Category: University of Mumbai BMS Notes

Sales performance is the measurement of sales activity against the goals outlined in your sales plan. The simplest method of tracking sales performance is to establish sales goals for your team and for individual team members and then evaluate performance, either monthly or quarterly. You can then improve performance using new processes and sales tools.

Even world-class products and services don’t sell themselves. Sales and marketing are particularly important for startups that don’t have the established reputation of Microsoft, McDonald’s or the Mayo Clinic. A business can fail if it has the wrong product, but even the right product needs someone to sell it.

Unless you’re gifted at sales yourself, your business team needs at least one member who knows and understands selling. Lay down the basic sales plan for the company:

• How will the sales team generate leads?
• How should the salespeople approach customers?
• What’s the appropriate conduct and manner for the team? If you’re selling sports equipment, customers may expect a different demeanor than if you’re selling funeral plots.
• How can the sales team identify qualified customers as opposed to those who are never going to close the deal?
• What customer demands can the salespeople accept? Which demands are negotiable? Which ones are complete deal breakers?
• How does the team close deals?

Sales is a teachable skill. You or your sales executive can share the basics of good sales performance with your employees so your company has the best chance of a successful launch.

Evaluating Sales Performance

It’s important to know if your team’s sales performance is adequate, but it’s not easy to measure. If your sales revenue is good, that could be because of your sales team or in spite of your sales team. Revenue doesn’t tell you if they’re delivering peak performance or if it’s possible to increase sales.

To judge sales performance, you need KPI, or key performance indicators. These are metrics that measure your team’s success and help you identify areas of improvement for sales reps:

• How much time does the sales team put in on the job?
• How is their time spent? Do they spend most of their time pitching clients or hunting for leads to potential customers? Do they waste a lot of their time?
• How quickly does your sales force respond to leads? If someone calls and asks to meet, they’re probably looking to buy. If a salesperson doesn’t move fast, the lead may turn to some other company.
• How many presentations actually lead to a sale?
• How many potential customers are in the pipeline to be pitched? A good sales team needs lots of leads because they won’t all result in sales.
• How much time and money does it take to close each sale?
• How much money do customers generate after the initial sale?
• How much does your company spend on sales, including salary and benefits? Is it more than the team is bringing in?
• How much sales revenue does the team generate?

It’s important to choose the sales performance metrics that work for you. If your business strategy calls for steady sales growth over time or prioritizes repeat business, those goals should shape your KPI.

Sales Performance Management

Sales performance management involves monitoring your team’s performance, evaluating KPI and finding ways to increase sales. It’s easier than it used to be, as various software can do a lot of the monitoring for you, but it also takes judgment. Good management involves knowing when your salespeople are screwing up and when there’s nothing they could have done to close.

• Good sales performance management requires a transparent sales process: You know how many leads team members have, how they’re generating them and how individual sales efforts are going.
• Accurate sales performance projections give you benchmarks against which to measure your team. Projections need to be ambitious but realistic. Setting them unattainably high gives you a distorted view of sales performance.
• Motivation drives sales, as it does most other parts of business. Keeping your team motivated may require competition, showing them how they compare to each other or offering added incentives for those who increase sales the most.
• Keep accurate sales figures. Even if you rely on spreadsheets, one error can give a salesperson too much or too little commission.

Incentives to Increase Sales

Offering incentives is a time-honored way to increase sales. Commissions based on how much sales revenue an individual generates are a common incentive, as are bonuses. However, an incentive plan can easily turn into a disincentive plan, discouraging the team from giving its best effort.

• If you value teamwork, setting bonuses and rewards based on total sales team success is the way to go. Focusing on individual or competitive incentives could actually discourage the team from pulling together.
• Take some time to learn what your team wants for rewards. Cash is fine for some, but less-tangible rewards might appeal to others.
• If you have a strategic shift, such as increasing the pursuit of new customers, you need to adjust your incentives to suit the new goals.

Sales Improvement Plan

Suppose you review your sales KPI and discover the team is lagging. Sales aren’t keeping up with your forecasts, or they’ve been good but started dropping recently. To prevent a slight drop from becoming a free fall, you may need to draw up a sales improvement plan to increase sales once again.

• If you don’t have a sales plan for the team setting goals, objectives and strategies, then draw one.
• Use software for your team to track leads, contacts and opportunities.
• See whether your KPIs and your incentives are doing the job or need adjustment.
• Meet regularly with the team. This could include weekly meetings with the team as a whole and individual chats with each member. The meetings let you focus on the team’s energy and hear from them on problems about which you may not be aware.
• Find ways to get the team better leads for sales calls.
• Train the team to make better cold calls on new prospects.
• Word of mouth by satisfied customers is a great way to bring in new business. Encourage your sales team to make this a priority, such as giving customers their contact information and saying they’d welcome a referral.
• Have the team members work to improve their sales pitch.
• Is your team running into the same objections from prospects over and over? Work with your salespeople on finding ways to get around the common objections they hear.
• Keep an eye on your customers and potential customers. If there’s a change of management at a steady customer, you might contact them and renew the relationship. If it’s a potential customer to whom you haven’t sold, the change may offer a fresh opportunity to pitch them.
• Keep an eye out for underlying issues. It may be that the problem with sales performance isn’t the team but instead is new competition or software that doesn’t meet their needs.

Success and Failure

A sales improvement plan can’t work if you’re unrelentingly negative about sales performance. If your sales team is doing good work, celebrate that even as you ask them to do better. Present your plan as a way to do better, not an attempt to point fingers or treat them like losers.

If you do see them making serious mistakes, don’t look away. Talk to your team about their failures and discuss what lessons you can learn and how the team can improve for the future. As long as the team trusts you to help them move past their mistakes, they’re less likely to sweep failure under a rug.

Channel management involves the marketing and sales strategies your company uses to reach and satisfy consumers, the techniques you use to support your partners who help with the distribution process, and how you manage vendors.

