14. channel decisions - notes 290910

8/12/2019 14. Channel Decisions - Notes 290910

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MARKETING MANAGEMENT

CHANNEL DECISIONS

Marketing / Distribution Channels:

A arketing !hannel is a set of practices or activities necessary to transfer theownership of goods, and to move goods, from the point of production to the point of

consumption and, as such, which consists of all the institutionsand all the marketing

activities in the marketing process. A marketing channel is a useful tool for management.

Roles o" arketing !hannel in arketing strategies#

Links producers to buyers.

Performs sales, advertising and promotion.

Influences the firm's pricing strategy.

Affecting product strategy through branding, policies, willingness to stock and

customies profits, install, maintain, offer credit, etc.

An alternative term isdistribution channel or 'route!to!market'. It is a 'path' or 'pipeline'

through which goods and services flow in one direction "from vendor to the consumer#,

and the payments generated by them flow in the opposite direction "from consumer to thevendor#.

A marketing channel can be as short as being direct from the vendor to the consumer ormay include several inter!connected "usually independent but mutually dependent#

intermediaries such as wholesalers, distributors, agents, retailers. $ach intermediary

receives the item at one pricing point and moves it to the ne%t higher pricing point until it

reaches the final buyer.

$h%si!al &istribution "or 'la!e# is one of the four elements of the marketing mi%. An

organiation or set of organiations "go!betweens# involved in the process of making aproduct or service available for use or consumption by a consumer or business user.

&he other three parts of the marketing mi%areproduct,pricing, andpromotion.

The &istribution !hannel

It is defined as a chain of intermediaries each passing the product down the chain to thene%t organiation, before it finally reaches the consumer or end!user. &his process isknown as the 'distribution chain' or the 'channel.' $ach of the elements in these chains will

have their own specific needs, which the producer must take into account, along with

those of the all!important end!user.

()* CHANNEL DECISIONS

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Channels

A number of alternate 'channels' of distribution may be available:

Distributor, who sells to retailers, Retailer"also called dealerorreseller#, who sells to end customers

Advertisement typically used for consumption goods

*istribution channels may not be restricted to physical products alone. &hey may be =ustas important for moving a service from producer to consumer in certain sectors, since

both direct and indirect channels may be used. >otels, for e%ample, may sell their

services "typically rooms# directly or through travel agents, tour operators, airlines,tourist boards, centralied reservation systems, etc.

If we mention in a single sentence the distribution channel is nothing but it is a process of

transfer of the products or services from Producer to (ustomer or end user.

&here have also been some innovations in the distribution of services. )or e%ample, therehas been an increase in franchisingand in rental services ! the latter offering anything

from televisions through tools. &here has also been some evidence of service integration,

with services linking together, particularly in the travel and tourism sectors. )or e%ample,links now e%ist between airlines, hotels and car rental services. In addition, there has been

a significant increase in retail outlets for the service sector. ?utlets such as estate

agencies and building society offices are crowding outtraditional grocers from ma=or

shopping areas.

Channel &e!isions

(hannel strategy

9ravity ; 9ravity

Push and Pull strategy

Product "or service#

(ost

(onsumer location

Managerial !on!erns

&he channel decision is very important. In theory at least, there is a form of trade!off: thecost of using intermediaries to achieve wider distribution is supposedly lower. Indeed,most consumer goods manufacturers could never =ustify the cost of selling direct to their

consumers, e%cept by mail order. 6any suppliers seem to assume that once their product





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has been sold into the channel, into the beginning of the distribution chain, their =ob isfinished.

et that distribution chain is merely assuming a part of the supplier's responsibility and,

if they have any aspirations to be market!oriented, their =ob should really be e%tended to

managing all the processes involved in that chain, until the product or service arrives withthe end!user. &his may involve a number of decisions on the part of the supplier:

(hannel membership

(hannel motivation

6onitoring and managing channels

T%'es o" arketing !hannels

. Intensive distribution !


