 As-Salam-Alaikum-Khubati-Nahasrath, Vaseem has and welcomes you to lecture number 26 of Marketing for Non-profits, MKT 628 at the Virtual University of Pakistan. The module of learning is going to be the components of a channel strategy. We all know that we need to have channels whereby we can reach our target audience and marketers always need channels or places where they can transact and sell their programs or products to their target audiences. So in other words, we can say that marketers need channels because they want to reach their target audiences and target audiences need channels because they want to reach offerings and there has to be a place where this transaction takes place. What is going to be the place and what are going to be the variables and dynamics that allow an organization to decide who are going to be the members of the channel or channels they're going to use is going to be the very topic of this module. And we also know that it basically is a function of what the product looks like or what are the features of the program and it's associated variables that are going to make it important for us a particular channel that we choose. In other words, whether we are going to have distributors who are going to distribute our product or we're going to confine to our one location facility which is going to be everything rolled into one. Meaning that is going to be the facility from where we sell our programs or try to influence the behavior of our target audience and that is going to be the channel. So in this particular case, we can be very clear about this particular factor that the channel is not broad, it is not deep, it is just the facility where we offer the product. So in other words, in case we want to expand the channel or extend the outreach, we have to replicate a similar model of the facility that we have as the original one. For example, if we are running a dispensary or hospital and we want to extend the channel, we have to have more dispensaries or hospitals which again is a function of so many different variables. For example, do we really have the human resource or the financial resources to back it up and to be able to put up another facility or facilities? These are the questions that have to be addressed before we take a decision on the channel extension because we have to be very clear about whether we are going to get a similar kind of human resource that is engaged at our original facility and whether we are going to have systems and procedures installed the very way they are working at our original facility and whether implementation of the program is going to be folding out in exactly the same way it does at our original facility. So it is a function of so many different variables but one important factor that we have to keep in mind is with this kind of setup we have total control of the organization because we are not dealing with intermediaries and everything that takes place, it takes place within the premises of our organization and which happens to be the place and place is the main variable which defines the existence of each channel because that is where transactions take place. Let us talk about one more example which I think I already have talked about. If you are distributing a health care product like ORS then the channels of distribution are going to be very different from the one I have just talked about. The one I talked about fits very well into a typical non-profit setup and the one I am going to talk about here also fits into a non-profit setup that is dealing with a product that has the similarities of a convenience item. Now this is something that we all have learned from our basic marketing course that there is a classification of products offered on the market and convenience goods or items are the ones which people buy at their convenience. So in other words, if we are dealing with that kind of a product and it happened to be a non-profit organization, we have to follow a similar kind of channel setup that we deal with while we are selling commercial items and it is precisely for that particular reason that many non-profits are dealing in health care products to involve commercial intermediaries and the setup is just like any channels of distribution for a convenience commercial item. Here we have to answer one particular question while we discuss the why and when do we really need channels and what should be the form and shape of those channels and here I am going to talk about the components of a channel strategy. There basically are two important components, the one is direct versus indirect channels and the other one is the length and breadth of a channel. What is meant by direct and indirect channels is going to be the topic of discussion to begin with. I think we all are convinced about one particular fact that any organization may that be on the commercial side or on the non-profit side because they would like to deal with its target audiences directly because there are so many different benefits and advantages that you derive out of interacting with your target audiences directly but that does not happen to be the case always because at times we are dealing with products that have to be available on a very wide scale all over the country for example and then you see that there are products and services or programs that happen to be very much concentrated at one particular facility. So what really are the benefits that the drive or may drive an organization to have a direct channel are that the organizations can have total control of the channel by not involving any intermediaries and when they have total control there is no dilution of that control because there is no interference by any other stakeholders or the business partners. Organizations can also have the benefit of not sharing so many different things with the other parties like profits for example they do not really have to share efforts on brand building and their reputation and by the same token they do not really divide attention of the media the media can pay total attention with a lot of focus on the organization instead of other stakeholders at the same time so you can see there are so many different advantages another one is direct interaction where the target audience gives the organizations a very good focus on specific needs of the target audiences and they can respond to the needs very quickly and with much more precision. So in other words the strategies that organizations