“CHANNEL MANAGEMENT”

PRESENTED BY: Sakshi (30-MBA-08)Vipasana (40-MBA-08)

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CONTENTS Overview Channel Selection Indirect Channels Indirect Channel Management Monitoring Profitability by Channel Direct Marketing Direct Marketing Process Direct Marketing Methods Privacy Issues

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OVERVIEW Distribution structure is critical for a product

manager to maintain good channel relations.

Product manager has to depend on others in the distribution system.

Distribution system is changing dramatically.

Companies like Avon & Amway gained differentiation through the channel decision. These companies found that some segments of population enjoy their personal approach to selling these low-priced products.

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CHANNEL DECISION MAKING

Channel selection

Channel management

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CHANNEL SELECTION

Whether to use direct or indirect channel.

Choice depends on the profitability of two methods.

Level of commitment from the intermediaries.

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DIRECT CHANNEL IS USED WHEN: Information needs are high.

Product customization is important.

Quality assurance matters.

Purchase orders are large.

Transportation & storage are complex.

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INDIRECT CHANNEL IS USED WHEN:

One stop shopping for many products is important.

Availability is important.

After-sales service is important.

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COMPANY-TO-COMPANY COMPANY-TO-COMPANY CONTACTSCONTACTS

CompanyCompany

IndirectIndirect DirectDirect

Agent/ Agent/ Broker/ Broker/ RepRep

Wholesaler/ Wholesaler/ DistributionDistribution

Retailer/ Retailer/ DealerDealer

In person Phone Mail ElectronicIn person Phone Mail Electronic

CustomerCustomer

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CHANNEL & FIRM CHANNEL & FIRM PERSPECTIVEPERSPECTIVE

FIRM FIRM 1 FIRM 2 FIRM 3

CHANNEL

CUSTOMERS

CHANNEL 1 CHANNEL 2 CHANNEL 3

CUSTOMERS

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INDIRECT CHANNELS

Representatives

Wholesalers

Retailers

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REPRESENTATIVES Representatives/agents (Reps) sell the

product or service but carry no inventory & merely refer orders back to the manufacturer.

Reps are common for many industrial goods as well as for personal insurance and real estate.

Reps are a low-cost way to reach a large no. of intermediaries, final customers, etc.

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WHOLESALERS

Wholesalers/ brokers physically take possession of the product & then resell it to retailers.

They provide efficient way to reach multiple retailers.

They represent a major channel for small retail outlets.

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RETAILERS

Retailers take possession of the product & then resell it to the final customers.

Direct selling to final retailers moves inventory to the stores.

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CHANNEL MEMBERS AS VALUE ADDED

INTERMEDIARIES

Suppliers Producer Channel Channel Customer

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SERVICES PROVIDED BY CHANNEL MEMBERS

Marketing Research Communication Contact Matching Negotiation Physical Distribution Financing Risk Taking Service

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HYBRID CHANNELS

When producer employs two or more types of channels for different purposes.

The channels vary by the tasks they perform for the product manager. The tasks include lead generation, qualifying sales leads, presale sale marketing activity, closing the sale, post sales service and account management.

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SELECTION OF SELECTION OF CHANNELSCHANNELS

We cant select & utilize all possible channels of

distribution because of 2 reasons:

COST- COST- each channel requires an additional fixed cost (establishing accounts, hiring & providing benefits for sales staff, or building & maintaining website).

CHANNEL INCENTIVES & CONFLICT-CHANNEL INCENTIVES & CONFLICT- A channel’s enthusiasm to support a product decreases when other channels compete in the same market.

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INDIRECT CHANNEL MANAGEMENT

Channel management is easiest when the incentives of the manufacturer and the channel are consistent.

Manufacturer wants to exert some direct control over the channel.

The degree of control depends on: Contractual/legal provisions Self interest Human contact

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CONTRACTUAL/LEGAL PROVISIONS

This includes that the required behavior (amount & type of marketing support given to the product) and outcomes (primarily sales volume) through written contracts.

Not much promising as it assumes that: All conditions can be foreseen and specified unambiguously. The behavior specified will be adhered to.

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SELF INTEREST

In business, self interest coincides with economic interest. Channels also act to maximize their profits.

Agency TheoryAgency Theory

Channel conflict often arises when you use multiple channels. E.g: Goodyear dealers were upset when it began distributing through Sears.

Selling the sales force is an important job of the product manager and the sales force is treated as a potential channel to be encouraged rather than a dedicated staff.

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HUMAN CONTACT

Human contact is final source of control in any kind of relationship.

People respond positively to friendly,reasonable requests.

Regular contacts by competent company personnel are likely to encourage desirable behavior.

It is hard to say PLEASE & THANK YOU too often.

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POWER IN CHANNEL RELATIONSHIPS

The relationship between different parties in a channel depends on the balance of power among them.

Party having the most power dominates the relationship.

