Sales Channel

4/11/2021 Sales Channel
Sales Channel Virago Quarter 1
Your sales channel to your customers will be through company-operated, bicycle shops and a
web sales center. Normally, higher-end bikes are sold through independent retail stores that carry
a variety of manufacturer brands and make all of the local marketing decisions. By having your
own stores, you will have complete control over brand selection, pricing, advertising, and sales.
Control will eliminate surprises at the point of sale from independent retail operators. And, you
will have the freedom to adjust your marketing decisions as you learn more about your
customers, the competition, and the costs of doing business in a variety of geographic markets.
You can also set up a web sales center to create and serve demand. A web sales center is a
physical place with computers, internet connections, phones, and sales and support staff. It will
have its own set of product information pages where potential customers can review the
technical features of the available bikes, check out the prices, and place an order. Customers can
also call the web sales center to ask sales people for information and advice on a potential
purchase.
However, before you begin to make tactical decisions, it is important to have an overall sales
channel strategy to guide these tactical decisions. Review the available information regarding
the market opportunity and the sales channel options and then formulate your sales channel
strategy.
In the next quarter, you will test market your business strategy. However, it takes a full quarter to
open a sales o ce or an international web sales center. Therefore, you must schedule the
opening of your rst sales channel in the current quarter.
https://game.ilsworld.com/mpl/web7/engine.php?tpl=print&studentID=11100902&sessionID=ec3f3663f8ef78b7c16a2f59b081d56e&quarter=1&languag… 1/3
It is recommended that you open a brick-and-mortar bike shop and/or a web

sales center for test marketing.
To help you make your sales channel decision, review the size of each market in
your target markets.
As you contemplate your sales channel options, consider the following factors:
Traditional brick-and-mortar:
The big advantage of a brick-and-mortar sales outlet is that customers can physically
touch and feel the carbon ber bike and take it for a short ride. These bikes are
impressive and it is easy to fall in love with one.
Potential buyers will also have lots of questions about a bike’s performance capabilities,
many of them speci c to a particular segment’s needs and wants. With a brick-and-
mortar outlet, you can have dedicated sales people for individual segments. One might
be trained to serve the Speed segment while another might specialize in mountain
biking. This training will enable them to personally help a customer to choose the brand
or model that is right for that customer. And, the sales person will have the skill to
properly t a bike to the customer’s physical and performance requirements.
The big disadvantage is that brick-and-mortar, sales outlets are expensive to open and
run. And, there are a lot of details to manage.
Web Sales Channel:

The chief advantage of a web sales center is that you can set up a single site to serve all
of the geographic markets you choose to enter.
Another advantage is that it will allow you to market to an entire metropolitan area, an
area much broader than a single store can cover.
You will hire employees that are uent in multiple languages. When potential customers
call in, they will speak with someone that answers in their own language. Even though
the web sales center is located far away, they might think it is located in their
community.
The biggest disadvantage is that the customer cannot touch and feel the bike. All they
have to work with is a picture and the product description. By the same token, it is
harder to have a conversation with the sales rep on the phone than when the rep is
standing next to you and the bike.
Another drawback to e-commerce is that you must wait for the customer to nd you
(your website). Your advertising and search engine marketing will help to put your name
and brands in front of potential customers. If they like what they see, they will visit your
sales site, and hopefully place an order. You can improve the odds of a purchase by
investing in various productivity tactics. You can also hire a sales and service staff to
help close the sale, but remember they must wait for the phone to ring.
DECISION TIP
It is easy to get excited about having both a web sales center and traditional bike stores
for selling your products. However, it will be expensive to initiate both distribution
channels. You may wish to start with one and then expand to the other.
Be aware that the web sales channel will cannibalize sales from bike stores, and vice
versa. Some customers that may have bought from the brick-and-mortar outlet will
switch over to your web sales site because that is their preference. And, the opposite is
true. This will lower the productivity of both sales channels. On the other hand, the use
of two channels of distribution may create more total demand, even if each one loses
business to the other.
Some of your customers will prefer to purchase through a brick-and-mortar, sales outlet
while others will prefer to shop on the web. Some of these differences are correlated
with segmentation. You should note which segments prefer to shop on the web and
which ones prefer a brick-and-mortar outlet as you select your target segments and
engage them with your marketing.
For more information on sales channels, consult the following Help le: Territory Development.
4/11/2021 Market Potential
Market Potential Virago Quarter 1
Your market research rm has tried to derive an estimate of the potential demand by segment
and geographic market. The researchers asked each customer:
How likely they would be to purchase a bicycle in the next 12 months.