may have to come up with in response to the different factors that we have learned so far they can be much more agile and quick and putting together all the strategic formulations to make the programs more effective. Now given all these benefits it would seem that any organization should go for a direct interaction or direct contact with their target audience and thereby have a channel which allows them the benefits of this kind of a directness but again that generally is not the case because there are a couple of strategic considerations that have to be given weight before decision on channels is taken as a matter of fact it brings us back to the scarcity of resources on the human side as well as on the financial side that make it important for organizations to involve independent parties who are willing to act as their channel members. I would go on to say that it is not just the limitation of such resources which dictate involving other members in order to make the whole setup more efficient and effective it also is other considerations like if the organization happens to be just one product company why the organization should go for an independent channel because it will become very costly for the organization and in that particular case the organization can always count on services offered by commercial intermediaries and that happens to be the case with so many different healthcare products and let us talk about the example of ORS all over again you will agree with me that being a convenience item it has to be distributed at a very very broad level thereby making it important for the non-profit organization to get in touch with commercial intermediaries because by doing that organizations can cut on their capital costs they are dealing with the parties that already specialize in their particular area and they are distributing commercial items from so many different manufacturers and if we get into some kind of arrangement with them if we add one more product to their distribution resource thereby making it more effective we make it effective because it offers them a better scope of distribution it offers them better economies of scale here you see the question comes how should you pick up your distributor well in that case you have to look into things like how many products and services the distributor is already distributing if you think he is encumbered with products that already are part of the supply chain and the distributor already has a lot on their plate then you may really not consider that kind of a party and go to somebody else but the fact remains that they have to be dealing with a party that has a much bigger scope of distribution and they keep you from incurring capital costs on your own project and this is something which non-profit organizations should divide because they can utilize those funds elsewhere and they can utilize those funds more effectively and I will give you the one example from Indonesia where a few non-profits dealing in healthcare products wanted to have their own distribution networks and did put up their own networks and the result was that they could curtail the death rate in terms of infant mortality by offering ORS and related products all over the country but then the costs they had to incur they were really sky high and the argument goes as the literature reveals that those non-profit organizations could have utilized or diverted those funds to other areas like advertising for example if they had engaged commercial intermediaries who were into similar products and could utilize their services instead of investing so much into the capital costs they could have diverted those funds to advertising and may have attained higher results in terms of the child with the mortality in other words by cutting the number further of children deaths so this is the one example of not getting into your own channels if you happen to be a non-profit organization and if you are distributing a product like basic healthcare then there are examples of other services for example childcare services just the one I talked about away from the ORS this example is not about ORS but rather about other services and the services which may involve so many different places all over the place and when I say all over the place what I mean is one particular widespread geographical area just suppose that the non-profit organization is going to distribute its program or the benefits of its program all over the country what is going to be the situation like do you think the non-profit is going to be in a position to incur capital costs having different places where organizational members can interact with their target audiences the answer seems to be a no because they will be needing so many different buildings and the places where they interact with their target audiences and therefore they need to join hands with such places that may be sympathetic to their cause and that may become reliable partners in distributing that particular cause and the fact is that in many countries of the world for child healthcare facilities like public schools and community health centers are the kind of places that are used for distribution of programs so in this particular case you need to have the channel partners who are not commercial intermediaries but happen to be different entities like schools and healthcare centers these examples and considerations that I just talked about give us a lot of insight into deciding whether we should go for a direct channel or an indirect channel here an indirect channel sounds rather more favorable but the answer does not lie in going for an indirect channel because we are dealing with partners and partners can be very helpful the answer really lies in looking into the efficiency and effectiveness of the distribution system so in other words we just cannot say that a particular program or a product looks like a commercial item and therefore we should go for commercial distribution or a program looks like a hospital or a dispensary kind of a thing and therefore we should have direct channels no we have to look into how efficient a particular channel can be and how effective it really could be so here the question arises what do we really mean by efficiency and effectiveness efficiency basically refers to the performance of one particular system meaning what the system gives us back in terms of performance by involving the least possible costs on the financial human and systems