Channel Management

Question 1

What is Channel Design? And which decisions need to be made?

Answer 1

Channel Design is the development of a channel structure that links the SBU’s strategy with the needs of the target market(s).

Decisions to be made when designing a channel:

• Length of the channel (0-Level, 1-Level, 2-Level or 3-Level)
• Types of intermediaries
• Number of each intermediary

Question 2

What includes Channel Operations, and which decision should be made?

Answer 2

Channel Operations is the development of policies & procedures to gain and maintain the cooperation of the various partners within the company’s distribution channel.

Decions to be made focus on how to:

• select and recruit channel members
• motivate channel members (to perform marketing activities)
• coordinate the channel (members)
• assess the performance
• resolve conflicts

Question 3

What is the definition of a (distribution) channel and what are their main functions?

Answer 3

A (distribution) channel is a set of interdependent organisations participating in the process of shifting possession of goods from the producer to the end user.

A distribution channel has two functions:

Sales function: how do I made customers aware of my product, how do I inform my customers?

Supply chain - logistical function: how do I bring the product to the cutomer?

Question 4

What are the main types of direct and indirect channels?

Answer 4

The main channel types are:

**Direct Channel: **

• Internet
• Telemarketing
• own salesforce

Indirect Channel:

• Wholesaler
• Retailer
• Distibutors
• Brokers
• Specialised
• Value added Partners
• Sales Agencies

Question 5

Why is the decision about which marketing channels a company employ one of the most critical ones management faces?

Answer 5

Because the channels chosen affects all other marketing decisions. And when this decision is made once there is no / only little chance to switch.

Explanation: The company’s pricing depends on wether it uses online discounters or high-quality boutiques. Its sales force and advertising decisions depend on how much training and motivation dealers need. And channel decisions include relatively long-term commitments with other firms as well as a set of policies and procedures.

Question 6

On what depends a company’s channel choice?

Answer 6

Channel choices depend on the company’s marketing strategy with respect to segmentation, targeting and positioning.

Holistic marketers ensure that marketing decisions in all these different areas are made to collectively maximise value.

Question 7

What is the core question a firm needs to decide on when deciding on a channel. And what are more detailed questions that would need to be answered when deciding on the channel to use.

Answer 7

Core question

Do I want to sell the products:

• on my own ➔ using direct marketing channels, or own sales force
• through intermediaries ➔ indirect channels

Detailed questions

Who is doing:

• product presentation / advertising
• consulting and sales
• guarantee local supply / delivery
• stock keeping
• invoicing (incl. debt handling and dept risk)
• pre- and post-sales services

Question 8

When deciding on direct or indirect sales, what are typical decision criteria?

Answer 8

Typical decision criteria:

• complexity of product
• individuality of the product
• price level of the product
• buying frequency of the product
• single product in customers shopping basket
• local, national, global demand
• niche or volume product
• number of customers
• domestic or international market
• marketing and sales competence of my firm

Question 9

What are the pro’s and con’s of partner sales?

Answer 9

Pro’s

• Multiplying sales work ➔ Volume increase
• Integrating sales specialists ➔ Efficiency increase

Con’s

• Less control ➔ Confidence and verification
• High distance to customer ➔ difficult product enhancements

Note: Partner sales is supposed to increase my power, but I also loose power.

Question 10

What means push strategy when managing intermediaries? And when is a push strategy particularly applied?

Answer 10

A push strategy uses:

• the manufacturers sales force
• trade promotion
• money or other means to include intermediaries to carry, promote and sell the product or service to end users.

Push is applied when:

• low brand loyalty in a category
• brand choice is made in the shop
• the product is an impulse item
• product benefits are well understood

Question 11

What means pull strategy when managing intermediaries? And when is a push strategy particularly applied?

Answer 11

In a pull strategy the manufacturers uses:

• advertising
• promotion and other forms of communication to persuade consumers to demand the product from intermediaries, thus inducing the intermediaries to order it.

Pull is applied when:

• high brand loyalty and high involvement in a category
• consumers are able to perceive differences between brands
• when consumers chose brand before they shop

Question 12

What do top marketing companies, such as RedBull, Samsung and Gucci skillfully employ - push or pull?

Answer 12

Top marketing companies employ both push and pull strategies. A push strategy is more effective when accompanied by a well-designed and well-executed pull strategy that activates customer demand.

On the other hand, without at least some customer interest, it can be very difficult to gain much channel acceptance and support, and vice versa for that matter.

Question 13

What are demand-side for employing channels?

Answer 13

Demand-Side factors (customers needs and wants) are:

• Facilitation of search
  
  • channel brings seller and consumer together
• **Adjustment of assortment discrepancies **
  
  • Sorting (only organic products, such as oranges)
  • Accumulation (wholesaler accumulates varied goods for retailers, retailers accumulate them for their customers)
  • Allocation (palletten to smaller lots and single units)
  • Assorting (chocolate to sweets, toothpaste to cosmetics)
• Overcoming space and time
  
  • spatial convenience (physical availability of goods)
  • waiting and delivery time (reducing waiting for customers due to stocks)
  • near customer service (providing customer support)

Question 14

What are supply-side factors for employing channels?

