There is probably no area in the entire marketing field that is as obscure as the marketing of products through distributors, dealers, wholesalers, jobbers, etc. The factor that makes this kind of marketing so complex and difficult to understand is that an independent business operation (i.e., the distributor or dealer) "sits" between you, the manufacturer1 and your customers. As a result, you are continually frustrated by your limited ability to directly impact your marketplace. Through the course of our consulting assignments, we at Frank Lynn & Associates have devised an analytical process to assist our clients in effectively managing their marketplace. It is designed to help understand the market's dynamics and its economic relationships. It begins with the concept of channels2.

Simply stated, channels are vehicles that move a product3 from the finished goods inventory of a manufacturer to the ultimate customer. There are two types of channels—direct and indirect. Direct channels are controlled by the manufacturer and support the manufacturer's product exclusively. Indirect channels can only be influenced by the manufacturer and sell other brands of product and other product lines as well.

About Channel Selection

Over the years, Frank Lynn & Associates has developed a model for viewing the marketing process from the perspective of selecting and using appropriate channels. It is based on the premise that effective channel management is the key to the success of all product marketing— growing market share and maximizing profitability. Our channel selection process has been rigorously tested and validated through hundreds of "real-life" consulting assignments and can be a valuable resource because:

  • It outlines a logical, disciplined approach to assessing the fit and capabilities of any new or existing channel
  • It identifies the types of information needed to thoroughly evaluate channel alternatives
  • It identifies the support that each channel alternative requires to be successful with different products
  • It allows companies to focus resources on activities of importance and identifies where to eliminate wasted effort
  • It allows coverage of the market without overlapping channels or duplicating support efforts and costs
  • It can help reduce the risk of being rejected by the market by giving companies a logical set of guidelines against which to select channels and measure their performance
  • It is market-driven, not product-driven
  • It is flexible enough to accommodate unique product and market characteristics while providing rigorous guidelines of universal applicability.

Proper channel selection is the key to your success in the marketplace—regardless of how simple or sophisticated your product or marketplace may be. Poor channel selection will negate the competitive advantages of a superior product offering. In fact, channel selection analysis should be considered if any of the following are true:

  • You are introducing a new product
  • You want to perform a "sanity check" for an existing product
  • Your product is maturing to the point where you want to investigate expanding beyond your direct channels and use an indirect channel for the first time
  • Your product is maturing to the point where the efforts of technical specialists are no longer valued by the marketplace
  • As your product continues to mature, customer4 expectations are changing
  • Your market share is eroding, and you are uncertain why
  • Your profitability is slipping, and you are uncertain why

The "Big Picture"—Understanding The Market Life Cycle

The "Rosetta Stone" of the channel selection process is the market life cycle. What is a market life cycle? How does it differ from a product life cycle?

At the most basic level, product life cycles are driven by changes in product technology, and market life cycles are driven by changes in customer needs and behavior. For example, the market life cycle is an accurate way to reflect changes in customer needs and behavior as an innovative new technology enters the marketplace and customers learn how to utilize this innovation. This process of customer internalization of technical expertise has an impact on marketing factors, including:

  • The amount of technical support the customer requires, both prior to the sale and after it is made
  • The type of channel from which the customer purchases the product
  • The buying process the customer uses to purchase the product
  • The price the customer is willing to pay for the product

Throughout the market life cycle, new products are introduced that reflect changing customer needs. Each new product has a product life cycle of its own, but the functional nature of each of these new products is shaped by the stages of the market life cycle. For example, during the growth stage of the market life cycle, new product designs tend to expand applications by increasing the number of new models and basic variations; during the mature stage of the market life cycle, product designs tend toward standardization to reduce product cost. Therefore, throughout the market life cycle of a technical innovation, many product life cycles come and go.

We find that manufacturers often "misread" the market life cycle when they introduce a product based on technology that is new to them but is not new to the marketplace. If the marketplace already knows how to use a product technology, then the market life cycle is already underway and the manufacturer should employ strategies that successfully launch the product and take this into account. Typically, market life cycles fall into three reasonably distinct stages as shown in Exhibit I on page 5. Understanding these stages can help you determine where you are in a market and, therefore, what kind of direct sales force and indirect channel marketing programs you need to effectively support your target customers.

Introduction Stage

A market life cycle usually begins when an innovative new technology is introduced into the marketplace. Since customers typically know very little about this new technology and its use, this stage of the life cycle is characterized by high levels of presale and postsale technical support. Because the buying process is heavily technology-focused, we find that direct selling is the most effective channel, with indirect channels serving only a limited role. Also, large customers are normally the early purchasers of a new technological innovation, and they are relatively easy for a direct sales force to target and manage. This is particularly true for capital equipment products, since the buying process is long, sales costs are high and indirect channels are not able to make this kind of long-term investment in market development.

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Footnotes

1. We have designated "manufacturer" to be any marketer or producer of a product or service.

2. Whenever we refer to "channel," we include direct and indirect channels, unless specifically noted.

3. We have designated "product" to encompass both "product" and "service."

4. We have designated "customer" to be any end user of a product or service.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.