Table of Contents:-
- Channel Management Meaning
- Understanding Distribution Channel Management
- Channel Management Decisions
Channel Management Meaning
Channel management is essential for a company to reach its distribution goals. By strategically coordinating, building relationships, and optimizing performance, businesses can use their distribution channels effectively to fuel growth and success. When companies adopt the principles of professional channel management, they position themselves as industry leaders and unlock their potential for long-term profitability.
According to Rubinstein and Wolinsky, the “Emergence of distribution channels could be attributed to the need for facilitating exchanges by speeding up the time-consuming matching process between buyers and sellers”.
Understanding Distribution Channel Management
Distribution channel management encompasses all activities dealing with the distribution function of a firm. The distribution strategy provides guidelines for decision making. The management function involves efficiently putting the company’s distribution strategy into action. It is the organisation of how companies reach and satisfy their customers. Channel management involves more than just distribution and has been described as management of how and where a product is used and of how the customer and the product interact. Channel management involves important steps in identifying key customers, creating effective communication channels, and consistently providing value beyond the first interaction. This comprehensive approach guarantees the establishment of strong and lasting relationships with our valued customers. There are key aspects managers should consider for managing channels better. These include recruiting, selecting, motivating, and evaluating channel members.
Channel management/distribution decisions are relevant for nearly all types of products. Distribution decisions have a noticeable and direct effect on tangible products like laundry detergent or truck parts. Yet, it’s equally important to acknowledge that distribution also plays an important role in the world of digital goods (such as television programming and downloadable music) and services (like income tax services). The Internet is a key player in reshaping product distribution and is often seen as a platform with vast opportunities for reaching customers. Nevertheless, it’s important to recognize that online marketers face similar distribution challenges and hurdles as their offline counterparts.
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Channel Management Decisions
Channel management decisions refer to companies’ choices in selecting, managing, and optimizing allocation channels. It ensures the seamless delivery of goods or services to the target market. Channel management findings are essential for companies to stay competitive and improve sales.
After a company has chosen an alternative, individual intermediaries must be selected, trained, motivated, and evaluated. Companies must adapt and change their channel arrangements as needed. Channel management includes vital steps like identifying key customers, creating effective communication channels, and consistently providing ongoing value. This comprehensive approach ensures the development of strong, long-lasting relationships with our valued customers.
It involves the following seven steps:
- Recruiting Channel management members
- Selecting Channel management members
- Training Channel management members
- Motivating Channel management members
- Evaluating Channel Management Members
- Modifying Channel management members
- Managing relationships in Channel
1. Recruiting Channel management members
Channel member recruitment is the key to the development or expansion of a successful channel member program, which would ultimately lead to increased revenue generation and success. In recruiting new channel members, it is important to establish clear and firm parameters that characterise the criteria for the Identification, qualification, and recruitment of new potential affiliates. Such identified criteria will help ensure that those that are targeted for recruitment suit the parent company but more importantly possess qualities, strengths, business models, and other competencies that would help in improving re-seller productivity.
The Importance of Effective Recruitment
The recruitment of new members is always the first necessary step. The next step which is of equal importance is engaging, enabling, and supporting these new partners quickly and effectively. If this is not accomplished, the recruits may become just other names on the list of unproductive partners who are just wasting precious resources and not generating the results required and desired.
Considerations for Effective Recruitment Good recruiting is an essential component of a channel design, and so is the periodic pruning of underperforming partners. The first step in partner recruitment is to create an Ideal Partner Profile. This profile acts as a blueprint, detailing the qualities and attributes of an outstanding partner. To craft this profile, it’s crucial to ask relevant questions and provide thorough answers, forming a clear picture of the ideal partner.
Some of these questions may include:
1) What kinds of experience and expertise would it have?
2) How big would the perfect partner organisation be?
3) How many sales representatives would it have?
4) What kinds of customers would it have?
5) What kinds of support personnel and service infrastructure would it have?
6) Which markets would it play in?
Even a one-page description of the ideal partner can serve as a valuable focusing mechanism for recruitment efforts. Since local partner recruitment is often delegated way, way down the food chain of a corporation, an ideal partner profile can serve as a good tool for ensuring that everyone is on board with the basic expectations for new partners before they recruit those partners.
2. Selection of Channel management members
Producers vary in their ability to attract suitable intermediaries. Whether producers find it easy or difficult to recruit intermediaries, they should at least determine what characteristics distinguish the better intermediaries. They will want to evaluate the number of years in business, other lines carried, growth and profit record, solvency, cooperativeness, and reputation. If the intermediaries are sales agents, producers will want to evaluate the number and character of other lines carried and the size and quality of the sales force. If the intermediaries are department stores and want exclusive distribution, the producer will want to evaluate locations, future growth potential, and type of clientele.
