MARKETING MANAGEMENT CHANNEL DECISIONS Marketing / Distribution Channels: A arketing !

hannel is a set of practices or activities necessary to transfer the ownership of goods, and to move goods, from the point of production to the point of consumption and, as such, which consists of all the institutions and 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 customi es profits, install, maintain, offer credit, etc.

An alternative term is distribution 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 the vendor#. A marketing channel can be as short as being direct from the vendor to the consumer or may 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 organi ation or set of organi ations "go!betweens# involved in the process of making a product or service available for use or consumption by a consumer or business user. &he other three parts of the marketing mi% are product, pricing, and promotion. The &istribution !hannel It is defined as a chain of intermediaries' each passing the product down the chain to the ne%t organi ation, before it finally reaches the consumer or end!user. &his process is known 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 S+ ,MS - SEM III - ACADEMIC +EAR ./(/-./(( - MMK COLLEGE (ompiled by )aculty: L. A. *+(osta ,-. -/.-0 11223 dcosta.l.a4gmail.com 5ource of (ompilation: 6arketing 6anagement 7 8. 9. :ale ; 6. Ahmed ; <eb .

MARKETING MANAGEMENT

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

Distributor, who sells to retailers, Retailer "also called dealer or reseller#, who sells to end customers Advertisement typically used for consumption goods

*istribution channels may not be restricted to physical products alone. &hey may be =ust as 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, centrali ed 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, there has been an increase in franchising and 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 out traditional 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: the cost 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 ()* CHANNEL DECISIONS S+ ,MS - SEM III - ACADEMIC +EAR ./(/-./(( - MMK COLLEGE (ompiled by )aculty: L. A. *+(osta ,-. -/.-0 11223 dcosta.l.a4gmail.com 5ource of (ompilation: 6arketing 6anagement 7 8. 9. :ale ; 6. Ahmed ; <eb @

MARKETING MANAGEMENT has been sold into the channel, into the beginning of the distribution chain, their =ob is finished. Aet 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 with the 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 ! <here the ma=ority of resellers stock the 'product' "with convenience products, for e%ample, and particularly the brand leaders in consumer goods markets# price competition may be evident. @. 5elective distribution ! &his is the normal pattern "in both consumer and industrial markets# where 'suitable' resellers stock the product. 0. $%clusive distribution ! ?nly specially selected resellers or authori ed dealers "typically only one per geographical area# are allowed to sell the 'product'. Channel oti0ation

It is difficult enough to motivate direct employees to provide the necessary sales and service support. 6otivating the owners and employees of the independent organi ations in a distribution chain reBuires even greater effort. &here are many devices for achieving such motivation. Perhaps the most usual is Cincentive': the supplier offers a better margin, to tempt the owners in the channel to push the product rather than its competitors' or compensation is offered to the distributors' sales personnel, so that they are tempted to push the product. *ent defines this incentive as a (hannel Dalue Proposition or business case, with which the supplier sells the channel member on the commercial merits of doing business together. >e describes this as selling business models not products. Monitoring an& anaging !hannels

In much the same way that the organi ation's own sales and distribution activities need to be monitored and managed, so will those of the distribution chain. In practice, many organi ations use a mi% of different channels' in particular, they may complement a direct sales force, calling on the larger accounts, with agents, covering the smaller customers and prospects. &hese channels show marketing strategies of an organi ation. $ffective management of distribution channel reBuires making and implementing decision in these areas.

