Retailer profitability

 Their total sales from a specific brand of product.

 The margin (selling price less cost price) on the products of a specific brand.
 The total investment they make in a specific brand of product (including the
cost of the space used in retail display).
 Their fixed and variable costs of operations.
 The amount of credit they extend to consumers.
 The amount of credit they receive from the brand of the product.
 The cost of capital (the rate of interest they pay to banks or other lenders).

Typically, retailers calculate the following on an annual scale

Trends -

 Consumers were increasingly buying from organized retail outlets.

 There was an increase in omnichannel shoppers who compared offers across
different channels and purchased from the channel with the best offer.
 As consumers became increasingly aware of the availability of discounts, they
became bargain hunters.
 Many of them traded up to bigger pack sizes to get better discounts. This
phenomenon proliferated even among brick-and-mortar GT channel consumers.
 The share of the GT channel had fallen from 86%, sales in 2014 to 69.5 per cent
in2018. While, during the same period, the share of emerging retail channels had
increased from 5.7% to 21.1%
 Inter channel conflict resulted in LDFL's products being destocked by the GT
channel, which, in turn, led to an overall loss of market share in 2018.
Recap
The key parameters for evaluating the new sales
policy would possibly be

a) the cost of servicing consumer demand; CTS

b) competitive advantage it created for LDFL in the channel;
c) effect on sales team motivation (achieved by creating conditions where
each could perform optimally and grow);
d) ease of implementation of the sales policy; and
e) achieving immediate sales results (2019), and its long-term sales impact.

Considering the above, creating a channel champion for a specific SKU might be
useful immediately, but, over time, change must be made to the organizational
structure and performance metrics.
Channel Management
 What is a Channel?

Distribution Channel

This Photo by Unknown Author is licensed under CC

BY-SA

What are the entities involved?

What are the services they deliver/value add?
What is the relationship?
What process are required?
What is the underlying process?
What is the value chain implication?
 What entities make up the channel?

This Photo by Unknown Author is licensed under CC

BY-SA
What entities make up the channel?
Channel functions
 Demand fulfilment
 Physical Distribution
 Inventory Management
 Bulk Breaking
 Market Communications
 Market Feedback
 Cashflow and Financial Risk Management
 Cost Management/Value delivery
 Education, Guidance, customization and technical support
Channel Design Principles
 Strategic objectives
 Nature of the product
- Shelf life, freshness, inventory, handling and storage conditions – Long versus
short channel
- Exclusive, brand experience, access and availability
 Cost to serve
 Target market
 Competition channel choices
 Channel Structure – number of levels of intermediaries (level zero…)
 Channel Intensity – number of intermediaries at each level
 Complexity (Layers X Span)
 Processes and policies to make it work.
Considerations -
 Every entity/Process has to add some value
 Value addition should be greater than the cost of the node
 The consumer does not see the channel’s length or breadth but can
experience if it works effectively and efficiently. Therefore, evaluate the
channel with customer experience at the center.
 Software is as important as the hardware.
 Strategically, firms compete on how effective and efficient their channel
is. Benchmark vis-à-vis competition to understand areas of strengths and
vulnerabilities.
 Evaluate technology to bring efficiency and effectiveness
 Check for the sufficiency of your channel versus strategic goals
Marketing Channels example

Zero Level D2C

C
One Level
u
C
W
a
Retailer/Dealer
s
o
m
r
e
Two Level Dealership
t
p
a
h
o
Distributor Retailer o
Dealership
n
y
u
s
Two Level
m
e Distributor Wholesaler/Agent Retailer
e
r
Retail Aftermarket Channel Network for a typical Lubricant Company (B2B2B)

Internal Plants 3rd Party Plants Imports

CFAs

Distributors

Rural
Top Dealers Rest of Dealers Independent Independent
Distributors Independent
(equivalent of (equivalent of Workshop - Workshop -
(equivalent of Workshop - Cars
wholesales) wholesalers) Bikes Trucks
sub-D)

End User End User End User

End User End User End User

Mechanics End User

(Influencers)
Vehicle Manufacturer Workshop Channel Network for a typical Lubricant Company (B2B)

Internal Plants 3rd Party Plants Imports

CFAs

Distributors

OEM Workshop

Vehicle manufacturer could be an OEM for any of the automotive types like Maruti, Hero, Mahindra Tractors, Ashok Leyland trucks, JCB etc.
Industrial/Heavy Duty Channel Network for a typical Lubricant Company (B2B)