When establishing your channel management solutions, you must set clear goals for each channel. (A channel is how you intend to sell your goods or services to your target audience). In addition to clear goals for each channel, you want to:

• Define the policies and procedures to manage your channels
• Identify which products you offer that are suitable for a particular channel, and
• Develop sales and marketing programs for each channel to meet the actual needs of your target customer, not what you think their needs are.

Identifying channel management solutions

When trying to identify a channel management solution that will complement your business, look at the big picture. Communication internally and externally is key to finding a solution that will help you meet your company’s goals.

How to choose the best vendor management software for your business?

As you search for a vendor management software solution, first identify your needs, then how the software can help you accomplish your goals, improve efficiency, and increase profits.

Next, evaluate the technology that your channel partners will be utilizing as well. Technology updates, communication and enterprise alignment are vital to success. View your company as a whole, and understand how each part interacts with the other, from the smallest purchase at the local office supply store to complex technology systems, and don’t lose sight of the most important aspect of your company, your customer.

Examples of channel management 

According to Simplicable, the main types of channel management include:

1. Channel architecture

Channel architecture is the basic framework for your channel. It encompasses how the product is provided by the producer to the consumer.

2. Channel strategy

This aspect involves your sales and distribution blueprint, such as how you plan to expand your market and what specific action plans you will put in place to improve your e-commerce channel.

3. Channel design

How will you implement new channels? For instance, you may create an affiliate program to encourage certain types of people and companies to help sell and promote your product.

4. Sales management

This aspect involves how you will manage sales and other partners. This could include things such as what incentives you will offer to drive sales.

5. Channel conflict

How do you plan to address conflict between channels that are unfair to one party or counterproductive? For instance, if you are using an e-commerce solution that undercuts your affiliates, you must address this conflict. When designing channels, you must pay careful attention so one channel does not create a conflict for another channel.

6. Relationship management

This aspect involves establishing and managing relationships with vendors, affiliates, etc., over time.

7. Brand experience

How do you plan to develop a brand experience that is consistent across all channels, including if you sell online, through social media, etc., as well as physical locations such as stores, boutiques, and more? For instance, if your brand voice emphasizes making customers feel loved and appreciated, this should happen no matter where your customers go. For example, various beauty brands make their customers feel pampered. This is much easier to do in person, as this can allow you to massage, apply makeup, etc. Nevertheless, the online experience must also go above and beyond to give the same personal touch by using the right words, offering exclusive deals, etc.

8. Pricing

This method involves using channel-based pricing strategies. For instance, a luxury bakery that only sells certain products in upscale areas is an example of pricing as channel management.

9. Sales and operations planning

This method involves taking the time to match the goods or services you are producing with the general demand. For instance, if you have a product or service that is more popular during certain times of year (i.e., Christmas), you want to increase production in the spring or summer.

10. Revenue management

How will you optimize revenue for your available inventory? For instance, a retail store may sell swimsuits at full price until near the end of the summer, at which time it would likely discount the inventory to make more room for fall and winter products.

11. Distribution

This aspect is focused on how you will deliver on your obligations to both channel partners and customers. For example, this could include properly managing logistics, such as product exchanges and returns.

Channel partnerships may have changed in recent years, but they remain as important as ever. Previously, the partner model was centred on resale, margins and collecting upfront revenue, but as the technology sector has transitioned to a more service-based industry, the partner channel has followed suit. Nowadays, it is not enough for channel partners to offer good technology, they must also provide responsiveness, flexibility and strategic enablement. Of course, the potential benefits of a modern channel partnership depend largely on who you choose to partner with, which is why this decision is proving so important for businesses across all industry sectors.

Channel partners are great for business; they grow both the company and brand allowing you to know that working together is driving increased profits and even more customers to the company.

Criteria for selecting the right channel partner

1. Market Focus

 Determine your potential partners’ specific target markets, whether they are based on geographic considerations or business type. Discover their current selling and networking activity. Is their existing customer base demanding better, more advanced solutions? Does their existing customer base suit your business in terms of size, location and application?

2. Target Market

Look at the channel partner’s target market, their focus, their customer base and their marketing strategy. What experience do they have, what successes? How knowledgeable are they about their market and competition?

3. Business Stability

How stable and secure is the channel’s business model? Consider factors like size, viability, suitability for target market, management competency, their profitability and growth.

4. Financial Security Soundness and Structure

Understand the the channel partner’s financial position. Request information about their revenue, size, growth, gross margin and profit, balance sheets and cash flow, are they a private or public company, how is their business financed?

5. Does their process and practice fit with yours?

Will partnering with you create a ‘solution conflict’ potentially reducing maintenance revenue, territory size or services? Are you able to provide new business opportunities, services and competitive advantage? Will your solution allow them to sell more and provide maximum potential revenue for you?

6. Skills and Experience

Does the channel have the skills and experience to sell and support your solutions? What is their sales experience, what might your solutions be as a proportion of their total revenue? What specialist skills can they offer? Who are their employees, their background and experience? What is their SE capability, their marketing strategy, their staffing resource and their contact level for their customers and prospects? Do they have the staffing capability for field sales, telesales marketing etc? How do they measure progress and customer satisfaction?

7. Technical Expertise

What specialist resources does the channel partner have? Do they have sufficient training plans, experience in network infrastructure, experience in presenting/demonstrations, knowledge of your implementation issues, the ability to be self-sufficient technically, a customer service mentality?

8. Who else are they resellers for?

What is the channel’s track record, and their experiences, (good and bad) are they locked-in to any specific agreements?

9. What Knowledge do they have of you?

Sales, Telesales and Marketing?

10. What is their Partnership mentality?

How committed is the channel to partner with you? Are they willing to dedicate staff to your business? Do they have lead generation plans and lead follow-up processes? Are they prepared to invest in demo-capability and training? Are they focused on a long-term partnership, willing to work together to develop a partnership plan and to commit to minimum targets ?

Remember that unlike direct selling, the sales relationship between you as the vendor and your channel starts after the sale. Finding the right partner is definitely the first critical step. After that the key to building a successful partner relationship will depend on the education and support provided by the vendor.