Answer 14

Supply-Side Factors

• Routinisation of Transactions (Economics of Scale)
  
  • Automation of purchase transactions (orders, valuation, payment)
  • Standardization of products, services and equipment
  • Increase of efficiency in executing channel activities (e.g. CRP program)
• Reduction in Number of Contacts
  
  • administrative facilitation
  • cost reduction

Note: whithout intermediaries, producers would have to interact with each potential customer

Question 15

What selection criteria you can apply when selecting channel members?

Answer 15

Selection criteria for channel partners:

• Number of years in business
• Other lines carried
• Growth and profit record
• Financial strength
• Cooperativeness and service reputation
• Employees
• If sales agency: clientele, exclusive, selective or intense distr., growth potential, locations

Question 16

What advantages have the usage of channels?

Answer 16

Advantages:

• serve as strategic advantage (people are willed to pay more at different places, i.e. Coke at Coop = 1.10, Coke at Kiosk=4.5)
• use economies of scale and economies of scope
• boost market presence
• reduce number of contacts
• offer a one-stop shopping for the customer

Question 17

What kind of channel members / players do you know?

Answer 17

Category 1

Manufacturer, Importer, Supplier (the product owners)

Category 2

Intermediaries

• Wholesale (merchant wholesalers, distributors, agents, brokers)
• Retail
• Specialized

Category 3

End user

• Consumers
• Business users

Question 18

How do producers motivate a distributor?

Answer 18

• Opportunity for profit
• Price, terms, conditions
• Support & training
• Product line: present and future direction
• Brand
• Personal attention
• Co-marketing

Question 19

What are competences and interest of the various channel members?

Answer 19

Question 20

What does “physical possesion” mean in terms of the marketing flow within a channel?

Answer 20

The physical possession is a forward flow and represents:

• storage and delivery costs

Question 21

What does “ownership / title” mean in terms of the marketing flow within a channel?

Answer 21

Ownership / title flow is a forward flow, and represents:

• inventory carrying cost
• depreciation

Question 22

What does “Communication / information process” mean in terms of the marketing flow within a channel?

Answer 22

Communication processes flow in both directions between sales partners, and represents costs for:

• personal selling
• advertising
• sales promotion
• PR
• trade shows

Question 23

What does “Negotiation process” mean in terms of the marketing flow within a channel?

Answer 23

Negotiation processes can flow in both directions between sales partners and represents costs for:

• time and legal

Question 24

What does Risk flow mean in terms of the marketing flow within a channel?

Answer 24

Risk processes can flow in both directions between sales partners, and therefore facilitate the division of risk amongst the various parties involved.

Cost represented:

• credit terms
• terms and conditions of sale

Question 25

What does ordering process flow mean in terms of the marketing flow within a channel?

Answer 25

Ordering processes begin with the end customer and pass through all relevant sales partners before arriving at the provider. Cost represented:

• order-processing cost
• In some situations, these processes have already been automated and involve the analysis of warehouse inventories and, where required, the direct triggering of ordering processes using computer systems. order-processing cost*

Question 26

What does payment process flow mean in terms of the marketing flow within a channel?

Answer 26

Payment flows are started by the end customer and pass through all relevant sales partners before arriving at the provider.

• collections
• bad-dept cost

The triggering of the payment process effectively represents the completion of the ordering process.

Question 27

What is a wholesaler?

Answer 27

Briefly:

A wholesaler is a market operator that** buys large quantity of goods from various producers or vendors, warehouses them andresells to retailers**. Wholesalers who carry only non-competing goods or product lines are called distributors.

Definition from Katalog E:

Wholesaling as a function exists if market operators procure goods that they do not normally process themselves from manufacturers or other suppliers and sell them to resellers, further processors or business users (e.g. authorities, educational establishments) or to other institutions (e.g. canteens, clubs) provided that private households are not involved.

Question 28

What is the difference between a wholesaler and a distributor?

Answer 28

A distributor handles only non competig products- / product lines (sometimes exclusively for a producer) and a wholesaler represents many producers.

Note: Difference is often blurred in daily usage.

Question 29

What is the definition of retail?

Answer 29

In brief: A retailer is a person or firm that sells goods to end-consumers.

In practise:

• many business users buy from retailers, e.g. - SMBs buying their IT equipment from Media Markt - all kinds of accessories and supplies
• Many retailers have privates and businesses as target group (typically specialized stores), e.g. - delicatessen store selling food and organizing events - IT dealers (shop for privates and offers für businesses) - IKEA
• Very often the more general reseller is used instead of retailer as he sells to both consumers and business users.

Definition from Katalog E:

Retail trade as a function is present when market operators procure goods that they do not normally process themselves from other market operators and sell them to private households.

Question 30

What is franchising?

Answer 30

Franchising is an arrangement where a franchiser grants a franchisee the right to use the franchisers trademark or trade-name, as well as certain business systems and processes, to produce and market a good or service according to certain specifications.

The franchisee usually pays a one-time franchise fee plus a percentage of sales revenue as royalty. The franchiser gains rapid expansion of business and earnings at minimum capital outlay.

Or:

A form of business organization in which a firm, that already has a successful product or service (the franchisor) enters into a continuing contractual relationship with other businesses (franchisees) operating under the franchisor’s trade name and usually with the franchisor’s guidance, in exchange for a fee.