaching the target audience and gaining the maximum share of the pie. In such a scenario, the agent and the distributor work as a partnership, supporting each other in terms of skill set and capabilities being shared. However, there are conflicts and these cannot be avoided – wherever humans are present, there is always some conflict. The real art is to resolve such conflicts and take maximum advantage out of such a combination, rather than anything else. The combo model of agents as well as distribution is successfully applied at DELL because agents are present at a regional level while distributors are present almost everywhere. Agents act locally as distributors and regionally as regional headquarters. Defining this form of a hierarchy gives a logical direction for the flow of information as well as that of command from one point to another – subsequently conflicts reduce and the partnership moves forward. Conclusion The gurus of marketing believe that B2B marketing is a challenging task, particularly when compared against the B2C market, and on a general note, this becomes valid due to the size of the consumer market – individual customers having volumes and business customers holding margins. In a competitive landscape as existing in the computer manufacturing industry, it is essential to gamble on cost cutting measures especially with the level of homogeneousness associated with computers. Along the similar lines, it is also critical for firms to have appropriate control and management of their channels of distribution, not just from a cost cutting perspective but also for reaching the customers closely – let it be individual customers or the business customers. Development of effective channel management strategies definitely leads towards optimization of the sales and marketing programs as it moves towards audit of the marketing and sales activities to cut on the not-so-effective modes and mediums of distribution channels. The review of the classical and contemporary literature leads to the fact that beyond the computer manufacturers, there are a lot many numbers of industries that have hard reliance on the management of effective distribution channels, leading to the thought that defines the importance of these channels. References Bob Lamons (2005) The Case for B2B Branding: Pulling Away from the Business-to-Business Pack. South-Western Educational Pub Courtland Bovee, John Thill (2009) Business Communication Today. Global Edition. 10th Edition. Pearson Education Dr Ross Brennan, Dr Louise E Canning, Raymond McDowell (2007) Business-to-Business Marketing (SAGE Advanced Marketing Series). Sage Publications Ltd John Coe (2003) The Fundamentals of Business-to-Business Sales & Marketing. McGraw-Hill Patrick Thurbin (2001) Playing the Strategy Game - strategy is a skill not a formula; make it one of yours. Pearson Education Philip Kotler (2006) B2B Brand Management. Springer Robert Bly (1998) Business-to-Business Direct Marketing: Proven Direct Response Methods to Generate More Leads and Sales, Second Edition. McGraw-Hill Robert Vitale, Waldemar Pfoertsch, Joseph Giglierano (2010) Business to Business Marketing. Pearson Education Steve Minett (2001) B2B Marketing - A radically different approach for business-to-business marketers. Pearson Education Victor Hunter, David Tietyen (1997) Business To Business Marketing. McGraw-Hill Read More