Is the marketing process of promoting a product to distributors and retailers?

A major question facing marketers of industrial and consumer goods alike is how to gain greater support from their dealers and distributors. Because of the increasing expense involved in distribution, it is important for marketers and manufacturers to devote their efforts to improved management of their channels. In this article, the author shows how companies, by using various sales promotional devices, can move their merchandise through the distribution pipeline.

One of the most frustrating problems facing many marketers is the management of their distribution channels. As an industrial marketer recently told me, “While I don’t want to dictate to my distributors, I darn well want them to be cooperative. We pay them well but we don’t seem to gain the support we need.”

A consumer goods marketer stated that same concern a bit differently:

“If I could gain more help from my distribution channels, we could substantially increase volume and have even greater impact on profits. But when I press the button which says, ‘Get the distributors to increase sales of product A immediately,’all too often I get a push on product C in three months. Our channels are so long and complex that we have little effect on them.”

While there is no easy solution to gaining better distributor support, astute use of the promotional mix makes it possible to accomplish goals at minimum expense. Accordingly, the essence of the program I will propose here is:

1. The manufacturer should manage his channels of distribution in a cooperative manner to sell through and not to his distributors and their sales-people.

2. There are many promotional techniques which can be used to accomplish this.

3. Each level of the channel needs its own mix of promotional devices.

4. Each product has its own needs that require a tailored set of promotional devices.

5. The program must be coordinated in a coherent fashion which considers marketing objectives as well as budget constraints.

Before discussing the use of the promotional mix in greater detail, it is useful first to review two important trends which not only show the urgency of the problem of managing distribution channels, but also point to the efficacy of the solution. These trends are (1) the growing importance of distributors for both industrial and consumer goods, and (2) an increasing reliance upon sales promotion programs, often at the expense of advertising.

The growth in distribution channels is well documented statistically. For example, from 1967 to 1976 the annual sales of merchant wholesalers increased from $205 billion to $498 billion, and are projected to grow to $1 trillion by 1985.1 While some of this growth is due to inflation, a substantial portion of it is physical growth. Employment in wholesale trades increased from 3,525,000 people in 1967 to 4,259,000 in 1974, and is projected to increase to 5 million by 1980.2 From 1947 to 1973 wholesale employment increased 72% while manufacturing employment increased 27%.3 Thus an increasing proportion of effort is being directed to the wholesale portion of the economy.

Data for the retail trade are equally impressive. Employment growth increased from 10,081,000 people in 1967 to 13,134,000 in 1974 despite a continuing trend toward self-service shopping. Sales increased from $313 billion to $581 billion over the same period.4 These retail trends are expected to continue.

The increase in sales promotion spending in the consumer goods field is greater than that of advertising promotion.5 However, it is important to note that a substantial part of this money is being misspent, some of it through poor planning.

Industrial marketers tend to use little advertising, while emphasizing personal selling. For most, sales promotional expenditures are many times greater than advertising expenditures. There is, furthermore, no evidence that the growth in sales promotional spending is abating. In fact, the trend appears to be continuing. The remainder of this article is devoted to a discussion of the distribution channels, and a review of the many ways of promoting an industrial or consumer product. Finally, I will show how to use the promotional mix—that is, the various promotional techniques as a way to manage distributors.

Distribution Channels

The channels of distribution can be amazingly complex. In the automotive aftermarket, for example, it is not uncommon for auto parts and supplies to move through more than five or six wholesalers and retailers on their way to the consumer. More traditional markets also involve many parties. Clairol Inc. is a major marketer of personal care appliances, such as hair curlers and dryers, makeup mirrors, and associated goods. Exhibit I shows the path by which these items are distributed to consumers.

Exhibit I Clairol’s appliance division distribution system

It is interesting to note that Clairol’s channels of distribution, which are fairly typical for this industry, include a mixture of Clairol employees (e.g., district sales managers) and independent outsiders, such as manufacturers’ representatives, distributors or wholesalers, and retailers. Many of the members of the distribution channel are large, complex organizations, such as chain stores and multibrand wholesalers. Others, such as some manufacturers’ representatives, are one or two-person operations. Some of the channel members take legal title and physical possession of the merchandise. Other distributors do not.

Channel Functions

Distributors typically provide some or all of the following services for manufacturers: (1) selling effort, (2) accounts receivable financing, (3) inventory support and physical distribution, and (4) post sales service.

In the medical instrument industry, for example, distributors perform all four functions. On the other hand, manufacturers’ representatives in most industries provide only sales and sales-related services but do not perform the other three functions.

