The Manager's Guide to Distribution Channels
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Transcript of The Manager's Guide to Distribution Channels
Prepared by: Danny Rakhmandita Akhwan
The Manager’s Guideto Distribution
Channels
STRATEGIC FIT MANAGEMENT ISSUESMarket Dynamics
The growth of the Internet.
Strategy Shifts The expectations of the
various customer segments. The approaches used by
competition to reach customers.
The skill sets & contract terms of both new & old intermediaries.
The selling requirements of the product lines.
New Product Launch The ability of the channel to
provide technical support, customer service, etc.
Goal Alignment Ensuring that the resellers’
business model fit the strategic goals of the manufacturer.
Motivating Channel Members Entice resellers to move toward
attaining the goals.
Support Tools & Programs Promotional support Sales and technical support Training
Performance Measurement Monitoring, getting feedback, and
taking corrective action.
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual
Performance Expectations
Improve Channel
Effectiveness
Monitor Performance
& Adjust Plans
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
External Forces Impacting Channel Strategy
CustomersDo not push
customers to buy from the “wrong” types of channels.
PartnersMake sure current channel
policies relevant & sufficient to meet the
broad customer service performance requirements.
Demographic Population
Design channels that meet the needs of diverse
audiences.
Splintering of Channels
Shift on Distributors role from moving direct products & sales
materials to servicing customers for indirect materials & services.
CompetitionBuild stronger
relationships with distributors and with product consumers.
Government Regulations
Relevant regulations must be addressed in developing
channel strategy.
EnvironmentImplement
environmental policies to abide by corporate and/or government
regulations.
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Internal Forces Impacting Channel Strategy
CRM & SRMFirms are going from single points of contact to “team” contacts on behalf of sellers
and buyers and other intermediaries.
Product DevelopmentNew product require extensive customer
education from channels that provide that
functionality.
Operations Development
Technical substitution of product ingredients
or components to enhance profitability.
Information Technology
Maintain competitive posture and to improve the retention and management
of distributors.
Organizational DevelopmentsTrading Partners are
taking value engineering and analysis in analyzing
inter-enterprise functionality.
Human ResourcesPolicies and
PracticesSuppliers and Distributors
must plan and manage human resources practices in the fluid
labor situations.
Collaborative Strategic Alliances
Horizontal collaborative relationships are developing relative to competitors and complementary suppliers.
Supply Chain Management
Respond to business or personal usage of products and services instead of
considering only the derived demand between business partners.
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Supply Chain Management
THEN
“Mr. Distributors, just go out and sell it”
The Distributors was considered the customer, without much thought about what happened to the product beyond
that point.
NOW
Companies are increasingly looking down the channel at their customer’s
customer & the channel at their supplier’s supplier.
This is the essence of Supply Chain Management
THEN
In demand fulfillment, traditionally focused on managing the functional
interactions and handoffs within the firm in demand planning, purchasing and supply management, manufacturing operations, and fulfillment processes.
NOW
The focus has expanded to fulfill the needs of the end users of products & services while satisfying the materials
supply needs of all supply chain trading partners – manufacturers’ suppliers,
supplier’s suppliers, distributors, tier 1 customers, tier 2 customers, & so forth.
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Supply Chain Core Processes
Demand Planning and Sales Forecasting Provide forecasts and materials planning schedules to support the efficient flow of products
and services throughout the supply chain network.
Strategic Sourcing Forming alliances with suppliers with focus on minimizing total delivered costs.
Manufacturing/Operations Strategies Maximum flexibility of production planning in using manufacturing capabilities and capacities
in order to provide rapid response to changing market conditions and customer requirements.
Logistics Strategies Plans, Implements, and Controls of the efficient and effective of: flow and storage of goods,
services, customer service ordering, shipment planning, transportation, warehousing, physical inventory control, packaging, and unitization with reverse logistic strategies.
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Legal Side of Marketing Policies
Market Coverage
Airtight Territories Distributors only sell product on
their assigned territories. Sometimes considered a
vertical restraints in antitrust cases.
Area of Primary Responsibility Only sales within the APR count
toward the sales quota or other performance measures.
Customer Types Limit the distributors to specific
industries or customer types. May also trigger antitrust
concerns.