How many products each customer would be likely to purchase if the customer decided to
buy.
To complete the data collection, the researchers then counted the number of potential
customers in each geographic market by segment.
It might seem strange to ask how many bicycles a potential customer might buy since most
would only purchase one for themselves. However, there are occasions when a person would
purchase more than one for him or herself (a mountain and a speed bike) or purchase a bike for
a spouse or child. As a result, the average number of units purchased is actually more than 1.0.
In a city like Amsterdam, everyone in the family might have a bike and it would not be unusual for
a family to purchase more than one bike in a given year.
Taking all of these factors into consideration, the researchers applied the following equation to
estimate market potential in each geographic location:
FORMULA
Market potential = probability of purchase × number of units × number of potential

customers.
YOUR TASK
Review the potential market size of each segment and geographic market. The data
indicates how many units could be purchased over the next 12 months. There is a separate
estimate for market potential for each segment in each city.
DECISION TIP
Note that the data indicates the potential demand for the next 12 months. You might
assume that 25% of the market potential would be realized in any quarter (as there are four
quarters in a year). But this is not likely to happen.
First, the quality of your rm's decisions and those of your competitors will affect demand. In
the early stages of market development, everyone’s marketing efforts and products are likely
to be weak simply due to a lack of experience.
Second, it will take a few quarters for customers to learn about your new brands and their
bene ts. They might even be skeptical in the beginning.
For these reasons, actual demand is likely to be much less than potential demand in the
early quarters. The opposite could be true a year from now.
Finally, be cautious in using this market information. At best, these estimates are very rough
projections. Buying intentions are notorious for being wrong about actual purchases. The
actual purchase rate will ultimately depend upon how well the product is designed, priced,
advertised, and distributed, as well as how well you and your competition serve the market.
To learn more about Market Research, consult the Help le: Market Research.
Market Potential Virago Quarter 1
12-Month potential demand
Recreation Mountain Speed

New York City 5,114 4,757 3,826
Rio de Janeiro 4,194 3,177 1,942
Amsterdam 5,468 3,447 3,659
Bangalore 3,491 2,439 2,447
Recreation - Top 4
Amsterdam 5,468
New York City 5,114
Rio de Janeiro 4,194
Bangalore 3,491
0 800 1,600 2,400 3,200 4,000 4,800

Mountain - Top 4
New York City 4,757
Amsterdam 3,447
Bangalore 2,439
0 800 1,600 2,400 3,200 4,000 4,800

Speed - Top 4
New York City 3,826
Amsterdam 3,659
Bangalore 2,447
0 800 1,600 2,400 3,200 4,000 4,800

4/11/2021 Sales Stores
Sales Stores Virago Quarter 1
In the next quarter, you will test market your marketing strategy. To do that, you must choose
where to open your rst store. Your decision will depend upon the biking opportunities and
market potential in each geographic location.
YOUR TASK
It takes a full quarter to open a sales store. Thus, you must schedule the opening of your rst
store in the current quarter.
DECISION TIP
It is recommended that you open one store for test marketing. You can open additional
stores in the future after you gain market experience. To help you make your decision, review
the size of each market in your target markets.
Once you choose a city, a real estate agent will help you to nd a suitable location within the
city. A middle-class area of town would be best for an upscale bike store like yours. And to
speed entry into the market, the agent will look for an existing store with approximately
3,200 square feet or 300 square meters of oor space near a major road.
The space in the sales outlet will be divided up into a display area (about 50%), a tting area
(about 20%), and a service area (about 15%). The rest (15%) will be used for a sales counter,
o ce space, and a backroom for storage, among other things.
The display area and tting area will be the keys to your success. In the display area, you will
be able to showcase all of your bicycles. You will want to have several bikes on display along
with a few Point-of-Purchase displays to feature your most important brands.
The tting area will be for measuring the buyer so that you can fabricate a new bike
customized to the customer’s shape, weight and biking preferences. In that area, you will
have a few model bikes that you can work with to nd the right measurements for each
customer.
The display and tting areas need room for more than just bikes and models. You can expect
to employ several sales and service people to work with potential customers in that area.
4/11/2021 Sales Stores
As you can imagine, your store can quickly get crowded with bikes, point-of-purchase
displays, staff, and customers. Having more than 15 bikes or 15 sales people will likely
cause a reduction in a store’s productivity.
Keep all of these things in mind as you move forward with your marketing plans.
The Territory Development section of the Help le provides some valuable information on what
to think about when you enter a market.
4/11/2021 Open Stores
Open Stores Virago Quarter 1
Your territory development decision is one of the more straightforward decisions that you are
faced with.
Each city has a different sales potential or