Tips for Successful Channel Partner Selection

1. Knowledge of You

Ask them how they know you, where they’ve seen you before and see if they understand what it is you actually offer.

2. Other Resellers

Find out if they have any long term agreements with other companies, ask about the channel’s track record and what their experiences are, both good and bad. Try to put together the image they are trying to portrait by piecing together their responses.

3. Partnership Mentality

What’s the commitment level to work with this partnership? See what their plans are with dedicated staff, sources of lead generation, lead follow up plans, investment into demo’s and training, is this going to be a long term relationship and are there any plans to commit to minimum targets.

4. Technical

Does the partner have the ability to implement, train and be self-sufficient with the technicals? Are they able to offer presentations and demonstrations to a high standard? Sometimes if the partnership is solely based on a online basis with the product being SaaS etc it would be wise to have everything set up for the partner limiting any potential barriers along the way.

5. Skills and Experience?

When it comes to selling your service/product what sort of skills does the channel have that can be used in conjunction with the offer? What are their specialist skills and what sort of background do their employees have? Are the team capable of effective telesales and field sales processes or is this something that extra training will be needed for?

6. Fit and Purpose

Partnering can be great but sometimes you need to understand if it’s a worthwhile idea. Will territories, revenue or services be in conflict if the partnership was put in place? Will there be new business opportunities that wouldn’t have existed before? Will the channel be able to sell more and increase revenue due to the new market/customer base?

7. Market Focus

Find out the channels specific targets such as geographic focus and business type. See what sort of network they have in place and determine if the size and location suits your business.

8. Target Market

Consider the channels target market and see what sort of successes and failures they’ve had along the way. What is their focus and strategy to get ahead in their market are they aiming to be number 1 or just to grab some market share? What is their knowledge and expertise?

9. Financials

Understand the channels financial position, are they growing? What’s their profit and loss? Cash flow, size, revenue and are they a public or private company.

10. Stability

Does the channel have a stable and secure business model? Consider their market and viability alongside offering and financials to understand what their position currently is.

Finding the right partners is critical right from the start as generally speaking it’s a long term strategy that if not aligned correctly right from first contact you’ll find it difficult to get moving.

The relationship starts after the sale when it comes to channel partners so questions like above are vital for success.

Activating your channel is the most fruitful opportunity available for accelerated sales growth over the next 12 months. For many companies tapping into an indirect sales channel, only 20 per cent of their channel partners is amassing the sales to have a positive impact on the bottom line.

But, what if you can activate the other 80 per cent of your channel network to generate new sales? The task of converting 80 per cent of your channel partners from passive to active status starts with understanding their needs and motivations. The sooner you can figure out what drives their behaviour, the sooner you can get them on the path to driving in more sales.

1. Motivation

It’s been proven time, and again that increased motivation leads to improved performance. When you prove to your channel how much you value them, you are rewarded in the form of higher productivity, increased sales and greater end-user satisfaction.

2. Provide them with the support they need

Distributors need constant support with day-to-day activities. This will include marketing materials, samples of your product, and sales data. All of which will all be used to pitch your product to buyers. The best support you can offer your channel partners is a commitment of your time and focus to ensure they are receiving everything they need to be successful.

3. Create an incentive program

A carefully designed and well-run incentive program can rouse a sales force, motivate marketing staff, or reinvigorate an uninspired channel network. Any of these objectives are reason enough to use incentives. Work with your distributors to set sales targets that are attainable, yet challenging to keep them interested.

Be Flexible: offering various rewards is a good rule of thumb, but is especially important when you aren’t familiar with the corporate culture of the particular sales force you are trying to motivate.

Reward good behaviour: while increasing sales is always the end goal, time and effort have their merit and should be rewarded as well.

Consider rewarding certain educational pursuits that demonstrate a long-term commitment to professional growth and development. These pursuits may include product training, certification or attending industry seminars and conferences. Incentive programs provide a way for suppliers to fight for the mindshare of their distributors much the way those same distributors compete for the mindshare of consumers.

4. Keep up communication

Suppliers can’t mount a leaderboard at a partner’s office, so consider promoting a program with regular communication. Email updates are always good. Consider even crafting two types of messages, one aimed toward executives and one toward frontline sellers, to get buy-in at all levels of your partner’s business.

Communications that signal the program launch and deliver regular updates to network partners build the brand and drive participant awareness, interest and enrolment. Ongoing discussions promote product sales and encourage participant engagement.

5. Train them

Distributors won’t be motivated to sell a product that they are not familiar with, so take the time to have every new distributor thoroughly trained. The training should focus on how the product works, what it’s made out of, and what unique features and benefits partners should be aware of.

Be sure to discuss how the product may be positioned to buyers, and whether the distributor should work with staff to train them on the product as well. When your channel partners know more about your product, they will become more confident about selling it, and thus be more effective when pitching it.

6. Don’t forget to track and analyse

Your program data is crucial to the understanding of how your program is driving business activity and determining the changes that will improve performance. Your program should be tracking the behaviours of your channel partners (and potentially end-users), and as a result, could yield early warnings about the market and competitive developments.

Track results: return on investment is a key metric to monitor. This will ensure that both sides are keeping up their ends of the deal. Volume, market share, or growth of strategic accounts can all be measured factors as well.

Importance of Motivation to Distribution Channel Members

Marketing products through indirect channels such as retailers or distributor outlets is an efficient way for your business to serve large numbers of customers that your sales force could not reach. An effective distribution strategy can boost revenue and profitability, while poor channel performance can have the opposite effect, according to Marketing MO. To encourage channel members to stock and market your products, you must motivate them.

1. Build Preference for Your Brand

Motivational tools help to ensure that channel members give preference to your products over your competitors. Distributors and retailers typically carry a wide range of products from many different suppliers. They must therefore make decisions about the level of sales and marketing resources they allocate to each product or manufacturer. Motivation plays an important role in winning channel members’ mind share, according to the business school MMC Learning. By winning mind share, you can ensure that channel members recommend or actively promote your product.

