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IF View - Issue No. 23

MARKETING
CHANNEL
COST
FACTORS

Issue No 23

Marketing Channel Strategy Consultants
USA - EUROPE - AUSTRALIA - BRAZIL - HONG KONG
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Marketing Channel Pitfalls

Throughout the World, organisations seek to reduce costs and improve their efficiency and performance.

Distribution and sales, which for many represent a major business expense, are regularly put under the cost cutting microscope.  Yet both these areas are frequently overlooked in organisations’ efforts to boost their overall performance.

There are several reasons why many companies still do not devote enough planning or resources to gaining a competitive edge through non-product activities such as marketing channel strategy.  As a rule, most supplier-reseller systems are far less sophisticated than modern manufacturing and inventory control techniques.

Another major reason is that distribution (marketing) channels are often regarded as being not totally of the organisation, or indeed external to it.

Such attitudes not only ignore the impact independent resellers have on suppliers’ market position and sales, but also the enormous opportunities offered by effective marketing channel management.  What is more, if changes made to marketing channel structures are primarily based on, or subject to, cost saving strategies, companies must be conscious of the possible pitfalls associated with such priorities.

Clearly the challenge is to create a channel focus program that steers clear of these pitfalls by being both effective and cost effective.  Here are some examples of the challenges companies face:

Motivating and Controlling Resellers

Many companies migrate distribution from a direct sales force to resellers in order to reduce selling and distribution cots.  Often, these companies find that they have little control over how their products are positioned, sold and distributed.  Resellers frequently sell competing products.  They aren’t always loyal or developmental.  Customer service can suffer.

Alternatives to Direct Sales

Many products require personal selling.  Some companies who can’t afford direct sales forces and are concerned over their lack of control over their resellers.  These companies need cost-effective distribution and control of the sales process for their products or services.

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Managing Multiple Channels

To reach different markets, many companies distribute through dealers, distributors and company-owned direct sales forces channels.  These channels regularly and consistently compete AGAINST each other for the same customers.  The resultant channel conflict reduces customer satisfaction and the company’s profitability.  Restructuring marketing channels without losing the best resellers is a major marketing channel challenge.

 

Restructuring Company-Owned Outlets

Maintaining a company-owned and operated full-service branch network is very expensive.  Many companies are rationalising their outlet numbers and consolidating their product offerings.  Company-owned outlet performance can be improved by restructuring branch ownership to inject a stronger profit-orientation for managers.  A program that rewards managers by giving them a percentage of the increase in the value of their branches is one example.

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SOME COMMON CONSTRAINTS

No Experience with Resellers

Many companies are inexperienced in dealing with resellers because they have always sold direct.  These companies lack the internal know-how to develop other marketing channels.

No Cross-industry knowledge

Although many managers know more about distribution in their industry than anyone else, they are not always aware of distribution techniques in other industries.  Cross industry knowledge in today’s competitive world is essential.

Lack of Perspective

A company’s basic functio is “to get out the daily wash”.  Sometimes companies are so introspective that they lack real perspective on how their distribution efforts might be enhanced.

THE SOLUTIONS

A successful marketing channel program requires:

  • A specific definitio of the value of each member of the distribution chain (channel partner)
  • An understanding of channel partners’ operations and factors which influence their businesses success
  • A mutually profitable legal and commercial relationship with channel partners
  • A managerial philosophy disciplined enough to make tough strategic decisions but flexible enough to adopt marketing channel innovations.

Lower production costs, shorter product life cycles and decreasing product differentiation have forced forms in all industries to seek competitive advantage through non-product and service business activities.

Future market growth will not be for product innovators and technology leaders only.  It will be shared by companies that develop and maintain the most successful marketing channel strategies.

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