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



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

What is a channel


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. Role of the Channel . information and service as desired by the manufacturer.

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

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 .

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

THE SELLING CONTINUUM Direct Structural Systemic Consultative Concepts/ Ideas Channel Driven Item List Brand .

Maslow's theory of Hierarchy of needs SA Aesthetic Personal Social Security Basic needs .

What kind of service level is required. How accessible they required the product to be. How much technical information required. 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. Costs much lower High value and size require limited / Controlled distribution. Size and value of each sale . the need for higher and uncontrollable distribution.

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

Who needs whom Level of dependency Strength of channel .

cost for push strategy. Efforts required by the channel is required significantly for the push strategy. Promotional Strategy .Push More Versus Pull. Stronger channel required.

Depending upon the efforts required Objectives you have set up Channel cost comprises of .People.Delivery costs etc. Cost of channel .Infrastructure like Warehouse etc . .

CST and ST Octroi MRP Local tax laws .

at the right place.The one that : Gets the products at the right time. in the right way at the most cost efficient way The choice of the channel .



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

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/ Incentives Salary Salary Margins + 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 .

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

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

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

Consumer Durables Service Own Retail Exclusive Ret(Franchisee Quality Grads Renumeration Others Motivation. Training Training/ Proms Training Motivtn Training Salary 5-9% 5-8% Fixed+ Costs 10 %+ Weekly/ Grads Grads Grads+ Grads+ Retail Show Daily/Monthl room y C & Fs Exclusive Monthly Continuos Recruitng/T raining/Moti vtn .

Training Advisors Grads Salary +incentive Exclusive DSAs Grads Salary +incentive Salary +incentive Training/ Proms Co owned network Grads+ Training Motivtn .Non Physical Products( Insurance) Quality Remuneration Others Motivation.

OEMs .Original Equipment Manufacturers hands over the product to Manufacturer channel. Channel then adds its own value and markets the products.

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 .

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

Personal Net Direct Selling Mailers Telephonic Direct Marketing .

RETURN ON INVESTMENT Return Investment X 100 ROI .

Risk Return .

In return they expect commensurate Return that they not only takes for today But also needs to fuel future growth. Efforts.Business men invest : Time. .

Today’s opportunity : Savings -5% FDs .8-9% Mutual funds.12 – 15 %  Distribution line – 20 – 30 % At least twice bank rates ac .

Absolute amount Other than money. need for status. that takes care of basic needs. Other businesses where costs are shared and there is synergy. ability to attract other business. Other factors worth considering .

.Investment Stocks Credit Deposits Claims Etc.

Sales in units * margin per unit Interest on Deposit Nett of discounts Return( Income) .

license fees etc. other staff. ( consider appropriate contribution) .Direct Expenses : Salesmen Indirect Driver Delivery boys Deliver costs Depreciation of vehicles Bills/ Stationery. audit fees. Warehouse rent Office rent. accountant etc. telephone. electricity.

Multiply it by 12( if data is monthly) to get annualized ROI.= Gross income – Expenses Total Investment X 100 ROI is a percentage. ROI .

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

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