Prepared by: Danny Rakhmandita Akhwan

The Manager’s Guideto Distribution

Channels

STRATEGIC FIT MANAGEMENT ISSUESMarket Dynamics

The growth of the Internet.

Strategy Shifts 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.

New Product Launch The ability of the channel to

provide technical support, customer service, etc.

Goal Alignment Ensuring that the resellers’

business model fit the strategic goals of the manufacturer.

Motivating Channel Members Entice resellers to move toward

attaining the goals.

Support Tools & Programs Promotional support Sales and technical support Training

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

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

CustomersDo not push

customers to buy from the “wrong” types of channels.

PartnersMake sure current channel

policies relevant & sufficient to meet the

broad customer service performance requirements.

Demographic Population

Design channels that meet the needs of diverse

audiences.

Splintering of Channels

Shift on Distributors role from moving direct products & sales

materials to servicing customers for indirect materials & services.

CompetitionBuild stronger

relationships with distributors and with product consumers.

Government Regulations

Relevant regulations must be addressed in developing

channel strategy.

EnvironmentImplement

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 & SRMFirms are going from single points of contact to “team” contacts on behalf of sellers

and buyers and other intermediaries.

Product DevelopmentNew product require extensive customer

education from channels that provide that

functionality.

Operations Development

Technical substitution of product ingredients

or components to enhance profitability.

Information Technology

Maintain competitive posture and to improve the retention and management

of distributors.

Organizational DevelopmentsTrading Partners are

taking value engineering and analysis in analyzing

inter-enterprise functionality.

Human ResourcesPolicies and

PracticesSuppliers and Distributors

must plan and manage human resources practices in the fluid

labor situations.

Collaborative Strategic Alliances

Horizontal collaborative relationships are developing relative to competitors and complementary suppliers.

Supply Chain Management

Respond to business or personal usage of products and services instead of

considering only the derived demand between business partners.

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

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 customer’s

customer & the channel at their supplier’s 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,

supplier’s suppliers, distributors, tier 1 customers, tier 2 customers, & so forth.

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

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.

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

Market Coverage

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.

Customer Types Limit the distributors to specific

industries or customer types. May also trigger antitrust

concerns.

Pricing Decisions

Resale Prices Suggestion Manufacturer may suggest

resale prices & encourage distributors in that direction, but not force them.

Charging Different Prices It’s a violation if satisfy all of

the following 4 criteria:1. Two sales in interstate

commerce2. Commodities of like grade

and quality3. Different prices not just in

invoice, but also discount, rebates, credits, etc.

4. A hindrance to competition.

Product Line

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.

Clarify Corporate Direction

Define Channel & Coverage

Requirements

Develop Channel Design

Select Channel Partners

Establish Mutual Performance Expectations

Improve Channel

Effectiveness

Monitor Performance &

Adjust Plans

Written Contract

Contents: 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.

Clarify Corporate Direction

Define Channel & Coverage

Requirements

Develop Channel Design

Select Channel Partners

Establish Mutual Performance Expectations

Improve Channel

Effectiveness

Monitor Performance &

Adjust Plans

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.

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.

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.

Channel Preferences Are Not Static

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).

Clarify Corporate Direction

Define Channel & Coverage

Requirements

Develop Channel Design

Select Channel Partners

Establish Mutual Performance Expectations

Improve Channel

Effectiveness

Monitor Performance &

Adjust Plans

Product Requirements Influence Channel Selection

Channel Types by Service Requirement

Sales Forces, Company-Owned Resellers, Foreign Direct Investment

Corporate WebsiteTelesales

Direct Mail

Manufacturer’s Rep Force, Specialty Distributor, VAR, Brokers, Jobbers,

etc.

Catalog Distributor, Mass Retailer, Third-

Party Internet Site

High-Touch Low-Touch

Dir

ect

Ind

irect

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 high-touch 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.

Clarify Corporate Direction

Define Channel & Coverage

Requirements

Develop Channel Design

Select Channel Partners

Establish Mutual Performance Expectations

Improve Channel

Effectiveness

Monitor Performance &

Adjust Plans

Managing Multiple Channels

Conflict with the Manufacturer over a New

Channel

Minimize these kind of conflict by specify manufacturer right to house accounts in the initial distributor contract.

Conflict between Different Channels

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.

