Page 449 - Marketing Management

426 PART 6 DELIVERING VALUE

TERMS AND RESPONSIBILITIES OF CHANNEL MEMBERS Each channel member
must be treated respectfully and given the opportunity to be profitable. The main elements in the
“trade-relations mix” are price policies, conditions of sale, territorial rights, and specific services to
be performed by each party.
• Price policy calls for the producer to establish a price list and schedule of discounts and
allowances that intermediaries see as equitable and sufficient.
• Conditions of sale refers to payment terms and producer guarantees. Most producers grant
cash discounts to distributors for early payment. They might also offer a guarantee against
defective merchandise or price declines, creating an incentive to buy larger quantities.
• Distributors’ territorial rights define the distributors’ territories and the terms under which
the producer will enfranchise other distributors. Distributors normally expect to receive full
credit for all sales in their territory, whether or not they did the selling.
• Mutual services and responsibilities must be carefully spelled out, especially in franchised and
exclusive-agency channels.McDonald’s provides franchisees with a building,promotional support,
a record-keeping system, training, and general administrative and technical assistance. In turn,
franchisees are expected to satisfy company standards for the physical facilities,cooperate with new
promotional programs, furnish requested information, and buy supplies from specified vendors.

Evaluating Major Channel Alternatives
Each channel alternative needs to be evaluated against economic, control, and adaptive criteria.

ECONOMIC CRITERIA Each channel alternative will produce a different level of sales and
costs. Figure 15.4 shows how six different sales channels stack up in terms of the value added
per sale and the cost per transaction. For example, in the sale of industrial products costing
between $2,000 and $5,000, the cost per transaction has been estimated at $500 (field sales),
$200 (distributors), $50 (telesales), and $10 (Internet). A Booz Allen Hamilton study showed that
the average transaction at a full-service branch costs the bank $4.07, a phone transaction costs
$.54, and an ATM transaction costs $.27, but a typical Web-based transaction costs only $.01. 30
Firms will try to align customers and channels to maximize demand at the lowest overall cost.
Clearly, sellers try to replace high-cost channels with low-cost channels as long as the value added
per sale is sufficient. Consider the following situation:
A North Carolina furniture manufacturer wants to sell its line to retailers on the West
Coast. One alternative is to hire 10 new sales representatives to operate out of a sales office
in San Francisco and receive a base salary plus commissions. The other alternative is to
use a San Francisco manufacturer’s sales agency that has extensive contacts with retailers.
Its 30 sales representatives would receive a commission based on their sales.

|Fig. 15.4| High

The Value-Adds Sales force
versus Costs of Value-added
Different Channels partners Direct sales
Value-add of Sale
Source: Oxford Associates, adapted from Dr. Distributors channels
Rowland T. Moriarty. Cubex Corp. Retail stores

Telemarketing "Indirect" channels

Internet
Direct marketing
channels
Low
Low High
Cost per Transaction