Internal Plants 3rd Party Plants Imports

CFAs

Distributors

Customer

Industrial applications for lubricants will include application across industries like Wind, Metal application etc.
Heavy Duty is business of off-road vehicles used for construction, mining etc.
Unique channels

 Physical Channels - Shakti, Udaan, eChoupal

 Digital Channels
Channel Intensity

Exclusive Selective Intensive

Attributes

 Control geography
 Quality and prestige
 Pricing
 Service
 Number of customers
 Distinctive products or service

Reach Image Control

Channel Design Framework-

 Step 1 – Identify homogenous customers. End-user/shopper and not

intermediaries (Omni?)
 Step 2 – Prioritize the channel’s functional requirement (information,
customizations, quality, availability, assortment, service, pricing,
credit, delivery, etc., etc.
 Step 3 – Benchmark with the market, and competitors (the retail type
used, intermediaries used, sales team structures, processes, etc)
 Step 4 – Based on 2 & 3, roll out a design with policies, ways of working,
structure, and assign R&R.
 Step 5 – Set KPIs and review against the strategic objectives
 Step 6 – Diagnose and fix dysfunctional structures and processes
 Channel Management

Strategy

Expectations - KPIs

Process + Policies + Training + Relationship + Profitability

Outcomes - Dashboard
Review Initiatives/
actions
Building Chanel Management Capability
 Channel Partner training programs – Operations/Selling Capabilities
 Sales Force capability on managing channel partners strategically
 Ability to understand small enterprises, their challenges, and ways to invest
in the partnership – Customer Development approach versus sales
maximization
 Building and sharing relevant category insights to enable the channel
partners to serve their customers better.
 Identify opportunities to enable demand generations at the different levels
of the channel – new solutions/process changes/product
updates/communication
 Feedback mechanism and
 Top management investment and engagement
Typical Channel Issues-

 Poor coverage of target customers

 Poor service/Irregular follow up with customers
 Lack of awareness of the brand
 Unattended complaints of customers/stockouts
 Uncompetitive vis-a-vis competition
 Negative image of the brand/organization…..
Paradoxes in Channel Management
 Channel Partners / Customers
 Too big / Too small
 Relationship / Process driven
 ROI
 Motivation/Loyalties
 Incentivization for results vs. process
 Risk Management
 Channel Conflict Resolution Strategy – Fairness, transparency,
consistency, unlock value
Values/Culture/Capability
Sources of Conflict
 Poorly defined roles and responsibilities/expectations
 Resource allocation
 Unaligned outlook or growth perspective
 Cost management
 Decision domain difference
 Goal incompatibility
 Communication-related challenges
 Poor understanding of each others’ objectives, constraints, and value chains
 Disagreements on the commercials
 Misaligned values
Stages of conflict

 Latent
 Perceived
 Felt
 Manifest
Motivating channel powers – Influencing
power (French & Raven model)
 Reward Power (Direct selling business and distribution examples)
 Coercive Power (Big companies – high volume high stake)
 Referent Power (Microsoft, HUL, Colgate…)
 Legitimate Power (Contractual agreements and norms)
 Expert Power (Maruti, …)
 Support Power (Subsidies, investment support, skills and training)
 Competition Power (Contests and internal benchmarking)

The primary responsibility of the sales team, supported by other functions.

“Customer Development” mindset
Building healthy Partnership

 Put your requirements with related measures in contract, as annexures

 Expectations should be covered in the contract as far as possible.
Market coverage, frequency of service, resource requirement, service levels,
inventory levels, damages and expiry policies, payment terms….

Resolving the dilemmas –

“Performance versus Relationship”
“Contract versus spirit”
Regulations

 Competition Laws
 Fair Trade practice laws
 Child labour
 Industry guidelines
 Trade Laws
 Anti corruption and bribery laws
 Accounting practices
 …
Forces driving the change in channel
strategy for organizations -
1. Proliferation in customer needs – Mass customization of channels, Omni channel shoppers
1. Expanding capabilities for addressability and variety
2. Emerging channel diversity
3. Customer expectations – what is possible

2. Shift in the balance of channel power – Consolidation and bargaining power

1. Enhanced bargaining power
2. More knowledgeable buyers – value chain costs and customer needs
3. Backward and forward integration

3. Changing strategic priorities

1. Shedding noncritical channel activities
2. Internal realignment of value chain
3. Evolving partnership models