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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 P1

Positioning stage Focus stage

M2

M3

Service objectives at each channel element. Each segment has different expectation

P2

Doctors in all A cat towns Chemists located in the main markets of A P3 towns Only big govt and private hospitals

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. Manufacturers 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 alternatives


Cost:
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, presales-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 Close to a major market Outside octroi limits Should have proper road/ transport access Labor availability Utilities support Connected by phone

Location of the warehouse

Past experience

History of past business


As a C&FA for a similar company As a transporter should have access to a good warehouse 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 Own salesforce

Current business portfolio Financial strength/ asset ownership including personal assets of partners No of sales people Qualifications, background, experience Products handled, volume handled Should be of similar products but non-competitive Product quality, compatibility and complimentary Leadership in the market Integrity, fairness in dealings Territory/ intensity Regularity, reliability Relationship, productivity Beat plan adherence Value of institutional business handled if any

Current business

Reputation

Market coverage

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


Efforts

in designing capacity building programmes Training Promotional support Marketing research Working along with company people

Channel power
Referent Expert
company company company

power: Power out of eminent position of the power: Power of legal agreement with power: Comparison with other channel

power: Power out of special knowledge of the power: Support in the form of promotions,

Legitimate Support
members

Competition Reward

subsidies, additional help

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