Channel Management

Channel ManagementChannel ManagementAdil Mirza

ICFAI Business School Hyedrabad

ObjectiveObjective

To help you understand the key factors that influence the channel

choice, how a channel structure is developedRelationship between the principle and

the intermediaryTypes of channelsImplications on the length of the channel

What is a channelWhat is a channel

Channel is a mechanism which brings the product to the consumer at his doorstep.

Why ChannelsWhy Channels

When it becomes impossible for the manufacturer to directly deal with the consumers.

Minimize transportation costs, maintain service levels, reduction of stock holding etc.

Required to distribute your products.

Role of the ChannelRole of the Channel

To bring the product closer to the end user and provide him with the

knowledge, information and service as desired by the manufacturer.

Role of the PrincipalRole of the Principal

Commitment to develop the channelProvide support by way of service, Information, Training and Motivation to

the channel members.

The Factors that impact the The Factors that impact the choicechoice

ProductConsumerCompetitionSize and value of each saleThe area of operationsStrength of efforts requiredPromotional StrategyCost of channel

ProductProduct

Identify where your product is on the continuum

Lowest in the Sales Continuum require to be distributed widely.

Linked to Maslow’s theory of hierarchy of needs –

- Who is the customer, who will use it,

List

Item

Brand

Concepts/ Ideas

Consultative

Systemic

Structural

THE SELLING CONTINUUM

ChannelDriven

Direct

Basic needs

Security

SocialPersonal

Aesthetic

SA

Maslow's theory of Hierarchy of needs

The customerThe customer

What kind of service level is required.How much technical information required.How accessible they required the product

to be.How often do they use it? In what

quantity?What are the installation needs

Competitor Channel strategyCompetitor Channel strategy

Opportunity to either match or better the competition.

Size and value of each saleSize and value of each sale

Lower the size and value per sale, the need for higher and uncontrollable distribution.

Costs much lowerHigh value and size require limited /

Controlled distribution.

Area of operationArea of operation

Wider your appeal and choice of marketing, wider channel required.

Also need to look at the competitive strengths and weakness and make geographic plans.

Keep in mind the area of operation and choose the channel.

Strength of channelStrength of channel

Who needs whomLevel of dependency

Promotional StrategyPromotional Strategy

Push Versus Pull.

More cost for push strategy,Efforts required by the channel is required

significantly for the push strategy.Stronger channel required.

Cost of channelCost of channel

Depending upon the efforts requiredObjectives you have set upChannel cost comprises of - People, - Infrastructure like Warehouse etc - Delivery costs etc.

Local tax lawsLocal tax laws

CST and STOctroiMRP

The choice of the channelThe choice of the channel

The one that :Gets the products at the right time, at the right place, in the right way at the most cost efficient way

TYPES OF CHANNELTYPES OF CHANNEL

OWNEXCLUSIVESHAREDCOMBINATIONFRANCHISIE

CHANNEL MEMBERSCHANNEL MEMBERS

RETAILERS/ , DIRECT SELLENIG AGENTSWHOLESALERS – STATIONERY, MOVINGLARGE RETAILER CHAINS(Foodworld,

Sahakari Bhandar etc)INSTITUTION ( CSD, INS)DISTRIBUTORS/ STOCKISTSC&FSSOLE SELLING AGENTS.

CostsCosts

Retailer - Margins, Promotions, DiscountsWholesaler – Margins,Promotions,

Discounts, Distributors – Margins, Promotions,

Salesmen, Delivery costsChain stores – Margins, Promotions,

Discounts, Cost sharing, Institutions – Margins, Credit.C&Fs – Delivery costs, service costs.Sole Selling Agents – All costs +

Reasonable Returns.

