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 M2 M3
– Positioning stage
 Service objectives at each channel element.
P1
Each segment has different expectation
– Focus stage
 Doctors in all A cat towns P2
 Chemists located in the main markets of A
towns
 Only big govt and private hospitals P3
– 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.
 Manufacturer’s 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
 Cost:
alternatives
– 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, pre-sales-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
 Location of the warehouse
– Close to a major market
– Outside octroi limits
– Should have proper road/ transport access
– Labor availability
– Utilities support
– Connected by phone
 Past experience
– As a C&FA for a similar company
– As a transporter should have access to a good warehouse
 History of past business
– 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
– Current business portfolio
– Financial strength/ asset ownership including personal assets
of partners
 Own salesforce
– No of sales people
– Qualifications, background, experience
 Current business
– Products handled, volume handled
– Should be of similar products but non-competitive
– Product quality, compatibility and complimentary
 Reputation
– Leadership in the market
– Integrity, fairness in dealings
 Market coverage
– Territory/ intensity
– Regularity, reliability
– Relationship, productivity
– Beat plan adherence
– Value of institutional business handled if any
 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
 Effortsin designing capacity building
programmes
 Training
 Promotional support
 Marketing research
 Working along with company people
 Channel power
 Referent power: Power out of eminent position
of the company
 Expert power: Power out of special knowledge of
the company
 Legitimate power: Power of legal agreement
with company
 Support power: Support in the form of
promotions, subsidies, additional help
 Competition power: Comparison with other
channel members
 Reward 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