designing channel systems part 2

7/31/2019 Designing Channel Systems Part 2

1/21

Designing ChannelDesigning Channel

SystemsSystems


2/21

IntroductionIntroduction

Factors that determine the nature of theFactors that determine the nature of the

distribution channeldistribution channel

Nature of the product or serviceNature of the product or service

Location and nature of the customersLocation and nature of the customers

Nature of competition and distributionNature of competition and distribution

systemssystems

Intensity of distribution requiredIntensity of distribution required

Nature of the markets being targetedNature of the markets being targeted


3/21

1.1. Channel Stages in channel planningChannel Stages in channel planning

Segmentation stageSegmentation stage Pharma company segments: Doctors/Pharma company segments: Doctors/Chemists/ Hospitals and nursing homesChemists/ Hospitals and nursing homes

Positioning stagePositioning stage Service objectives at each channel element.Service objectives at each channel element.

Each segment has different expectationEach segment has different expectation

Focus stageFocus stage Doctors in all A cat townsDoctors in all A cat towns

Chemists located in the main markets of AChemists located in the main markets of A

townstowns Only big govt and private hospitalsOnly big govt and private hospitals

Developing the right channel alternativeDeveloping the right channel alternative Modifications required to make it an idealModifications required to make it an ideal

channelchannel

Channel design and planning processChannel design and planning process

M1 M2 M3

P1

P2

P3


4/21

2.2. Defining the customer needsDefining the customer needs Lot sizeLot size

Toothpaste pack sizes, Wheat flour packs, Motor with horseToothpaste pack sizes, Wheat flour packs, Motor with horsepowerpower

Waiting timeWaiting time Difference of Desire to purchaseDifference of Desire to purchase

Choice to the consumerChoice to the consumer Variety and assortmentsVariety and assortments

Place utilityPlace utility

Service supportService support

Sales support for maintenance and repairSales support for maintenance and repair Installation and trainingInstallation and training

CreditCredit

Home deliveryHome delivery

Regular service follow upsRegular service follow ups



5/21

Designing channel objectivesDesigning channel objectives

Industrial products requireIndustrial products require direct-marketingdirect-marketing by theby thecompanycompany

Consumer products should be available inConsumer products should be available in large no oflarge no of

outletsoutlets

Frozen desert and ice-cream products needFrozen desert and ice-cream products need cold storagecold storagefacilitiesfacilities

Seeds selling will needSeeds selling will need ruralrural distributiondistribution

Multi level marketing will require their distributors toMulti level marketing will require their distributors to

appoint further distributorsappoint further distributors



6/21

Channel Alternatives studyChannel Alternatives study

Business intermediaries currently availableBusiness intermediaries currently available The no and type of intermediaries requiredThe no and type of intermediaries required

Any new member to be specially developedAny new member to be specially developed

Roles of each channel memberRoles of each channel member



7/21

Cost of channel systemCost of channel system Margins of the channel partnersMargins of the channel partners

Cost of transportation of goods between the co andCost of transportation of goods between the co and

the end userthe end user

Cost of order booking and executionCost of order booking and execution

Cost of stock returns/ date expired stocks taken backCost of stock returns/ date expired stocks taken back

Cost of reverse logistics required (getting emptiesCost of reverse logistics required (getting empties

back)back)



8/21

Current intermediariesCurrent intermediaries

Ready channel partners may be already available.Ready channel partners may be already available.These can be further utilizedThese can be further utilized Distributors or redistribution: stockiest of some otherDistributors or redistribution: stockiest of some other

companiescompanies

C&F agents: can be further utilized for collections and otherC&F agents: can be further utilized for collections and otherworkwork

Logistics service providers: will undertake distributionLogistics service providers: will undertake distribution

activities.activities.

Manufacturers agents, stockiest, guarantors provideManufacturers agents, stockiest, guarantors provide

financial supportfinancial support Financial agencies can be used to finance your customers.Financial agencies can be used to finance your customers.