side I think it is a very concise kind of a definition of efficiency in other words what I'm saying is that we have to incur the least possible resources and get the maximum output by deploying those resources and effectiveness basically is maximization of that particular performance at that given level of resources so in other words if we are producing the 100 units by employing resources which amount to 50 and we are in a position to go beyond the 100 by maintaining the resource level at 50 we can say that we are more efficient and we are also more effective because we are maximizing our output however if output declines and we are achieving less than 100 we are neither efficient nor effective and therefore we need to have the certain benchmarks in terms of what is meant by a least possible level of resources and what could be the optimal level of production whether we are producing in a manufacturing concern or we are producing services or we are distributing any kind of benefits by offering a program we would need to be in a position to define what is the optimal level that we are dealing with and what could be the least possible resources so depending on the level of efficiency and effectiveness we decide whether we should go for a direct channel or an indirect channel the answer does not lie in looking at tanks by experience that is the bottom line now coming to the next component which is about the length and breadth of the channels this basically is an extension of what I have talked about so far length basically is the number of tiers that are involved between the organization that is selling or distributing its program and the ultimate consumer or the ultimate client in our non-profit terminology the ultimate target audience that benefits from the execution of our programs and breadth of a channel basically is the number of places where we put our programs or put our product for sale or put our services for sale and on the commercial side the equivalent of that is different retail stores then the wholesalers and so on and so forth in other words we can say that it is the number of places that defines the breadth of the channel in other words all those places where we are selling a product or service are distributing our program if we talk about a hospital or a dispensary like I talked about this earlier we do not really have a channel which is very broad at the same time it is not very deep however if there is a chain of dispensaries or something like ETH for example we really have a very broad channel where we need to have very effective monitoring and control of all those channel members who are operating all over the country and I would say again that we have to go back to the concept of the level of efficiency and effectiveness deciding on how many more outlets we can have where we dispense with the benefits of our services that depends basically on how efficient we can be given a certain level of resource that we have to ourselves meaning human resources, financial resources and organizational resources in terms of putting together for implementation all the systems and procedures that basically are the hallmark of a successful organizational setup then there are examples of those hospitals and libraries that happen to be very central, in other words they do not really have too many outlets of similar nature for example if we take a look at Shaukat Khanum it happens to be just one big effective hospital they are in the process of putting up more hospitals but for the time being one central place happens to be the point of distribution they have extended into diagnostics and they have done that by way of extending their original brand into diagnostics and I am quite confident that we all understand what brand extension is and it is by virtue of that extension that they are having so many different diagnostics centers where anyone can walk in to have certain tests run on him or her the point here is there are central places where the people do not mind going and do not question why don't they have more centers like that and even if they do they still prefer to go there because they know it is a place which is highly efficient and highly effective and Shaukat Khanum is one particular example of that particular scenario let us talk about another example of SIUT Sin Institute of Urology and Transplantation they have more than one center and over the last you know there are so many decades of their existence because they have done an excellent job of having these centers where they distribute the benefits of their program my point here is if you have the resources the ones I enumerated in terms of human excellence the financial muscle and the systems and procedural strength then you have all the reasons to go for extension of your original facility at different places so that you can distribute your program by being close to the target audiences the concept of distribution still remains the same here I would like to draw your attention toward the breadth part of the component I have talked about the length or the depth of our distribution channel and we have seen that it is basically defined by two or three different tiers like the distributor, wholesalers and retailers I would talk about this particular factor a little more in detail in a while but so much for the depth of the channel and talking about the breadth we have to take a look at the size of the market so in other words it is the market size which defines the breadth of the channel and I am sure that you are with me when I am talking about the size of the market and I would say that the example of ORS is a really classic example of making us understand what really is meant by the breadth the size of the market is big as a non-profit organization you are trying to reach your target audiences anywhere, everywhere in the country and you have to make sure that babies do not really get into an accidental death only because the mothers are not really careful about administering the auto-rehydration solution and therefore you have got to make it available at their convenience meaning it should be available everywhere and anywhere where they can walk at their convenience and find that particular product so this is what is really meant by the market size and market size being the basic factor of defining what the breadth of the market is and once we are clear about the breadth of the market then we can get things like what should be the length of the