Business to Business Marketing: Case study Topic: Gaining and building Distribution channels Essay Example
The Importance of the Four-Level Franchising Policy Adopted By Atlas Copco
In 1984, the vice president of Atlas-Copco, Arthur Droege, introduced a new franchise policy under the mandate of the company’s president, Dean Pope. The franchise levels were namely, the basic franchise, enhanced distributor franchise, specialised special lines, and general service franchise (Rangan, May 21, 1993:422). These franchise levels were modelled according to the business to business marketing strategy adopted by the company to maintain loyal customers and increase its sales revenue. Since the company serves distributors of different load capacities, the four franchise levels enabled the company to meet the needs of each distributor depending on their distribution capabilities. The aim of this essay is to discussion the importance of the four-level franchising policy adopted by Atlas Copco to market their industrial air compressors.
To create an effective business to business marketing strategy for the Swedish company, the vice president sought to understand the distributor’s perspective towards their product lines in foreign territories such as United States. As outlined in the new policy franchise policy, basic franchise distributors were responsible of maintain an inventory of prime equipments and spare parts as a way of ensuring the customers are satisfied with the products they purchase from the company (Rangan, May 21, 1993:435). The basic franchise level of distribution was aimed at encouraging distributors to push hard for more sales in order to take advantage of the enhanced distributor franchise offering open to them if they meet the set targets. Under this franchise policy, the distributor has the right of marketing rotary and reciprocating air compressors above 200 horse-powers. In return, the company benefited from increased sales revenue as well as satisfying the needs of customers seeking smaller air compressors. Moreover, this marketing strategy increased distributor’s loyalty to the company as it gave them a chance to upgrade their distribution levels according to normal annual budget agreements set out in the policy.
Under the enhanced distributor franchise, the company scrapped off inventory requirements for prime equipment as a way of motivating distributors to successfully support and enhance the current and future air compressor’s demand in the U.S territory (Rangan, May 21, 1993:435). By offering agency agreements to competent distributors with adequate sales and marketing expertise necessary to mobilise the sale of larger compressors in the target segment of the market, the company boosted its market share growth indirectly saving marketing and advertising costs. Moreover, the company was able to spearhead the sale of larger compressors with minimal participation in the field. Furthermore, agency agreement contracts offered to the distributors forged long-lasting committed relationship between the distributors and the company. This was the main reason for the sudden rise in sales of larger industrial compressor between 1984 and 1988.
Finally, to offer personalised services to its potential customers in this market segment, Atlas-Coptco offered an authorised service centre program to distributors willing to invest their capital to set up extension service centres. Through these centres, the company was able to enforce and fulfil warranty and post-warranty services to its customers. Moreover, the company generated more revenue through the sale of spare parts and offering after-sale services. In summary, the company benefited more by implementing the four-level franchising policy as compared to direct sales from a sole distributor. In addition, the company reduced its distribution and marketing costs by more than 20% three terms after initialising the new marketing policy. Lastly, the company managed to increase its share in the U.S market segment.
Rangan, K. V. (May 21, 1993). Atlas Copco (A): Gaining and Building Distribution Channels. Harvard Business School , 423-436.
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