9/21

Number of intermediariesNumber of intermediaries

Should be adequate for expected coverage ofShould be adequate for expected coverage of

the target markets at the same time shouldthe target markets at the same time should

not be too much to dilute the effort and addnot be too much to dilute the effort and add

to the costs.to the costs. Its not easy to get rid of channel membersIts not easy to get rid of channel members



10/21

Evaluation of Major alternativesEvaluation of Major alternatives Cost:Cost:

Every channel will have different costs associated withEvery channel will have different costs associated with

Ability to manage and controlAbility to manage and control

Considering coverage, frequency, productivity, inventory, credit,Considering coverage, frequency, productivity, inventory, credit,

merchandising, distribution, promotions, after-sales-service, pre-merchandising, distribution, promotions, after-sales-service, pre-

sales-sales, channel salespeople, stock pointssales-sales, channel salespeople, stock points

AdaptabilityAdaptability Sensitivity of channel to addition, elimination of products,Sensitivity of channel to addition, elimination of products,

additional service, new territory coverage, generating leads,additional service, new territory coverage, generating leads,

handling price change, stock rationinghandling price change, stock rationing

Range and volume to be handledRange and volume to be handled

Ability to handle large range of products and volumes.Ability to handle large range of products and volumes.


11/21

Selecting channel partnersSelecting channel partners Selecting Carrying and Forwarding agentelecting Carrying and Forwarding agent Location of the partyLocation of the party

In or close to main market of the companyIn or close to main market of the company

Location of the warehouseLocation of the warehouse Close to a major marketClose to a major market Outside octroi limitsOutside octroi limits Should have proper road/ transport accessShould have proper road/ transport access Labor availabilityLabor availability Utilities supportUtilities support Connected by phoneConnected by phone

Past experiencePast experience As a C&FA for a similar companyAs a C&FA for a similar company As a transporter should have access to a good warehouseAs a transporter should have access to a good warehouse

History of past businessHistory of past business Should have handled similar but non-competing companiesShould have handled similar but non-competing companies Ability to maintain confidentiality of transactionsAbility to maintain confidentiality of transactions


12/21

Selecting channel partnersSelecting channel partners Selecting Carrying and Forwarding agentelecting Carrying and Forwarding agent Financial strengthFinancial strength

To handle all operating expenses till re-imbursementTo handle all operating expenses till re-imbursement InsuranceInsurance

IT capabilityIT capability Adequate own hardwareAdequate own hardware

Trained staff to handle simple programmes and repairingTrained staff to handle simple programmes and repairingformatsformats

FlexibilityFlexibility In operating hours dailyIn operating hours daily To handle peak loadsTo handle peak loads

Transportation facilitiesTransportation facilities Reliability, consistency in source of vehiclesReliability, consistency in source of vehicles Additional volumes to be handled at short noticeAdditional volumes to be handled at short notice

Attitude, commitmentAttitude, commitment To be of the highest order/ positiveTo be of the highest order/ positive Willing to expand the businessWilling to expand the business DisciplinedDisciplined

..conti


13/21

Selecting channel partnersSelecting channel partners Selecting Distributorelecting Distributor Size of the channel partnerSize of the channel partner

Current business portfolioCurrent business portfolio

Financial strength/ asset ownership including personal assets of partnersFinancial strength/ asset ownership including personal assets of partners Own salesforceOwn salesforce

No of sales peopleNo of sales people Qualifications, background, experienceQualifications, background, experience

Current businessCurrent business

Products handled, volume handledProducts handled, volume handled Should be of similar products but non-competitiveShould be of similar products but non-competitive Product quality, compatibility and complimentaryProduct quality, compatibility and complimentary

ReputationReputation Leadership in the marketLeadership in the market Integrity, fairness in dealingsIntegrity, fairness in dealings