Pricing Decisions
Resale Prices Suggestion Manufacturer may suggest
resale prices & encourage distributors in that direction, but not force them.
Charging Different Prices It’s a violation if satisfy all of
the following 4 criteria:1. Two sales in interstate
commerce2. Commodities of like grade
and quality3. Different prices not just in
invoice, but also discount, rebates, credits, etc.
4. A hindrance to competition.
Product Line
Exclusive Dealing Distributor are not allowed to
carry competing brands.
Tying Arrangements Agreement to sell one product
to distributors on condition that they buy a different product. Note: the two products are not to be used jointly.
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Written Contract
Contents: Products : Lists of product that distributor has the right to buy and sell. Territory : The territory of Distributor to sell the products. (Geographical, Market, or
APR). Performance Standards : The lists of responsibilities both partner should attained during
the contract. Pricing and Terms : The pricing regulation. Term of Contract : Evergreen or Fixed Term. Direct Sales : Manufacturer retains the right to have direct sales. Trademark Use : Guidelines for the distributor while using the manufacturer trademark. Applicable Law : Which state law will govern the contract. Termination : Specifies cause, timing, and benefits. Restrictions : As appropriate for the industry and circumstances.
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Different Customers Expect Different Things from the Channel
Technical Advice For product which is need an advice from the expert
how to use it, install it, or make it work with the existing product.
Product Availability Sufficient inventory, ability to drop-ship, capability of
fulfilling just-in-time requirements, etc.
Total Solution For customers who not just need the product, but also
the supporting product from the manufacturer or distributor.
Supporting Services For customers who expect additional services from
Distributor, such as repair, installation, or emergency call.
Product Customization For customers who need more than just standard
product, and need additional features or add-ons.
Channel Preferences Are Not Static
1.Look at the customer behavior (what channels they buy from now) and preferences (what channels and channel services they would like in the future).
2.Ask customers what channels they like to buy from, they might consider to buy from, and they would never buy from.
3.Collect demographic data (sex, age, income, location, and another factors).
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Product Requirements Influence Channel Selection
Channel Types by Service Requirement
Sales Forces, Company-Owned Resellers, Foreign Direct Investment
Corporate WebsiteTelesales
Direct Mail
Manufacturer’s Rep Force, Specialty Distributor, VAR, Brokers, Jobbers,
etc.
Catalog Distributor, Mass Retailer, Third-
Party Internet Site
High-Touch Low-Touch
Dir
ect
Ind
irect
Indicators of Appropriate Product-Channel Fit
1.Definition: The clearer the definition, the easier it is to use low-touch and indirect channels
2.Customization: The more customization required, the better the fit with high-touch channels.
3.Aggregation: Indirect channels will be fit for the product which is must be bundled with complementary products.
4.Exclusivity: Unique products will be better with high-touch and direct channels.
5.Customer Education: The more education required by customers, the greater the need for high-touch channels.
6.Substitution: The more substitutable a product, the more a company will want to exert control with a direct channel.
7.Maturity: As products move toward commodity status, low-touch and/or indirect channels become appropriate.
8.Customer Risk: The greater the risk, the more likely a high-touch channel will be desired.
9.Negotiation: Product sales requiring negotiation lean toward high-touch channels.
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Managing Multiple Channels
Conflict with the Manufacturer over a New
Channel
Minimize these kind of conflict by specify manufacturer right to house accounts in the initial distributor contract.
Conflict between Different Channels
Learn from Levi Strauss in handling these type of conflict, by selling different styles at different prices through a range of retailers. The different brands and price points are being used to minimize conflict across channels.
Conflict Within an Existing
Channel
Reduce these kind of conflict by establishing specific performance requirements to earn special compensation and prices.
In the area with too many distributors, establish an exclusive territories or area of primary responsibility.
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Building Hybrid Channels
Sometimes the best way to satisfy end-user needs is to create your own hybrid channel, by including not only traditional channel partners but also the other facilitating intermediaries that offer services to channel
members such as: Banks, Logistic Service Providers, Grocery Retail Chains, & IT Providers.
