Channel Information Systems Tata McGraw Hill Publishing Chapter 14 Channel Information Systems SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing Learning Objectives Understand importance of information systems for management of channels Elements of channel information systems How information systems are used to impact channel service objectives Performance measures for channels Understand principles of channel implementation SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing CIS Purpose CIS is Channel Information Systems CIS is the orderly flow of pertinent operational data both internally and between channel members, for use as a basis of decision making in specified responsibility areas of channel management CIS is of primary use of sales managers. SDM – Ch 14 Tata McGraw Hill Publishing

Information - Advantages Useful in marketing planning – helps improve quality of marketing decisions Can help tap market opportunities Provides an alert against competition Helps spot trends – favourable or otherwise Helps develop action plans for growth Gives feedback on consumer needs SDM – Ch 14 Tata McGraw Hill Publishing

Classification of Information Based on the use made of it by marketing – planning, operations, decision making or control Based on subjects – consumers, products, competition, channels, promotions, pricing, sales volume, value etc Operations data – facts and figures Also based on assumptions, anticipated occurrences – forecasts relating to the channel system SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing Information Process COLLECTION PROCESSING STORAGE USE SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing Information Process Collection: acquiring and placing raw data – monthly sales by each territory Processing: analyzing data to get meaning out of it – arranging, modifying and interpreting the data by the user – comparison of sales between periods Storage: keeping the information intact till it is needed Use: application of information for management decision making – sales data of the last 6 months to forecast the sales of the next month. Development…. SDM – Ch 14 Tata McGraw Hill Publishing

Developing a Channel MIS Decide what information is required Organize information in a manner suitable for interpretation and action Decide who will use the information when and for what purpose SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing Use of Information Planning: sales forecasts or distributor indents Control: expenses against budget There is always a cost of collecting information. If data collected is not used properly, the data provider will hesitate to give the information. The channel MIS works at the sales operational level. It has very little strategic intent. SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing Sources of Data Reports (oral and written) and records of channel members, sales people Letters, statements and market research Any other info collected by the sales people and the channel members from the market External sources like business publications, magazines, newspapers, trade journals. In a dedicated channel system the collection of info is well streamlined – in the JC meeting With use of IT enabled systems collection and processing has become simpler. SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing A Good Channel MIS… Integrated system to handle all regular data Useful decision support system Reflects the style of the marketing organization User friendly and user oriented Convincing to the providers of the info as to its purpose Be cost effective Not need for verification from other sources Be fast and totally reliable SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing Element Importance In a good channel MIS, it is necessary to define upfront for each element of the MIS, the following: Purpose of the info Source of the info Action possible Impact on customer service SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing Example Competition Tracking Purpose Plan day to day corrective action to protect market shares and shelf space Source Trade, channel partners and sales people Action possible Spot action while in the market and taken by channel partners or sales people Impact on service Timely action to provide better support to the trade and retain their goodwill SDM – Ch 14 Tata McGraw Hill Publishing

Channel Performance Evaluation SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing Evaluation Criteria Channel system can be evaluated on how well it provides time, place and possession utilities Formal channel evaluation only with contracted channel members Independent wholesalers and retailers may not accept any evaluation by a company Periodicity of evaluation and parameters like achieving targets market coverage etc agreed with channel partners. SDM – Ch 14 Tata McGraw Hill Publishing

Distributor Evaluation Once a month by the sales people on the performance of the previous month on all agreed criteria Criteria varies with the category of channel member, nature of the product and the nature of customers. SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing Evaluation Each of the primary criteria can be given a weightage and performance scores worked Criteria Weightage % - X Criteria score (1 to 10) - Y Weighted score X*Y Sales target achievement 50 7 3.50 Inventory management 15 8 1.20 Selling resources 1.05 Market coverage 10 0.80 Back office support 6 0.60 Overall performance score – 7.15 SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing Evaluation Each of the primary criterion can be broken down into it components and also rated. Criterion Weightage % - X Score 1 to 10 - Y Weighted score X*Y Primary sales 15 8 1.20 Secondary sales 50 7 3.50 Achievement of secondary sales target 20 1.40 Sales growth by period 10 0.80 Market share achievement 5 6 0.30 Sales target achievement – Performance score 7.20 SDM – Ch 14 Tata McGraw Hill Publishing

Evaluation Overall Rankings Channel member Overall performance score Ranking A 7.39 1 B 7.20 2 C 7.15 3 D 6.89 4 E 6.56 5 F 5.60 6 SDM – Ch 14 Tata McGraw Hill Publishing

Overall Rankings - Action Bottom 20% to be warned to improve performance Top scorers have potential to give more business to the company – to be encouraged Consistent poor performance will entail dismissal SDM – Ch 14 Tata McGraw Hill Publishing

Implementation Principles More relevant where member is bound by a contract. Wholesalers and retailers are involved in the implementation to the extent that the company wants to cover them with its product presence. The most critical issue in implementation is the ‘intensity’ of distribution desired. This is more relevant to FMCG, pharma kind of products and not so much for consumer durables or industrial products SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing Influencing Factors Intense distribution allows consumer to shop where he likes for the product Intensive distribution increases sales – good companies insist on retail distribution intensity Selective or exclusive distribution may result in loss of sales opportunities Channel members feel widely distributed product must be a fast seller. Equitable efforts are required in selling all brands and packs of the same company SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing Influencing Factors Intensive distribution is more expensive and requires more supervision For consumer electronics or durables intensive distribution may result in ‘free-riding’ situations Channel members prefer selective distribution – the company should give the products only to them SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing Influencing Factors If a brand has a strong consumer franchise, no outlet can ignore it – HLL brands – distribution becomes intensive Channel partner or reseller also has a choice on what he wants to stock and sell If the product category is important and competition is severe, selectivity is a costly option SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing Implementing Rules Low value goods: cigarettes, soaps, shampoos – intensive distribution – fmcg kind of low investment but mass based. High value goods: electronic goods or consumer durables – buyer makes comparisons across outlets – selective Specialty goods: Mont Blanc pen or Tag Heuer watches – exclusive distribution. SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing Intensive - Factors Influence of channel principal decreases with intensity Channel member’s competitors also have same products Higher quality positioning does not match higher intensity Depends on the target market Takes into account the importance of the market and prevailing competition – more intense the competition, more the intensity of distribution SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing Selective - Factors Can cut costs but may prove inadequate – lower selling expenses, higher promotional allocations, larger transactions, more accurate forecasting of demand Channel members margins may be better Better influence over channel members Manufacturer attracts more aspirants Suitable for new product or testing the market SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing Key Learnings Channel information systems is to collect and analyse data about operations of channels CIS uses methods and sources to collect, process, store and use pertinent information for decision making Steps for development of a CIS are: decide info required, organize info in a suitable manner and decide users with purpose A CIS can include all elements of interest to sales managers to operate better SDM – Ch 14 Tata McGraw Hill Publishing

Tata McGraw Hill Publishing Key Learnings The channel evaluation system checks as to how well the system reaches the products or services to customers Channel implementation is guided by the ‘intensity’ of the distribution required For products with a large consumer base, intensive distribution is preferred Under specific circumstances, selective or exclusive distribution has advantages. SDM – Ch 14 Tata McGraw Hill Publishing