Using Selectivity to Motivate Channel Members

1. Using Selectivity to Motivate Channel Members

2. What Level of Intensity (Selectivity) is the Best Channel Strategy? • Affects the ability to implement channel programs • Affects level of control • Manufacturer’s perspective • Intermediary’s perspective

3. Coverage versus Assortment: Convenience Goods • Typically manufacturers of convenience goods should pursue higher levels of intensity downstream. • Relationship between coverage and sales/market share • Spatial convenience is critical • FMCG

4. Downstream Channel Members Don’t Like Intensive Distribution • The intermediary tries to differentiate itself via its assortment • Intensive distribution means competitors have same brands • The intermediary has to find another way to differentiate • Source of conflict • May result in the brand being dropped

5. How can the manufacturer manage intensive distribution? • Contractual arrangements • Pull strategy to build brand equity • Limit market coverage • Resale price maintenance • Available in global markets • Illegal in the U.S.

6. How does the retailer or wholesaler decide how many brands to carry? • The importance of the product assortment to the customer suggests exclusivity is not the best choice • Manufacturer wants maximum coverage • Intermediaries want multiple brands per category • Potential for conflict

7. Negotiating Selectivity • Threat of complacency • The nature of the product category • Convenience, shopping, specialty • Brand Strategy • Quality positioning • Premium pricing • Scarcity

8. So how can the manufacturer use selective distribution and motivate members to support the brand? • Restrictive contracts • Specify obligations of reseller • Specify conditions for termination • Specify demanding goals

9. Choosing Selectivity to Gain Influence Over Channel Members • Assumes the channel member will not respond to market incentives • Selective distribution can be used to gain cooperation from members • Higher margins and higher volume • Allows reseller to differentiate • Works best when the brand is positioned as premium

10. The more important control is to the manufacturer, the more selective the manufacturer should distribute • Selectivity creates reward power • More and better resellers may be available • A small, dedicated group of resellers may provide higher levels of marketing effort

11. Selectivity May Be Used to Stabilize the Channel Relationship • If power is unbalanced, the stronger member may offer selectivity as a reassurance • A stronger manufacturer may limit number of members in a market • A strong reseller may limit the number of competing brands

12. If a Direct Channel is Used, Selectivity May Be used to Reassure Other Members • Manufacturer reduces channel members in a market to compensate

13. Will we really reduce costs by reducing intensity? • Selling expenses • Support expenses • Lower turnover of resellers • Reduced inventory holding costs • Improved forecasting

14. Will we really increase sales if we increase intensity? • Generally, brands that are more widely available have higher sales/market share • May be caused by a third factor • Increasing revenue may not increase profits • Customers may be willing to pay higher price for a brand that is widely distributed