Aid in strategic planning deployment of services, and operations execution
Concentrate on core competencies Leverage knowledge in industry Deliver best and most current technology Agile gain immediate, additional resources and
assistance Reduce labor and management costs Less demand on capital Share rewards and risks
Loss of control Security issues Increased variable costs Less ability to direct human resources Loss of design expertise More variability in customer service
PROs CONs
Pros and Cons of the outsourcing of various functional and technical capabilities
International Channel Intermediaries
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Targeting World Markets
Foreign (Direct) Domestic (Indirect)
Agents
Brokers Manufacturers’ Reps Management Agents
Brokers Manufacturers’ Export
Agents Export Management
Companies
Distributors
Distributors Dealers Import Jobbers Wholesalers and
Retailers
Domestic WholesalersExport MerchantsComplementary MarketersExport Jobbers
Other Partners
Licensees Franchisees Contract Manufacturers
Key Points in Working with International Distributors and
Trading Partners
1. Select distributor, Don’t let them select you.2. Look for distributors who capable of developing
market.3. Treat distributor as long-term partner.4. Support market entry by committing money,
managers, and proven marketing ideas.5. Maintain control over marketing strategy.6. Make sure distributor provide you with detailed
market data and financial performance data.7. Build links among national distributors at the earliest
opportunity.
Cultural Divides in International Negotiations
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Targeting World Markets
Deal-focused: North America, Great Britain
Informal:Australia, U.S, Canada
Rigid Time:Nordic, Germanic Europe, North America
Reserved:East & Southeast Asia, Nordic and Germanic Europe.
Relationship-focused: Arab countries, Most of Africa & Latin America
Formal:Most of Europe, Mediterranean region
Fluid Time:Latin America, Africa
Expressive:Mediterranean Region, Latin America
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Ideal Candidate Template
Category Description of Ideal
Candidate Evaluation
Market Served
Product Line Fit
Territorial Coverage
Sales Capabilities
Business and Managerial Stability
Marketing Capabilities
Operational Capabilities
Local Service
Ease of Doing Business
Reputation
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Distributor Continuum
Specialist Distributors Generalist Distributors
Product SpecialistFull Parts InventoryPro-active SellingDedicated ResourcesFewer, Larger Customer Orders
Product GeneralistsFast-Moving Inventory
Reactive SellingHeavy Inventory Resources
Many Customer Orders
Product Importance Category
Importance Level Major Products
Secondary Products
Minor Products
Importance to Distributor’s Business
High Moderate Low
Distributor Willingness to Adapt High Moderate Low
Manufacturer’s Marketing Approach Push Push/Pull Pull
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual
Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Manufacturers Distributors
Financial Drivers
Revenue and BudgetsMarket PenetrationProfitROIStock Price
Sales Gross MarginCash FlowEarns and TurnsOwners’ Risks
MarketingTarget Market SegmentsPositioning
Accounts
Competitive AdvantageProduct QualityFeaturesWarranty
Account RelationshipsStock Levels
Time Horizon 1, 2, and 5 years Tomorrow, this month
Planning Output Team Commitment Action Timetable
SalesQualification and Persuasive Presentation
Take OrdersBuild RelationshipsExplain Promotion
Business Differences between Manufacturers and Distributors
Make Strategies Simple Complex strategies lengthen the time frames and decrease the percentage of
distributors who can execute plan
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual
Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Strategic Implications for Manufacturers
Demonstrate Advantages The strategy should be visibly different from the competition so your
distributors can confidentially show their customers why you are the better choice.
Be Consistent Channel Partner require a great deal of time to learn and execute a strategy in
the marketplace.
Choose Appropriate Levels of “Push” or “Pull” Selling Based on Manufacturer Product Importance category on the Distributor
Offer Translation Translating the Manufacturer’s National Marketing Plan into a Distributor Sales
Call.
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual
Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Manufacturer Plans
Section 1: Business Overview Review of last year’s sales result Business plan overview Competition and market situation Channel overview Marketing and sales strategy Sales goals
Section2: Product Overview New Product Product updates Quality improvements Manufacturing overview Technical trends
Section 3: Distributor Programs Overview Sales programs Advertising and publicity Literature Trade shows Cooperative advertising Sales contests & incentive programs Training programs Special issues: National accounts, E-
business, Buying groups, etc.
