Channel Structures

B2C Channels

Brick-and-mortar and e-commerce are two main channels of business-to-consumer marketing.

Learning Objectives

Define a business-to-consumer market, and the strategies marketers use to target consumers

Key Takeaways

Key Points

  • A business-to- consumer market is the sale of goods and services from individuals or businesses to the end user.
  • A brick-and-mortar store allows a consumer to visit the establishment and view the products, while receiving face-to-face customer service.
  • E-commerce, or click-and-mortar, is conducting commercial activity via the Internet (online).

Key Terms

  • brick-and-mortar: Buildings and property for the conduct of business, particularly in the sale of retail goods to the general public. Used to contrast an internet-based sales operation that lacks customer-oriented store fronts and a “traditional” one for which most capital investment might be in the building infrastructure.
  • wholesale: The sale of products, often in large quantities, to retailers or other merchants.
  • e-commerce: Commercial activity conducted via the Internet.

A business-to-consumer market, or B2C, is the sale of goods and services from individuals or businesses to the end user. The seller makes its products or purchases them at a wholesale price, then sells them at a higher (or retail) price to the consumer, thus earning a profit. The consumer uses the products for his or her own personal use and is not interested in reselling the product. The types of product features consumers desire include value, convenience, efficiency in operation, dependability in use, and/or improvement in earnings. In B2C marketing situations, the marketer must always:

  • successfully match the product or service strengths with the needs of a definable target market
  • position and price to align the product or service with its market
  • communicate and sell it in the fashion that demonstrates its value effectively to the target market

Business to Consumer Channels

There are two main channels for business-to-consumer selling. The first is the traditional “brick-and-mortar” store – a physical location for consumers to visit. Shopping malls, grocery stores, and restaurants are all examples of brick-and-mortar stores. Usually, a brick-and-mortar establishment offers consumers the chance to see, touch, and/or try the products. It also allows companies to provide face-to-face customer service.

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Apple Retail Store: Apple’s retail store in Chicago, Illinois, is an example of a “brick-and-mortar” store.

The other main channel for business-to-consumer selling is e-commerce, or commercial activity conducted via the Internet. Sometimes known as “click-and-mortar,” this channel is rapidly expanding, as more people use the Internet for purchases of both goods and information. Business-to-consumer e-commerce reduces transaction costs by increasing consumer access to information and allowing them to find the most competitive price for a product or service. For companies, developing and maintaining a website is easier and less expensive than building and occupying a brick-and-mortar store. Examples of e-commerce stores are amazon.com, walmart.com, and barnesandnoble.com.

B2B Channels

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

Learning Objectives

Distinguish between business-to-business (B2B) and business-to-consumer (B2C)  transactions

Key Takeaways

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 are 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.

Key Terms

  • e-commerce: Commercial activity conducted via the Internet.
  • 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.
  • 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.

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. 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.

Two men have a conversation at a trade show.

B2B Transactions: Trade shows are a common way to conduct B2B transactions.

Business-to-Business E-Commerce

One of the major differences between business-to-business (B2B) transactions and business-to-consumer (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.

Alternative Arrangements

Business-to-government, consumer-to-consumer, and institutional markets are additional types of marketing channels.

Learning Objectives

Outline the characteristics of business-to-government, consumer-to-consumer, and institutional marketing channels

Key Takeaways

Key Points

  • Business-to-government marketing encompasses marketing products and services to various levels of the government, such as federal, state, and local.
  • Consumer -to-consumer commerce is the completion of transactions between private individuals or consumers.
  • Institutional market consumers are often nonprofit organizations and are not motivated primarily by profits or market share.

Key Terms

  • nonprofit: An organization that exists for reasons other than to make a profit, such as a charitable, educational, or service organization.
  • Request for Proposal: A formal publicly released document outlining a need and inviting businesses to submit plans to fulfill that need.

The most common marketing channels are business-to-consumer (B2C) and business-to-business (B2B). However, there are also alternative channels that should be discussed. These include business-to-government, consumer-to-consumer, and institutional markets.

