The Importance of Marketing channels & Distribution channels

What is the importance of Marketing channels and distribution? But before we discuss the importance of these we should first define what is marketing channel and distribution. Marketing channel is a series of ways or activities needed essentially to transfer the ownership of goods, and to move goods, from the point of production to the point of consumption. This consists of the institutions and all the marketing activities in the marketing process. The distribution channel on the other hand is defined as a chain of intermediaries, each passing the product down the chain to the next organization, before it finally reaches the consumer or end-user. This process is known as the distribution chain or the channel. Each of the elements in these chains will have their own specific needs, which theproducemusttakeintoaccount,along with those of the all-important end-user. Distribution is one of the most important features that one must consider in undertaking even a simple marketing. Distribution (Place) is the fourth traditional element of the marketing mix. The other three are Product, Price and Promotion. It is one of the fundamental factors specifically the 4Ps that marketers should master in marketing. Distribution channels are very important because these distribution channels are the ones who help and simplify how every consumer gets their needed and wanted products. Let me expound more on the nature of distribution channels, Most businesses use third parties or intermediaries to bring their products to market. They try to forge a distribution channel which can be defined as a passage where all the organizations products must go through between its point of production and consumption. I being a marketing student cant help myself but ask why we need this intermediaries using intermediaries means giving up some control over how products are sold and who they are sold to. The answer lies in efficiency of distribution costs. Intermediaries are specialists in selling. They have the contacts, experience and scale of operation which means that greater sales can be achieved than if the producing business tried run a sales operation itself. Another important thing we should learn is that even though the distribution channel may sound simple, it can be very complicated especially with the ever-changing demands of the market. A simple one way distribution channel can change drastically to multiple channels instantly. Marketing plan now has to be versatile and should not be directed toward one market but should have a wide outlook for every distribution channel. There are six factor that is very important: The trade channels price-value positioning; The trade-channels merchandise display; The trade channels delivery needs; The trade channels preferred advertising and promotion method; The trade channels packaging need; and lastly The channels core versus noncore product. Each of these must be carefully studied and take into consideration seriously by anyone doing marketing because this is now a reality rather than mere point of views. Marketing channel is also very important for marketers, organizations and businesses because, how does one get his products and services efficiently to consumers that are willing to pay for it? Marketing channels illustrate the organizations that work to get her to get your product and service to the end-user. Many producers of products and services do not sell directly to their end users. They use a marketing channel. In its most basic form, a marketing channel performs the work of moving goods from producers to consumers. A marketing channel includes one or more marketing intermediaries who perform a variety of functions. Each channel member: Provides value, performs a function and expects an economic return. Marketing channel often speak about the sale of products. However, it is not limited to the distribution of physical goods. Providers of services and ideas also benefit from marketing channel. Marketing channels offer better services at costs lower than offerings without the assistance of channel members. Organizations can achieve differentiation through their distribution channels. Each of these channels may offer different coverage, skill, and performance. They may also realize economies of scale that channels of distribution often offer. Marketing channel decisions are among the most critical decisions facing an organization. The chosen channels closely affect all other marketing decisions. The organizations pricing

depends on whether it uses mass merchandisers or high-quality boutiques. The firms sales force and advertising decisions depend on how much training and motivation the dealers need. Marketing channel intermediaries exist because they offer value in making goods and services more available and accessible to the targeted markets. Channel intermediaries offer contacts, experience, specialization, and economies of scale to organizations that cannot offer these attributes on their own. Marketing channels allow producers to realize the benefits that only larger organizations may be able to support. Each channel intermediary provides value that is very much needed for a marketing channel to operate successfully. In order for a marketing channel to successfully run each channel members must effectively execute their parts well. Distribution and marketing Channels are very important because they are the ones who help us find the products and services that we greatly need.

Distribution Introduction
Producing something that consumers would like to buy is only part of the story; people can only buy products that are available and easily obtained. In terms of the seven Ps distribution is the means by which place is determined. Marketers therefore spend considerable effort on finding the right channels of distribution, and on ensuring that the products reach consumers in the most efficient way. In business-to-business marketing, distribution is often the real key to success. Business buyers may buy through agents or wholesalers rather than direct from producers, so that tapping into a good distribution network is the most important step a company can take.

Distribution strategies are concerned with the channels that a company may engage to make its goods and services available to consumers. Channels are the organized structures of buyers and sellers that bridge the gap of time and space between manufacturer and the customer. There are hundreds of ways goods and services can be distributed to customer. These may be identified from direct bulk shipments in railcars or pipelines to the use of complex arrangements of brokers, wholesalers, and retailers. No single distribution satisfies the needs of every firm, and many organizations use several channels to reach different market segments. A paper mill, for example may contact large users directly, whereas independent wholesalers service smaller customers. Distribution channels help conquer the time and distance intervals that divide users from the merchandise they need. Channel members initiate and complete many of the following vital activities: Communication: Dispense product information to customers and report on market potentials, competitors, and market conditions Bargaining: Negotiate agreements on prices and terms with potential Reordering: Transmit orders for merchandising back to manufacturers Financing: Acquire funds to finance inventories and distribution facilities Maintain inventories: Assume the risk of storage and movement of the channel. Cash settlements: Collect money from buyers and deliver it to sellers.

Ownership: Transfer title for goods and services from one firm to another

Some of these activities flow forward (title, inventories) and some move backward (ordering, market data). All of them need to be performed by someone who does the work of distribution depending on the costs different channels and the efficiencies of specialization. If the manufacturer assumes these functions, the selling prices must be adjusted to cover the costs.

Distribution is one of the four elements of the marketing mix, the other three being product, pricing and promotion. This marketing mix is also referred to as the four Ps of marketing; distribution is here called physical distribution or place. Simply put, distribution is the process of delivering the products manufactured or service provided by a firm to the end user. Various intermediaries are involved in this process. This chain of intermediaries which helps in transferring the product from one intermediary to the next before it reaches the end user is called the Distribution Chain or Distribution Channel. Each intermediary has a specific role and need which the marketer caters to. Distribution channels are not limited to products only even the services provided by a producer may pass through this channel and reach the customer. Both direct and indirect channels come into use in this case. For instance, the hotel industry provides facility for lodging to its customers, which is a non-physical commodity or a service. The hotel may provide rooms on direct booking as well as through indirect channels like tour operators, travel agents, airlines etc. Distribution chain has seen several improvements in the form of franchising. Also there has been link ups between two service sectors like travel and tourism which has made services available more accessible to the customer. For instance hotels also provide cars on rent.

Distribution Channels
Distribution channels move products and services from businesses to consumers and to other businesses. Also known as marketing channels, channels of distribution consist of a set of interdependent organization such as wholesalers, retailers, and sales agents involved in making a product or service available for use or consumption. Distribution channels are just one component of the overall concept of distribution networks, which are the real, tangible systems of interconnected sources and destinations through which products pass on their way to final consumers. As Howard J. Weiss In short, distribution describes all the logistics involved and Mark E. Gershon noted in Production and Operations Management, a basic distribution network consists of two parts: 1) a set of locations that store, ship, or receive materials (such as factories, warehouses, retail outlets); and 2) a set of routes (land, sea, air, satellite, cable, Internet) that connect these locations. Distribution networks may be classified as either simple or complex. A simple distribution network is one that consists of only a single source of supply, a single source of demand, or both, along with fixed transportation routes connecting that source with other parts of the network. In a simple distribution network, the major decisions for managers to make include when and how much to order and ship, based on internal purchasing and inventory considerations.in delivering a company's products or services to the right place, at the right time, for the lowest cost. In the unending efforts to realize these goals, the channels of distribution selected by a business play a vital role in this process. Well-chosen channels constitute a significant competitive advantage, while poorly conceived or chosen channels can doom even a superior product or service to failure in the market.

