Channel management

Introduction
 It is a process by which a producer or supplier directs
marketing activity by involving and motivating the
entities comprising its channel of distribution.
 Channel management is in three broad phases:
• Use of power bases
• Identifying and resolving channel conflicts
• Channel co-ordination
 Use of power bases
• There are basically five types of power in
channel management.
• The channel system consists of a number
of players who are not all equally
motivated to implement the ideal channel
design as their expectations from the
channel differ.
• It is the efficient use of the power bases
that brings diverse channel partners in line
for the implementation and effectiveness
of the channel.
 Identifying and resolving
channel conflicts
• Channel conflict is generated when the
actions of any channel member come in
the way of entire channel achieving its
objectives.
• Reasons for Channel conflict:
Goal conflict- the understanding of their
objectives of various channel members is
different.
Domain conflict- the channel members
understand their responsibilities and
authorities differently.
Perception conflict- the channel member’s
understanding of the marketplace is
different and hence the actions they
propose do not match.
CONFLICT

GOAL DOMAIN PERCEPTION

 Channel co-ordination
 A channel system is said to be well co-ordinated if
each channel member understands his role
correctly and performs it to help the entire system
to achieve its customer services objectives.
 In a co-ordinated channel,
 The interests of all channel members are
protected.
 The actions of all channel members are in line
with the overall objectives of the channels.
 The channel flows are streamlined to deliver the
customer service objectives as desired by the end
customers.
 Use of channel power
 Power is “the ability to influence the actions of
channel members”.
 Features of power are::
o This influence is necessary to the overall better performance
of the system in delivering customer service levels.
o The channel members who are being influenced are willing to
act in situations when they normally would not have acted
in that manner.
 Use of channel power
 The five sources of power are::

REWARD

COERCION

POWER REFERENCE

LEGITIMATE

EXPERT
 REWARD
 Reward is a benefit given to a channel member for
him to conform his behavior in line with the system.
 These may be financial or otherwise::
Incentives on achieving sales target
Best distributor award in the annual sales
conference.
 COERCION
 Coercion power is the hint of punishment for the
channel member if it does not fall in line with the
requirements of the channel principal.
 These may be::
o Withholding of incentive payments
o Punishing the distributor on purchases through DD
against earlier permission to purchase on cheques.
 REFERENCE
 The channel members feel proud to be associated
with this distributor organization.
 For e.g. Nestle has a reputation of giving the highest
value brands to its customers. If nestle were to scout for a
distributor in a new market there would be several good
prospects who would be wanting to work with the
company.
 LEGITIMATE
 This power calls for contracts or agreements usually
in writing.
 These contracts clearly define the parameters of
behavior and action expected from each of the
signatories to the contract and gives rights for them
to enforce the behavior or action in case of a default.
 EXPERT
 Expert power is based on the special knowledge that
the channel principal may have which is of particular
benefit to the channel partners.
What is channel conflict
 It is a situation of disagreement between channel
members from the same marketing channel system.
 Conflict always have negative connotations and is
driven more by feelings than facts.
 Features::
 It is initially latent and does not affect the
working of the channel members.
 It is not possible to defeat till it reaches a level
of disruption.
Stages of conflict
LATENT

PERCIEVED

FELT

MANIFEST
Reasons for channel conflict
 Goal in-compatibility
 Unclear role definition
 New channel partner
 Target fixing exercise
 Extension of credit
 Multiple distributors
 Difference in perception
 Loss of opportunity
 Clash of interest
 Competition and conflict
 Managing conflict
 There are four steps to be taken to resolve conflicts.
Understanding the nature and impact of conflict

Tracing the source of conflict

Finding out the consequences of conflict

Strategy and action plan for resolution

 Managing conflict
 It is a process by which a producer or supplier directs
marketing activity by involving and motivating the
entities comprising its channel of distribution.
 Channel management is in three broad phases:
• Use of power bases
• Identifying and resolving channel conflicts
• Channel co-ordination
 Principles of channel management
 It is in four steps::
 Setting the objectives
 Organization structure to deliver the customer service
objectives
 Ability to control the channel
 Measuring performance for constant improvement.
 Channel control
 Signing a contract/agreement enforceable by law
 The use of power is guided by the degree of
dependence of the channel members on each other.
 Also records, reports and working within budgets for
cost control are kept in mind.
 To work closely with the channel partners in the
market place.
Vertical management system (VMS)
 It is a network of vertically aligned and co-ordinated
entities which work together as a system.
 Types of VMS::
Administered VMS
Contractual VMS
Corporate VMS
 Channel policies
 The major aspects of channel policies relate to::
• Which markets to service
• The customer coverage within these markets
• Pricing
• Product line to be handled
• Selection of the right channel
• Termination of a channel membership
• Ownership of the channel
Distribution management for services
 Services have five characteristics::
Intangible
Inseparable from their service providers (concurrent)
No standardization
Customer involvement is highest
Perishable
Non storability
Distribution management for services
 Some service channels are::
Shorter channels than for products
Franchised channels are more commo0n
High degree of customization is provided
The flows’ that carry the service through a channel are
information, negotiation and promotion.
Technology plays major role in these flows
 Distribution management for services
 Some common examples of service providers are::
Direct from service provider to user- eye care, dental, healthcare
Service provider uses an agent or broker- travel agents, stocks and shares
Service provider can use franchisees or contractors- car rentals, courier
services, dry-cleaning
Service providers who want an image & selective distribution- technical
services, repair and maintenance shops
Service providers who want an excellent image and are satisfied with limited
number of valuable clients- specialized training centre, fashion design outfits
The End