Industrial Distribution Channel Management

Channel designing is resorted to by the industrial marketer when he has to  develop either a new channel system or modify an existing one. As channel  design and management is a difficult and an incessant task, an industrial  marketer has to go through certain stages that are involved in designing a  superlative channel system. The various steps that are involved in channel  design process are analyzing needs of the customer, establishing channel  objectives, considering channel constraints, listing channel tasks, identifying  channel alternatives, evaluating alternate channels and selecting the  intermediaries.

Industrial Distribution Channel Management

The industrial marketer also has to take appropriate decisions on industrial distribution channel  management by selecting the right intermediaries based on the various steps.  The intermediaries need to be continuously motivated by means of offering  them various benefits and facilities. Any conflicts arising between the  intermediaries due to various reasons need to be solved by the industrial  marketer. Finally, the entire channel performance has to be evaluated and  necessary control measures need to be taken in order to enhance the  performance of the entire channel network.

After a company completes the task of choosing a channel alternative, it has to  start the process of selecting the intermediaries, motivate them, control any distribution channel conflicts and evaluate the performance of channel members.

Selecting the Intermediaries

Selecting the intermediaries is not part of channel design as some intermediaries  leave the channel while others are terminated by the manufacturer. Selecting the  best intermediary is a continuous process that is sometimes a more difficult task  as producers have to work hard to get qualified middlemen. It involves finding  out the distinct characteristics possessed by the intermediaries. Such evaluation  is generally based on the experience possessed by the intermediaries, their  number of years in the line of business, exposure in other fields, their past  history, growth and profit records, their reputation, future growth potential, type  of clientele possessed, etc.. Thus, a channel that effectively satisfies the needs of  a customer better than the competitors should find a place in the manufacturer’s  priority list.

Motivating the Channel Members

After selecting the middlemen, the industrial marketer needs to continuously  motivate them to do their job better to achieve long-term success. Though the  terms and conditions that made them join the channel is a motivating factor, it  must be further supplemented by training and encouragement. Understanding  the needs and wants of the middlemen is the first step of motivation process.  Depending on the motivational technique used by the manufacturer, there would  be varying levels of support from the middlemen. Manufacturers generally try to  maintain relationship with their distributors by motivating through cooperation,  partnership, discounts/commission, and distributor councils.

  1. Cooperation: Most of the manufacturers use the carrot and stick approach to  gain cooperation from middlemen. Positive motivators like higher margins,  special prices, allowances etc, along with threats like reduction in margins, slow  delivery, terminating the contracts etc, are used to increase business. The  manufacturer has to do a SWOT analysis of the distributors before  implementing this approach.
  2. Partnership: Manufacturers enter into an agreement or partnership with their  intermediaries that list the objectives, policies and terms of jobs to be performed  by both the parties in order to avoid any future conflicts. A good example of  partnership is Vendor Managed Inventory System (VMI) where effective  communication happens between the vendor and channel members through the  assistance of electronic data interchange (EDI). The EDI helps the company to  fill up the stock automatically at the channel member once it reaches the  minimum reorder level. All relevant invoices, acknowledgements are  electronically processed and sent to the distributors. The system also helps to  check the slow moving products at the distributor’s end, generates a purchase  return order based on which the products are returned back to the company. This  digital revolution helped in reducing costs and improving customer service both  by the manufacturer and distributor thus nurturing their partnership.
  3. Offering discounts/commissions: Another motivating factor for intermediaries is  the offering of discounts/commissions by the manufacturers. The compensation is offered taking into account the expenses incurred and the services provided by  the intermediaries.
  4. Establishing distributor councils: Manufacturers establish distributor councils to  get closer to their distributors through the company executives. These councils  help both the manufacturer and the middlemen to mutually plan various  activities like sharing market information, conducting training programs,  planning promotional schemes and then implementing them.  The middlemen should be considered by the manufacturers as their working  partners rather than as customers. Apart from above motivators, several other  practices should also be considered like arranging seminars, sponsorship’s for  annual retreats, immediate response to queries through call centers etc., With the  advancement in information technology, newer techniques should be used that  helps to increase the  business and strengthen the relationship among both.

Managing Channel Conflicts

A well designed industrial distribution channel though has several benefits as observed, it  is not the ultimate for the manufacturers. There are several differences and  problems that still exist between the manufacturers and the distributors due to  various simple and intricate reasons like:

  1. Dissimilar objectives: If the objective of manufacturer is to offer good customer  service to develop long-term relationship while that of distributor is to somehow  make short-term profits, then it gives rise to conflict among the two.
  2. Less interest on products by the distributors: If distributors concentrate on those  manufacturer’s products where they earn more profits or which are fast moving  in the market, then it creates a conflict between him and the other manufacturers  on whose products the distributors do not focus.
  3. Customer dealings: This is another common source of conflict that generally  happens where the manufacturer tries to cater to large customers directly and makes the distributors serve the small customers thus making them earn less  profit and hampering their business growth.
  4. Dissimilar views: If the manufacturer is of the view that a promotional scheme  would increase the business while the distributor feels that it would decrease  their margins as it involves cost, then conflict arises.
  5. Commission to distributor: If the distributor demands more commission while  the manufacturer feels the existing commission is too high and denies the same,  then it causes conflict.
  6. Territorial problems: When the areas among the distributors are not properly  demarcated then it leads to conflict as one tries to enter the other’s territory to  get business.

A dispute in the channel network can seriously affect the performance of  channel members. It instigates a need for the industrial marketers to assess the  areas of conflict and take corrective measures. There are different ways in which marketing channel conflict can be controlled. They include:

  1. Creating an effective communication set-up: There should be effective  communication between the manufacturer and the other members of the channel  network. This can happen through frequent interactions with the channel  members where they can discuss the common issues and sort them out.
  2. Setting joint goals: All the channel members jointly set the goals they wish to  achieve by coming to a common agreement. The goals set by them can be  anything in common that range from customer satisfaction, increasing market  share, increasing profits, reducing costs, improving quality of service etc.,  Involving mediators: A third party in the form of arbitrator or mediator enters in between  the two parties among whom conflict arises and tries to solve their  problems by eliminating disagreement.

Evaluating Channel Performance

The performance of the industrial distribution channel is said to be effective if the channel members  are able to reach the overall objectives smoothly. This calls for periodic  evaluation of their performance where various parameters like meeting the sales  target, maintaining the required inventory levels, ontime delivery to customers,  their cooperation and service levels, generation of new customers, etc., are taken  into consideration. The aspects where the middlemen score less during the  evaluation process are analyzed and discussed with them where they are  motivated to improve upon those areas. Sometimes, manufacturers terminate  their services with middlemen if they are unable to meet their expectations or  shape up as required.

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