From the manufacturer’s point of view, the complexity of the channel structure is in direct conflict with his needs for channel support. In addition, because a manufacturer may rely on distributors for different forms of support than do his competitors, he may be forced to use nontraditional methods of selection, training, and motivation to obtain attention and cooperation.

Structure development

Just as a company must organize itself so that it can perform various tasks, the manufacturer must also organize his channels of distribution. The organization process includes (1) determining the tasks to be performed, (2) designing a structure to accomplish the tasks, and (3)implementing the structure.

The tasks to be performed depend on the marketing needs and nature of the product, consumer buying practices and needs, and the company’s goals and competitive situation. The product itself determines many of the demands to be placed on the channel. For example, refrigerated or frozen products require special handling. Because supplies for some medical instrumentation require refrigeration, the channels of distribution must be capable of providing it. Products with fast obsolescence due to either product perishability (e.g., fruit and vegetables) or to fashion perishability (e.g., dresses) place demands on speed of response.

The ultimate consumer’s needs and desires should have a major impact on the channels. Service needs, in both the consumer and industrial fields, can be so important that they are the prime determinant of a useful distribution system. Some industrial machinery, for example, is so important to the customer’s manufacturing process that it must be repaired quickly. Thus local service must be available.

The company’s position and strategy help to determine the ideal structure. Smaller companies, for example, often cannot afford to maintain their own distribution channels or sales force.

The distribution strategy, in fact, can become a crucial part of the total corporate strategy. Thus Avon has built its strategy around the concept of a large direct sales force calling on women in their homes or places of business. Other cosmetics and toiletry companies typically use retailers to bring their products to the consumer.

The ability of the company to implement a particular structure depends on the availability and needs of the channel members. Food manufacturers can depend on brokers (independent manufacturers’ representatives) and wholesalers because they are well developed in that industry. In other industries, especially those with new product categories, channel members are not available. Or their costs may be so high that the economics of a new product will not permit its distribution. To illustrate:

One company which found itself severely constrained by a lack of distribution channels was a small manufacturer of equipment used in making photo-identification cards and badges. The market was quite large and very diverse, ranging from hospitals to colleges to defense plants. Each initial sale was small and the sale of supplies for the equipment was not important to the company’s operation. In addition, the selling process was complex and demanding.

When these limitations were combined, there was no distribution channel with the necessary breadth. Because the sale was fairly small, yet complex, the product was inappropriate for a multidistribution channel which would service many market segments. Representatives and distributors to each segment viewed the product as peripheral to their operations and not worthwhile to take on.

The channel structure must be implemented and maintained after it is designed. This is generally the function of the sales force. Leo Shepherd, vice president and director of corporate sales at General Foods Corporation, has stated that the function of the product managers is to develop and maintain the consumer franchise and that of the sales force is to develop and maintain the trade or distribution franchise. In the industrial company, the sales force is often responsible for distributor service as well as customer sales.

Thus the sales force must be capable of providing the call frequency and coverage that the channels of distribution require. Sales people must be organized, trained, and motivated to nurture the channels. The sequence, shown in Exhibit II, is to develop a marketing strategy and a distribution policy. Then, the sales program must be formulated with the channels’ needs and constraints in mind. Finally, the sales force must be managed to meet the needs.

Exhibit II Using the sales force to manage the distribution channel

The sales force alone, however, cannot always gain the support the manufacturer needs. The sales promotion mix enables the manufacturer to supplement the sales force efficiently and effectively.

Promotional Mix

All too often, managers think of promotion as including only advertising and personal selling. But the promotional mix includes many other promotion devices which are primarily oriented toward short-term gains in sales. Some of the benefits, especially in terms of the improvement of relationships with the distribution channels, are relatively long-lived.

There are two general kinds of promotional devices. One, the sell-in, is designed to improve the manufacturer’s sales to the institutions in the channel of distribution. The other, the sell-out, is designed to improve the movement of merchandise from the channel of distribution to the ultimate consumer.

The appendix at the end of this article describes some of the more popular promotional techniques available. Such programs can be developed either in-house or with the use of outside specialists. In general, the promotional devices are short term, and thus do not involve large commitments of staff or money. They tend to have specific objectives and to be judged by clear-cut goals.

Competing for support

Competition for distribution channel support is often more intense than for consumer or end-user purchase. When a manufacturer competes for the purchase of his product by the consumer or end-user, he is in competition with other manufacturers of the same product. When he competes for the attention and support of the distributor, he is up against all other manufacturers whose products are carried by that distributor. Many wholesalers, for example, carry tens of thousands of items, and retailers such as supermarkets carry thousands.

