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Success Strategies in Channel Management

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Presentation on theme: "Success Strategies in Channel Management"— Presentation transcript:

1 Success Strategies in Channel Management
Distributor and Agent Selection Criteria

2 Distributor and Agent Selection Criteria
Recruiting and Screening New Prospects Recruiting as a Continuous Process. Business Policies that Bond Your Channel to You Preparing a Business Policy Statement Screening Credit Personality Business and Operational Criteria Channel Candidate Inducements Final Selection Criteria - SPEAR

3 Distributor and Agent Selection Criteria
The selection of distributors and agents is an important task. There must be an organisational, personal and individual commitment to the product. The second and related requirement for successful distributors is that they must be successful with the product. The only way to keep a good distributor is to work closely with them to ensure that he or she is making money on the product. Any distributor who does not make money on a line will drop it. If a distributor is not working out, in general, it is wise to terminate the agreement and find another one. Success means that they can sell the product and make money on it. The distributor can assist in this process by providing information about customer wants and the competition and by promoting the product he or she represents. Few organisations are large enough to convert a mediocre distributor or agent into an effective business representative. Therefore, one of the most important clauses in the distributor contract is the cancellation clause.

4 Recruiting and Screening New Prospects
Successful business organizations are almost always built around a few core competencies - key activities such as quality manufacturing or low-cost distribution that they perform with great effectiveness. Organizations should never assign the responsibility for performing these key competencies to other channel members. Conversely, all other functions performed within the business may be sourced out to other organizations. To sustain success, organizations must increase their investments in and attention to the areas that contribute most to their core competencies.

5 Recruiting and Screening New Prospects
Recruiting involves those plans and actions aimed at actively soliciting participation by a new channel member. Before active recruiting can begin, key personnel from the recruiting organization must consider and reach agreement on several important issues, including: The precise role of the prospective channel members. The specific qualifications necessary for success in this channel role. The precise products or channel assignments for which the prospective channel member will be responsible. The bounds of authority of the prospective channel member. The way in which the role might be expected to change over time.

6 Guidelines for Active Recruiting.
Once these parameters have been established, active recruiting can begin in earnest. Three principles, summarized in Exhibit 2, will guide the When recruiting prospective channel partners, think about: How your firm's needs relate to the prospects' qualifications and needs, and vice versa. Communicating honestly with all prospects about the constraints and realities of the anticipated channel role. Learning all you can about the prospective firms' expectations and being prepared to fulfill them.

7 Guidelines for Active Recruiting
First, keep in mind that the attractiveness of a given channel role largely depends on whether the role fits the potential intermediary's real needs. As such, not only should information regarding how well the candidate's qualifications meet the recruiting organization's needs be considered, attention should be paid to whether or not the recruiting firm matches the prospect's needs, as well. Next, recruiters should communicate honestly with all prospects. If an accurate picture of the anticipated channel role, and the resources and expectations involved with it are presented from the start, the chances of recruiting and retaining top channel partners increases significantly. Finally, to ensure that only the best firms are recruited, the recruiting organization needs to understand and be prepared to fulfil the prospect firm's expectations. In communicating honestly, the recruiting organization should also allow prospective intermediaries some authority in helping shape the direction of the new channel climate. This helps strengthen the climate early on. The prospect's future compensation and relationship needs must be considered. If serious discrepancies exist, adjustments can most likely be made to satisfy the needs of both parties.

8 Recruiting as a Continuous Process.
For several reasons, the recruitment of new channel members should be viewed as a continuous process. One reason is that an organization's intermediaries sometimes withdraw from the channel relationship of their own accord, and the organization needs to be prepared to respond quickly. Another reason for viewing recruiting as a continuous process is that marketers may need to contract with new intermediaries to help launch new products. Organizations, particularly producers, also may have to change intermediaries as their products pass through stages in their product life cycle, when buyer behaviour changes, or in response to changes in the distribution strategies of competitors. At other times, an organization's interests are best served by replacing a current intermediary who, for whatever reason, is performing at less than its potential.

