Success Strategies in Channel Management

1. Success Strategies in Channel Management Channel Structure and Membership Issues

2. Should Intermediaries Be Used at All? Who Should Be In The Channel? What Types of Intermediaries Should Be Used? The Impact Of Structural Decisions On Channel Coordination Flows to Be Performed, Appropriate Intermediary Choices A Single Channel or Multiple Distribution? How Many Channel Members Should There Be At A Given Level of the Channel? Which Specific Intermediaries Should Be Used?

3. Who Should Be In The Channel? • The issue of the identity of the channel's members is the most basic element of channel structure. • The first question is whether to use intermediaries at all If the answer is "no," the channel is a direct channel with no intermediaries. If the answer is "yes," the next two questions are "what type(s) of non-retail intermediaries (e.g., industrial distributor versus independent sales representative) and retail intermediaries (e.g., catalogue versus specialty store versus mass merchandiser) to add to the channel structure?" • Finally, once a particular type of intermediary is seen as desirable to add to the channel, its identity must be determined (e.g., which catalogue or which industrial distributor to use).

4. The question of whether to use intermediaries at all requires us to think about how the channel's end-users prefer to buy the product (or product line) in question. Then, to judge whether to use intermediaries at all, the producer must decide if in fact it has the capabilities necessary to sell direct. This means verifying that the producer can itself perform all the necessary channel flows to produce target end-users' demanded service outputs. Even if the producer is capable of selling direct, the next question becomes whether any independent channel partners could perform one or more flows at a lower cost than the producer itself could. Finally, assuming that it has the capability to sell direct and its end-users are willing to buy direct, the producer choosing whether to use intermediaries must decide how important control of the channel is. Frequently an independent channel intermediary could help reduce the cost of performing one or more flows in the channel. Should Intermediaries Be Used at All?

5. Given that the decision has been made to use intermediaries, the producer needs to decide what sorts of intermediaries to use. Non-retail or retail intermediaries can be used. Some questions are common to the decision to add either a non-retail intermediary or a retail intermediary. One is what channel flow or flows must be performed by that intermediary to meet target end-users' service output demands. For example, if it is important to have product stocked throughout a market area in the warehouses of an intermediary (i.e., the intermediary must perform the physical possession flow in order to meet demands for spatial convenience); an independent sales representative is not a good choice, because usually they do not hold stock. What Types of Intermediaries Should Be Used?

6. Another key question is what non-retail or retail channel partners are both willing and available to participate in the producer's channel efforts. In other cases, a producer may find a desirable intermediary who is unfortunately unavailable because of other exclusive distribution relationships it has signed. This can be a particular problem when entering foreign markets, where there may be a limited number of potential intermediaries to choose from, and those who are present may already be committed to other distribution contracts.. Beyond these common questions, one particularly appropriate to the decision to use non-retail intermediaries is whether synergies exist in allocating more than one flow to a single intermediary. Next - Mapping from Flows to Be Performed to Appropriate Intermediary Choices What Types of Intermediaries Should Be Used?

9. The last, and most specific, issue to deal with in answering the question of who should be in the marketing channel is which specific intermediacy or intermediaries to choose, from among the choices available, given the choice to use a particular intermediary type. As in the consideration of the type of intermediary to use, the specific identity of the intermediary chosen should rest on a combination of efficiency and coordination factors. Among available intermediaries, for example, a producer may choose the one that is the least costly to incorporate into the channel. The issue of coordination is just as important as that of efficiency, however. Another common technique is to engage in reciprocal piggybacking, where each firm sells both its own value offers and those of the partner. In sum, all of the levels of decision making about membership in the channel revolve around three key factors: demand-side issues, supply-side or efficiency issues, and coordination issues. Which Specific Intermediaries Should Be Used?