William C. Howard, vice president of the Abrasives Marketing Group at the Norton Company, described his situation in this way:

“Norton Company has many competitors in the abrasive products business—some of which sell through distributors, some of which do not. In developing an overall strategy to increase distributor support for our product lines, these companies are not involved. Rather, other product lines Norton distributors handle—power tools, power transmission equipment, fasteners—are all competing for the same distributor’s resources. They are the actual competitors for our distributors’ support.”

While there are no easy solutions to this fierce competitive situation, the wide variety and simplicity of promotional devices make them exceedingly useful for improving the performance of the distribution channels. Each promotion can be designed to accomplish a specific objective, and because implementation is temporary, promotions do not leave long-term unwanted side effects. A short-term promotion, moreover, does not necessitate a later price increase which a formal price decrease does.

Before providing a two-step approach to the situation, it is useful to consider several aspects of the distribution channel in light of the potential usefulness of promotion.

Working with channels

The manufacturer must understand the needs of the channel members and must respond to them. The prime objective of each member of the channel is to generate profits through a combination of turnover (sales per time period) and gross margin as a percent of sales dollars. Different channels have different needs in these two categories.

For example, supermarkets tend to operate on a low gross margin but high turnover (as high as once per day or more in dairy and bakery items). Conversely, specialty stores tend to work on high margins and low turnover. Industrial distributors have the same variability.

Each channel member must be compensated by the manufacturer for his efforts on behalf of the manufacturer’s products. The manufacturer, of course, can expect to receive greater sales and greater channel motivation. In fact, it is useful for the manufacturer to determine what he should do for the channel institution and what he should receive back. Two things must be clear.

First, the manufacturer should not ask the channel members for things they cannot do. It is futile, for example, to ask a wholesaler to generate primary demand—that is, demand for the product category-in a situation in which all he can do is to create selective demand for the manufacturer’s particular brand in that category of merchandise.

Second, the manufacturer should attempt to perform those tasks which are meaningful to the channel members but relatively difficult for them to do on their own. The manufacturer, for instance, can develop literature for his products to be used by all of his distributors much more cheaply than his distributors could develop it individually.

Selling through channels

It is important for the manufacturer to differentiate between selling to the channels and through the channels. One can only fill the distribution pipeline for a limited amount of time. Then the merchandise must flow through the channel, not just into it.

This is an important change in philosophy from the typical sales-oriented company which assumes the sale is consumated when the product moves from manufacturer to wholesaler. But the sale is not actually finished until the product moves from the last element of the distribution channel to the consumer. The manufacturer must exert leadership throughout this process.

This monumental change in philosophy has many implications. Massey-Ferguson, the large Canadian farm equipment producer, changed its accounting to settlement accounting which records a sale only after the item is bought by the farmer from the dealer.6

Field activated promotions

Because sales promotions are oriented toward variable costs and away from the heavy fixed commitments of media advertising and the sales force, and also because they are flexible and can be limited in nature, they are useful for application in the field. Each regional or zone manager, for example, can be given a promotional budget for use at his discretion. This is especially useful in businesses which tend to be regionally oriented. The pickle business, for example, has several national or nearly national competitors as well as many regional competitors.

Field activated promotions enable the larger national companies to compete more effectively on a local basis. Thus customer and channel needs and competitive activities can be met with immediate but localized responses. The cost of this added flexibility is an increase in decentralized decision making and a corresponding loss of central control and coordination. Careful training of regional managers and well-developed procedures minimize these problems. Many industrial businesses such as fasteners and high-volume chemicals are also regional in nature and amenable to the same approach.

Using the Mix

Promotional devices can be very important in managing the channels of distribution. The first step in using promotion is to carefully determine the objectives for each product at each level in the distribution channel.

As an example, consider the case of Kitchen-Eaz, the disguised name of a manufacturer with three products, all fairly inexpensive houseware items (e.g., kitchen gadgets in the $4 to $8 range). For Product A, an item late in its life cycle with heavy competition, the manufacturer might want to keep the retail price to the consumer as low as possible because all competitive products are viewed as similar and the consumer is price conscious. Product B may need additional explanation and sales help in the store because, although it has obtained distribution, it is fairly new to the market and complex. Product C, a new unpatented product with highly visible features, may need maximum consumer exposure to gain sales and a dominant market position.

Once the objectives are outlined, programs can be developed to accomplish the objectives. It is important to balance what needs to be done against what can be done. The problem, however, is that often, when all the costs for all the programs are added, the sum exceeds the budget.

