SADMAN Assignment Group 10 | Section B Reading Summary

Channel Management
Channel management is managing the channels through which products reach from
manufacturer to end-users. A typical channel arrangement-
Manufacturer → wholesaler/distributor → retailer → consumer
Since most of the products are sold through a combination of direct and indirect channels,
managing them is very important since they affect the overall business strategy of a company.

Channel Management Components

A channel has specific functions that it performs like demand generation, carrying of
inventory, physical distribution, sales service, extending credit to customers, product
modification and maintenance, etc. A producer can perform all those functions depending on
its ability or can shift some or all of them to different channels.

A channel includes many components depending on their capabilities like direct sales

force which contacts decision-makers or influencers. In B2B, user accounts include different
personnel from different departments. Distributors buy goods from suppliers taking
ownership of goods and then sell those goods to user customers or other resellers. Because of
their economies of scope, distributors typically play a cost transfer role in the channel since
they can perform certain functions more economically than others. Captive
distributors have different functions as they have to maximize their own sales volume along
with maximizing the sales volume and profit margins of other businesses of the owner
company. Agents are different from typical distributors as they do not take the title of goods
they sell. Manufacturers’ rep (MR) is an example of agents, and they sell on commission with
a lower number of suppliers, and hence they can provide more attention and
support. Brokers are similar to MRs in taking commissions, but they represent different
producers at any given time for short periods. The key issue in channel management is the
alignment of available components with distribution functions, and this gives some choices in
distribution decisions like channel structure reseller type, market coverage, and terms and
conditions which define supplier and reseller responsibilities.
Channel Relations - One important aspect of channel management is the relationship
between suppliers and resellers. Because of changes in circumstances, these changes need to
addressed by firms’ suppliers and resellers. Three factors affect such relations,
1) Tug of War - Because of mutual benefit suppliers and resellers take part in the exchange
of goods and try to maximize sales or margins of products. On the other hand, because of

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SADMAN Assignment Group 10 | Section B Reading Summary

channel relations, they are always trying to gain more profits and control. Also, different
goals and constraints lead to conflicts, which leads to a situation like a tug of war between
them.
2) Entangling Alliances - Producers and Resellers often are part of multiple and sometimes
competing channel systems. Producers sell through several intermediaries whereas suppliers
also carry products of competing manufacturers. 
3) Control vs Resource - Channel management also affected by the control and resource
interplay in distribution. Most of the time to control essential channel functions, producers
have to tradeoff resources required for control. If more intermediaries are in the supplier’s
channel, then its control on the flow of product and prices decreases because of having more
players. Whereas reducing some partners would result in more functions to do for suppliers.
So, there is an inverse relationship between control and resources in many situations. This
relationship helps us in making two observations; first, some business units have resources to
do most or all the functions, while units with constrained resources lack the ability to do
many channel functions. Second, depending on the product, management’s need to control
channel function may be high or low such as selling or fast delivery. So, in case of high
control and high resources, a direct sales channel would be a preferred mode of distribution.
Conversely, in case of low control and low resources, multi-tier distribution is best, where
many functions are done by intermediaries so that resources are conserved for other purposes.
In the case of limited resources and high control, suppliers would perform as many channel
functions as it financially can. So, distribution cost act as a constraint for the producer.
Conversely, in case of low control and high resources, low-cost distribution cost is
determining factor. So the channel functions performed are based on cost efficiency and not
on the manufacturer’s control.

           There are other factors besides control and resource that affect channel management
decisions. Still, it is essential to consider the interplay of control and resources since it helps
in different channel management situations like, what is the basic function of intermediaries,
is it cost saving or supplying scarce resources? What level of quality control is needed in
different channel functions? Periodic evaluation of options of shifting different functions to
different points in the channel. So the effective channel management requires clarity of
various components and choices, supplier- reseller relationship along with trade-offs between
control and resources.