Channel Development
Many IT vendors have a sales channel in addition, or as an alternative, to their own sales force. The channel comprises the partners or resellers with whom they work to extend their sales coverage or reach. An indirect sales channel offers vendors the opportunity to: Penetrate new geographical territories Reach more customers at a lower cost point Penetrate specialized market segments that require particular skills or specialized knowledge Test new markets with reduced levels of risk Scale the sales operation very quickly in response to new or unexpected demand

Channel development initiatives vary widely but most will involve identifying ways to improve key aspects of the financial performance of individual channel partners or the channel as a whole flexing the compensation package and other variables to arrive at an optimum solution for the vendor and an attractive proposition for the reseller. Companies that operate largely, or wholly, through a sales channel lose some customer intimacy and/or account control as a consequence. Independent research provides a mechanism to ensure that both quality of service and customer satisfaction are maintained. Over the years Cambashi has completed many projects covering the entire spectrum of activities with partners and resellers, ranging from initial set-up to disengagement or the delicate transition to a direct operation.

Functions of a Distribution Channel

The primary function of a distribution channel is to bridge the gap between production and consumption. A close study of the market is extremely essential. A sound marketing plan depends upon thorough market study. The distribution channel is also responsible for promoting the product. Awareness regarding products and other offers should be created among the consumers. Creating contacts or prospective buyers and maintaining liaison with existing ones. Understanding the customer's needs and adjusting the offer accordingly. Negotiate price and other offers related to the product as per the customer demand. Storage and distribution of goods Catering to the financial requirements for the smooth working of the distribution chain. Risk taking for example by stock holding

Build your distribution channel

If youre setting up a distribution channel with one or more partners, treat it as a sales process:

Approach the potential channel partner and sell the value of the partnership. Establish goals, service requirements and reporting requirements. Deliver inventory (if necessary) and sales/support materials. Train the partner. Run promotions and programs to support the partner and help them increase sales.

Distribution Systems
Before settling for a distribution system the marketer has too keep in mind various factors affecting distribution system (like marketing decision and relationship issues). The following distribution designs are available to the marketer for his distribution system:

1. Direct Distribution Systems 2. Indirect Distribution Systems 3. Multi-Channel or Hybrid Distribution Systems

Direct Distribution Systems In direct distribution system the marketer reaches the target consumer directly without the use of any intermediary. The distribution chain is small and no other party can take ownership of the product being distributed. The direct distribution system can be further sub-divided on the basis of the methods of communication that takes place during sale between marketer and consumer. These methods are:

1. Direct Marketing Systems In this system the consumer buys the product based on information gained from impersonal contact with the marketer like by visiting the marketer's website or ordering from the marketer's catalog. Or he buys based on information gathered through some personal communication with a customer service personnel who is not a salesperson and can be reached through a toll-free number.

2. Direct Retail System In this type of system the marketer operates his own retail stores. A perfect example of this system is Starbucks.

3. Personal Selling Systems In this system the distribution of the product is carried forward by people whose main responsibility is creating and managing sales (for instance a salesperson). He persuades the buyers into placing an order. This order may not be handled by the salesperson but through websites or toll-free telephone numbers. The sales person plays a vital role here in generating sales.

4. Assisted Marketing System In this form of distribution system the marketer handles the distribution of his product and helps it reach directly to the end user. However he needs assistance from others to spread awareness about his product among the customers. An example of assisted marketing system is e-bay, here the buyers and sellers are brought together for a fee. Agents and brokers can also be included in this category.

Indirect Distribution System In indirect distribution system the marketer includes intermediaries or other members in his distribution chain. These resellers make sure the product reaches the end user, while performing their duties they take complete ownership of the product. However the reseller may sell products on a consignment basis wherein the reseller pays for the product only when the product is sold. The resellers may be expected to take up a few responsibilities to help boost the sales of the product. Indirect methods include the following: Single-Party Selling System In this system the marketer involves another party to sell and distribute his product to the end user. An example of single-party selling can be when the product is sold through large store-based retail chains or through online retailers. In this case the distribution system is also referred to as trade selling system. Multiple-Party Selling System

In multiple-party selling system the distributor involves two or more reseller in the distribution process before the product reaches the end user. This is most likely to happen when a wholesaler buys the product from the manufacturer and then sells it to the retailer.

4. Multi-Channel (Hybrid) Distribution System A marketer is said to be using a multi-channel or hybrid distribution system when he utilizes more than one distribution design. As we have studied earlier in the example of Starbucks, multiple distribution designs are put to use in the distribution of its product. It uses a direct retail system when it sells its products in company-owned stores, a direct marketing system by selling via direct mail and single party selling system is put to use when its products are sold through grocery stores. Apart from these other distribution systems are also put to use. Multi-Channel distribution system is advantageous as it expands the distribution system and more customers can be reached. The possible disadvantage again is channel conflict of which the marketer should always be cautious.

A multichannel distribution system is a distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments. This is also called a hybrid marketing channel. Multichannel distribution systems offer many advantages to companies facing large and complex markets. With each new channel, the company expands its sales and market coverage and gains opportunities to tailor its products to the specific needs of diverse customers. Multichannel distribution systems, however, are harder to control, and they generate conflict as more channels compete for customers and sales. For many products and services, their manufacturers or providers use multiple channels of distribution. A personal computer, for example, might be bought directly from the manufacturer, either over the telephone, direct mail, or the Internet, or through several kinds of retailers, including independent computer stores, franchised computer stores, and department stores. In addition, large and small businesses may make their purchases through other outlets. Channel structures range from two to five levels. The simplest is a two-level structure in which goods and services move directly from the manufacturer or provider to the consumer. Two-level structures occur in some industries where consumers are able to order products directly from the manufacturer and the manufacturer fulfills those orders through its own physical distribution system. In a three-level channel structure retailers serve as intermediaries between consumers and manufacturers. Retailers order products directly from the manufacturer, then sell those products directly to the consumer. A fourth level is added when manufacturers sell to wholesalers rather than to retailers. In a four-level structure, retailers order goods from wholesalers rather than manufacturers. Finally, a manufacturer's agent can serve as an intermediary between the manufacturer and its wholesalers, creating a five-level channel structure consisting of the manufacturer, agent, wholesale, retail, and consumer levels. A five-level channel

structure might also consist of the manufacturer, wholesale, jobber, retail, and consumer levels, whereby jobbers service smaller retailers not covered by the large wholesalers in the industry.

Three Levels of the Distribution Channel

In level (1) there are no intermediaries involved, the manufacturer is selling directly to the customer. This is called the'direct-marketing' channel. Examples of direct marketing channel can be seen at factory outlet stores. Various hotels prefer direct-marketing, they market their services directly to their customers without taking the help of any retail intermediary (travel agent). Levels (2) and (3) are examples of 'indirect-marketing' channels. In level (2) one intermediary or retailer is used. A Retailer sells goods/services directly to the end users. Retailer buys products from manufacturers or wholesalers. In level (3) along with retailer a second member is added to the distribution chain. He is the wholesaler. A wholesaler buys and stores products in bulk from manufacturers. He sells these products in smaller quantities to retailers.

Why should a producer not indulge in selling his product directly to the consumer? Once the product reaches the hands of the intermediaries he loses control over them, so why does he take this risk? The reason is that the intermediaries manage the distribution costs efficiently. They are experienced and have potential contacts which add to their productiveness. Their scale of operation is large as compared to the manufacturer alone which means the scale of sales reached would be higher. While there are various organizations which operate their own distribution channel or do not take any help from channel members, there are others who are in need of some level of channel partnership. For instance Dell computers do not need retail stores for selling their product as they customers can buy directly through the internet. But still some amount of channel partnership is needed with parcel post shippers like FedEx and UPS for product distribution. If Dell were to accomplish this part of distribution too all by itself then it would have exhausted all its company resources to build a large shipping service to satisfy its huge customer base. Thus Dell and its customers are taking advantage of benefits provided by its shippers..

Distribution is one of the classic 4 Ps of marketing (product, promotion, price, placement a.k.a. distribution). Its a key element in your entire marketing strategy it helps you expand your reach and grow revenue. B2B and B2C companies can sell through a single channel or through multiple channels that may include:

Wholesaler/Distributor Direct/Internet Direct/Catalog Direct/Sales Team Value-Added Reseller (VAR) Consultant Dealer Retail Sales Agent/Manufacturers Rep

Here are three distribution examples:

DIRECT TO END USERS

SELL THROUGH A DEALER NETWORK

SELL THROUGH A VAR (VALUE-ADDED RESELLER)

You have a sales team that sells directly to Fortune 100 companies.

You have a second product line for small businesses. Instead of using your sales team, you sell this line directly to end-users through your website and marketing campaigns. You have two markets and two distribution channels.

You sell a product through a geographical network of dealers who sell to end-users in their areas. The dealers may service the product as well.

You sell a product to a company who bundles it with services or other products and resells it. That company is called a Value Added Reseller (VAR) because it adds value to your product.

Your dealers are essentially your customers, and you have a strong program to train and support them with marketing campaigns and materials.

A VAR may work with an enduser to determine the right products and configurations, and then implement a system that includes your product.

To create a good distribution program, focus on the needs of your end-users.

If users need personalized service, you can utilize a local dealer network or reseller program to provide that service. If your users prefer to buy online, you can create an e-commerce website and fulfillment system and sell direct; you can also sell to another online retailer or distributor that can offer your product on their own sites. You can build your own specialized sales team to prospect and close deals directly with customers.

Wholesalers, resellers, retailers, consultants and agents already have resources and relationships to quickly bring your product to market. If you sell through these groups instead of (or in addition to) selling direct, treat the entire channel as a group of customers and they are, since theyre buying your product and reselling it. Understand their needs and deliver strong marketing programs; youll maximize everyones revenue in the process.

Best Case

Neutral Case

Worst Case

Youve used one or more distribution channels to grow your revenue and market share more quickly than you would have otherwise. Your end-users get the information and service they need before and after the sale. If you reach your end-user through wholesalers, VARs or other channel partners, youve created many successful marketing programs to drive revenue through your channel and youre committed to their success.

Youre using one or more distribution channels with average success. You may not have as many channel partners as youd like, but your current system is working moderately well. You devote resources to the program, but you wonder whether youd be better off building an alternative distribution method one that could help you grow more aggressively than you are growing now.

You probably arent hitting your revenue goals because your distribution strategy is in trouble. With your current system, you may not be effectively reaching your end-users; your prospects probably arent getting the information and service they need to buy your product. Your current system may also be difficult to manage. For example, channel members may not sell at your suggested price; they dont follow up on leads you deliver; they dont service the product very well and youre taking calls from angry customers.

Distribution - channel strategy

The following table describes the factors that influence the choice of distribution channel by a business:
Influence Comments

Market factors

An important market factor is "buyer behaviour"; how do buyer's want to purchase the product? Do they prefer to buy from retailers, locally, via mail order or perhaps over the Internet? Another important factor is buyer needs for product information, installation and servicing. Which channels are best served to provide the customer with the information they need before buying? Does the product need specific technical assistance either to install or service a product? Intermediaries are often best placed to provide servicing rather than the original producer - for example in the case of motor cars. The willingness of channel intermediaries to market product is also a factor. Retailers in particular invest heavily in properties, shop fitting etc. They may decide not to support a particular product if it requires too much investment (e.g. training, display equipment, warehousing). Another important factor is intermediary cost. Intermediaries typically charge a "mark-up" or "commission" for participating in the channel. This might be deemed unacceptably high for the ultimate producer business.

Producer factors

A key question is whether the producer have the resources to perform the functions of the channel? For example a producer may not have the resources to recruit, train and equip a sales team. If so, the only option may be to use agents and/or other distributors. Producers may also feel that they do not possess the customer-based skills to distribute their products. Many channel intermediaries focus heavily on the customer interface as a way of creating competitive advantage and cementing the relationship with their supplying producers. Another factor is the extent to which producers want to maintain control over how, to whom and at what price a product is sold. If a manufacturer sells via a retailer, they effective lose control over the final consumer price, since the retailer sets the price and any relevant discounts or promotional offers. Similarly, there is no guarantee for a producer that their product/(s) are actually been stocked by the retailer. Direct distribution gives a producer much more control over these issues.

Product factors Large complex products are often supplied direct to customers (e.g. complex medical equipment sold to hospitals). By contrast perishable products (such as frozen food, meat, bread) require relatively short distribution channels - ideally suited to using intermediaries such as retailers.

Distribution Intensity There are three broad options - intensive, selective and exclusive distribution: Intensive distribution aims to provide saturation coverage of the market by using all available outlets. For many products, total sales are directly linked to the number of outlets used (e.g. cigarettes, beer). Intensive distribution is usually required where customers have a range of acceptable brands to chose from. In other words, if one brand is not available, a customer will simply choose another. Selective distribution involves a producer using a limited number of outlets in a geographical area to sell products. An advantage of this approach is that the producer can choose the most appropriate or best-performing outlets and focus effort (e.g. training) on them. Selective distribution works best when consumers are prepared to "shop around" - in other words - they have a preference for a particular brand or price and will search out the outlets that supply. Exclusive distribution is an extreme form of selective distribution in which only one wholesaler, retailer or distributor is used in a specific geographical area.

Distribution Channels Key Concepts & Steps

Before you begin
You can evaluate a new distribution channel or improve your channel marketing / management at any time. Its especially important to think about distribution when youre going after a new customer segment, releasing a new product, or looking for ways to aggressively grow your business.

Evaluate how your end-users need to buy

Your distribution strategy should deliver the information and service your prospects need. For each customer segment, consider:

How and where they prefer to buy Whether they need personalized education and training Whether they need additional products or services to be used along with yours Whether your product needs to be customized or installed Whether your product needs to be serviced

Match end-user needs to a distribution strategy

If your end-users need a great deal of information and service, your company can deliver it directly through a sales force. You can also build a channel of qualified resellers or consultants. The size of the market and your price will probably dictate which scenario is best. If the buying process is fairly straightforward, you can sell direct via a website/catalog or perhaps through a wholesale/retail structure. You may also use an inbound telemarketing group or a field sales team. If you need complete control over your products delivery and service, adding a channel probably isnt right for you.

Identify natural partners

If you want to grow beyond the direct model, look for companies that have relationships with your end-users. If consultants, wholesalers or retailers already reach your customer base, theyre natural partners.

