Chapter 7 Selecting the Channel Members

7 Major Topics for Ch. 7 1.Channel Structure and Selection Issue** 2.Selection Process 3.Selection Criteria* 4.Offering Inducements**

Channel Member Selection 7 S election may or may not be the result of channel design. The last phase of channel design Firm may need additional outlets to allow for growth To replace channel members that have left

7 Distribution Intensity & Selection Topic 1 The greater the intensity of distribution The less the emphasis on qualification, screening, and selection

7 Distribution Level & Selection The more the levels of distribution The less control over selection in lower levels from manufacturer cf) Tiered Supply System in Auto Industry; GM Korea’s Dealer System

7 Ownership/Function & Selection As more functions are performed by intermediaries The more emphasis on qualification, screening, and selection Ex) Franchise Networks

7 The Selection Process 1.Finding prospective channel members* (Search) 3. Securing the prospective channel members as actual channel members (Choice) 2. Applying selection criteria to determine the suitability of prospective channel members (Qualification/Screening) Cf) OEM’s Supplier Selection: Two-step Process Topic 2

7 Finding Members 1.Field sales Organization* 7. Other sources 5. Advertising 6. Trade shows* 2. Trade sources 3. Reseller inquiries* 4. Customers

7 Field Sales Organization They are often able to pick up information about likely intermediaries. They may have lined up prospective intermediaries. The manufacturer must adequately reward salespeople for their time & effort establishing connections. Salespeople are the best positioned to know about potential intermediaries BUT:

7 Trade Sources Trade associations Trade publications Directories Trade shows Firms selling similar products The “grapevine” For Example: Industrial Distribution magazine The Verified Directory of Manufacturers’ Representatives The National Association of Wholesaler-Distributors The National Retail Federation The Encyclopedia of Associations

7 Reseller Inquiries Many firms learn about direct inquiries from intermediaries interested in handling their product. Firms receiving the highest number of inquiries are the more prestigious in their industry. Reseller Inquiries

Customers7 Customers are willing to give frank opinions about the intermediaries who call on them. Manufacturer conducts formal or informal surveys of customers’ views of various distributors. Manufacturer obtains information about potential intermediaries. =

7Advertising Trade magazine advertising can generate a large number of inquiries from prospective Members. It therefore can provide a large pool from which to make selections.

7 Trade Shows Wholesale and retail trade associations hold annual conventions. Attending manufacturers have access to a wide variety of potential channel members. ** Small manufacturers meet face-to-face with wholesalers & retailers.

7 Other Sources 1.Chambers of commerce, banks, & local real estate dealers 2.Classified telephone directories or the yellow pages 3.Direct-mail solicitations 4.Contacts from previous applications 5.Independent consultations 6.List brokers that sell lists of names of businesses 7.Business databases 8.The Internet

7 (Distributor) Selection Criteria* (Distributor) Selection Criteria* Topic 3 Credit & Financial Condition* Sales Strength Product Lines Reputation Market Coverage Sales Performance Management Succession Management Ability Attitude* Size

17 Channel Member Recruiting Issues* - Know Specific qualifications for success in this channel role.* - Specify Precise products or channel assignment responsibility of channel members.* –The bounds of authority of the prospective channel member. = Control Rights –The way in which the role might be expected to change over time. ©McGraw-Hill Companies, Inc. 2002

18 Distributor Selection Criteria Used by Manufacturers (Descending Order) U. K. Firms –Knowledge of market –Market coverage –Enthusiasm for the product –Number and quality of sales personnel –Knowledge of the product U.S. Firms –Knowledge of the market –Market coverage (tie) –Previous success –Number and quality of sales personnel –Enthusiasm for the product ©McGraw-Hill Companies, Inc Ex) Two Types of Channel Member Qualification: a)Qualification of Reseller’s Ability and Motivation b)Qualification using general criteria and qualification using special criteria

19 Screening Channel Member Candidates Guidelines: –Think about your target market segments. –Level & type of support required by the channel member. –Pick your distributor carefully* – weighing all factors; product, size, service, capability. –Remember selling & distribution requirements change over time. ©McGraw-Hill Companies, Inc. 2002

Offering Inducements** 7 Topic 4 1. Good, profitable product line* 2. Advertising & promotional support 3. Management assistance 4. Fair dealing policies & Friendly relationships

1. Good, profitable Product Line* 7 Product line inducements: 1.Manufacturer offers good product line with strong sales & profit potential 2. Stress value of good product line from channel members’ perspective Ex) VARs in IT channel

7 2. Advertising & Promotion Consumer Market: Gain immediate credibility by using a strong program of national advertising. Advertising & promotion inducements Industrial Market: Gain recognition by using a strong program of trade advertising.

3. Management Assistance 7 Prospective members want to know whether the Manufacturer will help with the following: training programs financial analysis & planning market analysis inventory control procedures promotional methods Management assistance inducements:

4. Fair Dealing & Friendly Relationship 7 Manufacturer’s Responsibility: To establish a good relationship based on trust and concern for their welfare as both business entities and as people

25 Securing Channel Members for the Long Term* Assume responsibility for making intermediaries more effective: –Joint product development –Careful pricing & ordering policies –Shared training programs Equity/Justice –Procedural Justice –Distributive Justcie ©McGraw-Hill Companies, Inc. 2002

My Research Findings Money Capability Channel Member Compliance Incentives Outcome Industry Volatility Reseller Dependence