5/24/2013

Channel Flows: Eight Generic Channel Flows

Chapter-4: Supply Side Channel

Analysis: Channel Flows and
Efficiency Analysis

Channel flows performed by channel members cannot be eliminated

If a channel member is removed then the flows needs to be shifted

even though a channel member might be removed.

to another channel member to keep the consistency of the service

Lecture-4 and 5

Course: Marketing Channels

(MKT 450)
Faculty: Abdullah Al Faruq (AFq)

output delivery or assuming the flows are already being performed

byy another channel member simultaneously.
y
-

Every flow not only contributes to the production of service outputs

The eight generic channel flows are:

but also add to the cost of channel operation.

a. Physical Possession

North South University (NSU)

Refers to all channel activities concerned with the storage of goods,

including its transportation between two channel members.

Channel Flows: Eight Generic Channel Flows

(Cont.)
-

The eight generic channel flows are (Cont.):

Channel Flows: Eight Generic Channel Flows

(Cont.)
-

The eight generic channel flows are (Cont.):

b. Ownership

c. Promotion

This flow refers to the situation of when channel members takes title

Promotional activities are designed to increase product/brand

to goods or products and remains active until it is been passed to

awareness; educate buyers about product usage/features; persuade

the next channel member.

buyers
y
to p
purchase.

c. Promotion

Promotion flow of the channel refers to all activities undertaken by a

d. Negotiation

channel member to promote the products within the channel

Any channel member might get involve in promotion.

This flow occurs to discuss and agree on terms of sales,

members and end-users.

maintenance of relationship etc issues are discussed between

It ranges from personal selling to advertising, sales-promotion and

channel members.

PR etc.

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Channel Flows: Eight Generic Channel Flows (Cont.)

-

The eight generic channel flows are (Cont.):

e. Financing
-

This flow refers to all those activities that is undertaken to support a

channel member with finance (credit, loan etc) to ensure the channel
member remains active in the marketing channels.

f. Risking
-

Customizing the List of Flows for a Particular

Channel: The Concept of Cost-Reduction
-

Every flow performed in channel operation has cost that needs to be

The goal of a channel manager is to ensure elimination of unnecessary

The way of reducing channel flow are total elimination, accumulation,

accounted in channel operation cost.

flows from a channel and cost reduction.
specific identification
identification, tactics etc in sum
s m categorization
catego i ation of channel

The function that suggests every channel member has to bear a

activities into specific flows can be practiced by channel managers to

minimum amount of risk or loss or failure when engaging into a channel

save cost of operation.

management.

g. Ordering and Payment

a. Characterizing channel flows in terms of names that are easily

The last two flows refers to the actions whereby channel members
have to order the products from the prior channel member and make

recognizable to all channel members as it helps channel manager

payment accordingly.

to communicate information about work-load.

Customizing the List of Flows for a Particular

Channel: The Concept of Cost-Reduction (Cont.)
-

The key to categorization of channel are:

The key to categorization of channel are:

b. Channel flows descriptions needs to be matched with the cost of

Describing the Productive Activities of a Channel: An

Application of Efficiency Template
Efficiency Template
-

its incursion and as measured by all the channel members.

borne and value added by each channel member in its

c. All cost expensive or cheap needs to be accounted for in order to

evaluate effectiveness and efficiency of flow performance.

A template/model or a matrix designed to measure the costs

performance of the channel flows.

p
describes:
The efficiencyy template

a. The types and amounts of work done by each channel member

in the performance of the marketing flows.
b. The importance of each channel flow to the provision of
demanded service output.
c. The profit that each channel member should reap after
successful completion of the necessary flows.

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WeightforFlows
Benefit
Potential
Final
Costs (high,
Weight
medium
orlow)
Physical
Possession
Ownership
Promotion
Negotiation
Financing
Risking
Ordering
Payment
Total
Normative
ProfitShare

Describing the Productive Activities of a Channel: An

Application of Efficiency Template

PotentialFlowPerformanceof
ChannelMember

Efficiency Template (Cont.)

1

4
(end
user)

Total

The rows list the channel flows and there are two sections of
columns one determining weights for the flows and second list the
proportional performance of each flow by each channel member.

100

N/A

100

N/A

N/A

N/A

N/A

N/A

N/A

N/A

100
100
100
100
100
100
100
100
N/A

The cost column represents the percentage of cost required to

undertake the respective flows and must be inputted in
percentage.

The next task is to allocate the weight of each flow from the

Therefore a qualitative weight needs to be assign first then a

perspective of its importance.

quantitative figure which has to be proportionate with the cost.

100

Describing the Productive Activities of a Channel: An

Application of Efficiency Template

Describing the Productive Activities of a Channel: An

Application of Efficiency Template

Efficiency Template (Cont.)

Efficiency Template (Cont.)

This weighted average is calculated as weight times cost proportion

The objective here is to find out exactly how much contribution is

The other columns in the template requires the channel manager

for each flow and summed across all the flows.

to allocate the total cost of each flow across all the channel
members.
-

being made in terms of revenue generation and cost borne by each

Again the figure must add up to 100 to represent the proportion of

channel member.

the total cost of each flow across all the channel members.
-

Next, is with the weight assigned to each flow and cost proportions

This percentage measure of how much contribution each member is

A channel manager has to maintain a separate efficiency template for

making in relationship to the cost is known as normative profit share.

allocated for the performance of each flow across channel

members the channel analyst will be required to calculate a
weighted average for each channel member measuring that
members contribution to the cost borne and value created.

each channel used to distribute the product, each market segment

and each template can then be compared.

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Describing the Productive Activities of a Channel: An

Application of Efficiency Template

Designing a Zero Based Channel

Efficiency Template (Cont.)

a. Meets the target market segments demands for service outputs

Therefore, the usage of efficiency template are:

a. It reveals how the cost of particular flows are shared among each

b. Minimum cost is borne in performing the necessary channel flows

channel members.
b. It shows how much each channel member contributes to the overall

that produces the required service outputs.

-

value creation in the channel.

d. It can be a powerful tool in explaining current channel performance

and justifying changes that channel managers wish to make to the
currently operating channels.

There are two tensions occurring

g in one hand provide
p
customers
with their demanded service outputs and in other hand minimize

c. It reveals how important each of the flows is to total channel

performance.

A zero based channel design is one that:

cost.
-

Therefore, the recognition of what levels of channel flows must

be performed to generate service outputs demanded in relation
to the demands that are unmet in the market is required.

Matching Normative and Actual Profit Shares: The

Equity Principle
Equity Principle
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Compensation in the channel system should be given on the basis of

the degree of participation in the marketing flows and the value
created by this participation.

Compensation should mirror the normative profit shares for channel

Therefore, the principle states it is appropriate to reward each

member.
channel member in accordance with the value that members creates
in the channel.
-

Channel members must know the cost they have actually incurred
and have an agreed upon estimate of the value created in the
channel.