Marketing bán hàng - Chapter 12: Designing channel systems

Chapter 12Designing Channel Systems1Learning ObjectivesUnderstanding customer needs to define channel objectivesChannel design factors, components, issues, steps and processMethod of evaluating various channel alternativesHow channel partners are: selected, trained and kept motivatedPrinciples of vertical integration and electronic channelsChannel design factors.SDM- Ch 122Tata McGraw Hill PublishingChannel Design FactorsProduct mix and nature of the productWidth and depth of market / outlet coverage plannedLong term commitments to channel partnersLevel of customer service plannedCost affordable on the channel systemChannel control requirements of the companySteps.SDM- Ch 123Tata McGraw Hill PublishingChannel Design StepsDefine customer needsClarify channel objectivesLook at alternative systems which can meet these objectivesEstimate cost of operating the channel systemEvaluate available alternativesFinalise the ‘ideal’ system Customer needs.SDM- Ch 124Tata McGraw Hill PublishingCustomer NeedsLot size – most convenient pack size which the consumer can buy at a timeWaiting time – time elapsed between the desire to buy the product and the time when he can actually buy it – should be almost zeroVariety – choice of products, brands, packsPlace utility – choice of buying where he wants. For a consumer product it has to be at a location closest to his residenceComponents SDM- Ch 125Tata McGraw Hill PublishingChannel Design ComponentsRevenue generation or the commercial partPhysical delivery of the goods or services – the logistics partThe ‘service’ part to take care of after-sales supportEach part of the system is likely to be handled by a different entity.Design issues.SDM- Ch 126Tata McGraw Hill PublishingChannel Design IssuesActivities required and who will performActivities relationship to service levelsNumber of channel members required and the relationship between categoriesRoles, responsibilities, remuneration and appraisal of performance of channel membersSDM- Ch 127Tata McGraw Hill PublishingChannel Design ProcessSegmentationDevelopmentFocusPositioningSimilar to any other marketing taskSDM- Ch 128Tata McGraw Hill PublishingSegmentationPutting customers in similar clusters based on their needsDoctors who prescribe medicinesChemists who dispense medicinesHospitals and nursing homes who use themEach segment has a different need to be serviced by the channelGives an idea to the sales manager as to the kind of channel members he should be planning for. SDM- Ch 129Tata McGraw Hill PublishingPositioning Defines the channel element required to service each of the segmentsThe sales manager decides the channel partner who is ‘ideal’ to meet the expectations of the segments.The number of each category of intermediary is also decided based on the number of customers to be serviced in each segment.The service objectives and flows for each channel partner are also frozenSDM- Ch 1210Tata McGraw Hill PublishingFocus It may not be possible to meet the needs of all segments – cost and practicality considerations (the managerial talent available for instance)The sales manager has to firmly decide which of the segments he will serviceThe competitive scenario also helps in this decisionSDM- Ch 1211Tata McGraw Hill PublishingDevelopment At this stage the channel system is being put in place to achieve the objectivesSelect the best of the alternatives Comparison with the most successful competitor could be a good benchmarkChannel partners of competitors may be willing to share best practices of their principalsFor modifying an existing channel, the gap between the ideal and the existing is to be identified for remedial action. SDM- Ch 1212Tata McGraw Hill PublishingChannel ObjectivesDefines what the channel system is supposed to do to support customer service.Customer needs could include:Lot size convenienceMinimum waiting timeVariety and assortmentPlace utilityThe product characteristics and the market profile also impact the objectives.Competition could also affect the objectivesSDM- Ch 1213Tata McGraw Hill PublishingChannel AlternativesAre planned after deciding the customer segments to be serviced and the levels of serviceBusiness intermediaries currently available like C&FAs, distributors, dealers, agents wholesalers and retailers.The number and type of intermediaries requiredDeveloping new channel typesRoles of each channel memberSDM- Ch 1214Tata McGraw Hill PublishingEvaluation of Major AlternativesCost of operationsAbility to manageand controlAdaptabilityRange and volumeto be handledCriteria for evaluationSDM- Ch 1215Tata McGraw Hill PublishingEvaluation CritieriaCost:If existing sales force can be expanded cost effectively, this is the best alternativeCost of alternatives at different volumes can only be estimated for comparison System with the lowest cost is preferredAdaptability – the channel should be flexible to handle different types of markets and changes in the market conditionsVolume and range to be handled – Capable even when business grows or expandsSDM- Ch 1216Tata McGraw Hill PublishingEvaluation CriteriaAbility to manage and control:Distribution network being an extended arm of the company, the channel partners have some obligationsOperating guidelines specify these rulesThe channel system should help the company enforce these rules fairly to all channel partnersSome of the operating rules areCompany trains channel personnel and provides proper product literatureSDM- Ch 1217Tata McGraw Hill PublishingSelecting Channel PartnersGetting good channel partners is a difficult part of doing business Some of the methods employed to select channel partners are:Sales people identify prospects and talk to themPress advertising (industrial goods)Existing channel partners can give good referencesCompetitors’ channel members for reference, not poaching SDM- Ch 1218Tata McGraw Hill PublishingSelection CriteriaQualitative: willingness, confidence in company products, willingness to abide by company rules, building company image, innovativeness etcQuantitative: financial status, infrastructure, location, present businesses, customer