1. Designing Channel
Systems

2. Introduction
 Factors that determine the nature of the
distribution channel
– Nature of the product or service
– Location and nature of the customers
– Nature of competition and distribution
systems
– Intensity of distribution required
– Nature of the markets being targeted

3. Channel design and planning process
1. Channel Stages in channel planning
– Segmentation stage
 Pharma company segments: Doctors/
Chemists/ Hospitals and nursing homes M1 M2 M3
– Positioning stage
P1
 Service objectives at each channel element.
Each segment has different expectation
– Focus stage P2
 Doctors in all A cat towns
 Chemists located in the main markets of A
P3
towns
 Only big govt and private hospitals
– Developing the right channel alternative
 Modifications required to make it an ideal
channel

4. Channel design and planning process
2. Defining the customer needs
– Lot size
 Toothpaste pack sizes, Wheat flour packs, Motor with horse
power
– Waiting time
 Difference of “Desire to purchase”
– Choice to the consumer
 Variety and assortments
– Place utility
– Service support
 Sales support for maintenance and repair
 Installation and training
 Credit
 Home delivery
 Regular service follow ups

5. Channel design and planning process
 Designing channel objectives
– Industrial products require direct-marketing by the
company
– Consumer products should be available in large no of
outlets
– Frozen desert and ice-cream products need cold storage
facilities
– Seeds selling will need rural distribution
– Multi level marketing will require their distributors to
appoint further distributors

6. Channel design and planning process
 Channel Alternatives study
– Business intermediaries currently available
– The no and type of intermediaries required
– Any new member to be specially developed
– Roles of each channel member

7. Channel design and planning process
 Cost of channel system
– Margins of the channel partners
– Cost of transportation of goods between the co and
the end user
– Cost of order booking and execution
– Cost of stock returns/ date expired stocks taken back
– Cost of reverse logistics required (getting empties
back)

8. Channel design and planning process
 Current intermediaries
– Ready channel partners may be already available.
These can be further utilized
 Distributors or redistribution: stockiest of some other
companies
 C&F agents: can be further utilized for collections and other
work
 Logistics service providers: will undertake distribution
activities.
 Manufacturer’s agents, stockiest, guarantors provide
financial support
 Financial agencies can be used to finance your customers.

9. Channel design and planning process
 Number of intermediaries
– Should be adequate for expected coverage of
the target markets at the same time should
not be too much to dilute the effort and add to
the costs.
– Its not easy to get rid of channel members

10. Evaluation of Major alternatives
 Cost:
– Every channel will have different costs associated with
 Ability to manage and control
– Considering coverage, frequency, productivity, inventory, credit,
merchandising, distribution, promotions, after-sales-service, pre-
sales-sales, channel salespeople, stock points
 Adaptability
– Sensitivity of channel to addition, elimination of products,
additional service, new territory coverage, generating leads,
handling price change, stock rationing
 Range and volume to be handled
– Ability to handle large range of products and volumes.

11. Selecting channel partners
 Selecting Carrying and Forwarding agent
 Location of the party
– In or close to main market of the company
 Location of the warehouse
– Close to a major market
– Outside octroi limits
– Should have proper road/ transport access
– Labor availability
– Utilities support
– Connected by phone
 Past experience
– As a C&FA for a similar company
– As a transporter should have access to a good warehouse
 History of past business
– Should have handled similar but non-competing companies
– Ability to maintain confidentiality of transactions

12. ..conti Selecting channel partners
 Selecting Carrying and Forwarding agent
 Financial strength
– To handle all operating expenses till re-imbursement
– Insurance
 IT capability
– Adequate own hardware
– Trained staff to handle simple programmes and repairing
formats
 Flexibility
– In operating hours daily
– To handle peak loads
 Transportation facilities
– Reliability, consistency in source of vehicles
– Additional volumes to be handled at short notice
 Attitude, commitment
– To be of the highest order/ positive
– Willing to expand the business
– Disciplined

13. Selecting channel partners
 Selecting Distributor
 Size of the channel partner
– Current business portfolio
– Financial strength/ asset ownership including personal assets of
partners
 Own salesforce
– No of sales people
– Qualifications, background, experience
 Current business
– Products handled, volume handled
– Should be of similar products but non-competitive
– Product quality, compatibility and complimentary
 Reputation
– Leadership in the market
– Integrity, fairness in dealings
 Market coverage
– Territory/ intensity
– Regularity, reliability
– Relationship, productivity
– Beat plan adherence
– Value of institutional business handled if any

14. Selecting channel partners
 Selecting Distributor
 Credit extended in the market
– % of outlets
– & of current business
– Bad debts, if any
 Stock distribution
– Ready stocks or order booking
 Infrastructure availability
– Warehouse
– Distribution vans
– Hardware/ personal computers/ connectivity
 Sales performance
– On current business
– Awards, prizes, certificates won on performance
 Management of business
– Educational backgroun, qualification of partmenrs
 Market working
– Efforts on merchandising, displays
 Handling sales promotions
– Past experience
 Inventory management
– Adherence to stock norms recommended by the company

15. Change of channel members
 Why to change channel members?
Training channel members
 On the job training
 Class room training
 Special meetings to launch new products
 Training on submitting reports
 Statutory requirements
 Product related responsibilities of channel members
 Training on technicalities
 Training on specifications, installments, repair and maintenance
 Training on after sales service

16. Motivating channel partners
 Efforts in designing capacity building
programmes
 Training
 Promotional support
 Marketing research
 Working along with company people

17. Channel power
 Referent power: Power out of eminent position of the
company
 Expert power: Power out of special knowledge of the
company
 Legitimate power: Power of legal agreement with
company
 Support power: Support in the form of promotions,
subsidies, additional help
 Competition power: Comparison with other channel
members
 Reward power: Incentives, special incentives
 Coercive power: Power of ‘threat’

18. Channel design comparison factors
 While comparing two channels,
– Efficiency: Input versus output
– Effectiveness: How well channel meets its objectives
– Capacity: How effectively channel can handle changes in
volume
– Agility: How well can channel handle changing demand
pattern
– Consistency: of performance
– Reliability: Commitment on performance
– Integrity: Is the channel fair

19. Channel design implementation
Define criteria for appointment of channel partners
Document channel objectives for sales people and channel partners
Define the profile of the customers to be services
List down all the customer service levels in detail
List the tasks in sequence which will drive these service levels
Get benchmark of good practices from knowledge of competition
Define channel structure and channel partners who constitute it
Allocate the tasks among the channel partners
Work out cost of delivering CS levels and prepare a budget
Advice the channel partners on the tasks and their benefits
Define channel partner performance appraisal system and share it
List down reports, records and frequency from each channel partner

20.  Vertical integration- Owing the channel
 Own the channel or outsource?
 How much of vertical integration?
 Why vertical integration
 Outsourcing distribution

21. Channel Information System