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United States Capitol: B2G transactions involve working with government entities such as federal, state, and local.

Business-to-government (B2G)

Business-to-government marketing encompasses marketing products and services to various levels of the government, such as federal, state, and local. This is also known as “public sector marketing” and is somewhat similar to business-to-business transactions. However, there usually many more restrictions and strict processes in order to gain government contracts. Usually, government organizations post a request for proposal, and businesses respond to them. Most often, the bid with the lowest cost is accepted.

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Garage Sale : Garage sales are one type of consumer-to-consumer business.

Consumer-to-consumer

Consumer-to-consumer commerce is the completion of transactions between private individuals or consumers. The increased use of consumer-to-consumer transactions can be directly related to the growth of electronic, online marketplaces. Craigslist and eBay usually involve consumer-to-consumer transactions. There are also older forms of consumer-to-consumer transactions, such as classified ads and garage sales. Often, these types of transactions are for a lower cost than if they were conducted through a business, as there is some added risk that the product will be defective or otherwise be not as expected.

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Institutional Market Consumers: Churches, schools, and hospitals are some examples of institutional market consumers.

Institutional Markets

Institutional markets are very similar to typical business-to-business markets. However, many institutional markets are considered nonprofits, such as churches. Institutional markets differ from typical businesses in that they are not motivated primarily by profits or market share. Rather, institutions tend to satisfy somewhat esoteric, often intangible, needs. Also, whatever profits exist after all expenses are paid are normally put back into the institution. Marketers must be aware that these institutions have different goals and restrictions than normal businesses.

Customer Expectations

A customer can expect varying levels of service and product offerings at different consumer channels.

Learning Objectives

Name the three product categories, and the types of marketing channels where these products are sold

Key Takeaways

Key Points

  • Retail products are usually classified into three broad categories: food products, hard or durable goods, and soft goods or consumables.
  • A customer can generally expect relatively lower customer service and a wide range of products and prices at large consumer markets.
  • While a customer may get more personalized service, the range of products is generally lower at smaller retail outlets.

Key Terms

  • durable goods: A good that yields services or utility over time rather than being used up when used once.
  • consumable: A good that is consumed or depleted upon use.
  • outlet: A shop that sells the products of the manufacturers or suppliers that it does business with.

Customer Expectations

Customers expect different things from different types of marketing channels. A department store is, after all, very different from a mom-and-pop store. Retail products are usually classified into three broad categories: food products, hard or durable goods, and soft goods or consumables. Members of a channel of a distribution are also customers of those elsewhere in the channel, and their expectations must also be met.

Durable goods are those that yield services or utility over time rather than being used up when used once. Cars and washing machines are examples of durable goods. Consumable goods are those that are used up when used or otherwise have a limited life, such as clothing.

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Clothing: Clothing is generally considered to be a consumable good.

Channel Member Expectations

Channel partners are also customers after all, and their expectations must also be taken into account, to develop and maintain successful relationships with them.

A common issue in channel management is leadership: the role of a channel leader should be understood by all members of the channel so that expectations are managed appropriately. The leader coordinates the goals and efforts of channel members. Some leaders may be positive and open to feedback, while others may be negative and lead based on a system of punishment and strict rules.

It is important to remember that a channel of distribution may be made up of organizations, but those organizations are made up of people. Thus, tending to the “human element” is important. Ideally, a channel member should coordinate their efforts with other members in such a way that the performance of the total distribution system is enhanced. The lack of cooperation that is often apparent is due to the organization structure of many channels, which encourages a channel member to be primarily concerned with channel members immediately adjacent to them, from whom they buy and to whom they sell. Four human dimensions have been incorporated into the study of channel behavior: roles, communication, conflict, and power. It is assumed that an understanding of these behavioral characteristics will increase the effectiveness of the channel.

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Warehouse: A distributor, like a warehouse, is part of a channel of distribution. The distributor has to meet customers’ expectations as well as its own.