9 Screening Screening involves the systematic consideration, evaluation, and, ultimately, rejection of most of a set of people, things, or ideas. Screening is inherently a negatively oriented process. First, the organization should think about market segments. Too many marketers think primarily in terms of geographic coverage when screening intermediaries, rather than considering market or customer segments. Second, the selling and distribution requirements for a product change during its life cycle, yet marketers frequently fail to account for these changes in their distribution strategies. Third, manufacturers and retailers tend to recruit distributors that are already overloaded with products, while shying away from smaller, newer, or temporarily underfinanced intermediaries. Screening is inherently a negatively oriented process. This is especially true during the early stages of the screening process, when recruiters look for reasons to reject rather than accept prospective intermediaries. When screening potential channel partners, recruiter organizations should keep four guidelines in mind. Third, manufacturers and retailers tend to recruit distributors that are already overloaded with products, while shying away from smaller, newer, or temporarily underfinanced intermediaries. This is an understandable reaction, but consider the following issues: Successful intermediaries are likely to be solicited by numerous producers and retailers. Consequently, these intermediaries may already be carrying as many product lines as they can effectively handle. John Deere uses different distributors to serve the agriculture and construction equipment market segments. Similarly, Caterpillar uses different distributors to serve construction equipment, lift truck, and diesel truck engine markets even in the same geographic areas. For instance, manufacturers that are screening intermediaries to market a new technical product need specialized distributors that can provide technical knowledge to customers or other channel members as bugs are worked out. As the product matures, however, the market needs less specialized knowledge because the technical know-how has become more widely available. At maturity, off-the-shelf delivery time and price usually become more important than the need for specialized knowledge.

10 Screening Guidelines for Screening Prospective Channel Partners
The fourth criteria that should be weighed by channel members engaged in this screening process pertains to the level of support required by the various prospects. Clearly, this support may be financial in nature. It may involve the exchange of technical or marketing expertise between the recruiting firm and its prospective channel partner. Or, the support might merely involve some "hand-holding" or positive-reinforcement during an extended start-up period. Guidelines for Screening Prospective Channel Partners When screening prospective channel partners, think about: Market segments other than geographic coverage. Fitting the prospective channel partner's strengths and competencies to the stage of your product's life cycle. The fact that bigger is not always better. The support likely to be required by the various prospects. Clearly, this support may be financial in nature. It may involve the exchange of technical or marketing expertise between the recruiting firm and its prospective channel partner. Or, the support might merely involve some "hand-holding" or positive-reinforcement during an extended start-up period. Obviously, if the level of support required by an otherwise "qualified" prospect strikes the recruiting firm as too costly in light of the benefits expected from the partnership, it has a logical basis for eliminating that prospective channel member from further consideration.

11 Credit Reports. Ask your bank to get you a credit report.
The most important questions you need answers to are "Does he pay on time?" If not, "Under what circumstances are they late?" and "How late?" See The Operations Up Close. Make a personal visit to evaluate the distributor yourself. Watch for the little things that say a lot

12 Personality Type. It can help or hurt you. As with people, distributor organisations have personalities, too. The capitulator is cooperative and accedes readily to your demands but needs excessive support and direction from you. At first you might think this is a perfect partner - cooperative and eager to follow your advice. In execution, however, the capitulator stumbles badly. He's not especially aggressive or imaginative - he has trouble helping himself, much less you. The initiator is just the opposite: independent and difficult to deal with. This firm wants to do things its own way and knows exactly where it's going - up! Whether large or small, this distributor is confident, self- reliant, growth oriented, just the sort to knock off big numbers any way it can. Your job is to make this firm toe the line in your own best interests. Clearly, the initiator can help you far more than the capitulator can. If you were to classify distributors as to the relationship they have with their principals, you'd find them spread across a wide spectrum. At one end of the scale would be the capitulators, at the other the initiators.

13 Business and Operational Criteria
1. Business age of the candidate 2. Reputation Among customers Among other manufacturers the distributor currently represents Among peers Among trade publications Among trade organizations In local community 3. Professional background of key executives 4. Business and managerial stability 5. Financial strength 6. Sales revenue performance Overall sales Complementary value offer line sales 7. Branch locations 8. Number of active customer accounts 9. Present territorial coverage

14 Business and Operational Criteria
10. Complementary manufacturer value offer lines represented 11. Competitive value offer lines represented 12. Value offer variables Technical expertise Perishability Bulk and weight Individual unit value Newness Knowledge of existing Product Lines 13. Repair and service capabilities 14. Knowledge of local market conditions 15. Employee quality 16. Managerial "chemistry" 17. Overall condition of facilities Sales and Marketing Criteria 18. Type of market coverage offered Horizontal/ Vertical/Both

15 Business and Operational Criteria
19. Proportion of internal to external salespeople 20. Sales force compensation 21. Sales cycle performance requirements Presale Transaction Post-sale 22. Sales competency Number and quality of salespeople Technical competence of salespeople 23. Sales and marketing aggressiveness Local marketing activities Customer and order pursuit Dealing with their competition 24. Internal sales and marketing support resources and capabilities 25. Ordering and payment policies 26. Customer order fulfilment performance Typical time required for compete delivery of a customer's purchase order Accuracy of shipment of order contents Percentage of out-of-stock occurrences 27. Price integrity 28. Ability to develop new markets

