Channel Management Decisions

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Once the company has reviewed its channel alternatives and decided on the best channel design, it must implement and manage the chosen channel. Channel management calls for selecting, managing, and motivating individual channel members and evaluating their performance over time.

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Selecting Channel Members

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Producers vary in their ability to attract qualified marketing intermediaries. Some producers have no trouble signing up channel members. For example, when Toyota first introduced its Lexus line in the United States, it had no trouble attracting new dealers. In fact, it had to turn down many would-be resellers. In some cases, the promise of exclusive or selective distribution for a desirable product will draw plenty of applicants.

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At the other extreme are producers who have to work hard to line up enough qualified intermediaries. When Polaroid started, for example, it could not get photography stores to carry its new cameras, and it had to go to mass-merchandising outlets. Similarly, when the U.S. Time Company first tried to sell its inexpensive Timex watches through regular jewelry stores, most jewelry stores refused to carry them. The company then managed to get its watches into mass-merchandise outlets. This turned out to be a wise decision because of the rapid growth of mass merchandising.

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When selecting intermediaries, the company should determine what characteristics distinguish the better ones. It will want to evaluate each channel member's years in business, other lines carried, growth and profit record, cooperativeness, and reputation. If the intermediaries are sales agents, the company will want to evaluate the number and character of other lines carried and the size and quality of the sales force. If the intermediary is a retail store that wants exclusive or selective distribution, the company will want to evaluate the store's customers, location, and future growth potential.

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Managing and Motivating Channel Members

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Once selected, channel members must be continuously managed and motivated to do their best. The company must sell not only through the intermediaries but to and with them. Most companies see their intermediaries as first-line customers and partners. They practice strong partner relationship management (PRM) to forge long-term partnerships with channel members. This creates a marketing system that meets the needs of both the company and its partners.

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In managing its channels, a company must convince distributors that they can succeed better by working together as a part of a cohesive value delivery system.¹⁰ Thus, Procter & Gamble and Wal-Mart work together to create superior value for final consumers. They jointly plan merchandising goals and strategies, inventory levels, and advertising and promotion plans. Similarly, GE Appliances has created an alternative distribution system called CustomerNet to coordinate, support, and motivate its dealers.

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GE CustomerNet gives dealers instant online access to GE Appliances' distribution and order-processing system, 24 hours a day, seven days a week. By logging on to the GE CustomerNet Web site, dealers can obtain product specifications, photos, feature lists, and side-by-side model comparisons for hundreds of GE appliance models. They can check on product availability and prices, place orders, and review order status. They can even create custom brochures, order point-of-purchase materials, or download "advertising slicks"—professionally prepared GE appliance ads ready for insertion in local media. GE promises next-day delivery on most appliance models, so dealers need carry only display models in their stores. This greatly reduces inventory costs, making even small dealers more price competitive. GE CustomerNet also helps dealers to sell GE appliances more easily and effectively. A dealer can put a computer terminal on the showroom floor, where salespeople and customers together can use the system to dig through detailed product specifications and check availability for GE's entire line of appliances. Perhaps the biggest benefit to GE Appliances, however, is that the system builds strong bonds between the company and its dealers and motivates dealers to put more push behind the company's products.¹¹

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Many companies are now installing integrated high-tech partner relationship management systems to coordinate their whole-channel marketing efforts. Just as they use customer relationship management (CRM) software systems to help manage relationships with important customers, companies can now use PRM software to help recruit, train, organize, manage, motivate, and evaluate relationships with channel partners.¹²

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Evaluating Channel Members

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The producer must regularly check channel member performance against standards such as sales quotas, average inventory levels, customer delivery time, treatment of damaged and lost goods, cooperation in company promotion and training programs, and services to the customer. The company should recognize and reward intermediaries who are performing well and adding good value for consumers. Those who are performing poorly should be assisted or, as a last resort, replaced. A company may periodically "requalify" its intermediaries and prune the weaker ones.

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Finally, manufacturers need to be sensitive to their dealers. Those who treat their dealers poorly risk not only losing dealer support but also causing some legal problems. The next section describes various rights and duties pertaining to manufacturers and their channel members.

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