2. Introduction
Factors that determine the nature of the
distribution channel
– Nature of the product or service
– Location and nature of the customers
– Nature of competition and distribution
systems
– Intensity of distribution required
– Nature of the markets being targeted
3. Channel design and planning process
1. Channel Stages in channel planning
– Segmentation stage
Pharma company segments: Doctors/
Chemists/ Hospitals and nursing homes M1 M2 M3
– Positioning stage
P1
Service objectives at each channel element.
Each segment has different expectation
– Focus stage P2
Doctors in all A cat towns
Chemists located in the main markets of A
P3
towns
Only big govt and private hospitals
– Developing the right channel alternative
Modifications required to make it an ideal
channel
4. Channel design and planning process
2. Defining the customer needs
– Lot size
Toothpaste pack sizes, Wheat flour packs, Motor with horse
power
– Waiting time
Difference of “Desire to purchase”
– Choice to the consumer
Variety and assortments
– Place utility
– Service support
Sales support for maintenance and repair
Installation and training
Credit
Home delivery
Regular service follow ups
5. Channel design and planning process
Designing channel objectives
– Industrial products require direct-marketing by the
company
– Consumer products should be available in large no of
outlets
– Frozen desert and ice-cream products need cold storage
facilities
– Seeds selling will need rural distribution
– Multi level marketing will require their distributors to
appoint further distributors
6. Channel design and planning process
Channel Alternatives study
– Business intermediaries currently available
– The no and type of intermediaries required
– Any new member to be specially developed
– Roles of each channel member
7. Channel design and planning process
Cost of channel system
– Margins of the channel partners
– Cost of transportation of goods between the co and
the end user
– Cost of order booking and execution
– Cost of stock returns/ date expired stocks taken back
– Cost of reverse logistics required (getting empties
back)
8. Channel design and planning process
Current intermediaries
– Ready channel partners may be already available.
These can be further utilized
Distributors or redistribution: stockiest of some other
companies
C&F agents: can be further utilized for collections and other
work
Logistics service providers: will undertake distribution
activities.
Manufacturer’s agents, stockiest, guarantors provide
financial support
Financial agencies can be used to finance your customers.
9. Channel design and planning process
Number of intermediaries
– Should be adequate for expected coverage of
the target markets at the same time should
not be too much to dilute the effort and add to
the costs.
– Its not easy to get rid of channel members
10. Evaluation of Major alternatives
Cost:
– Every channel will have different costs associated with
Ability to manage and control
– Considering coverage, frequency, productivity, inventory, credit,
merchandising, distribution, promotions, after-sales-service, pre-
sales-sales, channel salespeople, stock points
Adaptability
– Sensitivity of channel to addition, elimination of products,
additional service, new territory coverage, generating leads,
handling price change, stock rationing
Range and volume to be handled
– Ability to handle large range of products and volumes.
11. Selecting channel partners
Selecting Carrying and Forwarding agent
Location of the party
– In or close to main market of the company
Location of the warehouse
– Close to a major market
– Outside octroi limits
– Should have proper road/ transport access
– Labor availability
– Utilities support
– Connected by phone
Past experience
– As a C&FA for a similar company
– As a transporter should have access to a good warehouse
History of past business
– Should have handled similar but non-competing companies
– Ability to maintain confidentiality of transactions
12. ..conti Selecting channel partners
Selecting Carrying and Forwarding agent
Financial strength
– To handle all operating expenses till re-imbursement
– Insurance
IT capability
– Adequate own hardware
– Trained staff to handle simple programmes and repairing
formats
Flexibility
– In operating hours daily
– To handle peak loads
Transportation facilities
– Reliability, consistency in source of vehicles
– Additional volumes to be handled at short notice
Attitude, commitment
– To be of the highest order/ positive
– Willing to expand the business
– Disciplined
13. Selecting channel partners
Selecting Distributor
Size of the channel partner
– Current business portfolio
– Financial strength/ asset ownership including personal assets of
partners
Own salesforce
– No of sales people
– Qualifications, background, experience
Current business
– Products handled, volume handled
– Should be of similar products but non-competitive
– Product quality, compatibility and complimentary
Reputation
– Leadership in the market
– Integrity, fairness in dealings
Market coverage
– Territory/ intensity
– Regularity, reliability
– Relationship, productivity
– Beat plan adherence
– Value of institutional business handled if any
14. Selecting channel partners
Selecting Distributor
Credit extended in the market
– % of outlets
– & of current business
– Bad debts, if any
Stock distribution
– Ready stocks or order booking
Infrastructure availability
– Warehouse
– Distribution vans
– Hardware/ personal computers/ connectivity
Sales performance
– On current business
– Awards, prizes, certificates won on performance
Management of business
– Educational backgroun, qualification of partmenrs
Market working
– Efforts on merchandising, displays
Handling sales promotions
– Past experience
Inventory management
– Adherence to stock norms recommended by the company
15. Change of channel members
Why to change channel members?
Training channel members
On the job training
Class room training
Special meetings to launch new products
Training on submitting reports
Statutory requirements
Product related responsibilities of channel members
Training on technicalities
Training on specifications, installments, repair and maintenance
Training on after sales service
16. Motivating channel partners
Efforts in designing capacity building
programmes
Training
Promotional support
Marketing research
Working along with company people
17. Channel power
Referent power: Power out of eminent position of the
company
Expert power: Power out of special knowledge of the
company
Legitimate power: Power of legal agreement with
company
Support power: Support in the form of promotions,
subsidies, additional help
Competition power: Comparison with other channel
members
Reward power: Incentives, special incentives
Coercive power: Power of ‘threat’
18. Channel design comparison factors
While comparing two channels,
– Efficiency: Input versus output
– Effectiveness: How well channel meets its objectives
– Capacity: How effectively channel can handle changes in
volume
– Agility: How well can channel handle changing demand
pattern
– Consistency: of performance
– Reliability: Commitment on performance
– Integrity: Is the channel fair
19. Channel design implementation
Define criteria for appointment of channel partners
Document channel objectives for sales people and channel partners
Define the profile of the customers to be services
List down all the customer service levels in detail
List the tasks in sequence which will drive these service levels
Get benchmark of good practices from knowledge of competition
Define channel structure and channel partners who constitute it
Allocate the tasks among the channel partners
Work out cost of delivering CS levels and prepare a budget
Advice the channel partners on the tasks and their benefits
Define channel partner performance appraisal system and share it
List down reports, records and frequency from each channel partner
20. Vertical integration- Owing the channel
Own the channel or outsource?
How much of vertical integration?
Why vertical integration
Outsourcing distribution