BENEFITS OF INTERMEDIARIES
If selling directly from the manufacturer to the consumer were always the most efficient methodology for doing business, the need for channels of distribution would be obviated. Intermediaries, however, provide several benefits to both manufacturers and consumers: improved efficiency, a better assortment of products, routinization of transactions, and easier searching for goods as well as customers. The improved efficiency that results from adding intermediaries in the channels of distribution can easily be grasped with the help of a few examples. Take five manufacturers and 20 retailers, for instance. If each manufacturer sells directly to each retailer, there are 100 contact linesne line from each manufacturer to each retailer. The complexity of this distribution arrangement can be reduced by adding wholesalers as intermediaries between manufacturers and retailers. If a single wholesaler serves as the intermediary, the number of contacts is reduced from 100 to 25: five contact lines between the manufacturers and the wholesaler, and 20 contact lines between the wholesaler and the retailers. Reducing the number of necessary contacts brings more efficiency into the distribution system by eliminating duplicate efforts in ordering, processing, shipping, etc. In terms of efficiency there is an effect of diminishing returns as more intermediaries are added to the channels of distribution. If, in the example above, there were three wholesalers instead of only one, the number of essential contacts increases to 75: 15 contacts between five manufacturers and three wholesalers, plus 60 contacts between three wholesalers and 20 retailers. Of course this example assumes that each retailer would order from each wholesaler and that each manufacturer would supply each wholesaler. In fact geographic and other constraints typically eliminate some lines of contact, making the channels of distribution more efficient. Intermediaries provide a second benefit by bridging the gap between the assortment of goods and services generated by producers and those in demand from consumers. Manufacturers typically produce large quantities of a few similar products, while consumers want small quantities of many different products. In order to smooth the flow of goods and services, intermediaries perform such functions as sorting, accumulation, allocation, and creating assortments. In sorting, intermediaries take a supply of different items and sort them into similar groupings, as exemplified by graded agricultural products. Accumulation means that intermediaries bring together items from a number of different sources to create a larger supply for their customers. Intermediaries allocate products by breaking down a homogeneous supply into smaller units for resale. Finally, they build up an assortment of products to give their customers a wider selection. A third benefit provided by intermediaries is that they help reduce the cost of distribution by making transactions routine. Exchange relationships can be standardized in terms of lot size, frequency of delivery and payment, and communications. Seller and buyer no longer have to bargain over every transaction. As transactions become more routine, the costs associated with those transactions are reduced. The use of intermediaries also aids the search processes of both buyers and sellers. Producers are searching to determine their customers' needs, while customers are searching for certain products and services. A degree of uncertainty in both search processes can be reduced by using channels of

distribution. For example, consumers are more likely to find what they are looking for when they shop at wholesale or retail institutions organized by separate lines of trade, such as grocery, hardware, and clothing stores. In addition, producers can make some of their commonly used products more widely available by placing them in many different retail outlets, so that consumers are more likely to find them at the right time.

WHAT FLOWS THROUGH THE CHANNELS

Members of channels of distribution typically buy, sell, and transfer title to goods. There are, however, many other flows between channel members in addition to physical possession and ownership of goods. These include promotion flows, negotiation flows, financing, assuming risk, ordering, and payment. In some cases the flow is in one direction, from the manufacturer to the consumer. Physical possession, ownership, and promotion flow in one direction through the channels of distribution from the manufacturer to the consumer. In other cases there is a two-way flow. Negotiation, financing, and the assumption of risk flow in both directions between the manufacturer and the consumer. Ordering and payment are channel flows that go in one direction from the consumer to the manufacturer. There are also a number of support functions that help channel members perform their distribution tasks. Transportation, storage, insurance, financing, and advertising are tasks that can be performed by facilitating agencies that may or may not be considered part of the marketing channel. From a channel management point of view, it may be more effective to consider only those institutions and agencies that are involved in the transfer of title as channel members. The other agencies involved in supporting tasks can then be described as an ancillary or support structure. The rationale for separating these two types of organizations is that they each require different types of management decisions and have different levels of involvement in channel membership. Effective management of the channels of distribution involves forging better relationships among channel members. With respect to the task of distribution, all of the channel members are interdependent. Relationships between channel members can be influenced by how the channels are structured. Improved performance of the overall distribution system is achieved through managing such variables as channel structure and channel flows.

SELECTING CHANNELS FOR SMALL BUSINESSES

Given the importance of distribution channelslong with the limited resources generally available to small businessest is particularly important for entrepreneurs to make a careful assessment of their channel alternatives. In evaluating possible channels, it may be helpful first to analyze the distribution channels used by competitors. This analysis may reveal that using the same channels would provide the best option, or it may show that choosing an alternative channel structure would give the small business a competitive advantage. Other factors to consider include the company's pricing strategy and internal resources. As a general rule, as the number of intermediaries included in a channel increase, producers lose a greater percentage of their control over the product and pay more to compensate each participating channel level. At the same time, however, more intermediaries can also provide greater market coverage.

Among the many channels a small business owner can choose from are: direct sales (which provides the advantage of direct contact with the consumer); original equipment manufacturer (OEM) sales (in which a small business's product is sold to another company that incorporates it into a finished product); manufacturer's representatives (salespeople operating out of agencies that handle an assortment of complimentary products); wholesalers (which generally buy goods in large quantities, warehouse them, then break them down into smaller shipments for their customerssually retailers); brokers (who act as intermediaries between producers and wholesalers or retailers); retailers (which include independent stores as well as regional and national chains); and direct mail. Ideally, the distribution channels selected by a small business owner should be close to the desired market, able to provide necessary services to buyers, able to handle local advertising and promotion, experienced in selling compatible product lines, solid financially, cooperative, and reputable. Since many small businesses lack the resources to hire, train, and supervise their own sales forces, sales agents and brokers are a common distribution channel. Many small businesses consign their output to an agent, who might sell it to various wholesalers, one large distributor, or a number of retail outlets. In this way, an agent might provide the small business with access to channels it would not otherwise have had. Moreover, since most agents work on a commission basis, the cost of sales drops when the level of sales drops, which provides small businesses with some measure of protection against economic downturns. When selecting an agent, an entrepreneur should look for one who has experience with desired channels as well as with closely relatedut not competitiveroducts. Other channel alternatives can also offer benefits to small businesses. For example, by warehousing goods, wholesalers can reduce the amount of storage space needed by small manufacturers. They can also provide national distribution that might otherwise be out of reach for an entrepreneur. Selling directly to retailers can be a challenge for small business owners. Independent retailers tend to be the easiest market for entrepreneurs to penetrate. The merchandise buyers for independent retailers are most likely to get their supplies from local distributors, can order new items on the spot, and can make adjustments to inventory themselves. Likewise, buyers for small groups of retail stores also tend to hold decision-making power, and they are able to try out new items by writing small orders. However, these buyers are more likely to seek discounts, advertising allowances, and return guarantees. Medium-sized retail chains often do their buying through a central office. In order to convince the chain to carry a new product, an entrepreneur must usually make a formal sales presentation with brochures and samples. Once an item makes it onto the shelf, it is required to produce a certain amount of revenue to justify the space it occupies, or else it will be dropped in favor of a more profitable item. National retail chains, too, handle their merchandise buying out of centralized offices and are unlikely to see entrepreneurs making cold sales calls. Instead, they usually request a complete marketing program, with anticipated returns, before they will consider carrying a new product. Once an item becomes successful, however, these larger chains often establish direct computer links with producers for replenishment.

Designing International Distribution Channels

Designing international marketing channels involves additional complexities. Each country has its own unique distribution system, So, global marketers need to adapt their channel strategy to the existing structures within each country. In some market the distribution system consists of many layers and large numbers of intermediaries which make it complex and difficult to penetrate. Distribution systems in developing countries may be scattered and inefficient, or altogether lacking. A country with a big population may in reality be a small market because the intermediaries and other institutions to reach the whole population may be non-existent. Thus, the task of designing efficient and effective channel systems between and within various country effective channel system between and within various countrys markets is a challenging one for an international marketer.

