Channel Management

Adil Mirza
ICFAI Business School Hyedrabad
To help you understand
 the key factors that influence the channel
choice,
 how a channel structure is developed
Relationship between the principle and the
intermediary
Types of channels
Implications on the length of the channel

Objective
Channel is a mechanism which brings the
product to the consumer at his doorstep.

What is a channel
When it becomes impossible for the
manufacturer to directly deal with the
consumers.
Minimize transportation costs, maintain
service levels, reduction of stock holding
etc.
Required to distribute your products.

Why Channels
To bring the product closer to the
end user and provide him with the
knowledge, information and service as
desired by the manufacturer.

Role of the Channel

Commitment to develop the channel
Provide support by way of service,
Information, Training and Motivation to
the channel members.

Role of the Principal

Product
Consumer
Competition
Size and value of each sale
The area of operations
Strength of efforts required
Promotional Strategy
Cost of channel

The Factors that impact the

choice
Identify where your product is on the
continuum
Lowest in the Sales Continuum require to
be distributed widely.
Linked to Maslow’s theory of hierarchy of
needs –
- Who is the customer, who will use it,

Product
 THE SELLING CONTINUUM

Direct
Structural

Systemic

Consultative

Concepts/ Ideas
Channel
Brand
Driven
Item
List
Maslow's theory of Hierarchy of
needs

SA
Aesthetic
Personal
Social
Security
Basic needs
What kind of service level is required.
How much technical information required.
How accessible they required the product
to be.
How often do they use it? In what
quantity?
What are the installation needs

The customer
Opportunity to either match or better the
competition.

Competitor Channel strategy

Lower the size and value per sale, the
need for higher and uncontrollable
distribution.
Costs much lower
High value and size require limited /
Controlled distribution.

Size and value of each sale

Wider your appeal and choice of
marketing, wider channel required.
Also need to look at the competitive
strengths and weakness and make
geographic plans.
Keep in mind the area of operation and
choose the channel.

Area of operation
Who needs whom
Level of dependency

Strength of channel
Push Versus Pull.

More cost for push strategy,

Efforts required by the channel is required
significantly for the push strategy.
Stronger channel required.

Promotional Strategy
Depending upon the efforts required
Objectives you have set up
Channel cost comprises of
- People,
- Infrastructure like Warehouse etc
- Delivery costs
etc.

Cost of channel
CST and ST
Octroi
MRP

Local tax laws

The one that :
Gets the products at the right time,
at the right place,
in the right way
at the most cost efficient way

The choice of the channel

OWN
EXCLUSIVE
SHARED
COMBINATION
FRANCHISIE

TYPES OF CHANNEL
RETAILERS/ , DIRECT SELLENIG AGENTS
WHOLESALERS – STATIONERY, MOVING
LARGE RETAILER CHAINS(Foodworld,
Sahakari Bhandar etc)
INSTITUTION ( CSD, INS)
DISTRIBUTORS/ STOCKISTS
C&FS
SOLE SELLING AGENTS.

CHANNEL MEMBERS
Retailer - Margins, Promotions, Discounts
Wholesaler – Margins,Promotions,
Discounts,
Distributors – Margins, Promotions,
Salesmen, Delivery costs
Chain stores – Margins, Promotions,
Discounts, Cost sharing,
Institutions – Margins, Credit.
C&Fs – Delivery costs, service costs.
Sole Selling Agents – All costs +
Reasonable Returns.

Costs
Frequency of visit
 Retailer – Weekly/ Fortnightly/ Monthly
Wholesaler – Multiple visits
Distributors – Daily – Monthly
Institutions – Weekly or Up to the time of
credit.
 C & Fs – One a month or multiple visits
Sole Selling Agents - Continuous

Servicing the Channel

Members
Commission/ Margins
Incentives
Salary
Salary + Incentives
Reimbursement of costs
Salary + Incentives+ Reimbursement of
costs

Remuneration
Retailer -
Whole seller
Distributor
Chain stores
Institutions
C&Fs
Sole Selling Agents

Quality of Service
Training
Motivation
Installation
Subsidies

Other services
Basic Needs : Profit, Volume
Security : Stability, Growth, New
business developments.
Social : Recognition in the community,
Personal : Biggest Business Man, Best,
etc
Aesthetic : Stylish Office,Modern Gadgets,
Computerization etc.
Self Actualization : ?

