The Manager's Guide To Distribution Channels

Managers Guide to Distribution Channels
The
Prepared by: Danny
Rakhmandita Akhwan
STRATEGIC FIT
Market Dynamics Strategy Shifts
The growth of the Internet.
MANAGEMENT ISSUES
Goal Alignment
Ensuring that the resellers business model fit the strategic goals of the manufacturer.
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.
Motivating Channel Members
Entice resellers to move toward attaining the goals.
Support Tools & Programs

Promotional support Sales and technical support Training
New Product Launch
The ability of the channel to provide technical support, customer service, etc.
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
External Forces Impacting Channel Strategy
Do not push customers to buy from the wrong types of channels.
Customers
Make sure current channel policies relevant & sufficient to meet the broad customer service performance requirements.
Partners
Design channels that meet the needs of diverse audiences.
Demographic Population
Shift on Distributors role from moving direct products & sales materials to servicing customers for indirect materials & services.
Splintering of Channels
Build stronger relationships with distributors and with product consumers.
Competition
Relevant regulations must be addressed in developing channel strategy.
Government Regulations
Implement environmental policies to abide by corporate and/or government regulations.
Environment
Internal Forces Impacting Channel Strategy
Firms are going from single points of contact to team contacts on behalf of sellers and buyers and other intermediaries.
CRM & SRM
Product Development
New product require extensive customer education from channels that provide that functionality.
Technical substitution of product ingredients or components to enhance profitability.
Operations Development
Maintain competitive posture and to improve the retention and management of distributors.
Information Technology
Trading Partners are taking value engineering and analysis in analyzing interenterprise functionality.
Organizational Developments
Suppliers and Distributors must plan and manage human resources practices in the fluid labor situations.
Human Resources Policies and Practices
Horizontal collaborative relationships are developing relative to competitors and complementary suppliers.
Collaborative Strategic Alliances
Respond to business or personal usage of products and services instead of considering only the derived demand between business partners.
Supply Chain Management
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 customers customer & the channel at their suppliers 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, suppliers suppliers, distributors, tier 1 customers, tier 2 customers, & so forth.
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.
Legal Side of Marketing Policies

Market Coverage Pricing Decisions Product Line
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.
Resale Prices Suggestion Manufacturer may suggest resale prices & encourage distributors in that direction, but not force them. Charging Different Prices Its a violation if satisfy all of the following 4 criteria: 1. Two sales in interstate commerce 2. Commodities of like grade and quality 3. Different prices not just in invoice, but also discount, rebates, credits, etc. 4. A hindrance to competition.
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.
Customer Types Limit the distributors to specific industries or customer types. May also trigger antitrust concerns.
Written Contract
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.
Contents:
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.
Channel Preferences Are Not Static
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.
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).
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.
Product Requirements Influence Channel Selection

Channel Types by Service Requirement
High-Touch Low-Touch
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 hightouch 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.
Sales Forces, Company-Owned Resellers, Foreign Direct Investment
Corporate Website Telesales Direct Mail
Direct
Manufacturers Rep Force, Specialty Distributor, VAR, Brokers, Jobbers, etc.
Catalog Distributor, Mass Retailer, ThirdParty Internet Site
Indirect
Managing Multiple Channels

Conflict Within an Existing Channel Conflict with the Manufacturer over a New Channel Conflict between Different Channels
Reduce these kind of conflict by establishing specific performance requirements to earn special compensation and prices.
Minimize these kind of conflict by specify manufacturer right to house accounts in the initial distributor contract.
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.
In the area with too many distributors, establish an exclusive territories or area of primary responsibility.
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.
Pros and Cons of the outsourcing of various functional and technical capabilities
PROs
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
CONs
Loss of control Security issues Increased variable costs Less ability to direct human resources Loss of design expertise More variability in customer service
Targeting World Markets

International Channel Intermediaries
Foreign (Direct) Agents Brokers Manufacturers Reps Management Agents Brokers Manufacturers Export Agents Export Management Companies Distributors Distributors Dealers Import Jobbers Wholesalers and Retailers Domestic Wholesalers Export Merchants Complementary Marketers Export Jobbers Other Partners Licensees Franchisees Contract Manufacturers 1. 2. 3. 4. Select distributor, Dont let them select you. Look for distributors who capable of developing market. Treat distributor as long-term partner. 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. Domestic (Indirect)
Key Points in Working with International Distributors and Trading Partners
Targeting World Markets

