Channel System

SDM
Training Channel Members
• Starts from the time of recruitment
• Channel member owner and his staf
• Market views channel member as part of the company – he has
to behave in a like manner – hence training assumes
significance
• Training could be on the job field training or classroom training
or both
• Training is an ongoing process.
Subjects…..

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Subjects for Training
• Field training on how the markets are to be worked to achieve sales,
collect payments and ensure the right kind of merchandising
• Class room training on company products, competition and how to
tackle it to gain market shares
• Special meetings for new product launches
• Submitting reports and maintaining records
• Statutory compliance

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Subjects for Training
• Care of company products
• Technical specifications and answering FAQs of customers
• For technical and industrial products – recognition of specs,
installation procedure, repair and maintenance and efective
demonstrations
• Servicing of automobiles and other engineering products
Motivation….

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Motivating Channel Members
• Ambitious volume and growth targets – continuous motivation
required to achieve
• Motivation includes:
• Capacity building programs
• Training
• Promotions support
• Marketing research support
• Working with company personnel
“power”……
• Incentives

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 French & Raven

“Power” of Motivation
• Reward – positive support
• Coercion- threat of punitive action
• Referent – positive efects of association
• Legitimate – enforcing a contract
• Expert – support of special knowledge
• Support – additional benefits for performers
• Competition – pitting against peers

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 Role of ROI…..

Channel Members Evaluation

• Efectiveness of the distribution channel determines
the success of the company
• Company would like its channel partners to perform
at the highest standards possible
• Need to constantly evaluate performance on sales
targets, coverage, productivity, inventory holdings,
attending to servicing requests etc.

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ROI as a Measure
• Leading FMCG companies feel that an ROI of 30% for a
distributor is healthy and is a fair indication that he is
performing well.
• Calculated as net margin as a percentage of the investment in the
business
• If the ROI is more, additional tasks are given
• If the ROI is less, the company may provide additional support
• Post evaluation tasks include counseling, retraining and
motivating. In extreme cases it may result in termination.

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Performance Evaluation
• On pre-agreed tasks only. No surprises.
• Specific targets on periodical basis are set.
• Targets on volume and outlet productivity could be for a week or a month
• Targets relating to increasing market shares or total outlet coverage could be
for 6 months
• Diferent weightages could be given for each of the parameters for evaluation
• The performance appraisal is open and transparent
Evaluation of effectiveness..

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Evaluation of Effectiveness
• Volume and profit generated by each channel partner
• Exclusivity and aggressiveness of the channel
• Support to promotional and advertising eforts
• Placing adequate orders for all SKUs promptly
• Doing business ethically
• Extent of customer relationships being built

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Steps for Modifying a Channel
Network
• Service level desired and willing to deliver
• Activities required to deliver service level, who will do it and at what
cost
• Derive ideal channel structure and compare with existing to know
gaps by evaluating based on standard parameters relating to
efectiveness and efficiency
• Action to bridge the gaps and put modified channel system into place
• Define key performance indicators

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Channel Comparison Factors
Efficiency

Effectiveness

Scalability

Flexibility

Consistency

Reliability

Integrity

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Competition Act 2002
• Replaced the earlier MRTP Act
• Monopoly of any kind in production, supply, distribution, storage,
acquisition of goods or provision of services which afects competition
not permitted. Actions controlled:
• Determining purchase or sale prices
• Limit or control supplies
• Allocates or limits geographies for distribution of products or services
• Collusive bidding or bid rigging

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Non-store Retailing

• Selling door-to-door
• Vending machines
• Tele-shopping networks
• Selling through catalogs
• Other forms of direct selling
• Electronic channels

Electronic channels…

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Retailing on the Internet

• Unlimited assortment
• Items may not be on hold
• No product touch or feel
• More information makes the customer a better shopper
• Comparison shopping possible
• Consumer has to plan purchases ahead
• No need to handle cash – payment can be on-line
• Shopping is 24X7

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Non-store Retailing

• Selling goods or services outside the confines of a retail

facility
• Could be direct selling or distance selling (includes
electronic commerce)
• Distance selling also includes mail order, catalogue sales,
phone-sales and vending machines
• Electronic commerce includes on-line shopping, internet
trading, travel portals and tele-shopping

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On-line Banking
• Includes ATMs, debit and credit cards, mobile banking,
NEFT/RTGS, POS terminals
• Enables electronic payments through a web-site of the
financial institution
• Customer needs to register with the financial institution
and get a password and an exclusive customer identity
• Permits all simple transactions relating to a bank account

Vertical integration….

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Channel Implementation
Vertical Integration

• This means owning the channel.

• The company does the work of production,
branding and distribution.

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 Vertical Integration
• Downstream integration means the producer of the goods also
does the distribution
• – Eureka Forbes, Bata

• Upstream integration means the seller also produces the goods –

private labels of modern retailers.
• If the organization does the work of production, branding and
distribution, it is said to be vertically integrated.
• Vertical Integration provides better control over the distribution
function
Outsourcing..

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 Outsourcing Distribution
• Is the most prevalent situation as:
• The ‘reach’ is better
• The cost may be lower
• The company can exploit the ‘core competence’ of its channel partners,
which is distribution
• Vertical integration is a choice which will become long term and
cannot be easily changed once the resources have been committed.
• However, direct distribution (owning the channel) is still the best
solution for ‘intensive’ distribution.

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Key Learnings
• The nature of distribution channels required in diferent situations is
based on a number of factors
• Channel design takes into account all the service deliverables
required by customers
• Intensity of distribution determines the number of intermediaries
required
• Distribution can be in-house (vertical integration) or out-sourced
• Channel design alternatives are assessed primarily on efectiveness
and efficiency

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 Key Learnings
• Channel structure is influenced by the company, its markets, its
products, the kind of intermediaries available and the environment
• These factors are relevant in selection of channels also
• Companies prefer to use multiple channels to reach diferent sets of
customers – hybrid channels.
• Some of the parameters for evaluation of channels are: volume and
profits generated, extent of exclusivity, aggressiveness, support for
promotional activities, integrity and ability to build relationships.

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 Key Learnings
• Channel alternatives are evaluated on cost, ability to control,
adaptability and capability to handle range and volume.
• Training of channel partners can be in the class room or on the job and
is a continuous process
• Motivating channel partners can be done using diferent ‘power’
equations
• There are diferent formats of non-store retailing like catalogues,
internet etc
• Electronic channels are used to sell products to consumers directly

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Thank You..

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