MARKETING & INNOVATION


MANAGEMENT


Reasons for using a direct sales channel can include • degree of business integration • unique products (requiring explanation and specific service)


• supplier and customer being part of a process


• strategic importance of products and/or customers


• customised products • heavy direct competition •


few large customers (in terms of product volume used).


Reasons for using an indirect sales channel are typically • the generic character of products, which are often used together with complementary products


• a wide variety of applications (or user industries)


• widespread and dispersed usage locations


• many and often small customers, both in terms of size and product volume consumed


• limited profit potential (for the producer), which makes it important to keep an eye on the ‘cost to serve’ to a particular customer or group of customers.


Indirect channels Indirect channel options for the chemical producer are mostly defined by the nature of the product and the level of sophistication of the market and application served. Commodity products,


for example, large volume petrochemicals, polymers, oleochemicals, inorganics and minerals, are served via a trader, usually upstream of the value chain, moving large parcels of product by buying and selling ‘back-to-back’ without holding any inventory. These companies can either be very large or very small, for example, one person and a fax machine, although the former category tends


A distributor acts as an important bridge between producer and customer, but the position can also be characterised as being stuck between robust interests that are not always aligned


to prevail eventually because of ever increasing capital requirements. The ‘typical’ chemical distributor


is operating normally downstream in the value-chain and deals mostly with intermediate products, often categorised into the two groups: industrial and specialty chemicals. A distributor takes title of the goods purchased, and establishes independently a resale price to ensure a margin considering its cost. It will have inventory normally in a local warehouse to make local deliveries at short notice. The value creating step is expanded often by delivering additional services to supplier and customer, for example, breaking bulk deliveries (full truck loads) into packed cargo sales for smaller users. In this article, the focus of our discussion will be on this indirect channel. Distributor company sizes range from very small with only a few employees to very large global organisations, employing more than


15,000 people. This is equivalent to a range of just a few million Euro sales, up to many billions. An alternative indirect channel to


go to market is the use of an agent, who is the producer’s representative and receives a commission for the sale. The agent does not provide any other service than marketing and sales and is acting on behalf of its principal, the producer of the chemical product. It is not uncommon for distributors to have some agency business for certain products, alongside the classic distribution model, although this tends to be more of an exception.


Why use indirect channels? For industrial and specialty chemicals, a distributor is often chosen by a producer as an effective channel for servicing smaller clients, for instance, in diverse and evolving geographies, where the distributor can realise lower cost-to-serve by selling a bundle of products to each customer. Something that a producer often cannot do. Distributors of industrial chemicals sell typically to customers from all user industries in their region. Quite often this area is a circle of ca150-250km around the tank farm/warehouse location. No particular differentiation is made, market reach is mostly driven by the limitations of logistics cost. Specialty chemical distributors tend to be specialised by markets (applications and industry sectors), product groups or geographies. They will focus on one or more industry sectors, say cosmetics, food and pharma, and then sell the products in broader geographies, for example, large parts or all of Europe. A chemical distributor can cover services such as: •


transport (organisation of own or


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