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Channel Marketing

?ften the Buestion comes up, what is a channelE A channel to market is the method of

getting your product into the customer+s "the end user+s# hand. &his can either be through

direct sales, or through a reseller. *irect sales can occur in person, via the phone, the web

or mail. Indirect, or channel sales typically refers to sales through a reseller. A resellercan order from you direct "one tier between you and the end user#, or from a wholesale

distributor!!you would sell to a wholesale distributor and they in turn would sell tomultiple resellers Ftwo tiers between you and the end user "hence the common term Gtwo!tierH distribution#.

1hi!h Channel to 2se3

&he first Buestion to address is whether you should go direct or indirect. ?ften the answer

is both!!especially since the popularity of the Internet. &he key, however is to avoid mostof the channel conflict.

(hannel conflict occurs when the vendor "you# and the reseller, or different reseller types

"retail, mail order, Internet# compete for the same business. I say GmostH of the channelconflict, since it is fine to have some conflict!!resellers may compete, and there may besome of the business that you can take direct. )or e%ample, you might go direct with

massive deals that are too big for a reseller to finance "such as a .0 billion deal

overseas#, or very small deals that don+t reBuire any specialtrainingJinstallationJconsulting!!hence won+t provide margins for your resellers who

make money on their Kvalue added+ services.

&o minimie conflict you could:

5egment the products "different products are sold through different reseller types

or channels# 5etup e%clusive or limited territories

5ell direct at a higher price than the average street price

5etup different promotions for different resellers!!rotating so they all have

advantages at different times

Let the resellers choose to establish their own competitive advantage

5etup reseller levels!!rewarding higher margins and support for higher

authoriation "the resellers choose whether they can be competitive#

5etup a process to determine if a customer has worked with a reseller prior to

taking the business direct "so you don+t steal business they cultivated#, etc.

&here are multiple ways that you can reduce conflict!!the key is to be aware that it coulde%ist and of your ramifications "short and long!term#, and that you do something about it

to keep your reseller and revenue targets satisfied.





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?ne vendor long gone, Ashton &ate, had a terrible problem with channel conflict "theywould sell direct and undercut a prospect the reseller had cultivated#!!as a result, their

resellers hated them. &hey still sold their products since they were so popular "dMase#,

but were rooting for a competitor to take them out!!which happened.

It is also a problem if you have no conflict, since it usually indicates that you don+t haveenough sales coverage!!there could be parts of the market you are not covering "not

knowing about the opportunities, your product is not sold where the customers traffic,etc.#.

Dire!t or In&ire!t3

&he Buestion to go direct, indirect or both is often determined by the following:

. Ability to recruit resellers. If you cannot get your product into distribution, or find

resellers, the answer is simple, you go direct.@. Product type. If you are selling a product that reBuires a lot of training, installation

and support, you may go direct until you get your resellers trained and certified!!or, if you have a large enough sales force, you may stay direct. >owever, if youhave enough sales people to only cover the largest customers "N sales people to

cover top NN telcos, but not enough to cover the middle 2,NNN telcos#, you may

wish to use resellers to cover the middle market!!then segment your product line,one for direct and one for resellers.

0. 6arket dynamics. As the market technology adoption changes and products that

used to reBuire support become easier to use, and customers know what they

want!!you may go direct "like *ell it was actually a modest model in the earlydays, since most users needed more support but became effective#

. Price point. >igh!end premium Buality consumer products "such as e%pensive

cookware, the best vacuums, etc.# are sometimes sold direct "and usually person!to!person# since the benefits "which are real, but not always obvious# must be

sold. >owever, this does not mean that high!priced products can+t be sold via the

channel "boats, planes, etc.#.2. (ustomer reBuirements. 5ome customers reBuire mandate a direct relationship

with the vendor to ensure their needs are met. In some cases, when an account

insists on going direct, the reseller can still earn a bounty for delivering the

Bualified, pre!sold lead.3. Ability to manage resellers. 6uch of the decision to go direct or indirect is also

dependent on the companies+ ability to understand how the channel functions,

come up with a competitive program, and manage the reseller programs and

relationships.

