Вы находитесь на странице: 1из 36




 

 c


c   
  p
Learning Objectives
‡ Understanding customer needs to define
channel objectives
‡ Channel design factors, components, issues,
steps and process
‡ Method of evaluating various channel
alternatives
‡ How channel partners are: selected, trained
and kept motivated
‡ Principles of vertical integration and
electronic channels
Channel design factors«.
c   
  ?
Channel Design Factors
‡ Product mix and nature of the product
‡ Width and depth of market / outlet coverage
planned
‡ Long term commitments to channel partners
‡ Level of customer service planned
‡ Cost affordable on the channel system
‡ Channel control requirements of the company

c

c   
  Œ
Channel Design Steps
‡ Define customer needs
‡ Clarify channel objectives
‡ Look at alternative systems which can
meet these objectives
‡ Estimate cost of operating the channel
system
‡ Evaluate available alternatives
‡ Finalise the µideal¶ system

 
Customer needs«.
c   
Customer Needs
‡ Lot size ± most convenient pack size which
the consumer can buy at a time
‡ Waiting time ± time elapsed between the
desire to buy the product and the time when
he can actually buy it ± should be almost zero
‡ Variety ± choice of products, brands, packs
‡ Place utility ± choice of buying where he
wants. For a consumer product it has to be at
a location closest to his residence

Components «
c   
  r
Channel Design Components
‡ Revenue generation or the commercial
part
‡ Physical delivery of the goods or
services ± the logistics part
‡ The µservice¶ part to take care of after-
sales support
‡ Each part of the system is likely to be
handled by a different entity.
c   
  ‘esign issues«. å
Channel Design Issues
‡ Activities required and who will perform
‡ Activities relationship to service levels
‡ Number of channel members required
and the relationship between categories
‡ Roles, responsibilities, remuneration
and appraisal of performance of
channel members

c   
  
Channel Design Process
c 
 
  !

!

c






 



c   
  X
Segmentation
‡ Putting customers in similar clusters based on
their needs
± Doctors who prescribe medicines
± Chemists who dispense medicines
± Hospitals and nursing homes who use them
‡ Each segment has a different need to be
serviced by the channel
‡ Gives an idea to the sales manager as to the
kind of channel members he should be
planning for.
c   
  o
Positioning
‡ Defines the channel element required to
service each of the segments
± The sales manager decides the channel partner
who is D" # to meet the expectations of the
segments.
± The number of each category of intermediary is
also decided based on the number of customers
to be serviced in each segment.
± The service objectives and flows for each channel
partner are also frozen
c   
  p
Focus
‡ It may not be possible to meet the
needs of all segments ± cost and
practicality considerations (the
managerial talent available for instance)
‡ The sales manager has to firmly decide
which of the segments he will service
‡ The competitive scenario also helps in
this decision

c   
  pp
Development
‡ At this stage the channel system is being put
in place to achieve the objectives
‡ Select the best of the alternatives
± Comparison with the most successful competitor
could be a good benchmark
‡ Channel partners of competitors may be
willing to share best practices of their
principals
‡ For modifying an existing channel, the gap
between the ideal and the existing is to be
identified for remedial action.
c   
  p?
Channel Objectives
‡ Defines what the channel system is supposed
to do to support customer service.
‡ Customer needs could include:
± Lot size convenience
± Minimum waiting time
± Variety and assortment
± Place utility
‡ The product characteristics and the market
profile also impact the objectives.
‡ Competition could also affect the objectives

c   
  pŒ
Channel Alternatives
‡ Are planned after deciding the customer
segments to be serviced and the levels of
service
± Business intermediaries currently available like
C&FAs, distributors, dealers, agents wholesalers
and retailers.
± The number and type of intermediaries required
± Developing new channel types
± Roles of each channel member

c   
  p
Evaluation of Major
Alternatives

$


%

  
" 


%" 



&  "



 ""

 
  $  

c   
  pr
Evaluation Critieria
‡ 
'
± If existing sales force can be expanded cost
effectively, this is the best alternative
± Cost of alternatives at different volumes can only
be estimated for comparison
± System with the lowest cost is preferred
‡ Adaptability ± the channel should be flexible
to handle different types of markets and
changes in the market conditions
‡ Volume and range to be handled ± Capable
even when business grows or expands
c   
  på
Evaluation Criteria
‡ Ability to manage and control:
‡ Distribution network being an extended arm of
the company, the channel partners have some
obligations
‡ Operating guidelines specify these rules
‡ The channel system should help the company
enforce these rules fairly to all channel partners
‡ Some of the operating rules are
‡ Company trains channel personnel and
provides proper product literature
c   
  p
Selecting Channel Partners
‡ Getting good channel partners is a difficult
part of doing business
‡ Some of the methods employed to select
channel partners are:
± Sales people identify prospects and talk to them
± Press advertising (industrial goods)
± Existing channel partners can give good
references
± Competitors¶ channel members for reference, not
poaching

c   
  pX
Selection Criteria
‡ Qualitative: willingness, confidence in
company products, willingness to abide
by company rules, building company
image, innovativeness etc
‡ Quantitative: financial status,
infrastructure, location, present
businesses, customer relationships,
market standing etc
c   
  po
Training Channel Members
‡ Starts from the time of recruitment
‡ Channel member owner and his staff
‡ Market views channel member as part of the
company ± he has to behave in a like manner
± hence training assumes significance
‡ Training could be on the job field training or
classroom training
‡ Training is an ongoing process.