10. Part of the channel structure decision is the choice of distribution channel intensity. The choice of channel intensity is a decision about how many of a certain type of channel partner to engage in one market. Is there a need to offer it for sale in many retail locations, and indeed, if the producer did so, will this create fierce price competition among the retailers. As retail margins drop, the incentive to exert retail effort on behalf of the brand would lessen. The continuum of possibilities for intensity of distribution is often described as ranging from exclusive(only one outlet per market) through selective(a few outlets in each market) to intensive (available as widely as possible in the market). In choosing the appropriate level of intensity of distribution, the producer must balance potentially conflicting factors. End-users' willingness to search is one important criterion; if willingness to search is very low, then a higher level of channel intensity is appropriate. How Many Channel Members Should There Be At A Given Level of the Channel?

11. In addition to choosing which type of intermediary to use and how many of them to use, the channel manager must also decide whether to operate one overall marketing channel or multiple channels side by side in a single market. Whenever more than one channel coexists in a market, we say that this market is characterized by dual distribution." An increasingly large proportion of both business buyers and individual consumers find distributors and value-added resellers of relatively little value. The choice of whether to engage in dual distribution should be made based on demand–segmentation factors, supply–cost factors, and coordination factors. On the demand side, dual distribution is a natural response to a recognition of segments of end-users who demand different service outputs. Each such segment's ideal channel is unique, and the responsive channel manager creates a customized channel for each defined segment. However, on the coordination dimension, dual distribution can lead to conflict We call this domain conflict, that is, a conflict over the permitted activities for each channel member. A Single Channel or Multiple Distribution?

12. A Single Channel or Multiple Distribution? • Consider the following common, problem. A manufacturing organisation company selling industrial equipment uses a combination of independent distributors to sell to small and medium-size accounts, and an employee sales force to handle large or "house" accounts. The account sales level defining "large" is not precisely set, but distributors have a sense for how large an account can get before it merits house account status. What are the distributor's incentives in this case? It does want to grow and develop new accounts, because the sales efforts exerted are rewarded with profits to the distributorship. However, past a certain point, the distributor is likely to manage the size of its larger accounts in order to prevent them from growing too big! If it continues to exert best efforts and is successful in growing an account, its "reward" may be to have that account taken away by the producer. The existence of dual distribution thus generates conflict, as the distributor finds that an account it perceives to be its own, that it has grown through its own sales efforts, is simply taken away.

13. A Single Channel or Multiple Distribution? • One solution to this problem is to establish exclusive distribution as the channel • structure. Then all conflicts over domain are automatically solved, because neither dual distribution nor intensive distribution is present to create competition among intermediaries. • Thus, managing the potential for domain conflict in the context of a dual distribution channel structure becomes a more attractive solution. • Another tactic producers use to manage this type of conflict is to invest separately in the development of new accounts (so-called prospects) for its distributors. It thus creates a pool of new sales accounts to replace the few that are taken away from time to time.

14. An efficient zero-based channel is no more than a dream unless the intermediaries brought into the channel actually are motivated to do a good job. Using an intermediary because of the promise of lower channel costs, without verifying that the intermediary's compensation is sufficient to motivate high-quality performance, can lead to a worse outcome than if the producer were to sell direct. Channel intermediaries may not perform their jobs adequately because their compensation is not as high as the compensation available from other activities or selling other value offers. Alternatively, a decision to sell intensively rather than selectively or exclusively in a market area may be perceived by the original intermediary to diminish the potential for the producer's product and therefore reduce the incentive to sell. The Impact Of Structural Decisions On Channel Coordination

15. Does it meet target segments' demands for service outputs? While meeting service output demands, does it also allocate channel flows as closely as possible to the lowest-cost performers of those flows, thus leading to a minimization of total channel cost? Does the channel manager choose intermediaries who are able and willing to perform their assigned flows in a high-quality and timely manner? Does the reward system in the channel reflect adherence to the Equity Principle, leading to continued incentives of all parties to exert best efforts in the channel? In sum, the right channel structure has to meet several important criteria: