Improving Channel Relationships
Products and services change rapidly – optional extras that once differentiated eventually become basic components.
However, as products and services improve, the marketing channels through which these products and services are distributed often stay the same. The Product Life Cycle theory (figure one) shows that as products and markets mature, lower cost and more efficient marketing channels are required to achieve maximum penetration and profitability.
Lack of change in marketing channels can often be attributed to channel partners and channel managers enjoying a comfort level in their relationship. Comfort levels are often detrimental to distribution and thus profits.
Changing the method, skills, and performance of marketing channel systems is often seen as too difficult a task, partially because channel partners such as distributors, agent and dealers, may be outside a company’s control. In certain instances, trade practices legislation may also restrict a company’s ability to re-engineer its marketing channels. Too often, companies rely on increasing margins or advertising to improve relationships with channel partners because marketing channel cultures are difficult to change.
The best marketing channel systems are dynamic – not static. Companies need to continuously improve their marketing channel structures, as they do with their products, supplier relationships and employee relations.
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Organisations that understand their marketing channels and pursue best practice marketing channel management, benefit through:
A method that can be used to evaluate the quality of a channel relationship is the Complete Partner Assessment System (COMPASS).
The goal of COMPASS is to evaluate current status of the relationship between a business and its channel partners in terms of performance and importance of various attributes. Desired status of the relationship into the future should also be plotted against each attribute. Each ring represents an objective with a corresponding payoff value to the company.
Employing the COMPASS System can lead to a channel servicing plan which describes the strategies and tactics an organisation should use to achieve desired performance. When an organisation creates a channel servicing plan, a system for improving service levels to channels emerges. Existing and new services are assessed as to their urgency and importance in achieving the organisation’s and channel partners’ objectives.
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Before embarking on a channel
relationship improvement process an organisation needs to:
Organisations can be assisted in achieving their marketing channel objectives by benchmarking their channel performance against that of other channel systems. Understanding other channel systems provides considerable confidence to those responsible for change.
Organisations that understand the real state of their marketing channel systems, have broad channel know-how and have a path for channel improvement find that it is possible to set and achieve radically new market goals with their traditional channel partners.