The Vision, Mission and Objectives Channel objectives determine channel strategy. Making a major change in an established channel structure is difficult and often risky. Therefore it is desirable to set up the objectives properly in the first place. They should be dictated by the service level output which is desired by the ultimate consumer and the global vision and mission of the company in terms of long term return on investment, market share, absolute level of profits to be achieved and sales growth.
The specific objectives of any channel, apart from the global aspirations of the company, should be firmly based on the service outputs demanded by its customers. Different levels of these outputs may be required in different segments of the market and this need to be determined. The use of multiple channels catering for different segments of the market is common in marketing today.
Once the service levels are decided upon, then the market coverage has to be determined. This in turn determines the support which can be expected from the channel in the event of different coverage strategies. Here the company should also decide whether it needs to own the entire channel or parts of it and what the costs of full and part ownership are going to be in terms of possible consequences.
Three choices are possible: intensive, selective or exclusive distribution. It is worth mentioning in this context that they are all possible in case of vertical or non-vertical integration although the costs may be prohibitive in case of full ownership of a channel specializing in intensive distribution.
Intensive distribution is generally used for products which are frequently bought and which need to be easily available, like newspapers and sweets. Selective distribution is usual for products which buyers like to choose with some effort, e.g. clothing. This type of distribution can range from expensive items which are almost exclusive, to items like cosmetics which are almost intensively distributed. Exclusive distribution implies a mutually dependent relationship between seller and re-seller and is used for large or expensive items such as farm machinery or very expensive clothes or jewellery.
It is appropriate to check and verify that the strategy adopted is in line with current circumstances when considering how to motivate a channel member. The channel structure and the type of distribution are also interdependent to some degree. A ‘long’ channel structure which possesses many intermediate wholesalers allows for greater spread and therefore more intensive distribution. Conversely, a ‘short’ structure has more direct channels and tends towards exclusive distribution.
It is obvious that the more intensive the distribution, the greater the sales in the short term. However, over a long term, adverse effects such as lower margins appear, followed by unwillingness on the part of the distributors to sell the product, consequent necessity of an increase in promotional efforts by the manufacturer and deterioration of the service levels. As a business executive once remarked ‘you can take fifty years to build a brand and you can ruin it in three years through careless distribution’.
However, intensive distribution is successfully followed in the case of innumerable products through a well-formulated marketing programme which fulfils the requirements of distributors and consumers alike. The various factors should be carefully considered before deciding on a distribution strategy, in particular the relation between the products marketed and the last selling point for them.
The following means of persuasion are available to channel members to influence the decision-making or behaviour of others.
Rewards: If A possesses some resource which B wishes to obtain and B believes this can be obtained through confirming to A’s wishes, this amounts to reward power. Specific rewards to channel members could include wider margins, granting of exclusive territories and various promotional allowances.
Coercion: This exists if B believes that A will punish anyone who does not conform to A’s wishes. Coercion amounts to negative sanctions or punishment including reductions in margins, withdrawals of rewards granted earlier and slowing down of shipments. This brings fewer results over the long term than other tools and should therefore be considered as a last resort.
Expertise: This occurs when B perceives A to possess some special knowledge which would help B. Small retailers often rely heavily on their wholesalers for expert advice. However, once transferred, expertise is considerably reduced in power. If a business wishes to retain expertise over a long term, the following options are open to it:
- It can ration its advice to small portions and keep back sufficient vital knowledge so that the others remain dependent upon it. This could be detrimental to efficient working of the channel as every member should work up to its capacity for the channel to function successfully. A member starved of vital information cannot do so.
- A better though somewhat expensive option is to collect accurate information regarding market trends, threats and opportunities, and other ongoing matters which individual channel members would find difficult to obtain themselves. The benefits of this option can be high in terms of channel goal achievements.
- Another way is for channel members to invest in specialized transaction expertise which is difficult to transfer to other products or services and so hinders the members from leaving the channel.
