Chapter 14, channel information systems. After studying this chapter you will be able: 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.
Chapter 14 Channel Information Systems SDM – Ch 14 Tata McGraw Hill 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 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 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 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 Information Process COLLECTION PROCESSING STORAGE USE SDM – Ch 14 Tata McGraw Hill 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 months to forecast the sales of the next month SDM – Ch 14 Tata McGraw Hill Development… 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 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 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 10 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 15 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 16 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 3.50 Inventory management 15 1.20 Selling resources 15 1.05 Market coverage 10 0.80 Back office support 10 0.60 Overall Tata McGraw Hill performance score – 7.15 SDM – Ch 14 17 Evaluation • Each of the primary criterion can be broken down into it components and also rated Criterion Weightage %-X Score to 10 - Y Weighted score X*Y Primary sales 15 1.20 Secondary sales 50 3.50 Achievement of secondary sales target 20 1.40 Sales growth by period 10 0.80 0.30 Market share achievement Sales target achievement – Performance score SDM – Ch 14 Tata McGraw Hill 7.20 18 Evaluation Overall Rankings Channel member Overall performance score Ranking A 7.39 B 7.20 C 7.15 D 6.89 E 6.56 F 5.60 SDM – Ch 14 Tata McGraw Hill 19 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 20 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 21 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 22 Influencing Factors • Intensive distribution is more expensive and requires more supervision • For consumer electronics or durables intensive distribution may result in ‘freeriding’ situations • Channel members prefer selective distribution – the company should give the products only to them SDM – Ch 14 Tata McGraw Hill 23 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 24 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 25 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 26 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 27 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 28 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 29 ... 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... 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 ... information intact till it is needed • Use: application of information for management decision making – sales data of the last months to forecast the sales of the next month SDM – Ch 14 Tata McGraw Hill