Managing the distribution Channels


No single distribution plan can remain static in the midst of market changes. In the same way channel members’ expectations also change. At one stage, channel members used to take pride in mentioning their relationships with well-known national and multinational firms like Godrej, Hindustan Lever etc. In fact, a firm like Godrej required its dealer to be a respected and an important citizen of the town. Individuals who were members of Lions Club and Rotary Club were preferred. Petroleum and gas agencies were given to ex-servicemen and widows of armed forces men by oil companies. These individuals were respected in the society. With the manufacturing base in all products having got expanded significantly in the last decade in practically all consumer goods, the situation is supply exceeded demand. Channel members now had a larger choice.

A Hindustan Lever stockist now does not have to depend only on Lever for vegetable oil; he is today a stockist for ITC. Hence, Lever’s control over its stockist has weakened. Further Lever’s own product portfolio has expanded considerably from its earlier decades. In each of the product group, the company has introduced multiple brands at different prices to serve different market segments. Moreover, the company has introduced several new products like liquid soap, to take advantage of the growth in consumer market. All this puts a heavy demand on the stockist’s finances, for his investment in Lever’s products has gone up by about 200% in the last three to four years.

The above scenario is not just restricted to Hindustan Lever and its associate companies. The same holds good for other consumer product firms like Proctor and Gamble, Godrej soaps etc.

The manufacturing companies today demand much greater selling efforts from their middlemen. The former also want them to provide timely market information, more warehouse space and competitive advantage. Faced with these demands from manufacturers and also the fact that they do not perceive returns on their investment to be adequately commensurate, many of the stockists of well-known firms are up in arms. Lever has this problem on its hand. Many of the stockists are giving up Lever’s agency. This problem of an uprising is also fuelled by many new firms entering the market who, in order to get a foot in the market place, are giving much more lucrative incentives to the middlemen to stock and distribute their products. Higher discounts, higher margins, extended credit period, reimbursements for sales promotion, advertising, marketing research and even salesman’s wages are just some of the terms offered by these new entrants in the industry. Trips to holiday resorts and exotic places within the country and outside for high performances are some other carrots that these new entrants dangle before the middlemen.

It is not that the competition has intensified only at the manufacturers end. As there are more distributors and wholesalers all over the country there is more competition in the market and these wholesalers have to give more incentives to the retailers.

Pressure on margins is thus inevitable in an intra channel competition. All these issues make the task of channel management a demanding one.

Motivating Channel Members

The Channel members should be motivated such that they give their best performance. Motivation of Channel members is often achieved through,

1. Financial incentives
2. Non-financial incentives

The financial rewards include higher margins, extended credit time, bonuses and reimbursement of expenses. The problem of the financial rewards is that the wholesalers have to reduce the prices of the products for their customers. Therefore, the margins for the dealers, wholesalers never go up. Hence, the financial rewards are not going to be retained by dealers,

The non-financial rewards are contests, public recognition for higher performance through mementos, paid holidays at company expenses. The Companies like Reliance, Videocon send their dealers on holidays to foreign destinations like Bangkok, Pattaya, Singapore etc. The big companies like L&T conduct training programs for future plan and policies on their own expenses.

Some other non-financial motivation schemes aimed at making channel members partners are regular and multilevel sales calls by manufacturer’s representatives, and manufacturer’s sales person spending a day or sometime with dealers representatives in the market and jointly initiating the first sale to tough customers who never purchased the products earlier..

Today the task of motivating channel members is becoming complex and demands innovative approach to making channel members partners in corporate growth.