Marketers need to choose their channel intermediaries from a wide list of available distributors and wholesalers in the market. Some marketers sell only through channel marketing intermediaries. It becomes very important for them to judiciously select the intermediaries. The most important criteria for the selection of the intermediaries are knowledge of the market and market coverage. Based on these two criteria, the manufacturer can derive other sub-criteria for the selection. These sub-criteria may include product and product pricing factors, experience of the channel member, sales, and risk factors involved.
Selection Process of Channel Members
The process of selecting channel members comprises three distinct steps:
1) Selection criteria to determine the suitability of prospective channel members.
2) Securing the prospective channel members as actual channel members.
3) Finding prospective channel members.
The following paragraphs will explain these in detail.
1) Finding Prospective Channel Members
Numerous sources are readily available to help the channel manager identify potential channel members. The following factors are of utmost importance to consider:
i) Field Sales Organisation
For companies with their own sales force already calling on intermediaries at the wholesale or retail levels, these outside salespeople represent an excellent resource for finding new channel members.
Salespeople are in the best position to know potential channel members in their territory, usually better than anyone else in the firm. While making calls, they are often able to pick up information about intermediaries who are likely to be available. Salespeople often have connections with the management and sales representatives of well-known intermediaries operating in the same region, even if these intermediaries are not affiliated with their own company. The salesperson may even have prospective channel members virtually lined up if the firm decides that its present channel members in that territory are to be changed or supplemented.
ii) Trade Sources
Trade sources such as trade associations, trade publications, directories, other firms selling related or similar products, trade shows, and the “grapevine” all are valuable sources of information about prospective intermediaries.
iii) Re-Seller Inquiries
Many companies gather information about potential channel members when intermediaries express their interest in representing their product line through direct inquiries. For many manufacturers, this is their main source of information about potential new channel members. Those firms receiving the highest number of inquiries from prospective channel members are the more prestigious ones in their respective industries.
iv) Customers
Many companies depend on the feedback from potential intermediaries’ customers to gather valuable information. Manufacturers have noticed that many customers are willing to share honest opinions about the intermediaries interacting with them.
Manufacturers can effectively collect information about potential intermediaries from customers by conducting informal or formal surveys to assess their opinions about various distributors operating in their specific market regions.
v) Advertising
Advertisements in trade publications offer yet another approach to finding potential channel members. Trade magazine advertising can generate a large number of inquiries from prospective channel members, and therefore can provide a large pool from which to make selections.
vi) Trade Shows
Trade shows or conventions can be highly productive for identifying potential channel members. Many trade associations at wholesale and retail levels hold annual conventions at which numerous wholesale or retail organisations in particular trades are represented. By attending the convention, a manufacturer has access to a wide variety of potential channel members brought together at one place and time. Trade shows can be incredibly beneficial for small-scale manufacturers, especially those in consumer product sectors like toys, gifts, hardware, and sporting goods. These events provide a special chance for businesses to display their products, engage with potential customers, and cultivate valuable partnerships.
vii) Other Sources
Finally, some firms also find the following sources helpful in locating prospective intermediaries:
a) Chambers of commerce, banks, and local real estate dealers,
b) Classified telephone directories or the Yellow Pages,
c) Direct-mail solicitations,
d) Contacts from previous applications,
e) Independent consultants,
f) A list of trusted list brokers who specialize in selling business name lists.
g) Business databases,
h) The Internet.
2) Selection Criteria for Channel Members
The company would have gone through the steps of identifying the customer needs to be fulfilled, and the kinds of channel systems that are available and evaluated them based on some criteria. Having developed a list of prospective channel members, the next step is to appraise these prospects in light of the selection criteria as given earlier.
3) Securing the Channel Members
It’s important to remember that the selection process works as a mutual exchange. It is not only the producer or manufacturer who does the selecting – but also the intermediaries at both the wholesale and retail levels. Well-established and respected companies have the advantage of being very selective when choosing who will represent them. Producers and manufacturers, unless they have outstanding reputations and prestige, shouldn’t expect top-tier intermediaries to enthusiastically seek to join their distribution network. Rather, most producers and manufacturers still need to do an effective selling job to secure the services of good intermediaries.
The channel manager in producing and manufacturing firms can use several specific inducements in attempting to secure channel members. All of these, however, should be aimed at conveying to prospective channel members the firm’s commitment to support them, so that they are more likely to be successful with the line.
While there are many possible inducements that the manufacturer might offer for securing channel members, most of them would fit within one of the following four areas:
i) Good, profitable product line;
ii) Advertising and promotional support,
iii) Management assistance; and
iv) Fair dealing policies and friendly relationships.