2. Add Value to Your Product Offer

Motivating distributors and retailers is an important strategy for influencing channel members’ behavior, according to the marketing consultancy Pure Channels. Offering training programs or marketing support to members adds value to the relationship between supplier and channel by helping them to improve their performance and grow their own business. A strong relationship makes it easier to launch new products or marketing campaigns through the channel, helping to build your own revenue and profit.

3. Increase Sales through the Channel

Financial incentives are an important source of motivation to channel members. By offering discounts on purchases above an agreed level or rewarding sales above target with bonuses, you can encourage channel members to stock and sell more of your products. Financial incentives can help you launch new products, increase sales of existing products or widen your distribution base, because channel members recognize that they will benefit from cooperating with you.

4. Improve Performance with Structured Programs

If you have a network of distributors or retailers, you will probably find that performance and commitment to your brand varies across the network. By setting up a structured channel program that offers different benefits at each level, you can motivate members to improve their performance. The program might take the form of a tiered structure, with tier 3 members receiving basic benefits and tier 1 members receiving a wide range of benefits that help them grow their business. The benefits might include different bonus or discount levels, marketing and training support, joint promotions and exclusive products. To reach higher tiers, you can set requirements such as stocking certain products, achieving sales targets, participating in training programs and agreeing to participate in promotions.

Conflict resolution skills are required for a wide range of positions across many job sectors. This requirement is based around the fact that conflict tends to reduce productivity and create a difficult work environment, leading to unwanted turnover in staff and reduced morale.

Individuals who are able to resolve conflicts are often excellent mediators, rational, and able to manage difficult personalities from a place of empathy.

Conflict resolution is the process by which two or more parties reach a peaceful resolution to a dispute.

In the workplace, there can be a variety of types of conflict:

• Conflict may occur between co-workers, or between supervisors and subordinates, or between service providers and their clients or customers.
• Conflict can also occur between groups, such as management and the labor force, or between whole departments.

The Conflict Resolution Process

The resolution of conflicts in the workplace typically involves some or all of the following processes:

• Recognition by the parties involved that a problem exists.
• Mutual agreement to address the issue and find some resolution.
• An effort to understand the perspective and concerns of the opposing individual or group.
• Identifying changes in attitude, behavior, and approaches to work by both sides that will lessen negative feelings.
• Recognizing triggers to episodes of conflict.
• Interventions by third parties such as Human Resources representatives or higher level managers to mediate.
• A willingness by one or both parties to compromise.
• Agreement on a plan to address differences.
• Monitoring the impact of any agreements for change.
• Disciplining or terminating employees who resist efforts to defuse conflicts.

Kenneth Thomas and Ralph Kilmann developed five conflict resolution strategies that people use to handle conflict, including avoiding, defeating, compromising, accommodating, and collaborating.

This is based on the assumption that people choose how cooperative and how assertive to be in a conflict. It suggests that everyone has preferred ways of responding to conflict, but most of us use all methods under various circumstances. It is helpful to understand the five methods, particularly when you want to move a group forward.

Thomas-Kilmann Conflict Mode Instrument

The Thomas Kilmann Conflict Mode Instrument is a model for handling conflict:

Conflict Management Styles

Here are the five conflict management styles according to Thomas, K.W., and R.H. Kilmann:

1. Accommodating

This is when you cooperate to a high-degree, and it may be at your own expense, and actually work against your own goals, objectives, and desired outcomes. This approach is effective when the other party is the expert or has a better solution.  It can also be effective for preserving future relations with the other party.

2. Avoiding

This is when you simply avoid the issue. You aren’t helping the other party reach their goals, and you aren’t assertively pursuing your own. This works when the issue is trivial or when you have no chance of winning. It can also be effective when the issue would be very costly. It’s also very effective when the atmosphere is emotionally charged and you need to create some space. Sometimes issues will resolve themselves, but “hope is not a strategy”, and, in general, avoiding is not a good long term strategy.

3. Collaborating

This is where you partner or pair up with the other party to achieve both of your goals.  This is how you break free of the “win-lose” paradigm and seek the “win-win.” This can be effective for complex scenarios where you need to find a novel solution.This can also mean re-framing the challenge to create a bigger space and room for everybody’s ideas. The downside is that it requires a high-degree of trust and reaching a consensus can require a lot of time and effort to get everybody on board and to synthesize all the ideas.

4. Competing

This is the “win-lose” approach. You act in a very assertive way to achieve your goals, without seeking to cooperate with the other party, and it may be at the expense of the other party. his approach may be appropriate for emergencies when time is of the essence, or when you need quick, decisive action, and people are aware of and support the approach.

5. Compromising

This is the “lose-lose” scenario where neither party really achieves what they want. This requires a moderate level of assertiveness and cooperation. It may be appropriate for scenarios where you need a temporary solution, or where both sides have equally important goals. The trap is to fall into compromising as an easy way out, when collaborating would produce a better solution.

Channel conflict can be explained as any dispute, difference or discord arising between two or more channel partners, where one partner’s activities or operations affect the business, sales, profitability, market share or similar goal accomplishment of the other channel partner.

As we know that every manufacturing company needs to plan its distribution and marketing channel appropriately, to ensure market captivity and customer satisfaction along with growth and profitability.

In the process of the constant supply of products in the market, several channel partners and intermediaries join the supply chain of the brand. Any clash and disturbance among these trading partners can be considered as a channel conflict.

The three type of channel conflicts which can occur are

1. Horizontal channel conflicts

One of the most common type of channel conflicts to occur are the horizontal ones. Horizontal channel conflict is a conflict between two players at the same level in the distribution channel. So a conflict between 2 distributors or a conflict between 2 retailers is known as horizontal channel conflict.

Example of Horizontal channel conflict

There are two stores in a region which are given a territory each. Store 1 is given territory 1. Store 2 is given territory 2. Now the channel conflict occurs, when store 1 services customers from territory 2 or vice versa. This means that the channels are not following rules set by the company and hence it is creating conflict.

There is a difference between competition and horizontal channel conflict. If store 1 and store 2 were both performing optimally so that they can show the best figures to the company and win the prize for the best channel dealer, then they are competitors. However, if they are breaking the company rules and encroaching each others territories, then this is clearly channel conflict. And it has to be managed by the company by setting a rule or a policy.

