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Flow of presentation
Channel design factors Channel planning process Channel design steps Choice channel of distribution A Check list for selecting the most Appropriate Channels Selecting Channel Partners Training Channel Members Motivating Channel Members Channel Members Evaluation Channel Comparison Factors Channel design Implementation Vertical Integration Outsourcing Distribution
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Definitions:
Channel System: The channel system is the
bridge between the manufacturer & the ultimate customer of the products or the services offered by the company.
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Positioning
Focus
Development
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Segmentation
Putting customers in similar clusters based on their needs Doctors who prescribe medicines Chemists who dispense medicines Hospitals and nursing homes who use them Each segment has a different need to be serviced by the channel Gives an idea to the sales manager as to the kind of channel members he should be planning for.
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Positioning
Defines the channel element required to service each of the segments
The sales manager decides the channel partner who is ideal to meet the expectations of the segments. The number of each category of intermediary is also decided based on the number of customers to be serviced in each segment. The service objectives and flows for each channel partner are also frozen
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Focus
It may not be possible to meet the needs of all segments cost and practicality considerations (the managerial talent available for instance) The sales manager has to firmly decide which of the segments he will service The competitive scenario also helps in this decision.
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Development
At this stage the channel system is being put in place to achieve the objectives Select the best of the alternatives Comparison with the most successful competitor could be a good benchmark Channel partners of competitors may be willing to share best practices of their principals For modifying an existing channel, the gap between the ideal and the existing is to be identified for remedial action.
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Customer Needs
Lot size most convenient pack size which the consumer can buy at a time Waiting time time elapsed between the desire to buy the product and the time when he can actually buy it should be almost zero Variety choice of products, brands, packs Place utility choice of buying where he wants. For a consumer product it has to be at a location closest to his residence
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Channel Objectives
Defines what the channel system is supposed to do to support customer service. Customer needs could include:
Lot size convenience Minimum waiting time Variety and assortment Place utility
The product characteristics and the market profile also impact the objectives. Competition could also affect the objectives
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Industrial/Technology
Consumer Products Frozen desserts/ ice cream Fertilizers, pesticides Pharma products House construction items
Direct Marketing
Large no. of distributer, wholeseller,retailer Cold chain channel system Rural based channel ststem May required different set of partners Distributors of hardware
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Channel Alternatives
Are planned after deciding the customer segments to be serviced and the levels of service
Business intermediaries currently available like C&FAs, distributors, dealers, agents wholesalers and retailers. The number and type of intermediaries required Developing new channel types Roles of each channel member
Evaluation Critieria
Cost: If existing sales force can be expanded cost effectively, this is the best alternative Cost of alternatives at different volumes can only be estimated for comparison System with the lowest cost is preferred Cost element of channel member includes:
Margins of the channel partners Cost of transportation Cost of order booking and execution Cost of stock returns Cost of reverse logistics required
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Evaluation Criteria
Adaptability the channel should be flexible to handle different types of markets and changes in the market conditions Volume and range to be handled Capable even when business grows or expands Ability to manage and control: The channel system should help the company enforce these rules fairly to all channel partners Company trains channel personnel and provides proper product literature
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Market Consideration
Customer or Industrial Market Number & location of Buyers Size of Order Customer buying habits
Product Consideration
Unit value (Industrial goods) Perishability (Vegetables, Fruits, Bakery) Bulk & weight (Coal, Stones, Bricks) Standardization (Microsoft) Technical nature (Automobile) Product line (Dabur, HUL) Age of product(MTS, Uninor, Aircel)
Middlemen Consideration
Availability Attitudes Services Sales potentials Costs
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Debtor management
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Product Factor
Physical nature Technical nature Length of product line (HUL VS. P&G) Market position
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Market Factor
Existing market structure Nature of the purchase deliberation Availability of the of the channel
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Institutional factor
Financial ability of the channel members Promotional ability of the channel members Post-sales service ability
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Selection Criteria
Qualitative: Willingness, confidence in
company products, willingness to abide by company rules, building company image, innovativeness etc.
For technical and industrial products recognition of specs, installation procedure, repair and maintenance and effective demonstrations
Servicing of automobiles and other engineering products
Power of Motivation
Reward positive support Coercion- threat of punitive action Referent positive effects of association Legitimate enforcing a contract Expert support of special knowledge Support additional benefits for performers Competition pitting against peers
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Performance Evaluation
On pre-agreed tasks only. No surprises. Specific targets on periodical basis are set. Targets on volume and outlet productivity could be for a week or a month Targets relating to increasing market shares or total outlet coverage could be for 6 months Different weightages could be given for each of the parameters for evaluation
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ROI as a Measure
Leading FMCG companies feel that an ROI of 30% for a distributor is healthy and is a fair indication that he is performing well. If the ROI is more, additional tasks are given If the ROI is less, the company may provide additional support Post evaluation tasks include counseling, retraining and motivating. In extreme cases it may result in termination.
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Vertical Integration
This means owning the channel. The company
does the work of production, branding and distribution. Downstream integration means the producer of the goods also does the distribution Eureka Forbes, Bata
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Vertical Integration
Upstream integration means the seller also produces the goods private labels of modern retailers.
If the organization does the work of production, branding and distribution, it is said to be vertically integrated. Vertical Integration provides better control over the distribution function Brooke Bond India - Case
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Outsourcing Distribution
Is the most prevalent situation as: The reach is better The cost may be lower The company can exploit the core competence of its channel partners, which is distribution.
Vertical integration is a choice which will become long term and cannot be easily changed once the resources have been committed. However, direct distribution (owning the channel) is still the best solution for intensive distribution.
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Non-store Retailing
Selling door-to-door Vending machines Tele-shopping networks Selling through catalogs Other forms of direct selling Electronic channels
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