By ensuring there are no leadership issues and by tackling the human element of the channel of distribution, expectations of the channel members can be effectively met.

Large Retail Outlets

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Supermarket: Supermarkets usually offer a wide range of products at average prices.

There are many large retail outlets, and most offer a wide variety of products at average prices. Department stores, supermarkets, and warehouse stores are all large retail outlets. Each will have its own feel and come with its own customer expectations. A shopper at a warehouse store, for example, will expect to find low-cost, high-quantity goods, while a customer at a supermarket expects to find groceries and limited non-food items. Large retail outlets have some things in common, however. A customer can generally expect relatively lower customer service and a wide range of products and prices. Products at these stores often require a more involved decision process and post-purchase evaluation. Depending on the type of store, these outlets generally focus on one or two categories. A department store, for example, will sell both durable and consumable goods.

Smaller Retail Outlets

Mom-and-pop stores, specialty stores, and general stores are all smaller retail outlets. While a customer may get more personalized service, the range of products is generally lower. These stores often focus on a few key categories of products. Conversely, these smaller outlets may offer a wider array of products at low margins, such as a discount store.

Channel Member Characteristics

To maximize sales, a company must carefully consider the fit between its products and the available distribution channels.

Learning Objectives

Explain the importance of pairing a brand’s products with the appropriate distribution channel

Key Takeaways

Key Points

  • Distribution channels are how a company will get its products to consumers.
  • The selected distribution channel is reflexive of the overall marketing strategy for the product, and answers the place question of the marketing mix (4 P’s).
  • There are three basic types of distribution for a marketer to consider: Intensive (the producer’s products are stocked in the majority of outlets ), selective (the producer relies on a few intermediaries to carry their product), and exclusive (the producer selects only very few intermediaries).

Key Terms

  • competitive advantage: Something that places a company or a person above the competition.
  • Intermediary: An intermediary (or go-between) is a third party that offers intermediation services between two trading parties. The intermediary acts as a conduit for goods or services offered by a supplier to a consumer.

Just as with the other elements of a firm’s marketing program, distribution activities are undertaken to facilitate the exchange between marketers and consumers. Every company must decide on the correct distribution method for its products. That is, a company must figure out how to get its products to the user. There are many things to consider in this decision, as distribution channels ultimately say a lot about the product itself. Even the best product will fail if it is not sold in the right place. Thus, the channel chosen by a marketer becomes an integral part of the marketing plan.

Marketing Strategy

Marketers must carefully evaluate how their products fit into different distribution channels. There are many types of channels, and the selected channel becomes a function of the overall marketing strategy. A marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. This strategy is reflexive of the 4 P’s of marketing:

  • What the product is and how it meets a customer need
  • What the price of the product will be
  • What promotions will be used to sell the product
  • And what place the product will be sold.

The distribution channel is primarily concerned with this last item.

Distribution Channels

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Candy: Candy uses an intensive distribution channel. It is widely available at a low cost.

It is important for a company to match its products with the characteristics of the distribution channel. The company must decide whether to sell its products through an intermediary (such as a chain store) or attempt to sell its products directly to the customer. Using an intermediary may sometimes lower transaction costs, as much of the burden is shifted from the producer to the intermediary. There are three basic types of distribution for a marketer to consider: Intensive, selective, and exclusive. Intensive distribution means the producer’s products are stocked in the majority of outlets. This strategy is common for basic supplies, snack foods, magazines, and soft drink beverages. Selective distribution means that the producer relies on a few intermediaries to carry their product. Exclusive distribution means that the producer selects only very few intermediaries, such as is often the case with luxury goods.

A marketer will consider the three types of distribution and select the one that most closely fits the overall marketing strategy. Generally, as one moves from intensive to selective to exclusive distribution channels, the more that company can charge for its products. However, the trade-off is in how widely available the company wants its product. Carefully considering the possible distribution channels will help maximize the potential of a product.