Section 4: Sales Forecast By product By market Penetration Index
Make it Fun Make it SpecificMake it Honest
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual
Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Distributor Plans
Sales Review of Last Year’s Sales Result By products By markets Penetration Index or market share
estimates Primary reason for this results
Business Analysis Strengths Weaknesses Threats Opportunities
Current Situation Markets Competition Capabilities Key accounts Branches (if applicable)
Goals Sales goals for next years Operational goals Qualitative goals
Sales StrategySales activities Sales coverage Promotions Events Direct mail Market/product emphasis Incentive programs
Sales forecast detail Products Markets Key accounts Branches
Action Timetable Who, what, when
Keep it Simple
Make Plans
Measurable
Include Long-Term
Goals
Develop Monitoring
System
Communicate the Plan
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual
Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Evaluate the Distributors
RatingExcellent
Poor
5 4 3 2 1
Enthusiastic owner support
Dedicated XYZ Champion
High quality technical people
XYZ products are their competitive edge
Focused on our market
Sell systems, not boxes
Effective internal operating systems and management
Distributor Profile:1. It can be used to select or
cancel distributors and refine the ideal candidate.
2. It can be used to coach distributor, by examining the area with a potential improvement.
Penetration Index:Comparison of Distributors sales performances independent of local market size.
Excellent: Above 100 (May receive Recognition Awards or Incentives)
Good: 90-100Poor: Below 90 (Notice on Improvement or Cancellation, depends on the contract agreement)
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Components to Improve Channel Effectiveness
1. Sell all levels of the distributorship on the value and financial return achievable by successfully implementing the manufacturer’s plan. Regional Sales Manager Resale Motivations Functional Discounts
2. Select a Product Champion or Product-Line Specialist
3. Coaching the Product Champion or Product-Line Specialist in all aspects of selling.
Building Relationship: Introduce new Ideas to the existing distributors
Motivation: Finding customer needs by questioning, listening, and summarizing, to identify customer goals, desired improvements. Priorities, or problems.
Evaluation: Giving alternatives, final information, and developing clear product preferences. Present it through BIV process. Benefit, Involve, and Valuable.
Decision: Accepting, listening, probing, and providing relevant information to satisfy customer’s concern and objections.
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual Performance Expectations
Improve Channel
Effectiveness
Monitor Performance &
Adjust Plans
Components to Improve Channel Effectiveness
4. Train all distributor salespeople.
5. Provide guidance on promotion and advertising efforts
6. Become a Business Consultant and Financial Advisor
Base Training Goals on the Distributor’s Goals. Make relevant training for critical situations, such as handling price
objections, selling uniqueness, or differential advantage. Be flexible to meet distributor requirements and go for short but frequent
sessions instead of few long sessions. Build incentives on the training. Build on small success. Use credible sales trainer.
Co-op Programs Literature Trade Shows Promotions Special Incentives Events
Help client organization achieve its goals. Must be financially astute and a skilled business planner and strategies. Have relevant experience in the business they consult.
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual Performance Expectations
Improve Channel
Effectiveness
Monitor Performance
& Adjust Plans
Performance Monitoring
Monitoring Change
Determine whether distributors making the significant changes called for in the business plan.
Product-Line Performance
Review
The distributor evaluates the performances of manufacturer, and the manufacturer evaluates the performance of distributor.
Distributor Council
Generate recommendations for the manufacturer on the best ways to handle business issues.
Monitoring Activities
RSMs responsible for monitoring the quality and quantity of distribution activities in marketplace.
Monitoring Sales Result
There is a lag time between effort and result. Such analysis occurs too late to lead to timely corrective actions.
Clarify Corporate Direction
Define Channel & Coverage
Requirements
Develop Channel Design
Select Channel Partners
Establish Mutual Performance Expectations
Improve Channel
Effectiveness
Monitor Performance
& Adjust Plans
Adjustment
Channel Member Additions or
Replacements
Changing of channel members within the existing structure through cancellation, addition, or replacement.
Structural Channel Changes
For example: Selling through sales representatives instead of distributors, selling directly to large or national accounts, and establishing new direct sales channels for new immerging market segments.
Plan Adjustment
Such as: add a salesperson, conduct a dealer training event, run a sales incentives program, or initiate an on-site inventory program .
Sales Forecast Adjustment
Forecast modifications are then provided to the materials, manufacturing, and inventory management.
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