Cultural Divides in International Negotiations
Deal-focused: North America, Great Britain Relationship-focused: Arab countries, Most of Africa & Latin America
Informal: Australia, U.S, Canada
Formal: Most of Europe, Mediterranean region
Rigid Time: Nordic, Germanic Europe, North America
Fluid Time: Latin America, Africa
Reserved: East & Southeast Asia, Nordic and Germanic Europe.
Expressive: Mediterranean Region, Latin America
Ideal Candidate Template

Category
Market Served Product Line Fit Territorial Coverage Sales Capabilities Business and Managerial Stability Marketing Capabilities Operational Capabilities Local Service Ease of Doing Business Reputation
Description of Ideal
Candidate Evaluation
Distributor Continuum
Specialist Distributors Generalist Distributors
Product Specialist Full Parts Inventory Pro-active Selling Dedicated Resources Fewer, Larger Customer Orders
Product Generalists Fast-Moving Inventory Reactive Selling Heavy Inventory Resources Many Customer Orders
Product Importance Category

Importance Level
Importance to Distributors Business
Distributor Willingness to Adapt Manufacturers Marketing Approach
Major Products
High
High Push
Secondary Products
Moderate
Moderate Push/Pull
Minor Products
Low
Low Pull
Business Differences between Manufacturers and Distributors

Manufacturers
Revenue and Budgets Market Penetration Profit ROI Stock Price Target Market Segments Positioning Product Quality Features Warranty 1, 2, and 5 years
Distributors
Sales Gross Margin Cash Flow Earns and Turns Owners Risks
Financial Drivers
Marketing
Competitive Advantage Time Horizon
Accounts
Account Relationships Stock Levels Tomorrow, this month
Planning Output
Sales
Team Commitment
Qualification and Persuasive Presentation
Action Timetable
Take Orders Build Relationships Explain Promotion
Strategic Implications for Manufacturers

Make Strategies Simple
Complex strategies lengthen the time frames and decrease the percentage of distributors who can execute plan
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 Manufacturers National Marketing Plan into a Distributor Sales Call.
Manufacturer Plans
Section 1: Business Overview

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.
Review of last years 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 4: Sales Forecast

By product By market Penetration Index
Make it Fun
Make it Specific
Make it Honest
Distributor Plans
Sales Review of Last Years Sales Result
By products By markets Penetration Index or market share estimates Primary reason for this results
Goals
Sales goals for next years Operational goals Qualitative goals
Sales Strategy Sales activities

Business Analysis
Strengths Weaknesses Threats Opportunities
Sales coverage Promotions Events Direct mail Market/product emphasis Incentive programs Products Markets Key accounts Branches
Sales forecast detail
Current Situation

Markets Competition Capabilities Key accounts Branches (if applicable)
Action Timetable
Who, what, when
Keep it Simple
Make Plans Measurable
Include LongTerm Goals
Develop Monitoring System
Communicate the Plan
Evaluate the Distributors

Distributor Profile:
Rating Excellent Poor 5
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
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: 90-100 Poor: Below 90 (Notice on Improvement or Cancellation, depends on the contract agreement)
Components to Improve Channel Effectiveness

1. Sell all levels of the distributorship on the value and financial return achievable by successfully implementing the manufacturers plan.
Regional Sales Manager
Resale Motivations
Functional Discounts
2. Select a Product Champion or ProductLine Specialist
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 customers concern and objections.
3. Coaching the Product Champion or ProductLine Specialist in all aspects of selling.
Components to Improve Channel Effectiveness

4. Train all distributor salespeople. Base Training Goals on the Distributors 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.
5. Provide guidance on promotion and advertising efforts
Co-op Programs Literature Trade Shows Promotions Special Incentives Events
6. Become a Business Consultant and Financial Advisor
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.
Performance Monitoring
Monitoring Sales Result

There is a lag time between effort and result. Such analysis occurs too late to lead to timely corrective actions.
Monitoring Activities
RSMs responsible for monitoring the quality and quantity of distribution activities in marketplace.
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.
Adjustment
Sales Forecast Adjustment

Forecast modifications are then provided to the materials, manufacturing, and inventory management.
Plan Adjustment
Such as: add a salesperson, conduct a dealer training event, run a sales incentives program, or initiate an on-site inventory program .
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.
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The Manager's Guide To Distribution Channels

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Managers Guide to Distribution Channels

Prepared by: Danny

Motivating Channel Members

Entice resellers to move toward attaining the goals.

Support Tools & Programs

New Product Launch

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

Do not push customers to buy from the wrong types of channels.

Design channels that meet the needs of diverse audiences.

Build stronger relationships with distributors and with product consumers.

Relevant regulations must be addressed in developing channel strategy.

Implement 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 & SRM

Technical substitution of product ingredients or components to enhance profitability.

Human Resources Policies and Practices

Collaborative Strategic Alliances

Supply Chain Management

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

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

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