Market coverageMarket coverage Territory/ intensityTerritory/ intensity Regularity, reliabilityRegularity, reliability Relationship, productivityRelationship, productivity Beat plan adherenceBeat plan adherence Value of institutional business handled if anyValue of institutional business handled if any


14/21

Selecting channel partnersSelecting channel partners Selecting Distributorelecting Distributor Credit extended in the marketCredit extended in the market

% of outlets% of outlets

& of current business& of current business Bad debts, if anyBad debts, if any

Stock distributionStock distribution Ready stocks or order bookingReady stocks or order booking

Infrastructure availabilityInfrastructure availability WarehouseWarehouse

Distribution vansDistribution vans Hardware/ personal computers/ connectivityHardware/ personal computers/ connectivity

Sales performanceSales performance On current businessOn current business Awards, prizes, certificates won on performanceAwards, prizes, certificates won on performance

Management of businessManagement of business Educational backgroun, qualification of partmenrsEducational backgroun, qualification of partmenrs

Market workingMarket working Efforts on merchandising, displaysEfforts on merchandising, displays

Handling sales promotionsHandling sales promotions Past experiencePast experience

Inventory managementInventory management Adherence to stock norms recommended by the companyAdherence to stock norms recommended by the company


15/21

Change of channel membersChange of channel members

Why to change channel members?Why to change channel members?

Training channel membersTraining channel members On the job trainingOn the job training

Class room trainingClass room training Special meetings to launch new productsSpecial meetings to launch new products

Training on submitting reportsTraining on submitting reports

Statutory requirementsStatutory requirements

Product related responsibilities of channel membersProduct related responsibilities of channel members Training on technicalitiesTraining on technicalities

Training on specifications, installments, repair and maintenanceTraining on specifications, installments, repair and maintenance

Training on after sales serviceTraining on after sales service


16/21

Motivating channel partnersMotivating channel partners

Efforts in designing capacity buildingEfforts in designing capacity building

programmesprogrammes

TrainingTraining

Promotional supportPromotional support

Marketing researchMarketing research

Working along with company peopleWorking along with company people


17/21

Channel powerChannel power

Referent power:Referent power: Power out of eminent position of thePower out of eminent position of thecompanycompany

Expert power:Expert power: Power out of special knowledge of thePower out of special knowledge of thecompanycompany

Legitimate power:Legitimate power: Power of legal agreement withPower of legal agreement withcompanycompany

Support power:Support power: Support in the form of promotions,Support in the form of promotions,subsidies, additional helpsubsidies, additional help

Competition power:Competition power: Comparison with other channelComparison with other channelmembersmembers

Reward power:Reward power: Incentives, special incentivesIncentives, special incentives

Coercive power:Coercive power:Power of threatPower of threat


18/21

Channel design comparison factorsChannel design comparison factors

While comparing two channels,While comparing two channels,

EfficiencyEfficiency:: Input versus outputInput versus output

Effectiveness:Effectiveness:How well channel meets its objectivesHow well channel meets its objectives

CapacityCapacity:: How effectively channel can handle changes inHow effectively channel can handle changes involumevolume

Agility:Agility: How well can channel handle changing demandHow well can channel handle changing demandpatternpattern

Consistency:Consistency: of performanceof performance

Reliability:Reliability: Commitment on performanceCommitment on performance

Integrity:Integrity: Is the channel fairIs the channel fair

Channel design implementationC anne design imp ementation


19/21

Channel design implementationC anne design imp ementation

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

Define criteria for appointment of channel partners

List down reports, records and frequency from each channel partner


20/21

Vertical integration- Owing the channelVertical integration- Owing the channel

Own the channel or outsource?Own the channel or outsource?

How much of vertical integration?How much of vertical integration? Why vertical integrationWhy vertical integration

Outsourcing distributionOutsourcing distribution


21/21

Channel Information SystemChannel Information System

designing channel systems part 2

Documents