16 Business and Operational Criteria
29. Distributor advertising and sales promotional programs 30. Training programs 31. Consent to sign a contract 32. Agreement to accept a sales quota 33. Willingness to share data and local market information 34. Willingness to participate in joint sales and marketing programs 35. Inventory management expertise 36. Adequate inventory commitment 37. Future growth prospects "Coup de Grace" Factors That Indicate a Motivated Candidate 38. True desire for your value offer line 39. Willingness to share key customer list 40. Willingness to commit resources to your value offer line 41. Existence of a strategic business plan 42. Willingness to participate in strategic business planning with your organisation

17 Selecting the Right Channel Partners
The goal in channels development, as always, should be to find the best channel partner available from among a small pool. So the selection process continues and is now conducted at a more refined level. Several selection criteria should be considered during this final evaluation of channel members. Recruiting channel members therefore might be described as seeking to spear the best channel partner from among of the remaining pool of prospects.

18 Final Selection Criteria - SPEAR
Sales factors The ultimate justification for using intermediaries is to improve market share, sales, and profitability. Thus, sales and market factors head the list of evaluative criteria. Product factors Product factors include the intermediary's knowledge of the product and of its service or stocking requirements. The quality of the prospect's service staff should also be considered. Experience factors Indicators of intermediary experience and expertise can be obtained by evaluating the prospect's previous customers' satisfaction, whether the prospect has worked successfully with similar products in the past, the prestige of its prior or current channel partners, and the prospect's current technology. Sales factors to be considered include the intermediary's knowledge and coverage of the market, the number and quality of its sales personnel and management, and frequency of its sales calls. Each factor is of particular, although not exclusive, interest to firms selecting intermediaries to distribute technological products. An intermediary's product knowledge will influence its performance with respect to product applications, customer requirements, before and after sales service needs, and special end-customer concerns (i.e., packaging or delivery arrangements). The competitiveness of a prospect's cost structures and the issue of whether it can meet a distribution schedule should also be assessed.

19 SPEAR Administrative factors The administrative and contractual conformance of prospects can be evaluated by examining the prospect's workload and determining whether it is overworked. Risk factors Considerations of risk include evaluations of a prospect's commitment to the relationship and of how much the proposed channel arrangement will cost the recruiting organization. The prospect's enthusiasm for the product should also be considered. Costs, the extent of a prospect's dealing with competitors, and the career histories of its key personnel should likewise be evaluated. Recruiting organizations can exert only limited influence over the business conduct of their intermediaries. This is true even when recruiters enjoy dominant channel positions and are willing to exercise power in pursuit of their interests. Because many intermediaries have needs, operating philosophies, and goals that differ from those of selecting organizations these differences should have a bearing on selection decision. Intermediaries generally act in their customer's interests and only secondarily on behalf of their supplier's needs. But when recruiters fail to acquire their intermediaries' loyalty and commitment, the performance of the entire channel can suffer. Naturally, appropriate selection criteria can help in this regard.

20 Channel Candidate Inducements
Creating inducements for channel members to link with you and to perform at optimum effectiveness is like any value exchange. Like all marketing we start with two basic questions: Who are they? – Each distributor is unique. Do not treat distributors as if they all had the same needs and motivations What do they want? – What are their motivations and specific needs?

21 Business Policies that Bond Your Channel to You
A starting point for developing good relationships is to make expectations clear to both parties. Prepare a clearly stated summary of your most important business policies, and give it to your distributor candidates. Such a document indicates that it is easy to do business with your organisation. A clear, concise policy statement - one that summarizes what the distributor can expect of you and what you can expect of the distributor - can prevent misunderstandings

22 Preparing a Business Policy Statement
Circulated internally, it also helps everyone in your organisation follow these policies consistently. Your business policy statement should describe policies regarding the presale, post-sale, and transaction phases of channel business, including: Contracts and agreements Authorized primary area of sales and service responsibility Penalties for selling outside the authorized sales territory Organisation marketing plans, including space advertisements, public relations releases, direct mail, national and local exhibits, and cooperative advertising Pricing, pricing assistance, and price protection

23 Preparing a Business Policy Statement
Value offer quality and warranties Required inventory levels Order size in units or total dollars National house or special accounts Major account support Value offer customization, private labels, and original equipment manufacturer (OEM) New value offer launches Discontinued Products Priority replacement Billing and payment terms, credit procedures Freight and shipment, including drop shipment Delivery guarantees How performance will be evaluated Grounds for termination

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