Such channel conflicts are one of the most common kinds of conflict in channel management. These arise due to human nature. Distributor in territory 1 might be more aggressive and the one in territory 2 might be passive. Thus, encroachment happens and is not controlled till the distributor 2 raises his voice against the injustice. Such Horizontal channel conflicts can happen at various levels in the channel and it is not necessary that it happen at retailer level only or the reason be encroachment only.

2. Vertical Channel conflict

Another type of conflict seen in channel management is the Vertical channel conflict. Where the horizontal channel conflict exists between players within the same level of the distribution channel, the vertical channel conflict happens at different levels of the distribution channel. A typical conflict might be between the retailer and the distributor, or it might be between the distributor / C&F and the company.

Example of vertical channel conflict:

Lets take the example of an Ice cream company. To motivate its dealers, many ice cream companies provide FREEZERS at discounted price along with the ice cream to their retailers. These freezers are used to keep the ice cream at frozen temperatures. Now, an ice cream company notices that Region 1 is not performing well and it can motivate region 1 by providing the freezer completely free. So it gives freezers for free in the market with ice cream so that ice cream sale rises. It actually does and because retailers are taking the freezer for free, they are stocking more ice cream and selling more ice cream. The company is happy.

However, Region 2 now gets news that this is happening in region 1 and that freezers are being provided for free to all retailers in region 1. The retailers of region 2 immediately revolt and ask for further discounts on freezers or to give the freezers completely free. They don’t understand that sales in region 2 is already high and margins are low for the company. Ultimately, this creates a vertical channel conflict for the company. Now the company has to decide whether it will support region 1 or region 2.

As you can see, handling vertical channel conflicts is far difficult for companies as compared to handling horizontal conflicts. Horizontal conflicts always happen at a lower level then the company. But vertical channel conflicts might involve the manufacturer or the distributors themselves. Hence, managing vertical channel conflicts becomes important for the company.

Another example of vertical channel conflict is a Distributor preferring one retailer over the other. In such a case, retailer 1 might get extra credit, he might get deliveries faster, he might get further discounts, whereas due to whatever reasons, retailer 2 might not get such benefits. It might be due to the distributors relations with Retailer 1 or it might be due to the nature of retailer 2 (haggling, rudeness). But this can be another real live example of vertical channel conflict.

3. Multiple channel conflict

Because of their very nature, vertical channel conflicts happen rarely, but  once they happen, they have a long lasting effect. In the recent decade, we have seen some fantastic examples of Multi channel conflicts.

When Small retailers and businessmen were thriving in business, Modern retail came in the picture. Large hypermarkets and malls were started where people could do all their shopping. An altogether different distribution channel was created. Due to their bulk buying power, these hypermarkets were giving huge discounts and making huge sales as well.

As a result, many companies were boycotted by small retailers because they felt left out and they could not cope with the price. This created a huge multiple channel conflict with small retailers standing in unity against the tyranny of large markets. Ultimately, the companies had to come in and settle the dispute by maintaining the price across multiple channels. So they set a standard price of products, whether it was selling in hyper markets or small retail.

Now, the same thing is repeating but the players are three fold – Small business, Modern retail and E-commerce. E-commerce went a step ahead of modern retail and even small businessmen got back at modern retailers by offering even lower prices on online platforms. There was no store to be leased, no rent to be paid, not a dollar to be spent but only material had to be bought and it had to be shipped. The lower the price of buying, the lower the selling price.

In the times of E-commerce, Hypermarkets had leased huge spaces for which they were paying sky high rents. When E-commerce started, hypermarkets dropped a bit in demand and today all of them are fighting each other. It is a constant multiple channel conflict for each company because if there are lower prices anywhere, it immediately gets public and then the other channel starts complaining or demanding lower prices. Furthermore, one channel might complain about the other and vice versa.

In the end, these are the three types of channel conflicts which exist in channel marketing. Horizontal conflict might be quite regular but its effect will be localised. Vertical conflict is not regular and its effect might be regional. However, multiple channel conflict generally has a national level effect because it always occurs when the company has made major changes.

Channel design decisions are critical because they determine a product’s market presence and buyer’s accessibility to the product. Channel decisions have additional strategic significance because they entail long-term commitments. It is usually easier to change prices or promotion than to change marketing channels.

1. Market dimensions

It focuses on customer( market) orientation. In developing and adapting the marketing mix, then, marketing managers should take their basic cues from the needs and wants to the target markets at which they are aiming. Four basic sub categories of market variables are particularly important in influencing channel structure. They are:

• Market geography
• Market size
• Market density
• Market Behaviour

2. Product Dimension

Product variables are another important category to consider in evaluating alternative channel structures. Some of the most important product variables are as follows:

• Bulk and weight
• Perishability
• Unit value
• Technical versus non- technical
• Newness

3. Company dimensions

The most important company variables affecting channel design are:

• Size
• Financial capacity
• Managerial Expertise
• Objectives and Strategies

4. Intermediary Dimensions

The key intermediary variables related to channel structure are:

• Availability
• Cost
• Services

5. Environment dimension

Environmental variables may affect all aspects of channel development and management. Economic, sociocultural, competitive, technological, and legal environmental forces can have a significant impact of environmental forces is one of the more common reasons for marketing channel design decisions.

1. Defining the customer needs

In designing the market channel, the marketer must understand the service output levels its target customer want. It is essential to capture customer requirements while designing marketing channel. It includes the following:

• Product information
• Product customization
• Product quality assurance
• Lot size Product variety
• Spatial convenience / availability
• Waiting and delivery time After sales service
• Logistics

2. Defining channel objective

The channel objective vary with product characteristics:

• Perishable products requires more direct marketing
• Bulky products, such as building materials, require channels that minimize the shipping distance and amount of handling.
• Non- standard products, such as custom-built machinary and specialised business forms, are sold directly by company sales representatives.
• High- unit- value products such as generators and turbines are often sold through a company sales force rather than intermediaries.

