Success Strategies in Channel
Management
Channel Design and
Implementation
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Channel Design and
Implementation
Channel Access Formats
Sec3.1.ppt
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Channel Design
and
Implementation
Channel Design:
Segmentation
Channel
Selection
Channels Type
Options
Establish New
Channels or
Refine Existing
Channels?
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Channel Design and
Implementation
What is the best marketing channel
for a particular value offer?
The marketing channel challenge
involves two major tasks:
(1) to design the right channel and
(2) to implement that design.
The design step involves segmenting
the market, identifying optimal
positioning responses to segments'
demands, targeting the segments on
which to focus the channel's efforts,
and establishing or refining (the
channels to manage in the
marketplace.
The implementation step requires an
understanding of each channel
member's sources of power and
dependence, an understanding of the
potential for channel conflict, and a
resulting plan where the optimal
channel design can be effectively
executed on an ongoing basis..
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Channel Management
Schematic
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Channel Design: Segmentation
One of the fundamental principles
of marketing is the segmentation
and targeting of the market.
A marketing channel is more than
just a conduit for products. It is
also a means of adding value to the
offer marketed through it. These
value-added services created by
channel members and consumed
by end-users along with the
product purchased are called
service outputs.
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Channel Selection
Producers typically develop multi channel distribution
systems in which there is some mix of direct supply – sales
force, independent distributors, captive distributors, and
MRs with one or more representing the dominant
channel(s) in each market segment.
The channels mix depends largely on market segment
profiles.
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Channel Design: Targeting
Channel Design: Positioning
At this stage of the analysis,
the channel manager needs
to decide what segments to
target.
When the market has been segmented
into groups of end-users, and the best
options targeted, the channel manager
should next define the optimal
channel to serve each segment. We
call this exercise positioning or
configuring the channel
The optimal channel is defined first
and foremost by the necessary
channel flows that must be
performed in order to generate the
specific segment's service output
demands. Channel flows are all the
activities of the channel that add
value to the end-user.
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Positioning
Further, the channel analyst must identify
the optimal channel structure to produce the
necessary channel flows. The design of the
channel structure involves two main
elements.
First, the channel designer must decide who
are to be the members of the channel.
Moving up the channel from the retail level,
decisions must be made whether to use
independent distributors, independent sales
representative companies, independent
trucking companies, financing companies, and
any of a whole host of other possible
independent distribution channel members.
Beyond this decision, the channel manager
must also decide which channel partners to
use at each level of the channel.
The other main element of the
channel structure is the decision of
how many of each type of channel
member will be in the channel.
This is the channel intensity
decision.
The channel structure decisions of
type, identity, and intensity of
channel members all should be
made with the minimization of
channel flow costs in mind. That is,
each channel member is allocated a
set of channel flows to perform,
and ideally the allocation of
activities results in the reliable
performance of all channel flows at
minimum total cost.
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Channels Type Options
In addition to choosing the types of
channels through which to go to
market, producers make critical
choices on three other dimensions
of channels strategy:
(1) distribution intensity, that is the
number of intermediaries in a
trading area;
(2) where in the system different
distribution functions will be
performed; and
(3) the terms and conditions of the
distribution arrangement.
The level of distribution intensity is
an important strategic choice.
How many resellers should there
be in a local market? There are
three considerations:
The first is the level of channels
investments needed - and in
specialised resources such as
equipment and personnel - to
service the line.
User purchasing behaviour is the
second consideration.
The third consideration in
planning distribution intensity is
the volume of available business in
an area.
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Establish New Channels or Refine Existing
Channels?
If no channel exists currently in the
market for this segment, the
channel manager should now
establish the channel design that
comes the closest to meeting the
target market's demands for
service outputs, subject to the
environmental and managerial
bounds constraining the design.
If there is a pre-existing channel in
place in the market, however, the
channel manager should now
perform a gap analysis.
The concept of interdependence is
critical to remember. Because of
the extreme interdependence of all
channel members and the value of
specialization in channels, attention
must be paid to all the design and
management elements to ensure an
effective marketing channel effort.
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Direct Supply.
The conditions that foster a
predominantly direct sales
distribution system are
(1) a high concentration of buyers,
(2) a large dollar amount of
individual purchase transactions,
and
(3) greater needs of buyers for
technical product information or
for product customisation.
Buyer concentration and transaction
size affect sales costs directly. In
trading off the costs of supporting a
direct sales force against giving
distributors a percentage margin,
producers often realise higher net
returns in selling directly to large
accounts as opposed to selling through
distributors.
If sales costs relative to transaction size
permit the use of direct selling, there
are other advantages in this mode of
distribution.
Product advocacy is one. The
producer's sales representatives are
typically motivated to compete
aggressively to win the sale. Another
advantage is negotiating strength. A
direct sales relationship with the usercustomer facilitates the negotiation of
terms of sale.
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Independent Distributors.
The conditions that support a high
proportion of reseller distribution
are
(1) widely dispersed and
fragmented markets,
(2) low transaction amounts, and
(3) bundled purchase behaviour,
that is, the buyer's propensity to
purchase a number of items, often
different brands, in one
transaction.
The essential consideration in
selecting a particular type of
distribution channel is the
channel's ability to serve the needs
of the target end-market.
Buyer needs vary considerably by
market segment, and the resellers
that serve these clusters of buyers
tend to shape their own value
offerings in response to the
distinctive requirements of their
customers.
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Captive Distribution.
While a captive distribution
network in a multi channel
distribution system is a source of
marketing strength, it remains the
subject of considerable
controversy, both within the
producer firm and among other
elements in the distribution system.
Often, captive branches are
established in geographic markets
where the producer is unable to
recruit qualified independent
resellers.
On the other hand, captive
distribution arms sometimes
compete directly with other
channels elements, both
independent resellers and the
company's direct sales force.
Maintaining a captive distribution
network may come at some cost in
enlisting the full support of other
intermediaries.
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Manufacturers Reps.
The three conditions that lead
toward the use of agents are the
same as those which favour direct
sales:
(1) concentrated markets,
(2) large individual transactions,
and
(3) buyers' needs for technical
support and/or product
customisation.
An MR (agent) network tends to be
favoured over direct selling if resources
are not available to cover the fixed
overheads associated with a direct sales
force - salesperson salaries and
expenses, sales administration, and
other overheads.
Still another reason for using agents is
that the product line is simply not
broad enough to provide the base for
supporting a direct sales operation, yet
the product requires technical selling.
Thus, in recruiting MRs as agents,
producers may seek a market segment
or product application expertise that is
not present in their own sales
organisations.
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Corporate, Administered and Contractual
Channels
A corporate channel is a centrally
owned and operated vertical
marketing system that is
programmed for concerted action
and the achievement of certain
economies.
An administered channel is one in
which an agent is able to exercise
administrative control over a
vertical network by dint of its
economic power.
A contractual channel is one in
which independent firms have
joined together on a contractual
basis to achieve buying and selling
power through combination.
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Six Steps in a Distribution Strategy
1. Find good partners.
2. Seek a distinctive market position.
3. Identify available alternative distribution routes. Also
consider alternatives to present channels.
4. Focus your distribution resources. The market is too big
for a shotgun approach.
5. Prepare for a long-term effort.
6. Cultivate personal relationships in distribution.
Remember, loyalty and trust are important.
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