Conflict Within an Existing

Channel

Reduce these kind of conflict by establishing specific performance requirements to earn special compensation and prices.

In the area with too many distributors, establish an exclusive territories or area of primary responsibility.

Clarify Corporate Direction

Define Channel & Coverage

Requirements

Develop Channel Design

Select Channel Partners

Establish Mutual Performance Expectations

Improve Channel

Effectiveness

Monitor Performance &

Adjust Plans

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.

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

Loss of control Security issues Increased variable costs Less ability to direct human resources Loss of design expertise More variability in customer service

PROs CONs

Pros and Cons of the outsourcing of various functional and technical capabilities

International Channel Intermediaries

Clarify Corporate Direction

Define Channel & Coverage

Requirements

Develop Channel Design

Select Channel Partners

Establish Mutual Performance Expectations

Improve Channel

Effectiveness

Monitor Performance &

Adjust Plans

Targeting World Markets

Foreign (Direct) Domestic (Indirect)

Agents

Brokers Manufacturers’ Reps Management Agents

Brokers Manufacturers’ Export

Agents Export Management

Companies

Distributors

Distributors Dealers Import Jobbers Wholesalers and

Retailers

Domestic WholesalersExport MerchantsComplementary MarketersExport Jobbers

Other Partners

Licensees Franchisees Contract Manufacturers

Key Points in Working with International Distributors and

Trading Partners

1. Select distributor, Don’t let them select you.2. Look for distributors who capable of developing

market.3. Treat distributor as long-term partner.4. 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.

Cultural Divides in International Negotiations

Clarify Corporate Direction

Define Channel & Coverage

Requirements

Develop Channel Design

Select Channel Partners

Establish Mutual Performance Expectations

Improve Channel

Effectiveness

Monitor Performance &

Adjust Plans

Targeting World Markets

Deal-focused: North America, Great Britain

Informal:Australia, U.S, Canada

Rigid Time:Nordic, Germanic Europe, North America

Reserved:East & Southeast Asia, Nordic and Germanic Europe.

Relationship-focused: Arab countries, Most of Africa & Latin America

Formal:Most of Europe, Mediterranean region

Fluid Time:Latin America, Africa

Expressive:Mediterranean Region, Latin America

Clarify Corporate Direction

Define Channel & Coverage

Requirements

Develop Channel Design

Select Channel Partners

Establish Mutual Performance Expectations

Improve Channel

Effectiveness

Monitor Performance &

Adjust Plans

Ideal Candidate Template

Category Description of Ideal

Candidate Evaluation

Market Served

Product Line Fit

Territorial Coverage

Sales Capabilities

Business and Managerial Stability

Marketing Capabilities

Operational Capabilities

Local Service

Ease of Doing Business

Reputation

Clarify Corporate Direction

Define Channel & Coverage

Requirements

Develop Channel Design

Select Channel Partners

Establish Mutual Performance Expectations

Improve Channel

Effectiveness

Monitor Performance &

Adjust Plans

Distributor Continuum

Specialist Distributors Generalist Distributors

Product SpecialistFull Parts InventoryPro-active SellingDedicated ResourcesFewer, Larger Customer Orders

Product GeneralistsFast-Moving Inventory

Reactive SellingHeavy Inventory Resources

Many Customer Orders

Product Importance Category

Importance Level Major Products

Secondary Products

Minor Products

Importance to Distributor’s Business

High Moderate Low

Distributor Willingness to Adapt High Moderate Low

Manufacturer’s Marketing Approach Push Push/Pull Pull

Clarify Corporate Direction

Define Channel & Coverage

Requirements

Develop Channel Design

Select Channel Partners

Establish Mutual

Performance Expectations

Improve Channel

Effectiveness

Monitor Performance &

Adjust Plans

Manufacturers Distributors

Financial Drivers

Revenue and BudgetsMarket PenetrationProfitROIStock Price

Sales Gross MarginCash FlowEarns and TurnsOwners’ Risks

MarketingTarget Market SegmentsPositioning

Accounts

Competitive AdvantageProduct QualityFeaturesWarranty

Account RelationshipsStock Levels

Time Horizon 1, 2, and 5 years Tomorrow, this month

Planning Output Team Commitment Action Timetable

SalesQualification and Persuasive Presentation

Take OrdersBuild RelationshipsExplain Promotion

Business Differences between Manufacturers and Distributors

Make Strategies Simple Complex strategies lengthen the time frames and decrease the percentage of

distributors who can execute plan

Clarify Corporate Direction

Define Channel & Coverage

Requirements

Develop Channel Design

Select Channel Partners

Establish Mutual

Performance Expectations

Improve Channel

Effectiveness

Monitor Performance &

Adjust Plans

Strategic Implications for Manufacturers

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 Manufacturer’s National Marketing Plan into a Distributor Sales

Call.

