POLEMICA DEL SIGLO XX

When an enterprise has decided on the channel design it wants to follow, it must implement and manage the chosen channel. Channel management consists of selecting, motivating, training and evaluating individual channel members, while simultaneously managing any conflicts that might arise between the intermediaries.

7.5.1 Selecting Channel Members

Manufacturers employ intermediaries because they enhance sales performance by increasing volume or revenue and/or by lowering unit costs. However, the capabilities of different distributors are very heterogeneous and necessitate the development of effective selection processes. Criteria should include consideration of distribution outreach, functionality, appropriateness for products, cultural con-text, consumer/distributor interaction and past performance.³⁸ How well intermediaries can perform the functions of sales, storage, delivery, credit provi-sion, product and customer servicing, information gathering, etc. also influences channel selection. So too does the quality of the relationships that middlemen have with the next link in the channel.

It should also be considered whether a potential distributor is involved with directly competitive products. For a large enterprise with a lot of negotiating power towards retailers this might not be a problem, but for small and medium-sized firms, this could have repercussions because of the retailer’s priorities. In the end, intermediaries tend to act primarily in the interests of their customers and only secondarily on behalf of their suppliers.

7.5.2 Motivating and Training Channel Members

Once selected, channel members must continuously be motivated and trained in order to perform at their utmost potential. Companies should aim to sellwith their intermediaries, instead of just through them. This sometimes requires efforts that exceed those being used to motivate one’s own employees. The two key factors in motivating and training channel members are building proper relationships and then incentivizing those relationships.

Nevertheless, a good relationship can only develop if there are incentives for the intermediary in place. Rather than providing standard operating procedures to control the behavior of the distributor, a better approach focuses on outcomes: the distributor is compensated when and if sales occurs.³⁹ This approach provides

38Samli (2004).

39Cachon and Lariviere (2001).

maximal autonomy for the distributor while placing the responsibility for results squarely on his or her shoulders.⁴⁰

All in all, channel members can be motivated in four main ways: by assuring them of attractive financial rewards, effective two-way communication, sales and management support and a continuous future business relationship.

7.5.3 Evaluating Channel Members

Companies must also continuously evaluate the performance of channel members.

This can be done with the help of key performance indicators such as: customer delivery time, sales quotas, inventory levels, treatment of damaged and lost goods, cooperation in promotion and training programs, extra services to customers, and reliability of payments. Intermediaries that are performing well should be rewarded by the manufacturer, while the ones that are not should be assisted, then warned and in the worst case replaced.⁴¹

7.5.4 Channel Conflict and Grey Markets

No matter how thorough the selection and the constant motivation and evaluation on the side of a manufacturer are, there is almost always a conflict within a channel at one time or the other. The three common reasons for channel conflict are:

Incompatible goals: Each channel member is aiming to maximize its own profits, so the potential for frequent disagreement regarding margins and incentives is naturally given. Conflict could, for example, arise when a producer wishes to increase its market share while, at the same time, the aim of a key middleman is to offer as wide an assortment of products as possible, regardless by which manufacturer.

Unclear rights and responsibilities: There is often an overlap between channel members’ responsibilities that are not clearly enough defined in the distribution agreement. A wholesaler, for example, might feel that the producer is doing too little in actively promoting its products to the retailers and the customer in order to create some “pull”. At the same time, the producer might feel that the wholesaler should “push” its products more towards the market.

Poor communication: Conflicts are often caused when distribution partners do not stay in touch as much as they should and misconceptions arise. For example, retailers may have a policy of “the customer is always right” and thus offer a very liberal return policy. But the manufacturer might not share this very lax

40Pahud de Mortanges and Vossen (1999).

41Johnson and Batt (2009).

return policy and think that maybe product instructions were not properly explained to the consumers.

An area of channel conflict, which is frequently of concern in an international context, isgrey markets (also see Chapter6). The name characterizes the unautho-rized sales of branded products diverted from authounautho-rized distribution channels or imported into a country for sale without consent or knowledge of the manufacturer.

Grey markets are not generally considered illegal, in contrast to the black market of stolen or counterfeit goods. Grey market goods are produced by the same trademark owners, or by licensed manufacturers, and these goods are labelled with the same brand name. In fact, from a consumer’s perspective, the grey market results in increased competition, offers consumers lower-priced alternatives, and sells goods of equal quality as those sold through authorized channels. From a managerial perspective, however, price differences can be so large that they cause considerable disruption within a firm’s established distribution channels.⁴²

Grey markets are caused byparallel importers who arbitrage. They buy products in one country at a relatively low price and then sell them to another country where the authorized distributor’s charge higher prices. Research shows that almost 20 % of companies indicated that their export ventures were highly affected by grey markets.⁴³ The problem is so substantial that multinational companies such as Motorola, 3Com, HP, DuPont and 3M devote full-time managers and staff to dealing with grey market issues. In many situations, grey market sales outstrip authorized sales. Consider Malaysia, where cell phones purchased on the grey market account for 70 % of total cell phone sales. Similarly, in India, sales of grey market personal computers outnumber authorized sales by two to one.⁴⁴

A product’s potential for grey market activity is influenced by four circumstances: (1) when exchange rates differ, (2) when grey market products can get a “free ride” on money spent by conventional distributors on advertising, displays, and servicing products, (3) when prices of goods sold in one country (e.g. USA or EU) are higher than those in another country, and (4) when there is a scarcity of the product. A company should pay attention to these issues to monitor the potential for grey market actions and develop strategies to limit them. But how can managers limit grey market activity? Experts suggests a “3S” approach—

sensing, speed and severity⁴⁵:

Sensing: Companies need to sense when there is a risk that grey market activities might be occurring and develop preventive mechanisms. Some firms rely on periodic, unannounced audits of their distributors’ sales records. Others establish

42Prince and Davies (2000).

43Myers and Griffith (1999).

44Chen (2002).

45Kersi et al. (2004).

toll-free telephone lines for “whistle-blowers.” Puma, the German sporting goods manufacturer, even inserted tracking fibres in the laces of its shoes.

Speed: A speedy enforcement exerts a deterrent effect on grey market activity in at least two ways. Firstly, a quick response establishes a direct cause-and-effect relationship between participation in the grey market and punitive consequences. Secondly, a quick response means the perpetrator will have much less time to enjoy the payoff from grey market participation.

Severity: Building a capability to apply the right degree of punishment is a critical aspect of an effective deterrence policy. Many firms rely on fines, called

“chargebacks,” others withhold rewards customarily offered to authorized distributors that are not playing by the rules.