c   
 
cubjects«.. ?
Subjects for Training
‡ Field training on how the markets are to be
worked to achieve sales, collect payments
and ensure the right kind of merchandising
‡ Class room training on company products,
competition and how to tackle it to gain
market shares
‡ Special meetings for new product launches
‡ Submitting reports and maintaining records
‡ Statutory compliance

c   
  ?p
Subjects for Training
‡ Care of company products
‡ Technical specifications and answering FAQs
of customers
‡ For technical and industrial products ±
recognition of specs, installation procedure,
repair and maintenance and effective
demonstrations
‡ Servicing of automobiles and other
engineering products
otivation«.
c   
  ??
Motivating Channel Members
‡ Ambitious volume and growth targets ±
continuous motivation required to achieve
‡ Motivation includes:
± Capacity building programs
± Training
± Promotions support
± Marketing research support
± Working with company personnel
± Incentives powerµ««
c   
  ?Œ
£  

'Power´ of Motivation
‡ Reward ± positive support
‡ Coercion- threat of punitive action
‡ Referent ± positive effects of association
‡ Legitimate ± enforcing a contract
‡ Expert ± support of special knowledge
‡ Support ± additional benefits for performers
‡ Competition ± pitting against peers

c   
  ?
üole of ü «..

Channel Members Evaluation


‡ Effectiveness of the distribution channel
determines the success of the company
‡ Company would like its channel partners to
perform at the highest standards possible
‡ Need to constantly evaluate performance on
sales targets, coverage, productivity,
inventory holdings, attending to servicing
requests etc

c   
  ?r
ROI as a Measure
‡ Leading FMCG companies feel that an ROI of
30% for a distributor is healthy and is a fair
indication that he is performing well.
± If the ROI is more, additional tasks are given
± If the ROI is less, the company may provide
additional support
‡ Post evaluation tasks include counseling,
retraining and motivating. In extreme cases it
may result in termination.
c   
  ?å
Performance Evaluation
‡ On pre-agreed tasks only. No surprises.
‡ Specific targets on periodical basis are set.
± Targets on volume and outlet productivity could be
for a week or a month
± Targets relating to increasing market shares or
total outlet coverage could be for 6 months
± Different weightages could be given for each of
the parameters for evaluation
‡ The performance appraisal is open and
transparent
odifying a network..
c   
  ?
Steps for Modifying Networks
‡ Service level desired and willing to deliver
‡ Activities required to deliver service level,
who will do it and at what cost
‡ Derive ideal channel structure and compare
with existing to know gaps by evaluating
based on standard parameters relating to
effectiveness and efficiency
‡ Action to bridge the gaps and put modified
channel system into place
‡ Define key performance indicators

c   
  ?X
Channel Comparison Factors
-$$  
-$$

c  

(


 
& 

)
 


c   
  ?o
Non-store Retailing
‡ Selling door-to-door
‡ Vending machines
‡ Tele-shopping networks
‡ Selling through catalogs
‡ Other forms of direct selling
‡ Electronic channels
-lectronic channels«
c   
  Œ
Retailing on the Internet
‡ Unlimited assortment
‡ Items may not be on hold
‡ No product touch or feel
‡ More information makes the customer a
better shopper
‡ Comparison shopping possible
‡ Consumer has to plan purchases ahead
‡ No need to handle cash ± payment can be
on-line
‡ Shopping is 24X7
Îertical integration«.
c   
  Œp
Vertical Integration
‡ This means owning the channel. The
company does the work of production,
branding and distribution.
‡ Downstream integration means the
producer of the goods also does the
distribution ± Eureka Forbes, Bata

c   
  Œ?
Vertical Integration
‡ Upstream integration means the seller
also produces the goods ± private
labels of modern retailers.
‡ If the organization does the work of
production, branding and distribution, it
is said to be vertically integrated.
‡ Vertical Integration provides better
control over the distribution function

utsourcing..
c   
  ŒŒ
Outsourcing Distribution
‡ Is the most prevalent situation as:
± The µreach¶ is better
± The cost may be lower
± The company can exploit the µcore competence¶ of
its channel partners, which is distribution
‡ Vertical integration is a choice which will
become long term and cannot be easily
changed once the resources have been
committed.
‡ However, direct distribution (owning the
channel) is still the best solution for µintensive¶
distribution.
c   
  Œ
ƒey Learnings
‡ The nature of distribution channels required
in different situations is based on a number of
factors
‡ Channel design takes into account all the
service deliverables required by customers
‡ Intensity of distribution determines the
number of intermediaries required
‡ Distribution can be in-house (vertical
integration) or out-sourced
‡ Channel design alternatives are assessed
primarily on effectiveness and efficiency
c   
  Œr
ƒey Learnings
‡ Channel alternatives are evaluated on cost,
ability to control, adaptability and capability to
handle range and volume.
‡ Training of channel partners can be in the
class room or on the job and is a continuous
process
‡ Motivating channel partners can be done
using different µpower¶ equations
‡ There are different formats of non-store
retailing like catalogues, internet etc
‡ Electronic channels are used to sell products
to consumers directly
c   
  Ό