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Chapter 14

Channel Information Systems

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Learning Objectives

• Understand importance of information systems for management of channels

• Elements of channel information systems• How information systems are used to impact

channel service objectives• Performance measures for channels• Understand principles of channel

implementation

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CIS Purpose

• CIS is Channel Information Systems• CIS is the orderly flow of pertinent operational

data both internally and between channel members, for use as a basis of decision making in specified responsibility areas of channel management

• CIS is of primary use of sales managers.

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Information - Advantages

• Useful in marketing planning – helps improve quality of marketing decisions

• Can help tap market opportunities• Provides an alert against competition• Helps spot trends – favourable or

otherwise• Helps develop action plans for growth• Gives feedback on consumer needs

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Classification of Information

• Based on the use made of it by marketing – planning, operations, decision making or control

• Based on subjects – consumers, products, competition, channels, promotions, pricing, sales volume, value etc

• Operations data – facts and figures• Also based on assumptions, anticipated

occurrences – forecasts relating to the channel system

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Information Process

COLLECTION

USE

PROCESSING

STORAGE

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Information Process• Collection: acquiring and placing raw data –

monthly sales by each territory• Processing: analyzing data to get meaning out of

it – arranging, modifying and interpreting the data by the user – comparison of sales between periods

• Storage: keeping the information intact till it is needed

• Use: application of information for management decision making – sales data of the last 6 months to forecast the sales of the next month.

Development….

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Developing a Channel MIS

Decide what information is required

Decide who will use the informationwhen and for what purpose

Organize information in a manner suitable for interpretation and action

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Use of Information

• Planning: sales forecasts or distributor indents

• Control: expenses against budget• There is always a cost of collecting

information. • If data collected is not used properly, the data

provider will hesitate to give the information.• The channel MIS works at the sales

operational level. It has very little strategic intent.

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Sources of Data• Reports (oral and written) and records of channel

members, sales people• Letters, statements and market research• Any other info collected by the sales people and

the channel members from the market• External sources like business publications,

magazines, newspapers, trade journals.• In a dedicated channel system the collection of info

is well streamlined – in the JC meeting• With use of IT enabled systems collection and

processing has become simpler.

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A Good Channel MIS…

• Integrated system to handle all regular data• Useful decision support system• Reflects the style of the marketing organization• User friendly and user oriented• Convincing to the providers of the info as to its

purpose• Be cost effective• Not need for verification from other sources• Be fast and totally reliable

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Element Importance

• In a good channel MIS, it is necessary to define upfront for each element of the MIS, the following:– Purpose of the info– Source of the info– Action possible – Impact on customer service

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Competition Tracking

Purpose Plan day to day corrective action to protect market shares and shelf space

Source Trade, channel partners and sales people

Action possible

Spot action while in the market and taken by channel partners or sales people

Impact on service

Timely action to provide better support to the trade and retain their goodwill

Example

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Channel Performance Evaluation

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Evaluation Criteria

• Channel system can be evaluated on how well it provides time, place and possession utilities

• Formal channel evaluation only with contracted channel members

• Independent wholesalers and retailers may not accept any evaluation by a company

• Periodicity of evaluation and parameters like achieving targets market coverage etc agreed with channel partners.

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Distributor Evaluation

• Once a month by the sales people on the performance of the previous month on all agreed criteria

• Criteria varies with the category of channel member, nature of the product and the nature of customers.

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Evaluation • Each of the primary criteria can be

given a weightage and performance scores worked

Criteria Weightage % - X

Criteria score (1 to

10) - Y

Weighted score X*Y

Sales target achievement 50 7 3.50Inventory management 15 8 1.20Selling resources 15 7 1.05Market coverage 10 8 0.80Back office support 10 6 0.60

Overall performance score – 7.15

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Evaluation • Each of the primary criterion can be broken down

into it components and also rated.

Criterion Weightage % - X

Score 1 to 10 - Y

Weighted score X*Y

Primary sales 15 8 1.20

Secondary sales 50 7 3.50

Achievement of secondary sales target

20 7 1.40

Sales growth by period 10 8 0.80

Market share achievement 5 6 0.30

Sales target achievement – Performance score

7.20

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Evaluation Overall Rankings

Channel member

Overall performance score

Ranking

A 7.39 1

B 7.20 2

C 7.15 3

D 6.89 4

E 6.56 5

F 5.60 6

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Overall Rankings - Action

• Bottom 20% to be warned to improve performance

• Top scorers have potential to give more business to the company – to be encouraged

• Consistent poor performance will entail dismissal

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Implementation Principles

• More relevant where member is bound by a contract. Wholesalers and retailers are involved in the implementation to the extent that the company wants to cover them with its product presence.

• The most critical issue in implementation is the ‘intensity’ of distribution desired. This is more relevant to FMCG, pharma kind of products and not so much for consumer durables or industrial products

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Influencing Factors

• Intense distribution allows consumer to shop where he likes for the product

• Intensive distribution increases sales – good companies insist on retail distribution intensity

• Selective or exclusive distribution may result in loss of sales opportunities

• Channel members feel widely distributed product must be a fast seller. Equitable efforts are required in selling all brands and packs of the same company

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Influencing Factors

• Intensive distribution is more expensive and requires more supervision

• For consumer electronics or durables intensive distribution may result in ‘free-riding’ situations

• Channel members prefer selective distribution – the company should give the products only to them

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Influencing Factors

• If a brand has a strong consumer franchise, no outlet can ignore it – HLL brands – distribution becomes intensive

• Channel partner or reseller also has a choice on what he wants to stock and sell

• If the product category is important and competition is severe, selectivity is a costly option

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Implementing Rules

• Low value goods: cigarettes, soaps, shampoos – intensive distribution – fmcg kind of low investment but mass based.

• High value goods: electronic goods or consumer durables – buyer makes comparisons across outlets – selective

• Specialty goods: Mont Blanc pen or Tag Heuer watches – exclusive distribution.

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Intensive - Factors

• Influence of channel principal decreases with intensity

• Channel member’s competitors also have same products

• Higher quality positioning does not match higher intensity

• Depends on the target market• Takes into account the importance of the market

and prevailing competition – more intense the competition, more the intensity of distribution

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Selective - Factors

• Can cut costs but may prove inadequate – lower selling expenses, higher promotional allocations, larger transactions, more accurate forecasting of demand

• Channel members margins may be better• Better influence over channel members• Manufacturer attracts more aspirants• Suitable for new product or testing the market

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Key Learnings

• Channel information systems is to collect and analyse data about operations of channels

• CIS uses methods and sources to collect, process, store and use pertinent information for decision making

• Steps for development of a CIS are: decide info required, organize info in a suitable manner and decide users with purpose

• A CIS can include all elements of interest to sales managers to operate better

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Key Learnings

• The channel evaluation system checks as to how well the system reaches the products or services to customers

• Channel implementation is guided by the ‘intensity’ of the distribution required

• For products with a large consumer base, intensive distribution is preferred

• Under specific circumstances, selective or exclusive distribution has advantages.