Designing Channel Systems
Introduction
Factors
that determine the nature of the distribution channel
Nature of the product or service Location and nature of the customers Nature of competition and distribution systems Intensity of distribution required Nature of the markets being targeted
Channel design and planning process
1.
Channel Stages in channel planning
Segmentation stage
Pharma company segments: Doctors/ Chemists/ Hospitals and nursing homes
M1 P1
Positioning stage Focus stage
M2
M3
Service objectives at each channel element. Each segment has different expectation
P2
Doctors in all A cat towns Chemists located in the main markets of A P3 towns Only big govt and private hospitals
Developing the right channel alternative
Modifications required to make it an ideal channel
Channel design and planning process
2.
Defining the customer needs
Lot size
Toothpaste pack sizes, Wheat flour packs, Motor with horse power
Waiting time
Difference of Desire to purchase
Choice to the consumer
Variety and assortments
Place utility Service support
Sales support for maintenance and repair Installation and training Credit Home delivery Regular service follow ups
Channel design and planning process
Designing
channel objectives
Industrial products require direct-marketing by the company Consumer products should be available in large no of outlets Frozen desert and ice-cream products need cold storage facilities Seeds selling will need rural distribution Multi level marketing will require their distributors to appoint further distributors
Channel design and planning process
Channel
Alternatives study
Business intermediaries currently available The no and type of intermediaries required Any new member to be specially developed Roles of each channel member
Channel design and planning process
Cost
of channel system
Margins of the channel partners Cost of transportation of goods between the co and the end user Cost of order booking and execution Cost of stock returns/ date expired stocks taken back Cost of reverse logistics required (getting empties back)
Channel design and planning process
Current
intermediaries
Ready channel partners may be already available. These can be further utilized
Distributors or redistribution: stockiest of some other companies C&F agents: can be further utilized for collections and other work Logistics service providers: will undertake distribution activities. Manufacturers agents, stockiest, guarantors provide financial support Financial agencies can be used to finance your customers.
Channel design and planning process
Number
of intermediaries
Should be adequate for expected coverage of the target markets at the same time should not be too much to dilute the effort and add to the costs. Its not easy to get rid of channel members
Evaluation of Major alternatives
Cost:
Every channel will have different costs associated with
Ability to manage and control
Considering coverage, frequency, productivity, inventory, credit, merchandising, distribution, promotions, after-sales-service, presales-sales, channel salespeople, stock points
Adaptability
Sensitivity of channel to addition, elimination of products, additional service, new territory coverage, generating leads, handling price change, stock rationing
Range and volume to be handled
Ability to handle large range of products and volumes.
Selecting channel partners
Selecting Carrying and Forwarding agent Location of the party
In or close to main market of the company Close to a major market Outside octroi limits Should have proper road/ transport access Labor availability Utilities support Connected by phone
Location of the warehouse
Past experience
History of past business
As a C&FA for a similar company As a transporter should have access to a good warehouse Should have handled similar but non-competing companies Ability to maintain confidentiality of transactions
..conti
Selecting channel partners
Selecting Carrying and Forwarding agent
Financial strength To handle all operating expenses till re-imbursement Insurance IT capability Adequate own hardware Trained staff to handle simple programmes and repairing formats Flexibility In operating hours daily To handle peak loads Transportation facilities Reliability, consistency in source of vehicles Additional volumes to be handled at short notice Attitude, commitment To be of the highest order/ positive Willing to expand the business Disciplined
Selecting channel partners
Selecting Distributor Size of the channel partner Own salesforce
Current business portfolio Financial strength/ asset ownership including personal assets of partners No of sales people Qualifications, background, experience Products handled, volume handled Should be of similar products but non-competitive Product quality, compatibility and complimentary Leadership in the market Integrity, fairness in dealings Territory/ intensity Regularity, reliability Relationship, productivity Beat plan adherence Value of institutional business handled if any
Current business
Reputation
Market coverage
Selecting channel partners
Selecting Distributor Credit extended in the market % of outlets & of current business Bad debts, if any Stock distribution Ready stocks or order booking Infrastructure availability Warehouse Distribution vans Hardware/ personal computers/ connectivity Sales performance On current business Awards, prizes, certificates won on performance Management of business Educational backgroun, qualification of partmenrs Market working Efforts on merchandising, displays Handling sales promotions Past experience Inventory management Adherence to stock norms recommended by the company
Change of channel members
Why
to change channel members?
Training channel members
On the job training Class room training Special meetings to launch new products Training on submitting reports Statutory requirements Product related responsibilities of channel members Training on technicalities Training on specifications, installments, repair and maintenance Training on after sales service
Motivating channel partners
Efforts
in designing capacity building programmes Training Promotional support Marketing research Working along with company people
Channel power
Referent Expert
company company company
power: Power out of eminent position of the power: Power of legal agreement with power: Comparison with other channel
power: Power out of special knowledge of the power: Support in the form of promotions,
Legitimate Support
members
Competition Reward
subsidies, additional help
power: Incentives, special incentives Coercive power: Power of threat
Channel design comparison factors
While
comparing two channels,
Efficiency: Input versus output Effectiveness: How well channel meets its objectives Capacity: How effectively channel can handle changes in
volume
Agility: How well can channel handle changing demand
pattern
Consistency: of performance Reliability: Commitment on performance Integrity: Is the channel fair
Channel design implementation
Define criteria for appointment of channel partners Document channel objectives for sales people and channel partners Define the profile of the customers to be services List down all the customer service levels in detail List the tasks in sequence which will drive these service levels Get benchmark of good practices from knowledge of competition Define channel structure and channel partners who constitute it Allocate the tasks among the channel partners Work out cost of delivering CS levels and prepare a budget Advice the channel partners on the tasks and their benefits Define channel partner performance appraisal system and share it List down reports, records and frequency from each channel partner
Vertical
integration- Owing the channel Own the channel or outsource? How much of vertical integration? Why vertical integration Outsourcing distribution
Channel Information System