3. Channel alternative

A company looks at alternatives for its distribution channel after it has decided on the targeted customers and the customer service deliverables it desires from its channel partners to reach these customers. At the time of deciding the company will scan for:

Type of intermediaries

• Distributors or re-distribution stockiest
• Carrying and forwarding agents
• Logistics service providers.
• Manufacturer’s agents, stockist, guarantors
• Financing agencies
• Wholesalers and semi wholsalers
• Retailers and service centres.
• Number of intermediaries.
• Cost of the channel system.
• Terms and responsibility of channel members.

4. Evaluation of major alternative

The major problem before the producer is to decide which of the alternatives would be best satisfy the long term objectives of the firm taking in view the factors which would affect the channel decision. For this purpose, each alternative must be rated against economic; control and adequate criteria:

• Economic Criteria
• Control Criteria
• Adaptive Criteria

5. Ideal channel structure

With the completion of forgoing steps, the number of alternatives would have narrowed down considerably. The firm must evaluate design and choose the best among them.

It represents the level of international availability selected for a particular product by the marketer; the level of intensity chosen will depend upon factor such as the production capacity, the size of the target market, pricing and promotion policies and the amount of product service required by the end-user.

There are three broad options:

1. Intensive Distribution

Intensive distribution aims to provide saturation coverage of the market by using all available outlets. For many products, total sales are directly linked to the number of outlets used (e.g., cigarettes, beer). Intensive distribution is usually required where customers have a range of acceptable brands to choose from. In other words, if one brand is not available, a customer will simply choose another.

This alternative involves all the possible outlets that can be used to distribute the product. This is particularly useful in products like soft drinks where distribution is a key success factor. Here, soft drink firms distribute their brands through multiple outlets to ensure their easy availability to the customer.

Hence, on the one hand these brands are available in restaurants and five star hotels and on the other hand they are also available through countless soft drink stalls, kiosks, sweetmarts, tea shops, and so on. Any possible outlet where the customer is expected to visit is also an outlet for the soft drink.

2. Selective Distribution

Selective distribution involves a producer using a limited number of outlets in a geographical area to sell products. An advantage of this approach is that the producer can choose the most appropriate or best-performing outlets and focus effort (e.g., training) on them. Selective distribution works best when consumers are prepared to “shop around” in other words they have a preference for a particular brand or price and will search out the outlets that supply.

This alternative is the middle path approach to distribution. Here, the firm selects some outlets to distribute its products. This alternative helps focus the selling effort of manufacturing firms on a few outlets rather than dissipating it over countless marginal ones.

It also enables the firm to establish a good working relationship with channel members. Selective distribution can help the manufacturer gain optimum market coverage and more control but at a lesser cost than intensive distribution. Both existing and new firms are known to use this alternative.

Selective distribution involves selling products at select outlets in specific locations. For instance, Sony TVs can be purchased at a number of outlets such as Circuit City, Best Buy, or Walmart, but the same models are generally not sold at all the outlets. The lowest-priced Sony TVs are at Walmart, the better Sony models are more expensive and found in stores like Circuit City or specialty electronics stores. By selling different models with different features and price points at different outlets, a manufacturer can appeal to different target markets. You don’t expect, for example, to find the highest-priced products in Walmart; when you shop there, you are looking for the lower-priced goods.

3. Exclusive Distribution

Exclusive distribution is an extreme form of selective distribution in which only one wholesaler, retailer or distributor is used in a specific geographical area.

When the firm distributes its brand through just one or two major outlets in the market, who exclusively deal in it and not all competing brands, it is said that the firm is using an exclusive distribution strategy. This is a common form of distribution in products and brands that seek a high prestigious image.

Typical examples are of designer ware, major domestic appliances and even automobiles. By granting exclusive distribution rights, the manufacturer hopes to have control over the intermediaries’ price, promotion, credit inventory and service policies. The firm also hopes to get the benefit of aggressive selling by such outlets.

Exclusive distribution involves selling products through one or very few outlets. Most students often think exclusive means high priced, but that’s not always the case. Exclusive simply means limiting distribution to only one outlet in any area, and can be a strategic decision based on applying the scarcity principle to creating demand. For instance, supermodel Cindy Crawford’s line of furniture is sold exclusively at the furniture company Rooms to Go. Designer Michael Graves has a line of products sold exclusively at Target. To purchase those items you need to go to one of those retailers. In these instances, retailers are teaming up with these brands in order to create a sense of quality based on scarcity, a sense of quality that will not only apply to the brand but to the store.

Wholesaler is a trader, who buys goods in bulk quantities and sell it in smaller ones. On the other hand, distributors are the reseller of products, which cover a specific area or market.

To make goods available to the final consumer, a manufacturer or producer should choose the best channel for distribution, as he cannot sell the goods directly to consumers. In this way, the supply chain of a company has a great role to play because it highly influences its marketing and promotional activities. The two most important links of supply chain management are wholesaler and distributor, as they ensure timely availability of merchandise to the end user. As these two links are interconnected, they are quite commonly confused for one another.

Wholesaler

The wholesaler can be understood as an intermediary entity that buys goods in large quantities and resells them to the retailer, with the sole aim of earning profit. He/She acts as a middle-person between a manufacturer and retailer. Due to direct buying from the manufacturer or producer of goods, wholesaler obtains products at low prices and sells them to the retailer at higher prices. Thus the remaining amount is the source of revenue.

Whole-selling entities play a crucial role in the supply chain process, as it buys the goods from different manufacturers in bulk, break bulk into smaller units, hold inventories in warehouses, provides quicker delivery to buyers, reduces risk by taking the title of goods, and so on. As these entities mostly deal with business customers, i.e. re-sellers they do not pay much attention to the location, atmosphere and promotion.

Distributor

As the name suggests, the distributor is an agent who distributes products and services to various parties in the supply chain network. It is impossible for the manufacturer to reach customers directly for selling products and services, and for this purpose, they have to rely on middle agents or distributors, who exclusively store and sell the company’s products, in different locations.