Exhibit III shows how to help alleviate that problem and also provides a useful conceptual scheme. A promotional mix chart like this can be prepared for each product. With it, the manufacturer’s marketing management can allocate the promotional budget among the various products, objectives, programs, techniques, and levels in the distribution channel.

Exhibit III Chart for promotional mix

In refering back to the Kitchen-Eaz example, Product A might receive off-invoice allowances to the wholesale distributor to encourage a lower price. In fact, all of the product’s promotional budget might be devoted to this function.

Product B, with its needs for in-store sales support, might receive a mixture of trade advertising directed toward retail clerks, sales representatives training presentations to the clerks to reinforce the advertisements, in-store sales aids in the form of display racks (and perhaps display allowances to encourage retailers to use the racks), and contests for the retail sales-clerks.

Product C has a different set of needs, essentially high retail exposure. Here, the manufacturer might use heavy consumer advertising to create “pull” for the product as well as off-invoice allowances to encourage stocking of the product by the distributors and retailers. The idea here is to “flood” the distribution channel before competitors can respond, and to generate rapid consumer exposure.

The concept of using the promotional mix to manage the distribution channels can be applied to a wide range of products and situations. The consumer goods manufacturer can use advertising to “pull” the product through the channel and to create turnover, excitement, and positive momentum. The industrial or institutional goods manufacturer can use his own sales force or independent representatives to generate end-user sales and bring them to the dealer in an equivalent strategy.

A carefully organized program such as that described works better than the traditional mixture of a little promotion here and a little there. Consider:

1. It uses each promotion at the point in the channel at which it can be most effective in the complex route from manufacturer to consumer. The sales promotion techniques do not have to be applied all the way up and down the channels or across all products. Instead, they can be used to have an impact only on the specific party which needs it.

2. It has a focused scope that is highly cost effective. The manufacturer does not have to pay for the kind of impact he doesn’t need.

3. It follows a step-by-step process of setting product objectives, developing a program for each, and allocating the budget.

Thus it encourages careful, objective decisions regarding both broad strategy and detailed tactics. It also encourages the coordination of sales promotion programs with media advertising and personal selling efforts. This process helps to eliminate costly overlap and perhaps even more costly neglect of important parts of the channel.

Note of caution

All promotions must be offered on a proportional basis to customers who compete and to customers whose customers compete. The Robinson-Patman Act places strict requirements on manufacturers and distributors regarding preferential treatment on price, promotion, and related services. It is an exceedingly complex branch of commercial law which requires capable legal counsel. All promotional programs must be reviewed from this perspective.

Appendix: Promotional Techniques

Consumer promotions are designed to attract the ultimate consumer or end-user to a specific product.

Free samples might be mailed, delivered door-to-door, placed in bins in retail stores, or attached to or inserted in another package.

Coupons are certificates which, when presented for redemption at a retail store, entitle the bearer to a stated savings on the purchase of a specific product.

Money-refund offers are propositions in which a sum of money (occasionally the full purchase price) is returned by mail to participants who mail in proof of purchase such as a box top.

Price-off deals offer consumers a certain amount of money off the regular price of a product, and state the amount on the product’s label.

Premiums are items of merchandise offered free or at a low cost as a bonus to purchasers of a particular product. Free-in-the-mail premiums are gifts sent by return mail to consumers who send in a request for them and include a proof of purchase. Self-liquidating premiums are items offered at well below their normal retail price but at a price high enough to cover the wholesale cost of the merchandise to the manufacturer who runs the promtion.

Contests and sweepstakes are also major consumer-oriented promotion devices. These differ in that in a contest participants compete for a prize or prizes on the basis of their skill in fulfilling a certain requirement, usually analytical or creative. In a sweepstakes, participants merely submit their names to have them included in a drawing of prize winners.

Demonstration (i.e., showing products in use) is another common consumer promotion device.

Point of purchase (POP), often called point of sale (POS) displays, is another very frequently used consumer promotion device.

Trade promotions are devices designed to obtain special short-term merchandising and/or sales support from distributors.

The first category consists of deals or merchandising devices designed to encourage a wholesaler or retailer to carry a particular product.

One such deal is the buying allowance (often called off-invoice allowance), a short-term offer of a stated reduction in price for a certain quantity of a product purchased.

Another merchandise deal is the count and recount, an offer of a certain amount of money for each unit of merchandise moved out of a wholesaler’s or retailer’s warehouse in a specified period of time. It involves a salesperson’s taking inventory at the beginning and again at the end of a sale.