Distribution Planning
There are three basic elements: (i) product recognition, (ii) price structure and (iii) the distribution planning which are required to develop an effective marketing mix. The relative importance of these three elements varies from product to product and from time to time. Distribution is often the key to a successful sales and marketing policy. The synchronization process for the distribution planning is discussed as below:

Product - Attributes and consumer recognition. Size and value of sales - Extent of sales realisation. Market area Consumer segments, coverage, channel length. Existing methods of distribution - Impact, problems and prospects. Needed efforts - Customer value, Value added distribution, cost effectiveness Overhead costs - Operational expenses, personnel management, and, Monitoring- Information flow, schedule of distribution, cash flow and payments.

Objective of distribution planning is to make the product available to the consumers at a more convenient outlet. The distribution planning for products should be considered with prime importance to withstand the market competition. It is because, if a competitive product is available at approachable outlets or at low price, there are all chances of foregoing the sale. Therefore, to deal under such competitive market situation a systematic planning for delivering the product to the consumers through different distribution channels, need to be determined. The time and distance factor for the delivery of goods normally influences the buying decisions where the manufacturing of products is subject to consumer order, occasional demands and door to door delivery promises. In this regard the planning needs to be done evolving different methods for efficient product distribution through identified channels. In this process, there is a need to look into the infrastructure factors viz. transport, road, communication etc in support of the channel

efficiency. In fact the consumer is only interested in getting the product but a lot of responsibility lies with the marketing personnel in delivering the product at appropriate time and place. Distribution planning may invariably be based on the market survey carried out at the time of preparing the business plan. The distribution planning should be to make the products available to the larger number of consumers at lower marketing costs. To reduce the cost of marketing, it is required to determine the most feasible channel. The product characteristics and the operational area are the major factors to be considered while selecting a distribution channel. In any channel different distribution approach can be adopted to get the products more economically to the ultimate user. The important factor to be assessed in this process is the cost effectiveness. It is observed that, longer the chain of intermediaries in product distribution, higher is the cost of marketing. Since cost is one of the determinants of profit, it should also be viewed from the angle of product distribution. The exclusive distribution approach is always confined to an area. Such distribution plan can be useful in the areas (i) where the demand concentration for the product is low (ii) which are located at distance from the high concentration areas i.e. urban places (iii) the storage, transportation and other overhead costs are higher and (iv) the competition is absent or very low. In urban areas where market competition for the product is high and the retailing is at large scale, selective distribution policy would be more useful. However, retailers and consumers in areas where the purchasing power of consumers is low but a large number of retailers are in business fray feel the approach of extensive distribution of products. In other words, such approach would help the market condition. These factors are inter-related and affect the whole network of product distribution. The distribution chain or network may be long or wide; there is a need for effective control without which the entire business plan may break mid-way. Distribution policy needs to be developed in accordance to the product characteristics and its segmented market. Ethically, in business short path of distribution network leads to minimization of risks and maximization of profit. An ideal network of distribution would be two-tier between manufacturer and end user.

Functional Excellence In Distribution Planning

Companies must draw separate plans for the distribution resources and distribution requirements. It is beneficial for two reasons. Firstly, such planning yields excellent results in a given supply chain from manufacturers to the customers for replenishing products in time and secondly the traditional logistic chain can be modified by way of building linkages and quick responses for continuous replenishment of stock and keeping the channel partnership intact. The continuous replenishment helps the companies in shifting the administrative burden for inventory management and replenishment at the customers warehouse back to the manufacturer. This however, involves higher transportation costs but also offers benefits to the manufacturer. The companies should look for the following three approaches for quick replenishment of the goods to the outlets:

Customer specified approach that may be followed by the companies as the simplest tool in the process of stock replenishment process. The customers may be asked to provide minimum and maximum inventory re-order at the points of convenience and its periodicity. Manufacturer may alternatively maintain more active management of customer inventory levels, generally using classic re-ordering indicating the point of convenience and its frequency. Channel distribution planning is the most comprehensive approach for continuous replenishment. It involves setting up each of the companys customer warehouses as nodal points in the distribution planning system and activating the replenishment to these nodes.

Warehousing function is one of the important activities in the distribution management. The companies must decide on a desirable number of stocking locations. The increase in number of outlets should not slow down the process of distribution. The number of stocking locations must strike a balance between customer-service levels and distribution costs.The supply chain management has been an integrated component of the implementation, control and evaluation of the marketing program in the companies. Today, with lean and healthy operations as their foundation, progressive companies are focusing intensely on growing revenues, thereby breaking the downsizing death spiral. Instead of merely striving to meet annual cost-reduction targets, managers at these leading companies are repositioning the supply chain as an enabler of growth. Logistics professionals played key roles in improving the cost competitiveness of their operations across the supply chain by adopting new strategies, closing warehouses, trimming inventories, outsourcing non-essential services, and installing powerful forecasting and material-control systems. Successful growth companies often follow one or more of three key growth strategies: customer franchise management, new product development, and channel management. Each of these growth strategies depends on supply chain innovations. Logistics and the supply chain management is an art of management of flow of materials and products from the source of production to the end user. As a primary interface point with the customer, supply chain management can offer value in the form of competitively superior delivery and value-added services, as defined by customers. In this way, the value foundation translates to customer-service excellence. In parallel with the downsizing and engineering efforts of the past decade, customer service re-emerged as a key management priority for a wide range of manufacturers. But for many companies, meeting basic service requirements and achieving customer satisfaction are still the primary goals. The integrated concept to manage the supply chain is proving to be analytical and able to transcend internal operational problems. The implementations of the integrated pipeline of the logistics variables help achieve a quantum leap in functional integration and operational effectiveness. Companies such as Procter & Gamble and

Newell, both manufacturers of a variety of consumer products, understood early on the growth ambitions and strategies of Wal-Mart. By tailoring their logistics to support the retailers growth, they have grown as well. Notably, a major component of Wal-Marts growth strategy has been superior economics, including a low-cost, highly efficient merchandise supply chain. The retailer backs up this strategy with significant investments in state-of-theart logistics, information systems, and communications technology.

Managing distribution channel

Channels can be led by any of the channel members, whether they are producers, wholesalers, or retailers, provided the member concerned has channel power. Channel co-operation is an essential part of the effective functioning of channels. Since each member relies on every other member for the free exchange of goods down the channel, it is in the members interests to look after each other to some extent. Channel co-operation can be improved in the following ways: The channel members can agree on target markets, so that each member can best direct effort towards meeting the common goal.

The tasks each member should carry out can be defined. This avoids duplication of effort, or giving the final consumer conflicting messages. A further development is co-marketing, which implies a partnership between manufacturers, intermediaries and retailers. This level of co-operation involves pooling of market information and full agreement on strategic issues. Channel conflict arises because each member wants to maximize its own profits or power. Conflicts also arise because of frustrated expectations: each member expects the other members to act in particular ways, and sometimes these expectations are unfulfilled. For example, a retailer may expect a wholesaler to maintain large enough stocks to cover an unexpected rise in demand for a given product, whereas the wholesaler may expect the manufacturers to be able to increase production rapidly to cover such eventualities. Channel management can be carried out by co-operation and negotiation (often with one member leading the discussions) or it can be carried out by the most powerful member laying down rules that weaker members have to follow. Most attempts to control distribution by the use of power are likely to be looked on unfavorably by the courts, but of course the abuse of power would have to be fairly extreme before a channel member would be likely to sue. Sometimes the simplest way to control a distribution channel is to buy out the channel members. Buying out members across a given level (for example, a wholesaler buying out other wholesalers in order to build a national network) is called horizontal integration; buying out members above or below in the distribution chain (for example a retailer buying out a wholesaler) is vertical integration. An example of extreme vertical integration is the major oil companies, which extract crude oil, refine it, ship it and ultimately sell it retail through petrol stations. At the extremes, this type of integration may attract the attention of government monopoly regulation agencies,

since the integration may cause a restriction of competition. Producers need to ensure that the distributors of their products are of the right type. The image of a retailer can damage (or enhance) the image of the products sold (and vice versa). Producers need not necessarily sell through the most prestigious retailer, and in fact this would be counter-productive for many cheap, everyday items. Likewise a prestigious product should not be sold through a down-market retail outlet. As the relationship between members of the distribution channel becomes closer power and conflict still remain important, but they are expressed in other ways, and the negotiations for their resolution change in nature.

