GROUP 4

MODULE 8:
DESIGNING CHANNEL
SYSTEMS
BY: Amazona, Pjay M.
Bautista, Angelica B.
Lontoc, Rhona Mae
De Chavez, Grescy G.
Cantos, Brendalyn
 INTRODUCTION: Factors need to be collected
Nature of competition and its distribution
Nature of the product or service being distributed
systems

The expectations from the system. The 'deliverables’ Intensity of distribution required
of the system
Nature of the markets being targeted
Location and nature of the customers

Table 12.1 Summary of Channel Design Factors

Channel Design Factors
Product mix and nature of product Marketing mix elements.
Width and depth of market/outlet coverage planned
Long term commitments to channel partners
Level of customer service planned
Cost affordable on the channel system
Channel control requirements of the company
 CHANNEL DESIGN AND PLANNING PROCESS
Designing a suitable channel system involves defining customer needs, clarifying objectives, evaluating
alternatives, and evaluating costs.

Stage in Channel Planning

Segmentation Positioning Focus Development

Defining Costumer Needs

Customer needs are defined by desired service levels in the channel system, including lot size,
waiting time, variety, spatial convenience, and technical product support.

Lot size Choice to the consumer

Waiting Time Place Utility
Defining Channel Objectives
Channel objectives are the system's actions to support customer service, aiming to achieve service levels at
the least cost.

Channel objectives are dictated by the product characteristics also. Some examples are given below:

• Industrial products require direct marketing by the company.

• Consumer products need to be made available in large number of outlets to suit the equally large number of end
users, require the firm to exploit the channels available in the market place like distributors. wholesalers and
retailers
• A company selling frozen deserts and ice creams has to look for a channel system that has a cold chain.
• A company selling seeds would like a channel design with a focus on rural distribution outlets, stockists
interested in fertilizers.
• Multi-level marketing companies depend on distributors who in turn recruit more distributors.
 Channel Alternatives
A mpany evaluates distribution channel alternatives after determining targeted customers and desired
customer service deliverables from channel partners, scanning for:

Business intermediaries currently available in the market. Consumer product and pharma
companies can also target any distributors, all wholesalers and retailers already operating
in the market, to support their product distribution.

The number and type of intermediaries required depend on customer expectations, service
levels, and distribution intensity. Metro city retailers require more distributors or salesmen

Engineering companies may develop sophisticated testing equipment and train exclusive
distributors and salesmen instead of existing technical product distributors for new channel
members

Channel partners, including C&FAs, distributors, and retailers, have specific roles in
reaching the end user, with the company defining these roles to avoid confusion or conflict.
 Cost of the Channel System

Sales management is crucial in balancing customer service needs with company distribution system costs,
considering cost elements such as channel network elements.
• Margins of the channel partners
• Cost of transportation of goods between the company and the end user
• Cost of stock returns/date expired stocks taken back from the market
• Cost of stock returns/date expired stocks taken back from the market
• Cost of any reverse logistics required - for example getting empties
back.
Current intermediaries
As business activity has grown over the years, a number of intermediaries or ready channel partners are already in operation and can
be utilized. Some of the intermediaries are:

• Distributors or redistribution stoc

• Logistics service providers
• Manufacturers' agents, stockists, guarantors
• Retailers
• Service centres
Number of intermediaries

The number of intermediaries is a careful balance between the need to ensure full coverage of the
markets/outlets and ensuring that there are not so many intermediaries that none of them is making
money selling the product.

The main consideration to decide the number of intermediaries is the 'intensity' of distribution which
the company desires.

The distribution could be exclusive, selective or intensive

Exclusive is when the channel system has been set up for use by the company only.
Selective is when the company chooses to use only a limited set of intermediaries to keep its
distribution tight and well controlled.
Intensive the objective is to spread the availability to reach the maximum number of dispersed
customers where the customer universe itself is very large.
 Renewed Focus on Distribution at HLL
HLL wants to renew its distribution focus to contact the customer at the point of purchase not only
through product availability but also brand communication and direct brand experience.