Motivation
Retail
Wholesalers
Sub brokers
Brokers
Agents
Low margins/ High turnover
Goods move direct to w/s or large
retailers from point of manufacturer.

Commodity
 FMCG
Remune
Service Qualit ration
Others
y

Retaile Weekly/ Under 5 to Discount

Monthly Grads 20% s
r
Proms.
Discount
W/S Daily/ Unde 2 to
s
Month rgrad 3%
s Promss
Distribut Daily/ Grad 5-8% Training
orStocki Monthly s Motivtn
sts
C&Fs Monthly Grad Fixed Training
s+ +Cost
Sole Continu Grad 10s % Recruitin
Selling os s+ g/Trainin
agents + g/Motivt
n
 Consumer Durables
Service Quality Renumeration Others

Own Retail Grads Salary Motivation.

Training
Exclusive Weekly/ Grads 5-9% Training/
Ret(Franchisee
Proms
Retail Show Daily/Monthl Grads 5-8% Training
room y Motivtn
C & Fs Monthly Grads+ Fixed+ Training

Costs
Exclusive Continuos Grads+ 10 %+ Recruitng/T
raining/Moti
vtn
Non Physical Products(
Insurance)
Quality Remuneration Others

Grads Salary +incentive Motivation.

Advisors
Training

Exclusive Grads Salary Training/

DSAs Proms
+incentive

Co owned Grads+ Salary Training

network Motivtn
+incentive
Original Equipment Manufacturers

Manufacturer hands over the product to

channel.
Channel then adds its own value and
markets the products.

OEMs
Downline – When manufacturer moves
into the channel and sets up own outlets/
Upline – When a member of the channel
gets into the manufacturing and starts
distributing through channel.

Vertical Integration
Seller - Buyer Direct – Zero length
Seller – One in between- Buyer–length of
1
Seller- Two in between– Buyer–length of
2
Seller-Three in between-Buyer-length of 3
And so on.
Higher the length, lesser the direct
control.
Likely to be expensive.
Requires the support of the entire
marketing mix.

Length of Channel
Personal Selling
Net
DirectMailers
Telephonic

Direct Marketing
RETURN ON INVESTMENT

Return X 100
Investment

ROI
Risk

Return
Business men invest :
Time,
Efforts,

In return they expect commensurate

Return that they not only takes for today
But also needs to fuel future growth.
Today’s opportunity :

Savings ac -5%
FDs - 8-9%
Mutual funds- 12 – 15 %
 Distribution line – 20 – 30 %
At least twice bank rates
Absolute amount
Other than money, that takes care of
basic needs, need for status, ability to
attract other business.
Other businesses where costs are shared
and there is synergy.

Other factors worth

considering
Investment
Stocks
Credit
Deposits
Claims
Etc.
Sales in units * margin per unit
Interest on Deposit
Nett of discounts

Return( Income)
Direct
Expenses
Salesmen
:
Driver
Delivery boys
Deliver costs
Depreciation of vehicles
Bills/ Stationery,
Warehouse rent
Indirect
Office rent, electricity, telephone, other staff,
accountant etc, audit fees, license fees etc.
( consider appropriate contribution)
= Gross income – Expenses X 100
Total Investment

ROI is a percentage.
Multiply it by 12( if data is monthly) to get
annualized ROI.

ROI
The one who can add value
Provide his unique local contribution
Mutually dependant
Long term
Matching with the culture and values of
the principle.
Mutually beneficial

Selecting the right partner