Channels Structure and Dynamics in B2B

B2B channels are often the same as B2C channels, but typically there is a greater emphasis on personal touch.
KEY POINTS

Business-to-Business (B2B) marketing describes commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer.

B2B transactions often involve a large sum of money, and so is often a longer process than a simple business-to-consumer transaction.

Trade shows are popular ways for companies to engage each other in doing business and are an important part of B2B selling.
TERMS

E-commerce
Commercial activity conducted via the Internet.

Trade show
An exhibition organized so that companies in a specific industry can showcase and demonstrate their latest products and services, study activities of rivals and examine recent market trends and opportunities.

Logistics
The process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from their point of origin to the point of consumption for the purpose of satisfying customer requirements.

Business to Business (B2B) marketing refers to a market where other businesses, not end consumers, are the purchasers of the goods and services. B2B describes commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer. Usually B2B transactions involve purchasing items that will make up the final product. For example, a chair manufacturer may buy steel for the frame from one company, wood from another, and the fabric from another. All these are considered business to business transactions. B2B marketing is usually quite different from other forms of marketing, particularly business to consumer (B2C)

Business-to-Business Channels
Like Business-to-consumer marketing, business to business also employs different channels, such as e-commerce or physical stores. However, due to the substantial differences in how B2B marketing works compared to B2C, there are additional channels. Many business-to-business transactions involve large sums of money, because generally the business will buy in large quantities. Therefore, it often makes sense to involve a representative from the selling company in developing, cultivating, and maintaining relationships that lead to sales. This person can help the purchaser plan for, set up, and use the B2B product. Another channel, not as commonly used in business-to-consumer transactions, is that of trade shows (Figure 1). A trade show provides a platform for many different companies in the same general industry to display their products for other businesses to buy. A business will often purchase products at a trade show for use in their own products, making trade shows an important component of Business-to-Business transactions.

Business-to-Business E-Commerce
One of the major differences between business-to-business (B2B) transactions and business-toconsumer (B2C) transactions is the type of online (e-commerce) interaction. Typically, a B2C customer will purchase a product or service and, once the transaction has been complete, will have limited continued interaction with the company with regards to that product. However, in a B2B transaction, the purchaser often expects an ongoing relationship with the seller. This is also reflective of the types of products and services offered in a B2B e-commerce setting, which includes logistics, outsourcing, solutions software, and content management software.

How to select the right B2B distribution channel structure

A business to business or B2B market is characterized by close technical and commercial dialogue between buyers and sellers. The manufacturer or the service provider often needs to manufacture or serve according to the customers requirements. For example, an industrial plastic components manufacturer has to work directly with customers during the design and development process while manufacturing the ordered components.

The importance of the product to the buyers or the type, frequency and quantity of purchasing largely influence the B2B distribution channel structures. For instance, companies might buy routine purchases like office stationeries through specialist retailers or distributors, because these are not important for the production lines. On the contrary, a key component to run the production line might need to be supplied directly to the buyer within a specific deadline. What type of distribution channel structure is suitable for your product or service depends on the sector of the business, on the type of product or service and cost effectiveness. We will shed light upon four basic structures of distribution channels that are widely practiced in B2B markets: 1. Direct channel (manufacturer user) Direct channel from manufacturer to the user is suitable for products with high technical content and high unit cost. Other rationales of opting for this channel are: Direct channel might become necessary if there is no wholesale service in the market where the manufacturer is operating and if the manufacturer is catering to a small group of local customers. The manufacturer has its own sales and distribution department, which can negotiate sales, provide services, meet customers needs and capable to operate like the wholesalers. The sales representative can both sell and install the product, e.g. computer software. Sales branches can sell the products directly to the small retailers and wholesalers. In a direct distribution channel, sales branches or sales offices should be set up in the areas where demand is high, especially in busy areas for better visibility and customers conveniences. It is also convenient for the sales force in providing products and support services; as a result, they can meet customers needs faster. Sales offices do not keep stock so they act like agents and pass on customers orders to the head office. Direct channel gives the manufacturer more control over its distribution channel, which in turn, increases the efficiency and effectiveness of the links between the manufacturers and customers. They are likely to develop strong and longer business relationships. 2. Less direct channel (manufacturer agent user) Manufacturers or service providers who choose this less direct channel appoint agents on commission basis. They take the help of agents because of the agents relevant market knowledge, well established contacts in the market and their superior buying/selling skills. Moreover, the manufacturer or the service provider can train the agents.

3. Less direct channel (manufacturer distributor user) This less direct channel works well when the number of customers either goes up or down. This channel is also helpful when the intermediary functions increase. Building material industries usually follow this distribution channel structure. 4. Longest channel (manufacturers agent distributor user) This channel structure is particularly helpful for export markets. Agents start by coordinating sales; distributors followed by filling the needs of inventory and restocking facilities close to the point of customer demands. A manufacturer and a retailer might also provide online service along with their bricks and mortar operation. In this way, they get the benefit of both direct and indirect selling. As a matter of fact, multiple distribution channel users can reach more market segments. However, it increases intra-channel competition and the trade members might become less supportive because of that. A flexible and far-sighted attitude in choosing the proper distribution channel is a necessity for your business growth. Say someone starts being a distributor or an agent of an international paint for a local market. The starting point might also be as a paints retailer. After accumulating good learning experiences about the trade, the business starts manufacturing its own brand of paint for that local market. Over the passage of time, the company evolves into an international manufacturer, retailer and distributor. Todays many corporate conglomerates once started as intermediaries, in this way. SMEs in Oman can also reach other countries through intermediaries in those countries or via international intermediaries. Exactly the same way foreign brands have been reaching Oman.

Functions
A marketing channel is a set of interdependent organizations involved in the process of making a product or service available for use or consumption. To be a stockiest of your product. To represent your brand in the market place. To gather marketing intelligence. To assume risk. To deliver product and offer post-sales support. To add value to the sale.

How it helps?

Business Marketing Channels

Multi-Channel Distribution System

Distribution System Selection

Marketing Managers select the most feasible marketing channels that effectively perform the business processes and functions needed to correct the targeted gaps in service outputs. Hybrid Channels, Multiple Channels and Shorter Channels or Direct Channels..

Carefully Select Channel Members

Specify channel capabilities the supplier seeks in terms of: Technical competence Sales force deployment Warehouse and delivery capabilities Financial stability Leadership

Build International Marketing Channels

Firms operating overseas should anticipate longer business processes and additional functions in the marketing channels. They must cover additional geography. Adhere to export and import regulations of each country market as well as local culture and distribution practices.

Future Direction of Distribution

Proliferation of information technology. Polarization of customers (consolidation on one hand and fragmentation on the other). Manufacturing operations that can mass customize. Quick shipment distribution logistics.

Summary
Regardless of structural form, distribution channels in the future will be more interactive with the customer. The internet will continue to challenge traditional channels. International channels of distribution are important Channel Management is about being adaptive to where the customer prefers to buy.