12 Designing Channel Systems

Designing Channel Designing Channel SystemsSystems

IntroductionIntroduction

Factors that determine the nature of Factors that determine the nature of the distribution channelthe distribution channel– Nature of the product or serviceNature of the product or service– Location and nature of the customersLocation and nature of the customers– Nature of competition and distribution Nature of competition and distribution

systemssystems– Intensity of distribution requiredIntensity of distribution required– Nature of the markets being targetedNature of the markets being targeted

1.1. Channel Stages in channel Channel Stages in channel planningplanning – Segmentation stageSegmentation stage

Pharma company segments: Doctors/ Pharma company segments: Doctors/ Chemists/ Hospitals and nursing homesChemists/ Hospitals and nursing homes

– Positioning stagePositioning stage Service objectives at each channel Service objectives at each channel

element. Each segment has different element. Each segment has different expectationexpectation

– Focus stageFocus stage Doctors in all A cat townsDoctors in all A cat towns Chemists located in the main markets of A Chemists located in the main markets of A

townstowns Only big govt and private hospitalsOnly big govt and private hospitals

– Developing the right channel Developing the right channel alternativealternative Modifications required to make it an ideal Modifications required to make it an ideal

channelchannel

Channel design and planning Channel design and planning processprocess

M1 M2 M3

P1

P2

P3

2.2. Defining the customer needsDefining the customer needs– Lot sizeLot size

Toothpaste pack sizes, Wheat flour packs, Motor Toothpaste pack sizes, Wheat flour packs, Motor with horse powerwith horse power

– Waiting timeWaiting time Difference of “Desire to purchase” Difference of “Desire to purchase”

– Choice to the consumerChoice to the consumer Variety and assortmentsVariety and assortments

– Place utilityPlace utility– Service supportService support

Sales support for maintenance and repairSales support for maintenance and repair Installation and trainingInstallation and training CreditCredit Home deliveryHome delivery Regular service follow upsRegular service follow ups


Designing channel objectivesDesigning channel objectives– Industrial products require Industrial products require direct-marketingdirect-marketing by by

the companythe company– Consumer products should be available in Consumer products should be available in large large

no of outletsno of outlets– Frozen desert and ice-cream products need Frozen desert and ice-cream products need cold cold

storage facilitiesstorage facilities– Seeds selling will need Seeds selling will need ruralrural distribution distribution– Multi level marketing will require their distributors Multi level marketing will require their distributors

to appoint further distributorsto appoint further distributors


Channel Alternatives studyChannel Alternatives study– Business intermediaries currently availableBusiness intermediaries currently available– The no and type of intermediaries requiredThe no and type of intermediaries required– Any new member to be specially developedAny new member to be specially developed– Roles of each channel memberRoles of each channel member


Cost of channel systemCost of channel system– Margins of the channel partnersMargins of the channel partners– Cost of transportation of goods between the co Cost of transportation of goods between the co

and the end userand the end user– Cost of order booking and executionCost of order booking and execution– Cost of stock returns/ date expired stocks Cost of stock returns/ date expired stocks

taken backtaken back– Cost of reverse logistics required (getting Cost of reverse logistics required (getting

empties back)empties back)


Current intermediariesCurrent intermediaries– Ready channel partners may be already Ready channel partners may be already

available. These can be further utilizedavailable. These can be further utilized Distributors or redistribution: stockiest of some other Distributors or redistribution: stockiest of some other

companiescompanies C&F agents: can be further utilized for collections C&F agents: can be further utilized for collections

and other workand other work Logistics service providers: will undertake Logistics service providers: will undertake

distribution activities.distribution activities. Manufacturer’s agents, stockiest, guarantors provide Manufacturer’s agents, stockiest, guarantors provide

financial supportfinancial support Financial agencies can be used to finance your Financial agencies can be used to finance your

customers.customers.


Number of intermediariesNumber of intermediaries– Should be adequate for expected Should be adequate for expected

coverage of the target markets at the coverage of the target markets at the same time should not be too much to same time should not be too much to dilute the effort and add to the costs.dilute the effort and add to the costs.

– Its not easy to get rid of channel Its not easy to get rid of channel membersmembers


Evaluation of Major Evaluation of Major alternativesalternatives Cost:Cost:

– Every channel will have different costs associated withEvery channel will have different costs associated with Ability to manage and controlAbility to manage and control

– Considering coverage, frequency, productivity, Considering coverage, frequency, productivity, inventory, credit, merchandising, distribution, inventory, credit, merchandising, distribution, promotions, after-sales-service, pre-sales-sales, channel promotions, after-sales-service, pre-sales-sales, channel salespeople, stock pointssalespeople, stock points

AdaptabilityAdaptability– Sensitivity of channel to addition, elimination of Sensitivity of channel to addition, elimination of

products, additional service, new territory coverage, products, additional service, new territory coverage, generating leads, handling price change, stock rationinggenerating leads, handling price change, stock rationing

Range and volume to be handledRange and volume to be handled– Ability to handle large range of products and volumes. Ability to handle large range of products and volumes.