The distributor is also known as channel partner who deals with the manufacturers to promote and sell their products and services to various customers, such as retailers or final consumers. To do so, the distributor enters into an agreement with the producer and purchase the right to sell the producer’s product. However, he cannot use the producer’s trade name.

Distributors purchase non-competing goods or product lines from different manufacturers, hold stock in warehouses, transport it to various locations and resell it to various parties.

Differences between Wholesaler and Distributor

The difference between wholesaler and distributor can be drawn clearly on the following grounds:

1. The term wholesaler is defined as a person or entity, who purchase goods in bulk and sell them in relatively smaller units. On the other hand, the distributor is one of the major links that supplies goods and services to the entire market.
2. In general, distributors enter into the contract with the manufacturer to trade in non-competing goods or product lines. Conversely, a wholesaler do not enter into the contract with the manufacturer, i.e. he has the liberty to offer products of competing for nature to the retailer, provided by various manufacturers.
3. There are four types of distribution levels, in which wholesaler is present in two level and three level channel. Unlike, the distributor is present only in the three-level channel of distribution.
4. As a distributor acts as a middleman to supply specific goods in the market, his area of operation is larger than the wholesaler, who serves a limited area.
5. Retailers are the only customers of a wholesaler. On the contrary, a distributor provides goods to many parties in the supply chain, like wholesalers, retailers and even direct consumers.
6. Wholesalers do not involve in marketing, pitching, selling products to the prospective buyers or retailers, i.e. product of an individual manufacturer waits for the retailer’s interest and order placement. In contrast, the distributor sets deal with the producer and engage in promotional activities, to increase sales. Hence, they act as a sales representative to the producer.

Conclusion

Wholesalers generate their income from the discount charged on products, i.e. they purchase products in large volumes from producers at a low price and sell it further to the retailers in small lots at relatively high price. Hence, the amount received from customers less amount paid to manufacturers is the source of income to the wholesaler.

On the other hand, distributor charge service fees for rendering services as a percentage of net sales. The fee is the major source of income to the distributors.

A channel partner is a person or organization that provides services or sells products on behalf of a software, hardware, networking or cloud services vendor. Channel partners include value-added resellers (VARs), systems integrators, consultants, managed service providers (MSPs), original equipment manufacturers, distributors and independent software vendors. Many technology providers, including Amazon Web Services (AWS), Cisco, Dell EMC, IBM and Microsoft, have formed partnership programs to engage closely with channel partners.

Two well-known channel partner programs are:

• Managed Services Channel Program (MSCP): Defines best practices for channel partner market or industry services. Best practice compliance validates channel partners and services.
• Outsourcing Channel Program: Designed for channel partners handling asset management for a specified period. Includes combined manufacturer, service provider or data center technologies.

A referral partner is a sales representative, consultant or customer that enhances marketing and boosts sales by directly referring customers to manufacturers via multiple channels.

Channel and referral partners are often compensated with gratis discounts, training, technical support or lead generation tools.

WHOLESALER

The wholesaler can be understood as an intermediary entity that buys goods in large quantities and resells them to the retailer, with the sole aim of earning profit. He/She acts as a middle-person between a manufacturer and retailer. Due to direct buying from the manufacturer or producer of goods, wholesaler obtains products at low prices and sells them to the retailer at higher prices. Thus the remaining amount is the source of revenue.

Whole-selling entities play a crucial role in the supply chain process, as it buys the goods from different manufacturers in bulk, break bulk into smaller units, hold inventories in warehouses, provides quicker delivery to buyers, reduces risk by taking the title of goods, and so on. As these entities mostly deal with business customers, i.e. re-sellers they do not pay much attention to the location, atmosphere and promotion.

Wholesaler – Business to Business sales and Business to customer sale

• Wholesalers have huge quantity of the same product (Imagine a marble shop which is a wholesaler and has huge quantity of different marble floorings and tiles).
• If you want to buy from a wholesaler, you have to visit his place. (He does not distribute the items)
• In large companies, wholesalers may buy from distributors. Wholesalers are lower then distributors in channel sales. There might be multiple wholesalers in the same city.
• Wholesalers mostly sell directly to other businesses (like retailers) but they are likely to sell to customers who need in bulk as well (example a cement wholesaler selling small amount of cement locally just to meet demand)
• Are very important in the perishable goods market (fish, vegetables etc).
• Major work is of warehousing
• Margins are lesser but the volumes are huge.

The best example of wholesalers is the local cement guy or the local vegetable market. Although a normal vegetable retailer might roam the market with his van or might visit place to place, a wholesaler sits in his own place and does business.

You might noticed from time to time various Cloth wholesale markets where a huge business is done from a small shop. The wholesalers generally operate from a small shop but they will have a huge warehouse nearby from where they supply the material.

Because wholesalers sell material in huge bulk or the material which they sell is in demand, these wholesalers do not move from shop (this is generally the norm) and they sell most of their products from their own shop. Imagine the vegetable wholesaler who might sell tons of vegetables from his shop when retailers visit him.

A wholesaler may buy direct from the company or he might buy from another distributor. If you look at the ice cream market, there is a C&F (wholesaler of ice cream) involved who stocks the ice cream in bulk and other ice cream vendors may buy from him or the distributor arranges transportation from the wholesaler to the retailer. This bulk stocking wholesaler is needed in every city within a few milers because otherwise the ice cream will melt. As a result, wholesalers have a huge role to play in perishable good items.

Finally, distributors are not allowed to sell to end customers are all whereas a wholesaler might do that. For example – a cement wholesaler generally sells in bulk to the local developers who are erecting buildings. However, he may sell small items through a shop to local labourers, plumbers who need small work to be done with cement (home jobs). A distributor cannot do that because he is obstructing the sale of the retailer to whom the distributor is selling.

DISTRIBUTOR

As the name suggests, the distributor is an agent who distributes products and services to various parties in the supply chain network. It is impossible for the manufacturer to reach customers directly for selling products and services, and for this purpose, they have to rely on middle agents or distributors, who exclusively store and sell the company’s products, in different locations.