Clarify Corporate Direction

Define Channel & Coverage

Requirements

Develop Channel Design

Select Channel Partners

Establish Mutual

Performance Expectations

Improve Channel

Effectiveness

Monitor Performance &

Adjust Plans

Manufacturer Plans

Section 1: Business Overview Review of last year’s 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 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.

Section 4: Sales Forecast By product By market Penetration Index

Make it Fun Make it SpecificMake it Honest

Clarify Corporate Direction

Define Channel & Coverage

Requirements

Develop Channel Design

Select Channel Partners

Establish Mutual

Performance Expectations

Improve Channel

Effectiveness

Monitor Performance &

Adjust Plans

Distributor Plans

Sales Review of Last Year’s Sales Result By products By markets Penetration Index or market share

estimates Primary reason for this results

Business Analysis Strengths Weaknesses Threats Opportunities

Current Situation Markets Competition Capabilities Key accounts Branches (if applicable)

Goals Sales goals for next years Operational goals Qualitative goals

Sales StrategySales activities Sales coverage Promotions Events Direct mail Market/product emphasis Incentive programs

Sales forecast detail Products Markets Key accounts Branches

Action Timetable Who, what, when

Keep it Simple

Make Plans

Measurable

Include Long-Term

Goals

Develop Monitoring

System

Communicate the Plan

Clarify Corporate Direction

Define Channel & Coverage

Requirements

Develop Channel Design

Select Channel Partners

Establish Mutual

Performance Expectations

Improve Channel

Effectiveness

Monitor Performance &

Adjust Plans

Evaluate the Distributors

RatingExcellent

Poor

5 4 3 2 1

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

Distributor Profile: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: 90-100Poor: Below 90 (Notice on Improvement or Cancellation, depends on the contract agreement)

Clarify Corporate Direction

Define Channel & Coverage

Requirements

Develop Channel Design

Select Channel Partners

Establish Mutual Performance Expectations

Improve Channel

Effectiveness

Monitor Performance &

Adjust Plans

Components to Improve Channel Effectiveness

1. Sell all levels of the distributorship on the value and financial return achievable by successfully implementing the manufacturer’s plan. Regional Sales Manager Resale Motivations Functional Discounts

2. Select a Product Champion or Product-Line Specialist

3. Coaching the Product Champion or Product-Line Specialist in all aspects of selling.

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 customer’s concern and objections.

Clarify Corporate Direction

Define Channel & Coverage

Requirements

Develop Channel Design

Select Channel Partners

Establish Mutual Performance Expectations

Improve Channel

Effectiveness

Monitor Performance &

Adjust Plans

Components to Improve Channel Effectiveness

4. Train all distributor salespeople.

5. Provide guidance on promotion and advertising efforts

6. Become a Business Consultant and Financial Advisor

Base Training Goals on the Distributor’s 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.

Co-op Programs Literature Trade Shows Promotions Special Incentives Events

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.

Clarify Corporate Direction

Define Channel & Coverage

Requirements

Develop Channel Design

Select Channel Partners

Establish Mutual Performance Expectations

Improve Channel

Effectiveness

Monitor Performance

& Adjust Plans

Performance Monitoring

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.

Monitoring Activities

RSMs responsible for monitoring the quality and quantity of distribution activities in marketplace.

Monitoring Sales Result

There is a lag time between effort and result. Such analysis occurs too late to lead to timely corrective actions.

Clarify Corporate Direction

Define Channel & Coverage

Requirements

Develop Channel Design

Select Channel Partners

Establish Mutual Performance Expectations

Improve Channel

Effectiveness

Monitor Performance

& Adjust Plans

Adjustment

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.

Plan Adjustment

Such as: add a salesperson, conduct a dealer training event, run a sales incentives program, or initiate an on-site inventory program .

Sales Forecast Adjustment

Forecast modifications are then provided to the materials, manufacturing, and inventory management.

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