- The ability of a channel member to acquire information which is necessary for another channel member to function efficiently confers power on the acquirer. For example, retailers hold a privileged position with respect to manufacturers because of their close customer contacts.
Identification: This occurs when B identifies with A or desires to do so. For example, given equal returns from two different dealerships, one may well choose that which one would like to identify with, perhaps the marc prestigious one. Here the company reputation or image confers an advantage on the business.
Legitimacy: Results from B feeling that A has the right to exercise power over them. This would be the case between workers and their supervisor, for example. In a channel relationship, such a power may be assigned to the largest firm. Or the retailers and industrial suppliers may believe that they have the power since they are in contract with the end-users and the others are not. However, the amount of power thus exerted is usually small.
In real life situations, all these powers are used simultaneously in most situations. Sometimes, the use of one power may enhance another power base; or the opposite may happen.
Environmental conditions and the effect of such a use of power on them must also be considered in this situation. The norms of the channel systems also prohibit the use of some of these powers.
The degree of success that a channel member will have in influencing the behaviour of other channel members will depend on its leadership behaviour. When the channel members have common goals, the use of information exchange and/or recommendations will probably produce positive results. In other situations, promises, threats, legalistic strategies and requests are used with varying success.
An international business manufacturing paints, which is based in Italy, has the policy of treating its agents like its own employees. They are required to submit progress reports every month just like the company sales force. All these reports are fed into a computer and analyzed. The company management keeps an eye on the stocks bought by key customers and the price they paid. Any falling off in an agent’s performance results in rapid identification of the problem and support provided by a senior staff member on the spot
Focusing channels onto specific products and target markets – motivation of channel principals and sales force
Ensure that the traditional distributor attitude and priorities are recognized by you and dealt with. Distributors:
- Always feel that a high price is charged by the manufacturer
- Think that manufacturer’s mark-up is high
- Think that the manufacturer does not invest in the market
Avoid the traditional manufacturer attitude. The manufacturer:
- Is interested in volume sales
- Is interested in profits
- Wants distributors to make stock investment
How to ensure that a manufacturer’s product is measured
Check that the points in below Table.
For mutual benefits the relationship should produce:
- Acceptable profit margins to the distributor
- Acceptable volume and rate of growth to the manufacturer, at optimum profit margins
| Distributor principal has: | Distributor sales executive has: |
| 1. Quality product 2. Reliable delivery dates 3. Fair profit margins 4. Good communication, physical and written 5. Reasonable advertising and sales promotion support 6. Willingness by manufacturer to assist with distributor’s general problems | 1. Quality product 2. Reliable delivery dates 3. Technical information as and when required 4. Ad hoc bonuses, e.g. money, travel, trip to manufacturer’s head office, etc. 5. Good communications with manufacturers ‘field’ representative. 6. Fair evaluation of performance |
Table: Factors affecting the majoring of a manufacturer’s product
The manufacturer’s ‘link person’ must try and assist the distributor in upgrading their entire operation. Allow the distributors to consult your financial director; let individual interested distributors have the use of the director’s time for a day or two. Run seminars on relevant subjects, e.g. ‘modern warehousing’. A distributor should be able to call on the manufacturer’s experience when trying to solve any problem relative to their business.
Control systems first and foremost, a system to establish an annual campaign plan must be introduced. This campaign plan should cover, as a minimum,
The common goals to be achieved in the first year at least;
- What this would mean realistically in terms of the quarterly volumes of
- Sales to the channel’s customers and shipments from the manufacturer;
- The recommended price at which the product would be marketed;
- The price/discounts/terms of trading at which the manufacturer will supply the product;
- What this would mean in terms of market share;
- Levels of sales and supporting staff resources to be deployed;
- A schedule of training to be provided by the manufacturer;
- Promotional materials, campaigns, etc., to be undertaken by the manufacturer and the channel;
- Specific actions to be taken concerning inventory/logistics ,etc.;
- Key event/action review calendar.
Secondly, regular monitoring and review sessions must be held to ensure that the performance is on course and that if needed, corrective actions are taken on time.