Selecting and Managing Marketing Channels

Between the producer and the final user stands the marketing channel. WHAT ARE THE MARKETING CHANNELS: Marketing channels are the sets of interdependent organizations involved in process of making a product or service available for use. The market intermediaries make up a marketing channel. They are also called trade channel or distribution channel.

Why Intermediaries Used:

Producers gain several advantages you the use of intermediaries.1They have lack of financial resources to carry out direct marketing.2If direct marketing is not feasible3The producers who establish their own channels can often earn a greater return by increasing their investment in their main business (Production of the goods).

Channel Functions and Flows:

A marketing channel performs the work of moving goods from producers to consumers. It overcomes the time, place, and possession gaps that separate goods and services from those who need or want them. Members of the marketing channel perform a number of dye functions: 1 Information : The collection and distribution of marketing research information about potential and current customers, competitors and other actors. 2 Promotion The development and dissemination of persuasive communications designed to attract customers to the offer. 3 Negotiation: The attempt to reach final agreement on price and other terms so that transfer of ownership or possession can be effected. 4 Financing: The acquisition and allocation of funds required to finance inventories at different levels of the marketing channel. 5 Risk taking: The assumption of risks connected with carrying out the channel work.

6 Physical possession: The successive storage and movement of physical products from raw materials to the finalcustomers. 7 Payment: Buyers payment of their bills to the sellers through banks and other financial institutions. 8 Title: The actual transfer of ownership from one organization or person to another. Channel Levels: Each intermediary that performs work in bringing the product and its title closer to the final buyer constitutes a channel level. Since the produce and the final customer both perform work, they are part of every channel. By using the number of intermediary levels we designate the length of a channel.

A zero-level channel
(Also called direct marketing), consist of a manufacturer selling directly to the final customer. Its major types are door-to door sales, mail order, telemarketing, TV, selling and manufacturer-owned stores. A one-level channel One selling intermediary, such as retailer. A two-level channel contains two intermediaries. In consumer markets they are typically a wholesaler and a retailer. A three-level channel involving three levels of intermediaries. Channel normally describe a forward movement of products. One can also talk about backward channels. It is the recycling of solid wastes. Several intermediaries play a role in backward channels e.g. soft-drink intermediaries, trash collection specialists, recycling centers, trashrecycling brokers etc.

CHANNEL-DESIGN DECISIONS:
In designing marketing channels, manufactures have to decide what is ideal, what is feasible, and what is available. Designing of a channel system calls for: 1)analyzing customer needs, 2)establishing channel objectives ,and 3) identifying and evaluating the major channel activities. Analyzing Customers Desired Service Output Levels: Understanding (what, where, why, when and how target customers buy) is the first step in designing the marketing channel. They must also understand the service output levels desired by the customers the types and levels of services that people want and expect when they purchase a product. Channels produce five channel out puts: I)LOT SIZE: It is the number of units that the marketing channel permits a typical customer to purchase on a occasion. Obviously different channels are set up for household buyers and the resale purpose buyers. The smaller the size, the greater the service output level that the channel must provide. ii)WAITING TIME: The average time that customers of that channel wait for receipt of the goods.

iii)SPECIAL CONVENIENCE: The degree to which the marketing channel makes it easy for customers to purchase the product. iv)PRODUCT VARIETY: The assortment breadth provided by the marketing channel.

Channel Management Decisions

Having reviewed its channel alternatives and decided on the best channel design, the company must go for implementing and managing the chosen channel. Channel management warrants : selecting, motivating individual channel members and evaluating their performance over time. Selecting Channel Members

Attracting suitable intermediaries is very important to producers for successful designing and maintaining channel of distribution. But the task is not easy for all producers. Old producers with reputed brands find it easier to attract intermediaries while new producers with relatively unknown brands may be in difficulty to pull suitable intermediaries. In selecting intermediaries, the company should be very clear about the characteristics of intermediaries. Issues to be considered arc : channel members length of business, other lines carried, growth and profit record, cooperativeness and reputation. When intermediaries are sales agents, the company should evaluate the number and natureof other lines carried, and the size and quality of the sales force. When a retail store is to be selected as an intermediary seeking exclusive or selective distribution, the company should evaluate the stores customers, location, and future growth potential. Motivating Channel Members

Once selected, channel members must be continuously motivated to help achieving companys goals. Producers make endeavor to find ways for gaining intermediary cooperation. At times they resort to positive motivators such as higher margins, special deals, premium, cooperative advertising allowances, display allowances and sales contests. At other time they offer negative motivators, such as threatening to reduce margins, to slow down delivery, or to end the relationship altogether. This approach should be discouraged as it ignores the needs, problems, strengths, and weaknesses of its distributors. Farsighted companies try to build long-term relationship with their distributors. It requires creating a planned, professionally managed, vertical marketing system which fulfill the needs of both the manufacturer and the distributors. General Electric works closely with its smaller independent dealers to help them be successful in .selling the companys products. In managing its channel, a company must convince distributors that by being part of an advanced vertical marketing system they will be able to make fortune.

Motivating Channel Members

Imagine these three scenarios: You are a producer of 'Grand Pens' a brand of fountain pens. A customer seeks advice from a pen shop on which pen to buy and the retailer strongly recommends yours. A customer asks a retailer, who stocks your pen, for another brand called 'Bad Pens'. The retailer recommends and offers your pen as superior. A retailer actively solicits business for you by asking customers buying other products to come and have a look at the exquisite 'Grand Pen'. This retailer is obviously very motivated. 'Mindshare', as it is called in the USA, has to do with how important your product is in the distributor's mind relative to the other lines they carry. Winning the battle for the distributor's share of mind can be more important than many other marketing strategies. It applies in industrial markets and consumer markets where intermediaries play important roles in the distribution channel. In reality, maintaining continually high levels of motivation among intermediaries presents a challenge. It requires a reasonable quality product, creative promotions, product training, joint visits between producer and distributor, cooperative advertising, merchandising and display. Most of these apply to agents as much as distributors and retailers. Keeping the intermediary stimulated is important. Positive motivators, like sales contests are preferred to negative motivators like sanctions such as reduced discounts and the threat of terminating the relationship. A positive reward works better than a negative punishment. Ideally there should be a shared sense of responsibility - a partnership - a strategic partnership. The supplier and intermediary are there to help each other. Vertical Marketing Systems are a good example. Clear communications, covering sales goals, review meetings, reporting procedures, marketing strategy, training , market information required, suggestions for improvements, all help. Regular contact through visits, review meetings, dinners, competitions, newsletters, thank you letters, congratulatory awards all help to keep everyone working closely together. These are all non-financial incentives which provide a form of psychic income as opposed to financial income. That's not to say that financial incentives aren't useful motivators, it just means that there are other motivations there too. In fact the money spent on financial incentives is often spent more effectively when the sales person is rewarded with a plaque, a gold pen or a holiday in the Bahamas rather than just the cash which tends to get soaked up and lost in a sea of ordinary household daily expenditure. Non cash rewards appeal to the higher levels of Maslow's Hierarchy of Needs - belonging, esteem and self actualisation.