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BARGAINING POWER WITH THE PRODUCT MANAGER IF:

Channel’s volume of sales of the product is large relative to the product’s total sales volume.

The product is not well differentiated from competitors.

The channel has low switching costs, so its easy to replace the product.

The channel poses a credible threat of backward integration.

The channel member has better information than the product manager about market conditions.

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PRODUCT MANAGERS CAN DEAL PRODUCT MANAGERS CAN DEAL WITH POWER RETAILERSWITH POWER RETAILERS

Protect the brand name

Customize products & promotions.

Innovate constantly. Organize around the

customers. Invest in technology. Cut costs to keep

prices down. Support small

retailers as well.

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CHANNEL ARRANGEMENTS

INVENTORY- INVENTORY- who holds it, who pays for it SERVICE- SERVICE- who does what (repair, replacement,

training) DELIVERY- DELIVERY- time frame, min order, customization PRICE-PRICE- basic price, discounts, commission/fees RETURNS & ALLOWANCES POLICY-RETURNS & ALLOWANCES POLICY- what is allowed

to be returned & at what price by customer, channel SUPPORT LEVEL-SUPPORT LEVEL- sales effort, advertising, stocking DEGREE OF EXCLUSIVITY-DEGREE OF EXCLUSIVITY- overlapping channels,

overlapping product lines CREDIT FOR SALES-CREDIT FOR SALES- when direct contact occurs in a

channel’s region or customer’s list, how much does the channel get

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MONITORING PROFITABILITY BY CHANNEL

Many aspects of channel are worth noting but the most one being: the profitability by channel; with the implicit goal of considering when to add or delete a channel

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DIRECT CHANNELS

Direct Channels provide more control over the channel for the company designing the channel system.

OPTIONS: OWN STORE SALES FORCE

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DIRECT CHANNELS OWN STORE:OWN STORE: The key is to have sufficient

volume to justify operation & yet not to overly cannibalize other channels. Niketown sells only Nike products separated

by activities. Not only does the store expose shoppers to entire Nike line, it also does a fairly good retail business.

SALES FORCE:SALES FORCE: Sales people play a major role in both marketing & literature. They are excellent at establishing personal relationships and align their interests with that of firm.

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INTERNET AS A CHANNEL

Internet is a standard part of direct channel toolkit of product managers.

Interactive technology.

For most products, it is not a sufficient channel. The internet moves information & not physical products.

Not all the customers access the internet.

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BENEFITS & LIMITATION OF INTERNET CHANNELBENEFITS:BENEFITS: Interactive Inexpensive Broad Scope Fast

LIMITATIONS:LIMITATIONS: Cant provide physical product Cant provide human contact

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TRADE SHOWS

Include boat shows, computer expos etc.

Generate publicity, eventually sales.

Help in getting customer feedback & competitor information.

Specially for durable goods, a product manager needs to consider when & how to include trade shows in the channel strategy.

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DIRECT MARKETING

Direct marketing includes any method of distribution that gives the customer access to the firm’s products & services without any intermediaries.

Direct marketing is an interactive marketing system that uses one or more advertising media to effect a measurable response & transaction at any location.

Includes direct mail, telemarketing, internet based marketing & teleconferencing.

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DIRECT MARKETING PROCESS

Set an objective Determine the target market Choose the medium Get a list of the targeted customers Analyze the list Develop the offer Test the offer Analyze the results

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DIRECT MARKETING METHODS

TELEMARKETING

DIRECT MAIL

E-MAIL

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TELEMARKETING

Key to successful telemarketing: The list of target customers.

The offer should be a compelling reason for the customer. The offer should be stated early in the conversation & communicated clearly.

The telemarketer should try to reduce the risk.

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DIRECT MAIL

Cheaper than telemarketing.

The text of the direct mail letter should be long so that the marketer has an opportunity to inform & persuade.

The typeface, colors, graphic elements, personalized addressing & other visual elements should be considered carefully.

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E-MAIL

Much of the excitement in the direct marketing field has come from the explosion of the use of e-mails as a direct marketing medium.

Companies have discovered that e-mails are inexpensive and flexible as they can deliver text, HTML, and streaming video and audio.

The downside of e-mail is that, unsolicited or “spam” e-mails have proliferated.

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PRIVACY ISSUES

Out of the three direct marketing channels telemarketing and e-mails have received the most attention from regulators.

“Do not Call”. European Union Directive on Data

Protection: A company must obtain permission from a

customer for personal information and explain its purpose, &

Promise not to use it for anything else other than the stated purpose without consent.

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CONCLUSIONCONCLUSION

A product manager has to determine some approach for getting products to the customers. This involves choosing among or selecting a combination of indirect & direct channels. The choice of channel involves division of effort & profits.

Channel image can also have an impact on the product & vice versa. High quality channels enhance the appeal of a product; low quality channels often decrease the value of the product.

But the most important task is to keep the various channels focused on your product.

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