HLL is also helping increase out-of-home consumption of its products using the strength of its
distribution reach.

Evaluation of Major Alternatives

Cost of operations

Ability to manage and

control

Adaptability
Range and Volume to be
Table 12.4 Parameter for Evaluating channel Alternatives handled
 Ideal channel structure
The ideal channel structure has to be optimal in terms of customer service delivery and the costs
associated with it.
Obligations of Channel Partners
Market coverage
Development of new markets
Development of new key accounts
Holding inventory
Extending credit to the market
Proper implementation of promotions
Key Account management
Technical advice and support
Service support
Complaint handling
Market feedback and reporting
` Table 12.5 Obligations of Channel Partners
SELECTING CHANNEL PARTNERS
if a new company were to start looking for partners to set up their
distribution network, it would be really difficult.
The two examples from the consumer products industry on the parameters

Example: A Carrying and Forwarding Agent (C&FA)

Parameter of Selection
Location of the party
Location of the warehouse
Past experience
History of past business
Criteria for Selection
In or close to a main market of the company
 Close to a major market,
 Outside octroi limits,
 Should have proper road/transport access,
 Labour availability,
 Utilities support,
 Connected by phone
 As a C&FA for a similar company,
 As a transporter should have access to a good warehouse
Should have handled similar but non-competing companies, Ability to maintain confidentiality of transactions

Financial strength To handle all operating expenses till re-imbursement Insurance

IT capability  Adequate own hardware,

Flexibility
Transportation facilities
Attitude, commitment
 Trained staff to handle simple programmes and reporting formats
 In operating hours daily,
 To handle peak loads
 Reliability, consistency in sourcing of vehicles,
 Additional volumes to be handled at short notice
 To be of the highest order/positive,
 Willing to expand the business
 Disciplined
Example: A Distributor
Parameter of Selection
Size of the channel partner
Own salesforce
Current business
Reputation
Market coverage
Credit extended in the market
Stock distribution
Infrastructure availability
Sales performance
Management of the business
Market working
Handling sales promotions
Inventory management
Criteria for Selection
 Current business portfolio,
 Financial strength/asset ownership including personal assets of partners
 Number of sales people
 Qualifications, background, experience
 Products handled, volume handled,
 Should be of similar products but non-competitive,
 Product quality, compatibility and complimentary
 Leadership in the market,
 Integrity, fairness in dealings
 Territory/intensity,
 Regularity, reliability,
 Relationship, productivity,
 Beat plan adherence,
 Value of Institutional business handled if any
 Percentage of outlets,
 Percentage of current business,
 Bad debts if any
Ready stocks or order booking
 Warehouse,
 Distribution vans,
 Hardware/personal computers/connectivity
 On current business,
 Awards, prizes, certificates won on performance
 Educational background, Qualifications of partners
 Direct involvement in the business
Efforts on merchandising, displays
Past experience
Adherence to stock norms recommended by the company
 The primary requirement of a C&FA should be
that he is a Transporter with good warehousing
facilities. The C&FA is normally selected to
operate in territories or a state in which he is
located.
C&FA
A distributor also known as a redistribution stockist, just
does that. He buys the company products from the
company C&FA and re-distributes (sells) it to all the
wholesalers, retailers and institutions from where the
final consumer or end users buy it or where it may get
consumed (in an institution).
DISTRIBUTOR

For companies like FMCG and pharmaceuticals only some of the channel partners like C&FAS and
distributors can be recruited.
The other channel members like wholesalers, retailers and chemists already exist in the market
and automatically become part of the network.
There is no effort re- quired in selecting these channel members. The effort is only in persuading
them to stock and sell the company products.
If a company were looking at building a distribution network to penetrate rural markets with
agricultural inputs like fertilizers, seeds and insecticides they would prefer to look at wholesalers in
feeder markets where most farmers would be coming for their purchases.
 Change of Channel Members
Different distribution strategy
Situation Before:
 Actions points on Distribution Integration
 All C&FAs were not required
 Distribution retained from the territories where the respective company had higher market shares.
 For new distributor it was a Greenfield selection.
 Salesman ideally should have been based on one salesman to manage 10-12 distributors.
 Surplus supervisors and ASMs were also separated.
 Branch managers were about 5 in excess.
 Both the GSMs were retained with one having responsibility.
 The entire distribution integration took 6 months to complete.
Training Channel Members
This starts at the time the channel member is recruited and continues right through the
time that the channel member is associated with the company. The training is done for
the channel member owners and their staff.
Training could include:

 Job field training

 Class room training
 Special meetings
 Training on submitting reports
 Care of the company products
 Technical specifications and developing skills to answer costumer queries
 For technical and Industrial products
 Servicing of engineering products
Motivating Channel members
Companies operate with ambitious volume and growth targets which require extra efforts
on the part of the company Salesforce and their channel partners to achieve.
 Motivating Channel members
Companies operate with ambitious volume and growth targets which require extra efforts on the part of
the company Salesforce and their channel partners to achieve.
The Power of Motivation
 Referent Power
 Expert Power
 Legitimate Power
 Support power
 Competition Power
 Reward power
 Coercive Power

Evaluating Channel Members

The performance and success of the company business depends on the effectiveness of its
distribution channel.
Evaluation can be done by answering some simple questions.
 Does the system deliver he targeted customer service?
 The Performance of all partners in the channel network has to be cost effective for
their defined roles on flows and customers service deliverables?
 Is the channel system operating at the lowest total cost possible for the given service
level?
 Are all channel members performing of the peak of their potential and delivering high
quality and timely outputs?
 Does the system have a good performance measurement procedure in place and is
this transparent to all the channel partners?
 Do the channel members feel that the company they are working for is fair and
equitable in the remuneration and return on investment allowed for their services?
 Does the system have the capability of motivating low performers into putting efforts
to the best of their potential and capability?
 Is the system capable of taking action on complaints quickly and correcting itself for
better performance in the future?
 Modifying an Existing Channel Network

• Service cannot be at any cost.

• The service level objectives have to be drilled down into the activities which the channel is
expected to perform to achieve those objectives.

• The company would like to outsource some of the activities to its channel partners who are better
qualified to do the job.

• Now the channel structure is possible to define with a set of channel partners who are expected to
do set tasks to deliver the customer service at the optimum or minimum cost.

• Now the ideal channel structure as arrived at is to be compared with the existing channel network
to identify the gaps.
Modifying an Existing Channel Network
● Bridging these gaps gives us the new channel system.

● When comparing the ideal and the existing the criteria to be used include:

● Efficiency
● Effectiveness
● Capacity
● Agility
● Consistency
● Reliability and
● Integrity

● Comparisons with competition or other companies in the same industry are required when the
company is looking for a greenfield distribution system.
 Probability figures

Mercury Venus Mars

.. …. …
A picture always
reinforces
the concept
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A picture is worth
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Global data distribution
Venus
Venus is the second planet
from the Sun

Mercury
Mercury is the closest
planet to the Sun

Mars
Despite being red, Mars is
a very cold place
 Solving normal distribution problems

Determine the dataset to analyze Measure the spread of data

Identify data Calculate deviation

1 2 3 4

Calculate mean Apply Z-scores

Find the average of the data Standardize and compare data
Thanks
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 The binomial distribution

Binomial model Intro concepts

Mars is a red planet Venus is a hot planet

Basics
Key parameters Probability traits
Mercury is very small Jupiter is a gas giant
 Chi-square distribution: an introduction
Aspect Description
A probability distribution used in statistics to measure the relationship
Definition
between categorical variables in a data set
Formula f(x; ν) = (1 / (2^(ν/2) * Γ(ν/2))) * x^(ν/2 - 1) * e^(-x/2)
- Used in tests of independence and goodness of fit
Characteristics - Positively skewed (not symmetric)
- Parameter of degrees of freedom (df)
Pearson's chi-squared test in contingency tables to analyze the
Common example
independence between two categorical variables
- Medical and health research
Applications - Social sciences
- Quality control in industry
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