number of prospective buyers. In addition,
there are differences in the composition of the
market segments. One metropolitan area may
have a greater proportion of one segment than
another city. These differences in market
composition will in uence the sales volume of
the different brands on the market.
Your Market Opportunity Analysis (MOA) should provide you with a rough estimate of the sales
potential by segment and by geographic market. Determine which markets have the highest
concentrations of potential customers in your target segments. With this information, you should
be able to establish a priority list of geographic markets.
YOUR TASK
Specify which sales outlet should be opened for the quarter 2 test market. Pay attention to
the setup cost, which will have to be paid this quarter, and the lease cost, which will have to
be paid each quarter in the future.
DECISION TIP
There are other concerns beyond potential market size to keep in mind as you open sales
outlets:
Operating expenses: larger and more prosperous markets tend to have higher operating
expenses.
Competition: early entrants will have the pioneering advantage of building unchallenged
customer loyalty, but they pay a price in low initial sales due to a lack of customer
awareness of the product category.
The Territory Development section of the Help le provides some valuable information on what
to think about when you enter a market.
Open Stores Virago Quarter 1
World Market
City Open Close Current Status Setup/Close Cost Quarterly Lease Cost
New York City closed 200,000 62,000
Rio de Janeiro closed 90,000 17,000
Amsterdam closed 136,000 44,000
Bangalore closed 84,000 13,000
Total store cost: 0
4/11/2021 Web Sales Center
Web Sales Center Virago Quarter 1
The web is an effective sales channel for many rms. A web sales center makes
it easy for potential customers to see and order your products. And, it enables
you to start selling to all test markets from the very beginning.
Should you decide to sell on the internet, the web sales center will be located in
Bangalore where startup and operating costs are very economical.
Order Ful llment Process
Each day, orders will be taken on the web and transmitted to a single fabrication facility. Each
order will include the buyer's physical dimensions and biking preferences. From this information,
3D modeling software will generate the speci cations for a customized frame.
Starting the next day, bikes will be produced according to the speci cations. At the end of the
day, the fabricated bikes will be boxed up, loaded into containers, and shipped to each city. If
there is an operational store, the bikes will go directly to the store where the customers will be
invited to come in and pick up their bike. If there is no store, the container will go to a break-bulk
operator that will arrange for the bikes to be delivered to the buyers.
The Web Sales Center section of the Help le will help you to weigh the pros and cons of web
sales.
4/11/2021 Open Web Sales Center
Open Web Sales Center Virago Quarter 1
Do you want to open a web sales center? This center will enable you to better serve the needs of
your web customers. It will take one quarter to setup your international web sales center. After
that, you must hire staff to deal with web sales and customer support.
YOUR TASK
In the Workspace, indicate if you wish to open your international web sales and service
center.
Note the setup cost that must be paid this quarter and the operations cost that will have to
be paid each quarter in the future.
Consult some valuable information about opening a Web Sales Center in the Help le.
4/11/2021 Open Web Sales Center
Open Web Sales Center Virago Quarter 1
Web Sales Center

Region City Open Close Current Status Setup/Close Cost Quarterly Lease Cost
World Market Bangalore closed 150,000 60,000
Total web sales center cost: 0

Sales Channel

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Sales Channel

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4/11/2021 Sales Channel

Sales Channel Virago Quarter 1

It is recommended that you open a brick-and-mortar bike shop and/or a web

Web Sales Channel:

Market Potential Virago Quarter 1

How likely they would be to purchase a bicycle in the next 12 months.

Market potential = probability of purchase × number of units × number of potential

Market Potential Virago Quarter 1

12-Month potential demand

Recreation Mountain Speed

New York City 5,114

Rio de Janeiro 4,194

0 800 1,600 2,400 3,200 4,000 4,800

Rio de Janeiro 3,177

0 800 1,600 2,400 3,200 4,000 4,800

Rio de Janeiro 1,942

0 800 1,600 2,400 3,200 4,000 4,800

Sales Stores Virago Quarter 1

Open Stores Virago Quarter 1

Each city has a different sales potential or

Open Stores Virago Quarter 1

Total store cost: 0

Web Sales Center Virago Quarter 1

Order Ful llment Process

Open Web Sales Center Virago Quarter 1

Open Web Sales Center Virago Quarter 1

Web Sales Center

Total web sales center cost: 0

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