Selecting channel partnersSelecting channel partners Selecting Carrying and Forwarding agentSelecting Carrying and Forwarding agent

Location of the partyLocation of the party– In or close to main market of the companyIn or close to main market of the company

Location of the warehouseLocation of the warehouse– Close to a major marketClose to a major market– Outside octroi limitsOutside octroi limits– Should have proper road/ transport accessShould have proper road/ transport access– Labor availabilityLabor availability– Utilities supportUtilities support– Connected by phoneConnected by phone

Past experiencePast experience– As a C&FA for a similar companyAs a C&FA for a similar company– As a transporter should have access to a good As a transporter should have access to a good

warehousewarehouse History of past businessHistory of past business

– Should have handled similar but non-competing Should have handled similar but non-competing companiescompanies

– Ability to maintain confidentiality of transactionsAbility to maintain confidentiality of transactions

Selecting channel partnersSelecting channel partners Selecting Carrying and Forwarding agentSelecting Carrying and Forwarding agent

Financial strengthFinancial strength– To handle all operating expenses till re-imbursementTo handle all operating expenses till re-imbursement– InsuranceInsurance

IT capabilityIT capability– Adequate own hardwareAdequate own hardware– Trained staff to handle simple programmes and Trained staff to handle simple programmes and

repairing formatsrepairing formats FlexibilityFlexibility

– In operating hours dailyIn operating hours daily– To handle peak loadsTo handle peak loads

Transportation facilitiesTransportation facilities– Reliability, consistency in source of vehiclesReliability, consistency in source of vehicles– Additional volumes to be handled at short noticeAdditional volumes to be handled at short notice

Attitude, commitmentAttitude, commitment– To be of the highest order/ positiveTo be of the highest order/ positive– Willing to expand the businessWilling to expand the business– DisciplinedDisciplined

..conti

Selecting channel partnersSelecting channel partners Selecting DistributorSelecting Distributor Size of the channel partnerSize of the channel partner

– Current business portfolioCurrent business portfolio– Financial strength/ asset ownership including personal assets Financial strength/ asset ownership including personal assets

of partnersof partners Own salesforceOwn salesforce

– No of sales peopleNo of sales people– Qualifications, background, experienceQualifications, background, experience

Current businessCurrent business– Products handled, volume handledProducts handled, volume handled– Should be of similar products but non-competitiveShould be of similar products but non-competitive– Product quality, compatibility and complimentaryProduct quality, compatibility and complimentary

ReputationReputation– Leadership in the marketLeadership in the market– Integrity, fairness in dealingsIntegrity, fairness in dealings

Market coverageMarket coverage– Territory/ intensityTerritory/ intensity– Regularity, reliabilityRegularity, reliability– Relationship, productivityRelationship, productivity– Beat plan adherenceBeat plan adherence– Value of institutional business handled if anyValue of institutional business handled if any

Selecting channel partnersSelecting channel partners Selecting DistributorSelecting Distributor Credit extended in the marketCredit extended in the market

– % of outlets% of outlets– & of current business& of current business– Bad debts, if anyBad debts, if any

Stock distributionStock distribution– Ready stocks or order bookingReady stocks or order booking

Infrastructure availabilityInfrastructure availability– WarehouseWarehouse– Distribution vansDistribution vans– Hardware/ personal computers/ connectivityHardware/ personal computers/ connectivity

Sales performanceSales performance– On current businessOn current business– Awards, prizes, certificates won on performanceAwards, prizes, certificates won on performance

Management of businessManagement of business– Educational backgroun, qualification of partmenrsEducational backgroun, qualification of partmenrs

Market workingMarket working– Efforts on merchandising, displaysEfforts on merchandising, displays

Handling sales promotionsHandling sales promotions– Past experiencePast experience

Inventory managementInventory management– Adherence to stock norms recommended by the companyAdherence to stock norms recommended by the company

Change of channel membersChange of channel members Why to change channel members?Why to change channel members?

Training channel membersTraining channel members On the job trainingOn the job training Class room trainingClass room training Special meetings to launch new productsSpecial meetings to launch new products Training on submitting reportsTraining on submitting reports Statutory requirementsStatutory requirements Product related responsibilities of channel membersProduct related responsibilities of channel members Training on technicalitiesTraining on technicalities Training on specifications, installments, repair and Training on specifications, installments, repair and

maintenancemaintenance Training on after sales serviceTraining on after sales service

Motivating channel partnersMotivating channel partners

Efforts in designing capacity building Efforts in designing capacity building programmesprogrammes

TrainingTraining Promotional supportPromotional support Marketing researchMarketing research Working along with company peopleWorking along with company people

Channel powerChannel power Referent power:Referent power: Power out of eminent position Power out of eminent position

of the companyof the company

Expert power: Expert power: Power out of special knowledge of Power out of special knowledge of the companythe company

Legitimate power: Legitimate power: Power of legal agreement Power of legal agreement with companywith company

Support power: Support power: Support in the form of Support in the form of promotions, subsidies, additional helppromotions, subsidies, additional help

Competition power:Competition power: Comparison with other Comparison with other channel memberschannel members

Reward power: Reward power: Incentives, special incentivesIncentives, special incentives

Coercive power:Coercive power: Power of ‘threat’Power of ‘threat’

Channel design comparison Channel design comparison factorsfactors

While comparing two channels,While comparing two channels,– EfficiencyEfficiency:: Input versus output Input versus output

– Effectiveness:Effectiveness: How well channel meets its How well channel meets its objectivesobjectives

– CapacityCapacity: : How effectively channel can handle How effectively channel can handle changes in volumechanges in volume

– Agility: Agility: How well can channel handle changing How well can channel handle changing demand patterndemand pattern

– Consistency: Consistency: of performanceof performance

– Reliability:Reliability: Commitment on performanceCommitment on performance

– Integrity:Integrity: Is the channel fair Is the channel fair

Channel design implementationChannel design implementation

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

Define criteria for appointment of channel partners

List down reports, records and frequency from each channel partner

Vertical integration- Owing the Vertical integration- Owing the channelchannel

Own the channel or outsource?Own the channel or outsource? How much of vertical integration?How much of vertical integration? Why vertical integrationWhy vertical integration Outsourcing distributionOutsourcing distribution

Channel Information SystemChannel Information System

Documents

12 Designing Channel Systems