Another merchandise deal is the buy-back allowance, an event which immediately follows another trade deal and offers a certain reduction in price for new purchases based on (but not exceeding) the quantity of purchases made on the first deal.

Another merchandise technique is the free-goods deal, an offer of a certain amount of a product to wholesalers or retailers at no cost to them but dependent on the purchase of a stated amount of the same or another product. This differs from the previous three deals only in that goods rather than money are given.

The second category of trade promotions consists of deals used to induce retailers to promote a product through advertising and display.

The first of these is the merchandise allowance, a short-term, contractual agreement through which a manufacturer compensates wholesalers or retailers for “features” (i.e., advertising or in-store displays of his products). Proof of performance is an essential factor in merchandise allowance. If it is an advertising allowance, for example, this proof usually takes the form of a “tear sheet” of the advertisement showing the manufacturer’s product or a radio or television affidavit of broadcasting with the invoice.

The second device in this category is cooperative advertising, a long-term contract in which a manufacturer pays an allowance based on the quantity of merchandise a retailer orders and the retailer runs advertisements for both his store and the manufacturer’s product with the allowance.

The final device in this category is dealer-listing promotions. These are advertisements placed by a manufacturer, carrying a message on a particular product and announcing the names and sometimes the addresses of retailers who stock the product.

The final category of trade promotions is aimed at stimulating retailers and their sales clerks to “push” a certain manufacturer’s product rather than that of a competitor.

The first of these is PMs or push money (sometimes called premium money or spiffs). It consists of money given to a sales clerk in addition to his normal compensation as a reward for selling a particular product.

A second device is the sales contest. This cannot be a lottery but has to be based solely on the amount of goods sold by each participant. To give all participants an equal chance in winning, the goal of many contests is a percentage increase over quota rather than to sell the highest total amount.

The last device in this category is the dealer loader, a premium presented to retailers for the purchase of certain quantities of merchandise. Dealer loaders are of two kinds—buying loaders, or gifts given in return for an order, and display loaders, a premium which is a part of a special display piece. The purpose of dealer loaders is to gain new distribution or to sell an unusually large quantity of goods.

Salesperson promotions are techniques aimed at motivating a manufacturer’s salespeople by supplementing their regular compensation plan.

Sales incentive plans bestow on all participants who achieve certain sales performance goals rewards over and above their regular compensation.

Sales contests are the awarding of prizes set up for the salespeople who achieve the best performance as spelled out by the contest’s rules.

Sweepstakes are occasionally used as supplementary activities in a sales incentive program.

Recognition programs usually take the form of titles (e.g., salesperson of the year), trophies, lapel pins, certificates, and so on. They are generally bestowed in sales meetings and again acknowledged in company newsletters so that the salesperson’s accomplishments are known to his fellow salespeople and to company management.

Sales aids include a wide range of devices and activities designed not so much to motivate salespeople but more to assist them in the actual selling situation. They include presentation devices such as flip charts, price lists, specification data sheets, product bulletins, movies, and materials to be left with the customer such as catalogs, advertising specialties which are relatively inexpensive items imprinted with the name of the selling company, and business gifts which are more expensive items given to special customers and executives.

Sales promotion is generally somewhat different in industrially oriented companies. Those companies, however, which sell to many industrial or commercial customers sometimes use computer-type promotions. Companies which sell pens to office managers are typical of this type of operation.

Most industrial companies which sell through distributors or wholesalers use promotions like those used for the trade in the consumer goods area. Industrial companies also use promotions oriented toward salespeople.

Sales aids tend to be more sophisticated and complex in the industrial field. Technically oriented companies often offer design guides, or user brochures which provide a great deal of information. Some offer special calculation aids (e.g., specialized slide rules) or small pieces of equipment particularly suited to the industry (e.g., tape measure, magnifying glasses, magnets to detect iron and steel, and so on). Business gifts are perhaps more prevalent in the industrial area where buyer-seller relationships seem more permanent and closer because of intimate design and production scheduling activities.

1. U.S. Industrial Outlook, 1976, U.S. Department of Commerce, p. 163.

2. Pre-1973 data from the Handbook of Labor Statistics, 1975, U.S. Department of Labor, Bureau of Labor Statistics; 1980 estimate is from the National Association of Wholesalers publication, “Your Career in Wholesale Distribution” (undated).

3. Ibid.

4. U.S. Industrial Outlook, 1976, U.S. Department of Commerce, p. 173.

5. See Roger A. Strang, “Sales Promotion—Fast Growth, Faulty Management,” HBR July–August 1976, p. 115.

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