In conceiving the tasks to be performed by different types of intermediaries in the distribution channel, managers must also determine the mix of conditions and responsibilities that must be established among the channel members to get the tasks performed effectively and enthusiastically. The ‘trade-relations mix’ is capable of many variations and introduces a still further dimension of alternatives. There are four main elements in the trade-relations mix: i. pricing policies ii. conditions of sale iii. territorial rights iv. specific performance of each party i. Price policy is one of the major elements in the trade-relations mix.
Managers will usually establish an end user price and then will allow discounts from it to various types of intermediate customers and possibly for various quantities purchased. In developing their schedule of discounts, one must proceed carefully. Firstly, because different types of intermediate customers have strong feelings about the discounts they and others are entitled to. For example, small retailers who buy through wholesalers resent a producer who allows the large retailers to buy direct at the wholesaler’s discount; whereas the larger retailers resent not being allowed better terms on the basis of their quantity purchases.
Thus the discount schedule is a potential source of channel conflict. Secondly, legislation may forbid price discrimination between different buyers of the same products where the discrimination may tend to lessen competition, except where the price differences are proportional to bona fide differences in the costs of selling to the different buyers. Therefore companies must be able to justify the discounts they offer to different buyers. ii. Conditions of sale are the second element of the trade-relations mix.
Professor Frédéric Brunel, with the assistance of Deborah Utter, wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of ...
The most important conditions relate to the payment terms and to the guarantees or other assurances provided by the company. For example one might grant a discount from the distributor’s invoice price for early payment or conversely impose an interest penalty for late payment. The particular terms can play an important role in the costs incurred by the company and influence the distributor’s motivation, because they indicate the extent to which the company will finance the distributor’s business activities. Managers may also extend certain guarantees to the distributor regarding price increases.
The offer of a guarantee against price variations may be necessary to induce the distributors to promote more and sell larger volumes. iii. Distributors’ territorial rights are a third element in the trade-relations mix. A distributor wants to know where the company intends to enfranchise other distributors. He also would like to receive full credit for all sales taking place in his territory, whether or not they were stimulated through his own efforts. iv. Mutual services and responsibilities are a fourth element of the trade-relations mix.
These are likely to be comprehensive and well defined in franchised – and exclusive – agency channels where the relations between the company and certain distributors are close. In contrast, where the company goes after more intensive distribution, they may supply distributors only occasionally with some promotional materials and some technical services and the distributor in turn is less willing to furnish an accounting of his efforts, an analysis of customer buying differences, or co-operation in distributing promotional materials.