Servicing the Channel Servicing the Channel MembersMembers

Frequency of visit Retailer – Weekly/ Fortnightly/ MonthlyWholesaler – Multiple visitsDistributors – Daily – MonthlyInstitutions – Weekly or Up to the time of

credit. C & Fs – One a month or multiple visitsSole Selling Agents - Continuous

RemunerationRemuneration

Commission/ MarginsIncentivesSalarySalary + IncentivesReimbursement of costsSalary + Incentives+ Reimbursement of

costs

Quality of ServiceQuality of Service

Retailer - Whole sellerDistributorChain storesInstitutionsC&FsSole Selling Agents

Other servicesOther services

TrainingMotivationInstallationSubsidies

MotivationMotivation

Basic Needs : Profit, VolumeSecurity : Stability, Growth, New business

developments.Social : Recognition in the community, Personal : Biggest Business Man, Best, etcAesthetic : Stylish Office,Modern Gadgets,

Computerization etc. Self Actualization : ?

CommodityCommodity

RetailWholesalersSub brokersBrokersAgentsLow margins/ High turnoverGoods move direct to w/s or large retailers

from point of manufacturer.

FMCGFMCG

Service Quality

Remuneration

Others

Retailer

Weekly/Monthly

UnderGrads

5 to 20%

Discounts

Proms.

W/S Daily/Month

Undergrad

s

2 to 3%

Discounts

Promss

DistributorStocki

sts

Daily/Monthly

Grads

5-8% TrainingMotivtn

C&Fs Monthly Grads+

Fixed+Cost

s

Training

Sole Selling agents

Continuos

Grads+

10 %+

Recruiting/

Training/Motivtn

Consumer DurablesConsumer Durables

Service Quality Renumeration Others

Own Retail Grads Salary Motivation.Training

Exclusive Ret(Franchisee

Weekly/ Grads 5-9% Training/Proms

Retail Show room

Daily/Monthly

Grads 5-8% TrainingMotivtn

C & Fs Monthly Grads+ Fixed+Costs

Training

Exclusive Continuos Grads+ 10 %+ Recruitng/Training/Motivtn

Non Physical Non Physical Products( InsuranceProducts( Insurance))

Quality Remuneration Others

Advisors Grads Salary +incentive Motivation.Training

ExclusiveDSAs

Grads Salary+incentive

Training/Proms

Co owned network

Grads+ Salary+incentive

TrainingMotivtn

OEMsOEMs

Original Equipment Manufacturers

Manufacturer hands over the product to channel.

Channel then adds its own value and markets the products.

Vertical IntegrationVertical Integration

Downline – When manufacturer moves into the channel and sets up own outlets/

Upline – When a member of the channel gets into the manufacturing and starts distributing through channel.

Length of ChannelLength of Channel

Seller - Buyer Direct – Zero lengthSeller – One in between- Buyer–length of 1Seller- Two in between– Buyer–length of 2Seller-Three in between-Buyer-length of 3And so on.Higher the length, lesser the direct

control.Likely to be expensive.Requires the support of the entire

marketing mix.

Direct MarketingDirect Marketing

Personal SellingNetDirect MailersTelephonic

ROIROI

RETURN ON INVESTMENT Return X 100 Investment

Risk

Return

Business men invest :Time,Efforts,

In return they expect commensurate Return that they not only takes for todayBut also needs to fuel future growth.

Today’s opportunity :

Savings ac - 5 %FDs - 8-9%Mutual funds- 12 – 15 % Distribution line – 20 – 30 %At least twice bank rates

Other factors worth Other factors worth consideringconsidering

Absolute amountOther than money, that takes care of

basic needs, need for status, ability to attract other business.

Other businesses where costs are shared and there is synergy.

InvestmentStocksCreditDeposits ClaimsEtc.

Return( Income)Return( Income)

Sales in units * margin per unitInterest on DepositNett of discounts

Expenses :Expenses :Direct Salesmen Driver Delivery boys Deliver costs Depreciation of vehicles Bills/ Stationery, Warehouse rentIndirect Office rent, electricity, telephone, other staff, accountant

etc, audit fees, license fees etc. ( consider appropriate contribution)

ROIROI

= Gross income – Expenses X 100 Total Investment

ROI is a percentage.Multiply it by 12( if data is monthly) to get

annualized ROI.

Selecting the right partnerSelecting the right partner

The one who can add valueProvide his unique local contributionMutually dependantLong termMatching with the culture and values of

the principle.Mutually beneficial