Despite this, conflict can occur when too many distributors are appointed within close proximity of each other, or the producer engages in a multiple channel strategy of direct marketing as well as marketing through intermediaries. Carefully motivating distributors is vital if goods are to flow smoothly through the channel and reach satisfied customers.

Responsibilities of Channel Members

It is imperative that the producer and the intermediaries must work in agreement on the terms and responsibilities of each channel member. Agreement should be reached on price policies, conditions of sale, territorial rights and specific services to be performed by each party. Evaluating the Major Alternatives

Having identified alternative channels, a company must evaluate them before selecting the one that will best satisfy its long-term goals. Such evaluation is made against economic, control, and adaptive criteria. Economic Criteria

Each-channel alternative will generate different sales and costs. The first step is to figure out what sales would be produced by company owned channel (company sales force) compared to middlemen owned channel ( sales agency). It is generally believe that a company sales force will sell more because they sell only the companys products, are better trained, have career objectives and they come into direct contact with the customers. On the other hand, the sales agency might sell more than a company sales force. Because the sales agency may have a larger sales force than that of the company, has many existing contacts and its sales force may be induced by lucrative commission. Sales agency has also the advantage of representing several manufacturers. The next step is to determine the costs of selling different volumes through each channel. The fixed costs of using a sales agency are lower than those of establishing a company sales office. But costs increase faster through a sales agency because sales agents get a larger commission than company salespeople. At one sales level selling costs are the same for the two channels (company sales force and manufacturers sales agency). The company would prefer to use the sales agency at any sales volume below this sales level, and the company sales branch at any volume higher than this sales level. Generally, sales agents are used by smaller firms, or by larger firms in smaller territories where the sales volume is too low to build a company sales force.

Evaluating Channel Members

The producer must continuously evaluate each channel members performance against standards such as sales quotas, average inventory levels, customer delivery time, treatment of damaged and lost goods. Cooperation in company promotion and training programs, and service to the customer, Intermediaries having excellent performance should be recognized and rewarded by the company. Intermediaries having unsatisfactory performance should be helped, if not possible, replaced. A company may, from time to time, set new qualification for its intermediaries and trim the weaker ones. For example, when IBM first introduced its PS/2 personal computers, it re-evaluated its dealers and allowed only the best ones to carry the new models. Each IBM dealer had to submit a business plan, send a sales and service employee to IBM training classes and meet new sales quotas. Only about twothirds of IBMs 2.200 dealers qualified to carry the PS/2 models, Finally, manufacturers need to be attentive to their channel members. Treating channel members lightly may result in loss of their cooperation or may even invite legal problems

Service channels
Although it might appear that physical distribution of products or goods is more tedious, however the presence of a marketing channel is felt even in the case of the service sector. Thus services such as Banks, Hospitals and Education have their own service marketing channel to deliver value. Hospitals need to be established in places where regular supply of medication is available, Fire stations must be able to give rapid access to geographical areas and at the time of elections, ballot boxes should be properly located to allow easy voting. Services too therefore have multiple channel levels. To know about each level you can view my post on Channel levels Consumer and industrial marketing channel. The same marketing channel system applies to services as well as products. However a new concept being especially used in the services sector is the information highway channel Simply said these information highways combine multiple forms of data carrying capacity (Internet = Videos + Software + Audio + Images whereas Phone = Voice) Thus service sector channels and their establishment for a service based organization also presents its own challenges.

Channel Management Strategies

Good channel relationships are two-way streets. One of the many drawbacks to the channel strategies of b-to-b organizations is that they blindly stick with partners long after their usefulness has begun to wane, sucking personnel attention and dollars away from others where they would be much better spent. Much like with your own sales force, for any channel strategy to succeed, its partners, resellers, and ISVs need the resources, training and tools to effectively position and sell your solutions in the market. By demonstrating you have plans, processes and systems designed to optimize the channel experience and are committed to refining each over time as required you, as a vendor, show you are willing to do your part in ensuring channel success. Channel Management Strategies (CMS) provides the latest research, benchmarking data, analytic models, and thought leadership necessary to align and enhance your existing channel management initiatives. CMS delivers objective data and intelligence to compare and contrast your efforts with peer organizations, and provides thought-provoking research on industry trends, best-practice models and tactics, budget and resource allocation and measurement strategies. OPERATIONAL INTELLIGENCE

Assess channel marketing and management strategies and compare key benchmark measures such as partner lead velocity with peer companies from the SiriusIndex of Fortune 500s and SMBs Learn how best-practice organizations are developing demand creation strategies for their channel partners including incentives, lead distribution and lead tracking Understand how to develop and measure your channel marketing and sales functions with critical models and metrics Obtain the latest research and insight on channel management to enable partners and resellers to more effectively market and sell your products and services

REPRESENTATIVE COVERAGE AREAS

Foundation Elements Understand the four critical issues that should dominate the channel planning agendas Partner Recruitment Learn how to select partners for maximum impact, structure partner agreements and audit for success Demand Creation Understand how to use market development funds and co-op funds to drive opportunities Channel Readiness Learn what your channel needs to be a primary partner in the positioning and selling of your products and services Technology Understand the channel management vendor landscape and how a partner relationship management system can be used as an incentive to drive performance

REPRESENTATIVE MODELS

Channel Management Technology Stack identifies four layers of functionality necessary to optimize channel sales and marketing efforts Channel Management 2.0 a framework to identify your channel requirements and evaluate a vendors offering across the four layers of the channel management technology stack

DELIVERABLES Incorporating CMS into your workflow is easy. Interact with Sirius Decisions research analysts in the manner that suits your needs. You may contact our analysts by phone, send an inquiry by e-mail or participate in interactive webcasts and in-person forums with analysts and peers. You will also have access to published research, presentations and rich media-based content on demand via the client portal.

Research:

Research Briefs: Monthly research notes that frame executive-level sales and marketing issues in a concise layout. Three to four briefs are delivered to you each month, and are archived on the research portal. Sirius Perspectives: A monthly newsletter in a concise layout that provides a high-level overview of a sales and marketing topic dealing with demand creation, sales optimization or reputation development. Vendor Profiles: Reviews of emerging suppliers who may be beneficial to your demand creation efforts. Sirius Decisions also plots suppliers on our vendor matrices, allowing you to analyze and narrow your choices. Core Strategy Reports: Provides key observations and commentary on Sirius Decisions presentations introducing critical models, frameworks and strategies. Tackles more complex sales and marketing issues, and introduces new areas of research in a white paper format. Sirius Tools: Frameworks, models and issues spectrums that allow you to more easily visualize and communicate your challenges, and to determine the most appropriate courses of action. Rich Media: Webcast archives in rich media format that can be replayed at your convenience, shared with team members or used for training purposes.

Analyst Inquiry: Unlimited analyst inquiry privileges are offered as part of CMS membership; you can schedule analyst time via phone or email. Discussions often focus on best practices, data, analytic tools or vendor reviews. Channel Management Audit: Annually, Sirius Decisions will benchmark your channel management function against our Sirius Index of business-to-business companies, and provide an independent perspective of your performance compared with your peers. Events: Peer interaction is a valuable way to understand how others are solving similar issues, and to build your network. CMS membership includes bimonthly Webcasts and quarterly half-day research forums, as well as discounted pricing on all Sirius Decisions conference. Below, please find a partial list of recently published CMS research. Fast-Tracking Demand Creation in B-to-B Channels This Sirius Decisions Core Strategy Report presents a roadmap for driving better engagement and marketing performance with channel partners.