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MARKETING MANAGEMENT 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 reseller can 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 to multiple resellers Ftwo tiers between you and the end user "hence the common term Gtwo! tierH distribution#I. 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 most of 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 channel conflict, since it is fine to have some conflict!!resellers may compete, and there may be some 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 special trainingJinstallationJconsulting!!hence won+t provide margins for your resellers who make money on their Kvalue added+ services. &o minimi e 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 authori ation "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 could e%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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MARKETING MANAGEMENT ?ne vendor long gone, Ashton &ate, had a terrible problem with channel conflict "they would 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 have enough 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 you have 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 early days, since most users needed more support but became effective# L. 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. ()* CHANNEL DECISIONS S+ ,MS - SEM III - ACADEMIC +EAR ./(/-./(( - MMK COLLEGE (ompiled by )aculty: L. A. *+(osta ,-. -/.-0 11223 dcosta.l.a4gmail.com 5ource of (ompilation: 6arketing 6anagement 7 8. 9. :ale ; 6. Ahmed ; <eb 2

MARKETING MANAGEMENT Channel Manage ent (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 6arketing ensures 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 through via the channel, and the internal sales people concentrate on selling direct!!this may vary according to your organi ation. &his section of (hannel is primarily for the (hannel 6arketing 6anager who works in partnership with the head of (hannel 5ales to: .. @. 0. L. $stablish a competitive reseller program "authori ation, margins, levels, etc.# >elp recruit resellers 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. Pointly invest the market development "6*)# and (o!op funds to increase channel 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 <ebmaster "for the reseller portal# and Advertising to ensure that the specific reseller needs are met.

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MARKETING MANAGEMENT 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' >ori ontal 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, 1

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MARKETING MANAGEMENT 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, <eak channel performance assessment ! channel principals fail to drive the desired channel!behaviour through clearly defined performance targets and roles. $nforcement of performance standards is weak.

1hat are

the

!onse5uen!es3

*estructive channel conflict can have serious conseBuences on channel efficiency, channel effectiveness and channel partners' and principals' profits. 5uch conseBuences lead to significant channel partner churn and low partner loyalty to principals. &hese conseBuences will lead to a negative impact on customers' purchasing behaviours. >owever, some channel conflict is desirable, provided it is well managed. A lack of hori ontal channel conflict indicates weak market coverage. <ell managed channel conflict is better defined as channel competition and is not destructive. Ho6 to anage !hannel !on"li!t#

5ome channel conflict is the result of emerging new channels such as the Internet. <hile e%cessive channel conflict can cause destructive behaviour, the solution is not in simply eliminating all channel conflict, but includes: optimi ing market coverage, and
managing conflict constructively It is necessary to determine whether the decline in channel performance is: a result of conflict with other channels, destructive to overall profitability

In

these

circumstances,

strategies

to

manage

channel

conflict

include:

.. *esigning the channel structure to reflect the productsJservices being sold, customers' needs, locations, customers' buying behaviours and the profitability of each transaction' ()* CHANNEL DECISIONS S+ ,MS - SEM III - ACADEMIC +EAR ./(/-./(( - MMK COLLEGE (ompiled by )aculty: L. A. *+(osta ,-. -/.-0 11223 dcosta.l.a4gmail.com 5ource of (ompilation: 6arketing 6anagement 7 8. 9. :ale ; 6. Ahmed ; <eb /

@. 0. L. 2. 3. 1. /.

MARKETING MANAGEMENT $stablishing mutually agreeable and aligned business goals with the channel partners' $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' $ncourage specialisation among channel partners, and create customer segment specific campaigns and align these with specific channels' (learly define channel roles and responsibilities, and use pricing solutions, rebates and incentives to encourage desired performance' *evelop specific channel products or offers which are not available to all channels' (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. Su ar%#

(hannel conflict can have many causes and result in profit erosion. >owever, not all channel conflict is unhealthy and can be incorrectly confused with channel competition. 5ome channel conflict is a conseBuence of optimi ing 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.

()* CHANNEL DECISIONS S+ ,MS - SEM III - ACADEMIC +EAR ./(/-./(( - MMK COLLEGE (ompiled by )aculty: L. A. *+(osta ,-. -/.-0 11223 dcosta.l.a4gmail.com 5ource of (ompilation: 6arketing 6anagement 7 8. 9. :ale ; 6. Ahmed ; <eb