&he final decision on direct or indirect is based on your business model and how you

address the Buestions above.





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Channel Manageent

(hannel sales is the overall account liaison and is primarily responsible for selling

product into distribution and the reseller channel "retail, DAOs, system integrators#.

(hannel marketing is responsible for ensuring that product in distributor and reseller

locations gets sold out. In essence (hannel sales ensures sell!in, (hannel 6arketingensures channel sell!through.

A (hannel 6arketing 6anager is typically responsible for the sell!through function.

&here are cases where a (hannel 6arketing 6anager handles all sell!in and sell throughvia the channel, and the internal sales people concentrate on selling direct!!this may vary

according to your organiation.

&his section of (hannel is primarily for the (hannel 6arketing 6anager who works in

partnership with the head of (hannel 5ales to:

. $stablish a competitive reseller program "authoriation, margins, levels, etc.#@. >elp recruit resellers

0. Prepare the proper reseller collateral. (reate reseller kits "sell sheets, product slicks, catalogs, reseller pricing, 8)O

product, distribution part numbers, contact information, reviews, etc.#,

2. 6anage reseller database and Partner Oelationship 6anagement "PO6# software

3. ointly invest the market development "6*)# and (o!op funds to increasechannel sell!through.

1. &his sell!through is accomplished through managing store, DAO and distributor

promotions "spiffs, contest, rebates, specials, training, promotions, etc.#,

/. $nsuring proper merchandising "retail only#-. $nsuring adeBuate stocking levels

N. Ounning reseller education

. 5etting up motivational contest to reward sales@. 6anage seeding programs.

&his person is also part of the marketing team and participates with Product 6arketing,

PO, the


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MARKETING CHANNEL CON4LICT

De"inition:

6arketing channel conflict can take the following forms:

6ulti!channel conflict ! occurs when two or more different marketing channels

destructively compete against each other when selling to the same market

>oriontal channel conflict ! occurs when two or more partners of the same

marketing channel destructively compete against each other.

Causes#

(hannel conflict is an e%tremely difficult and potentially destructive marketing channel

strategy and management issue.

(auses of channel conflict include:

5tructural factors ! badly designed channel structure and alignment to customer

segments. &he use of multiple channels "direct and indirect# and the inclusion of

new or emerging channels without appropriate planning, Oesource scarcity ! too many channels "or channel partners# compete for too few

customers,

9oal incompatibility ! the channel principal and channel partners have

incompatible or misaligned goals,





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Poorly defined roles and responsibilities ! the channel principal and channel

partners' roles and responsibilities are unclear or not matched to their capabilities.

(ommunications difficulties !goal incompatibility, perceptual differences and role

incongruities may be caused by communications problems,

Poor channel management ! unstructured channel management processes, such as

partner recruitment, pricing structures, incentive systems and promotional

strategies can all lead to channel conflict,


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@. $stablishing mutually agreeable and aligned business goals with the channelpartners

0. $ffective communications ! &ake every opportunity to communicate with channel

partners, eg include channel partners in business planning events. 5egment customers and align channels according to their ability to meet specific

customer segment needs

2. $ncourage specialisation among channel partners, and create customer segment

specific campaigns and align these with specific channels3. (learly define channel roles and responsibilities, and use pricing solutions,

rebates and incentives to encourage desired performance

1. *evelop specific channel products or offers which are not available to allchannels

/. (heck behavioural performance through role audits, and regularly monitor

channels for early warning signs of damaging behaviour

-. $nsure that partner agreements are clear and e%ercise your rights when necessary.

Suar%#

(hannel conflict can have many causes and result in profit erosion. >owever, not allchannel conflict is unhealthy and can be incorrectly confused with channel competition.

5ome channel conflict is a conseBuence of optimiing market reach and market

penetration.

&o manage channel conflict, it is necessary to assess whether such conflict is leading to a

fall in channel, channel partner or principal profitability.

&here are many proven strategies to deal with channel conflict based on an evaluation of

the root causes rather than the symptoms.




14. channel decisions - notes 290910

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