The distributor is also known as channel partner who deals with the manufacturers to promote and sell their products and services to various customers, such as retailers or final consumers. To do so, the distributor enters into an agreement with the producer and purchase the right to sell the producer’s product. However, he cannot use the producer’s trade name.

Distributors purchase non-competing goods or product lines from different manufacturers, hold stock in warehouses, transport it to various locations and resell it to various parties.

Distributors – Strictly business to business sales

• Distributors are the ones whose job is to increase the visibility and sales of the product, for which they might visit shop to shop and pick orders.
• An excellent example of distributors are the ones selling Samsung Smart phones who visit all the shops within a region to ensure that the material is on display by the retailers. You will not find a wholesaler of Samsung but you will find retailers and distributors.
• Distributors sell to both – Wholesalers and retailers.
• Transportation is a huge cost for distributors as delivery from warehouse to end retail outlet is the work of the distributor.
• Distributors are never allowed to sell to end customers because the distributors have a lower price of the product and this move will cut off the sale of the retailers.
• The turnover done by the retailers is the target of the distributor. A distributor is more concerned with secondary sale (sales from retailer to customer) because if secondary sales don’t happen, then primary sale from happen (sale from distributor to retailer).
• Major job is visibility, distribution to many outlets and sales.

Consumer durable, electronics, hardware or other equipments, medicines are perfect examples of sectors which use distributors and not wholesalers. A medicine retailer may have more then 1000 different type of medicines. He cannot afford to visit wholesalers who are stocking all these machines.

So the companies appoint a distributor who can distribute the various medicines to the retailer who in turn sells it to customers. Similarly, there are various distributors for washing machines, televisions and other white and brown goods who distribute products to retailers – small retailers or modern retailers.

There might be vegetable and perishable goods disributors as well. These distributors might visit from town to town and deposit a bulk of the material with the local wholesaler who will later sell it forward to other retailers. In this case too, the cost of distribution from distributor to wholesaler has to be bourne by the distributor.

Transportation is a major cost for any distributor and hence, the distributor considers the cost of transportation in his profitability analysis. Alternatively, a distributor might try to club together various deliveries to the same place so that the cost is lesser for deliveries and transportation.

The main work of the distributor is to push retailers in converting more sale. Imagine the competition between Samsung and Micromax or Oppo or Vivo. There is a distributor for each of these companies and all distributors will try to push their own products in the market. They can do this by launching various trade promotions or pushing the retailer in picking more material so that the sale is maximum for their brand.

So if a retailer picks more Micromax unit from the Micromax distributor, he is likely to sell the Micromax brand more then Samsung to the end customer. For this to happen, the distributor has to give promotional support to the retailer or push for more sales so that ultimately the retailer sells more unit to the end customer.

If the secondary sale is happening (sale from retailer to customer), the primary sale (sale from distributor to retailer) will happen automatically. A good distributor concentrates on secondary sale and not primary sale.

A distributor is also supposed to stock products in bulk but he can anytime order smaller quantities from the company from time to time to distribute forward. Generally distributors are not expected to have as big warehouses as wholesalers because it is the work of the distributor to distribute and not to warehouse. Distributors use the storing capacity of retailers below them or wholesalers below them to stock the material.

Key Differences between Wholesaler and Distributor

The difference between wholesaler and distributor can be drawn clearly on the following grounds:

1. The term wholesaler is defined as a person or entity, who purchase goods in bulk and sell them in relatively smaller units. On the other hand, the distributor is one of the major links that supplies goods and services to the entire market.
2. In general, distributors enter into the contract with the manufacturer to trade in non-competing goods or product lines. Conversely, a wholesaler do not enter into the contract with the manufacturer, i.e. he has the liberty to offer products of competing for nature to the retailer, provided by various manufacturers.
3. There are four types of distribution levels, in which wholesaler is present in two level and three level channel. Unlike, the distributor is present only in the three-level channel of distribution.
4. As a distributor acts as a middleman to supply specific goods in the market, his area of operation is larger than the wholesaler, who serves a limited area.
5. Retailers are the only customers of a wholesaler. On the contrary, a distributor provides goods to many parties in the supply chain, like wholesalers, retailers and even direct consumers.
6. Wholesalers do not involve in marketing, pitching, selling products to the prospective buyers or retailers, i.e. product of an individual manufacturer waits for the retailer’s interest and order placement. In contrast, the distributor sets deal with the producer and engage in promotional activities, to increase sales. Hence, they act as a sales representative to the producer.

RETAILER

When buyers buy a product and sell it to the final customers for their consumption, and not to any supplier or wholesaler, this is known as Retail. The retailers are the mediator between wholesaler and customers. They purchase goods from the wholesaler and sell them to the ultimate customers in small quantity. Retailers offer a vast variety of goods and are in direct communication with a large chain of suppliers, giving them an opportunity to manufacture and develop more sustainable goods.

A retailer does not manufacture any product they sell, but they are the final link in the distribution chain and the one who connects and delivers the goods and services directly to the customers.

Importance of Retailer

1. Provide Assortments

Supermarkets or small Kirana shops sell different product items manufactured by different companies. These places enable and give choices to customers to pick from a vast assortment of goods, sizes, brands, and prices at one location.

2. Breaking Bulk Orders

Manufactures and wholesalers sell the products in bulk to the retailers. The retailers then sell it to the customers in smaller and more useful quantities. This activity of breaking bulk order into tiny amount according to customer’s requirement is known as breaking bulk.

3. Holding Inventory

The significant action accomplished by the retailer is maintaining an inventory, so the items are available whenever the customers want. This action allows the customer to buy products in a small quantity as required.

4. Providing Services

Retailers implement services that make customers shopping journey favourable. Example, retailers showcase all the products so that the customers can see and buy them. Retail store’s employee salesperson to assist the customers.

Key Points of Retailer

• It creates a high annual sale and has a huge impact on the economy.
• Creates employment and offers extensive varieties of career opportunity.
• Offers widespread categories of products and services.
• A retail service can improve a product’s image.
• Spread information to customers through display, signs, and sales personnel.