10292780 Channel Management

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Channel ManagementAdil Mirza

ICFAI Business School Hyedrabad


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Objective

To help you understand

the key factors that influence the channel

choice,

how a channel structure is developed

Relationship between the principle and the

intermediary Types of channels

Implications on the length of the channel


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What is a channel

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


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Why Channels

When it becomes impossible for themanufacturer to directly deal with the

consumers. Minimize transportation costs, maintain

service levels, reduction of stock holding

etc. Required to distribute your products.


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Role of the Channel

To bring the product closer to the

end user and provide him with the

knowledge, information and service asdesired by the manufacturer.


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Role of the Principal

Commitment to develop the channel

Provide support by way of service,

Information, Training and Motivation tothe channel members.


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The Factors that impact thechoice

Product

Consumer

Competition

Size and value of each sale

The area of operations

Strength of efforts required Promotional Strategy

Cost of channel


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Product

Identify where your product is on thecontinuum

Lowest in the Sales Continuum require tobe distributed widely.

Linked to Maslows theory of hierarchy of

needs - Who is the customer, who will use it,


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List

Item

Brand

Concepts/ Ideas

Consultative

Systemic

Structural

THE SELLING CONTINUUM

Channel

Driven

Direct


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Basic needs

Security

Social

PersonalAesthetic

SA

Maslow's theory of Hierarchy of needs


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The customer

What kind of service level is required.

How much technical information required.

How accessible they required the productto be.

How often do they use it? In what

quantity? What are the installation needs


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Competitor Channel strategy

Opportunity to either match or better the

competition.


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Size and value of each sale

Lower the size and value per sale, theneed for higher and uncontrollable

distribution.Costs much lower

High value and size require limited /

Controlled distribution.


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Area of operation

Wider your appeal and choice ofmarketing, wider channel required.

Also need to look at the competitivestrengths and weakness and makegeographic plans.

Keep in mind the area of operation andchoose the channel.


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Strength of channel

Who needs whom

Level of dependency


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Promotional Strategy

Push Versus Pull.

More cost for push strategy,

Efforts required by the channel is requiredsignificantly for the push strategy.

Stronger channel required.


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Cost of channel

Depending upon the efforts required

Objectives you have set up

Channel cost comprises of

- People,

- Infrastructure like Warehouse etc

- Delivery costsetc.


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Local tax laws

CST and ST

Octroi

MRP


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The 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


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TYPES OF CHANNEL

OWN

EXCLUSIVE

SHARED

COMBINATION

FRANCHISIE


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CHANNEL MEMBERS

RETAILERS/ , DIRECT SELLENIG AGENTS

WHOLESALERS STATIONERY, MOVING

LARGE RETAILER CHAINS(Foodworld,Sahakari Bhandar etc)

INSTITUTION ( CSD, INS)

DISTRIBUTORS/ STOCKISTS C&FS

SOLE SELLING AGENTS.


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Costs

Retailer - Margins, Promotions, Discounts Wholesaler Margins,Promotions,

Discounts, Distributors Margins, Promotions,Salesmen, Delivery costs

Chain stores Margins, Promotions,Discounts, Cost sharing,

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

Reasonable Returns.


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Servicing the ChannelMembers

Frequency of visit Retailer Weekly/ Fortnightly/ Monthly

Wholesaler Multiple visits Distributors Daily Monthly Institutions Weekly or Up to the time of

credit. C & Fs One a month or multiple visits Sole Selling Agents - Continuous


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Remuneration

Commission/ Margins

Incentives

Salary

Salary + Incentives

Reimbursement of costs

Salary + Incentives+ Reimbursement ofcosts


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Quality of Service

Retailer -

Whole seller

Distributor

Chain stores

Institutions

C&Fs Sole Selling Agents


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Other services

Training

Motivation

Installation

Subsidies


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Motivation

Basic Needs : Profit, Volume

Security : Stability, Growth, New

business developments. Social : Recognition in the community,

Personal : Biggest Business Man, Best,etc

Aesthetic : Stylish Office,Modern Gadgets,Computerization etc.

Self Actualization : ?


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Commodity

Retail

Wholesalers

Sub brokers

Brokers

Agents

Low margins/ High turnover Goods move direct to w/s or large

retailers from point of manufacturer.


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FMCG

Service Quality

Remuneration

Others

Retailer Weekly/Monthly

Under

Grads5 to 20% Discounts

Proms.

W/S Daily/

Month

Under

grads2 to3%

Discounts

Promss

DistributorStockists

Daily/

Monthly

Grads 5-8% TrainingMotivtn

C&FsMonthly Grads

+ Fixed+Costs

Training

SoleSellingagents

Continuos

Grads+

10 %

+

Recruiting/Training/

Motivtn


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Consumer Durables

Service Quality Renumeration Others

Own Retail Grads Salary Motivation.Training

Exclusive

Ret(Franchisee

Weekly/ Grads 5-9% Training/Proms

Retail Showroom

Daily/Monthly Grads 5-8% TrainingMotivtn

C & Fs Monthly Grads+ Fixed+

Costs

Training

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


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Non Physical Products(

Insurance)Quality Remuneration Others

Advisors Grads Salary +incentive Motivation.Training

Exclusive

DSAs

Grads Salary

+incentive

Training/

Proms

Co ownednetwork

Grads+ Salary

+incentive

Training

Motivtn


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OEMs

Original Equipment Manufacturers

Manufacturer hands over the product tochannel.

Channel then adds its own value and

markets the products.


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Vertical Integration

Downline When manufacturer movesinto the channel and sets up own outlets/

Upline When a member of the channelgets into the manufacturing and startsdistributing through channel.


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Length of Channel

Seller - Buyer Direct Zero length Seller One in between- Buyerlength of

1 Seller- Two in between Buyerlength of 2 Seller-Three in between-Buyer-length of 3 And so on. Higher the length, lesser the direct

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

marketing mix.


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Direct Marketing

Personal Selling

Net

Direct Mailers Telephonic


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ROI

RETURN ON INVESTMENT

Return X 100Investment


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Risk

Return


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Business men invest :

Time,

Efforts,

In return they expect commensurate

Return that they not only takes for todayBut also needs to fuel future growth.


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Todays opportunity :

Savings ac - 5 % FDs - 8-9%

Mutual funds- 12 15 %

Distribution line 20 30 % At least twice bank rates


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Other factors worthconsidering

Absolute amount

Other than money, that takes care of

basic needs, need for status, ability toattract other business.

Other businesses where costs are sharedand there is synergy.


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Investment

Stocks

Credit Deposits

Claims

Etc.


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Return( Income)

Sales in units * margin per unit

Interest on Deposit

Nett of discounts


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Expenses : DirectSalesmenDriver

Delivery boysDeliver costsDepreciation of vehiclesBills/ Stationery,Warehouse rent

IndirectOffice rent, electricity, telephone, other staff, accountantetc, audit fees, license fees etc.( consider appropriate contribution)


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ROI

= Gross income Expenses X 100

Total Investment

ROI is a percentage.

Multiply it by 12( if data is monthly) to getannualized ROI.


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Selecting the right partner

The one who can add value

Provide his unique local contribution

Mutually dependant Long term

Matching with the culture and values of

the principle. Mutually beneficial

10292780 Channel Management

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