Idea 8 - Channel management
We hear a lot about
discontinuous change these days. It first cropped up in catastrophe theory,
which may give pause for thought, but business thinkers and economists like the
way it describes the quantum leap - the radical shift that makes everything look
different. They also like how it (eventually) boosts growth, far more than
incremental change ever does.
Some of the most powerful discontinuities of the last
century or so have been the coming of the horseless carriage, powered flight,
the personal computer and now, dot.com bust or no, of the Internet. The Net has
forced anyone running a business to reconsider exactly how they market, sell
and distribute their products. And that boils down to some serious thought
about channel management.
Distribution Channels
are a business's routes to market, part of the 'place' in the four Ps of
marketing. In considering the four Ps, managers must make decisions on how many
levels of distribution to employ. Can the firm afford - or does it even want -
its own direct sales force? Will it distribute via retailers, or wholesalers
and retailers, and how selectively will they be chosen?
A direct sales force is expensive but has the virtue of
being firmly under the company's control. Wholesalers and retailers are not,
and motivating them to do their best for you makes up a large part of
traditional channel management. The most widely used and probably the most
effective incentive is to grease their palms, either by offering more generous
margins for pushing your product instead of your rivals', or by staging some
form of competition to reward salespeople who do likewise. Providing them with
training and the tools they need to sell the product effectively also helps.
In a vertically integrated organization, the manufacturer or
supplier might own its retail outlets, or the store group might make the
products that it sells - forward or backward integration, respectively. This
model is inflexible, imposes high fixed costs and can be distracting for
management but, like a direct sales force, it is under the company's control,
One distribution channel that gives control at low cost is
mail order. And now, of course,
there is the Net (a kind of mail order plus). Like most
advances in technology, there were a few enthusiastic early adopters, while
many sat back to wait and see. Now, however, the Net has become an
indispensable channel for the majority of consumer industries and, at the very
least, a marketing tool for many business-to-business firms.
Customer
choice More significantly, perhaps, the Internet is not just another
single channel from which to choose. Its arrival has accelerated the
development of multiple-channel distribution in which customers may use
different channels at different stages in the process of buying something. They
might check online that an item is in stock before going into a store to buy
the goods. Or they might order online for collection at the store. They might
want to be able to transact by phone, online or in person on different
occasions of their own choice.
In this world of 'bricks and clicks', channel management
takes on new meaning. More and more customers want, or have been persuaded to
want, access to goods and information via new channels such as the Internet,
the phone and - particularly in the case of financial services (an early
adopter of the new channels) - the automated teller machine or ATM. As banks
discovered early on, they still want the old bricks and mortar too.
Companies are spending-considerable sums to oblige. Some
have noticed that the customers who want multiple channels tend to have more
money than the ones who only use one channel, and that they are likely to spend
more too. The customers are looking for more convenience - shopping from home -
and quicker access to information. The result is that multiple channels are
becoming less of an opportunity for competitive advantage and more of a
strategic necessity.
Managing them has its problems, however. One is what
consultants call the '3E trap' - the unprofitable temptation to provide
'everything to everyone, everywhere'. The answer is, first, to know who your
most profitable customers are, an area where channel management becomes
intertwined with customer relationship management, then, decide which channels
they prefer to use.
CRM persuades us to focus on the customer, to provide a
seamless, homogenous service. If multiple-channel distribution is to deliver
that experience for the customer, then it has to be
joined up. The channels must be managed as an
interdependent, linked and coordinated system instead of as standalone
operations. Some consultants call this a 'multichannel', as opposed to a
multiple channel, strategy.
No laissez
faire The preferences of high-value customers should obviously
influence how that strategy is implemented. But that's not to say that the
organization should be completely passive and leave customers to use whichever
channels they please. Some are more costly than others, sometimes surprisingly
so. Channel economics have to be understood and customers nudged in the
direction of the most appropriate and, indeed, cost-effective channel.
Migrating customers to new channels is a sensitive and risky affair, so a
delicate touch is needed. If that's true for customers, it can also be true for
existing channels. Retailers can feel threatened by the introduction of a new
and, they might believe, competing channel. Some firms have devised incentives
to keep their retailers on side while they roll out new web- or phone-based
sales initiatives.
Done right, the multi-channel approach can be a source of
differentiation that is hard to copy. If channel management was getting humdrum
before the advent of the Net, it's a lot more lively now.
Reference: 50 Management Ideas You Really Need to Know
Book by Edward Russell-Walling
Comments