Channel Compensation: A Formula for Success In this brief, we describe the key ingredients of channel compensation strategy and share best practices for aligning them to drive favorable results. The Sirius Directions in Technology Model In this brief, we discuss the Sirius Directions in Technology Models four main technology categories, and how the different types of tools within each category can positively impact sales and marketing as well as corporate goals. Value Actualization Tools: Best Practices In this brief, we share best practices and tips on how reps can use value actualization (VA) tools effectively with buyers throughout the customer lifecycle. The Sirius Indicator: Partner Relationship Management Platforms In this brief, using the six dimensions of the Sirius Indicator, we discuss the major categories to consider when evaluating and scoring partner relationship management (PRM) providers. The Sirius Indicator: Channel Marketing and Management Platforms In this brief, using the six dimensions of the Sirius Indicator, we discuss the major categories to consider when evaluating and scoring channel marketing and management providers. Technology and the B-to-B Distributor In this brief, we examine how suppliers are leveraging distributors technology investments to manage their entire channel in a systematic and scalable fashion. The Building Blocks of Total Partner Experience In this brief, we itemize the issues addressed by total partner experience studies across three channel program components: engagement and onboarding; knowledge transfer; and demand creation. Planning for Channel Partner Renewals In this brief, we present a six-phase planning process that suppliers can use when creating a partner renewal program, highlight potential roadblocks and explain how suppliers can avoid them. Social Media and the B-to-B Channel In this brief, we explain how b-to-b suppliers can better align social media activities to support channel demand creation programs and contribute to pipeline and revenue growth. Channel Enablement and the B-to-B Distributor In this brief, we explain how suppliers can join forces with distributors to help smaller partners acquire the knowledge and skills they need to close more deals.

Channel Demand Creation and the B-to-B Distributor In this brief, we examine how a supplier and a distributor can play well together to drive revenue via demand creation programs delivered to, through and for sub-resellers. Stacking Up a B-to-B Organization's Channel Program In this brief, we introduce the Sirius Decisions Channel Program Assessment Scorecard, which channel leaders can use to measure themselves against competitors and as a diagnostic tool to indicate areas that require improvement.

The Sirius Indicator: A Model for Evaluating Technology Vendors In this brief, we discuss the categories and components of the latest evolution of our scoring system the Sirius Indicator which will form the basis for future vendor briefings and analysis of sales and marketing technology vendors.

Partner Recruitment and the B-to-B Distributor In this brief, we use the stages of the Sirius Decisions Channel Recruitment Waterfall to frame how suppliers can collaborate with their distributors to recruit the most productive resellers to sell their offerings. In Your Sights: Framing the Competitive Profile In this brief, we describe the elements of competitive profiles that should be provided by corporate competitive intelligence or market intelligence (CI/MI) functions to reveal how market trends and competitive maneuvers may impact progress toward strategic objectives. The Changing Roles of Channel Marketing In this brief, we describe four distinct roles for channel marketing and list the services that each of these roles should deliver. Segmenting and Engaging Current Partners In this brief, we examine elements of partner commitment that can be assessed and enhanced to drive channel partners toward increased production levels. Crafting the Sales Enablement Plan In this brief, we present a framework for creating a best-in-class sales enablement plan that defines the knowledge, skills and programs required by sales to successfully adopt a new product, service or solution. Channel Ambassador Programs: Developing Partner Experts In this brief, the second in a two-part series on channel ambassador (CA) programs, we outline the capabilities necessary for CAs, and highlight tactics and tools used by leading suppliers to impart

these capabilities.

Channel Design Decisions

Designing a marketing channel system involves analyzing customer needs, establishing channel objectives, identifying major channel alternatives, and evaluating major channel alternatives. Analyzing Customers desired service output levels: In designing the marketing channel, the marketer must understand this service output levels desired by target customers. Channels produce five service outputs: (a) Lot size The number of units the channels permits typical customer to purchase on one occasion. In buying cars for its fleet, Hertz prefers a channel from which it can buy a large lot size; a household wants a channel that permits buying a lot size of one. (b) Waiting and delivery time The average time customers of that channel wait for receipt of the goods. Customers increasingly prefer faster and faster delivery channels. (c) Spatial convenience The degree to which the marketing channel makes it easy for customers to purchase the product. Chevrolet, for example, offers greater spatial convenience than Cadillac, because there are more Chevrolet dealers. Chevrolets greater market decentralization helps customers save on transportation and search costs in buying ad repairing an automobile. (d) Product variety The assortment breadth provided by the marketing channel. Normally, customers prefer a greater assortment because more choices increase the chance of finding what they need.

(e) Service backup the add-on services (credit, delivery, installation, repairs) provided by the channel. The greater the service backup, the greater the work provided by the channel. The marketing channel designer knows that providing greater service outputs means increased channel costs and higher process for customers. Different customers have different service needs. The success of discount stores indicates that many customers are willing to accept smaller service outputs if they can save money

Establishing Objectives and Constraints:

Channel objectives should be stated in terms of targeted service output levels. Under competitive conditions, channel institutions should arrange their functional tasks to minimize total channel

costs and still provide desired levels of service outputs. Usually, planners can identify several market segments that want different service levels. Effective planning requires determining which segments to serve and the best channels for each. Channel objectives vary with product characteristics. Perishable products require more direct marketing. Bulky products, such as building materials, require channels that minimize the shipping distance and the amount of handling. Nonstandard products, such as custom-built machinery and specialized business forms, are sold directly by company sales representatives. Products requiring installation or maintenance services, such as heating and cooling systems, are usually sold and maintained by the company or by franchised dealers. High-unit-value products such as generators and turbines are often sold through a company sales force rather than intermediaries. Channel design must take into account the strengths and weaknesses of different types of intermediaries. For example, manufacturers reps are able to contact customers at a low cost per customers because the total cost is shared by several clients, but the selling effort per customer is less intense than if company sales reps did the selling. Channel design is also influenced by competitors channels. Channel design must adapt to the larger environment. When economic conditions are depressed, producers want their goods to market using shorter channels and without services that add to the final price of the goods. Legal regulations and restrictions also affect channel design. US law looks unfavorably on channel arrangement that may tend to substantially lessen competition or create a monopoly.

Identifying Major Channel Alternatives:

Companies can choose from a wide variety of channels for reaching customers from sales forces to agents, distributors, dealers, direct mail, telemarketing, and the internet. Each channel has unique strengths as well as weaknesses. Sales forces can handle complex products and transactions, but they are expensive. The internet is much less expensive, but it cannot handle complex product. Distributors can create sales, but the company loses direct contact with customers. The problem is further complicated by the fact that most companies now use a mix of channels. Each channel hopefully reaches a different segment of buyers and delivers the right products to each at the least cost. When this does not happen there is usually channel conflict and excessive cost. A channel alternative is described by three elements: the types of available business intermediaries, the number of intermediaries needed, and the terms and responsibilities of each channel member

The Channel Design Decision: A Model and an Application

This paper proposes a channel design model based on the notion that distribution functions are the basic determinants of channel structure. The purpose of the model is to assist manufacturers in

making effective channel decisions. The model evaluates what distribution structure the firm should adopt, how many intermediaries it should use, and what levels of service it should offer its customers. The proposed model-based decision approach is illustrated with an industrial marketing application. First, parameters were established for the model, using a combination of field data and managerial judgment. Next, the model was used to optimize profits over several channel alternatives. The profit-maximizing alternative determined the optimal channel structure, distribution intensity, and channel service. The implications of the model results for the manufacturer are discussed.