relationships, market standing etcSDM- Ch 1219Tata McGraw Hill PublishingTraining Channel MembersStarts from the time of recruitmentChannel member owner and his staffMarket views channel member as part of the company – he has to behave in a like manner – hence training assumes significanceTraining could be on the job field training or classroom trainingTraining is an ongoing process.Subjects..SDM- Ch 1220Tata McGraw Hill PublishingSubjects for TrainingField training on how the markets are to be worked to achieve sales, collect payments and ensure the right kind of merchandisingClass room training on company products, competition and how to tackle it to gain market sharesSpecial meetings for new product launchesSubmitting reports and maintaining recordsStatutory complianceSDM- Ch 1221Tata McGraw Hill PublishingSubjects for TrainingCare of company productsTechnical specifications and answering FAQs of customersFor technical and industrial products – recognition of specs, installation procedure, repair and maintenance and effective demonstrationsServicing of automobiles and other engineering products Motivation.SDM- Ch 1222Tata McGraw Hill PublishingMotivating Channel MembersAmbitious volume and growth targets – continuous motivation required to achieveMotivation includes:Capacity building programsTrainingPromotions supportMarketing research support Working with company personnelIncentives “power”SDM- Ch 1223Tata McGraw Hill Publishing“Power” of MotivationReward – positive supportCoercion- threat of punitive actionReferent – positive effects of associationLegitimate – enforcing a contractExpert – support of special knowledgeSupport – additional benefits for performersCompetition – pitting against peersFrench & RavenSDM- Ch 1224Tata McGraw Hill PublishingChannel Members EvaluationEffectiveness of the distribution channel determines the success of the companyCompany would like its channel partners to perform at the highest standards possibleNeed to constantly evaluate performance on sales targets, coverage, productivity, inventory holdings, attending to servicing requests etc Role of ROI..SDM- Ch 1225Tata McGraw Hill PublishingROI as a MeasureLeading FMCG companies feel that an ROI of 30% for a distributor is healthy and is a fair indication that he is performing well.If the ROI is more, additional tasks are givenIf the ROI is less, the company may provide additional supportPost evaluation tasks include counseling, retraining and motivating. In extreme cases it may result in termination.SDM- Ch 1226Tata McGraw Hill PublishingPerformance EvaluationOn pre-agreed tasks only. No surprises.Specific targets on periodical basis are set.Targets on volume and outlet productivity could be for a week or a monthTargets relating to increasing market shares or total outlet coverage could be for 6 monthsDifferent weightages could be given for each of the parameters for evaluationThe performance appraisal is open and transparentModifying a network..SDM- Ch 1227Tata McGraw Hill PublishingSteps for Modifying NetworksService level desired and willing to deliverActivities required to deliver service level, who will do it and at what costDerive ideal channel structure and compare with existing to know gaps by evaluating based on standard parameters relating to effectiveness and efficiencyAction to bridge the gaps and put modified channel system into placeDefine key performance indicators SDM- Ch 1228Tata McGraw Hill PublishingChannel Comparison Factors EfficiencyEffectivenessScalabilityFlexibilityConsistencyReliabilityIntegritySDM- Ch 1229Tata McGraw Hill PublishingNon-store RetailingSelling door-to-doorVending machinesTele-shopping networksSelling through catalogsOther forms of direct sellingElectronic channelsElectronic channelsSDM- Ch 1230Tata McGraw Hill PublishingRetailing on the InternetUnlimited assortmentItems may not be on hold No product touch or feelMore information makes the customer a better shopperComparison shopping possibleConsumer has to plan purchases aheadNo need to handle cash – payment can be on-lineShopping is 24X7Vertical integration.SDM- Ch 1231Tata McGraw Hill PublishingVertical IntegrationThis means owning the channel. The company does the work of production, branding and distribution.Downstream integration means the producer of the goods also does the distribution – Eureka Forbes, BataSDM- Ch 1232Tata McGraw Hill PublishingVertical IntegrationUpstream integration means the seller also produces the goods – private labels of modern retailers.If the organization does the work of production, branding and distribution, it is said to be vertically integrated.Vertical Integration provides better control over the distribution function Outsourcing..SDM- Ch 1233Tata McGraw Hill PublishingOutsourcing Distribution Is the most prevalent situation as:The ‘reach’ is betterThe cost may be lowerThe company can exploit the ‘core competence’ of its channel partners, which is distributionVertical integration is a choice which will become long term and cannot be easily changed once the resources have been committed.However, direct distribution (owning the channel) is still the best solution for ‘intensive’ distribution.SDM- Ch 1234Tata McGraw Hill PublishingKey LearningsThe nature of distribution channels required in different situations is based on a number of factorsChannel design takes into account all the service deliverables required by customers Intensity of distribution determines the number of intermediaries requiredDistribution can be in-house (vertical integration) or out-sourced Channel design alternatives are assessed primarily on effectiveness and efficiencySDM- Ch 1235Tata McGraw Hill PublishingKey LearningsChannel alternatives are evaluated on cost, ability to control, adaptability and capability to handle range and volume.Training of channel partners can be in the class room or on the job and is a continuous processMotivating channel partners can be done using different ‘power’ equationsThere are different formats of non-store retailing like catalogues, internet etcElectronic channels are used to sell products to consumers directly SDM- Ch 1236Tata McGraw Hill Publishing