channel here you see the breadth and length are interacted and we decide whether we are going to have companies own representation in the major cities and town centers or we are going to have distributors if we have distributors how are they going to manage further the members of their trade for example where how many wholesalers they should be dealing with and those wholesalers in turn dealing with retailers who will be selling that particular product so this has taken us back to the concept of the commercial marketing and commercial intermediaries and needless to say that we are operating here as a partner to a commercial intermediary in order to make our product available anywhere and everywhere so therefore we can easily draw a parallel here between the concept of product classification as we know it from the commercial side to the non-profit side so in other words we can borrow the concept and implement that or execute it in its essence on the non-profit sector side as well but before that we have got to take a look at the classification of goods as we have learnt as part of another course we know that goods are classified as convenience goods as shopping goods and as specialty goods now convenience goods are the ones for which your target audience does not really make an effort to go far off but to find that particular product they expect that the product has got to be available around the corner for example cigarettes or candies or chocolates and so on and so forth by the same token if you are dealing with healthcare products you have got to treat those products as convenience goods and once you are clear about this particular concept you are going to be right on the effective and most efficient distribution setup expanding the concept further we know that shopping goods are those for which the target audiences like to make certain comparisons they like to evaluate the one product against the other and for that they may have to undertake a little bit of effort in order to make sure that they have taken the right decision and like I said for that they are willing to walk MI you know so to say and they do not really treat those products as convenience goods and if we think our non-profit organization fits into that particular kind of concept of classification of goods then we have got to have a compatible kind of distribution setup I would say that basic healthcare units could have fallen into this particular category because people are not really concerned about how close it is rather they are concerned about the quality it offers and if they think that the one at a distance is the more reliable they would rather walk to that particular facility and that way it happens to be defined as a shopping good talking about the third variety of the goods is the specialty goods and I would say I already have talked about that by giving you examples from hospitals like Shaukat Khanum and SIUT now these are the kind of places which are highly specialized in their pursuits and whatever they do is something which is not available elsewhere since there are no substitutes to their programs people are likely to undertake a very strong effort to get to those places and be treated there so having a very clear understanding of the concept of classification of goods we can decide the kind of distribution networks where we really belong or the kind of networks which we should have examples of convenience goods, shopping goods and specialty goods going to make the whole thing very clear in terms of what should be more efficient and more effective given our level of resources let me take you to a couple of slides in order to further dilate on the concept that I just talked about meaning the component of the distribution length and breadth as you can see from this particular side we have the manufacturer or supplier or organization in the non-profit context sitting right on top and the process of distribution starts from this particular level this is the primary level and as we can see on the left hand side the first box that you see is representative here we have a company representative or a distributor who is going to distribute our products and I think the ORS product should be a very good guide for us to go through this particular distribution setup from representative we go down through the wholesaler we need to have a few wholesalers in every market who are in a better position to sell at a wholesale basis to retailers who also are going to happen to be part of their market the reason the product has to go down to the retailer which is the level before last because your product is a convenience good and it's got to be available anywhere and everywhere having a very widespread outreach it is the level of the desired outreach which defines this particular concept of the distribution channel depth once the product is available at the retailers it means it has widespread availability and outreach and you as a consumer do not really have any problem finding that particular product because it is a convenience product and it is available around the corner let me draw your attention to one more factor while I talk about the depth of distribution because this is a model which basically has been drawn keeping in view the depth of distribution but since the depth of distribution is contingent upon the breadth of distribution we have to talk about both at the same time so while clarifying that particular point I would like to draw your attention to the arrow which is right off the box which contains this representative now this arrow flows directly from manufacturer supplied an organization to the wholesaler and if you go further right you have an arrow flowing from the top level right down to the retailer and if you go further right you see that arrow flowing all the way down to the final consumer now this could be I would say the simplification of the depth of the channel because we are dealing with a market where we can afford to be direct with the consumer if we take the example of the rightmost arrow which flows from the primary level of this particular graphics and flows right down to the final consumer if you go back to the left you would realize one more channel has been added by way of having retailers and further back you will see wholesalers getting into the picture and further back representatives getting into the picture by being either complete representatives or distributors so depending upon the breadth of the channel we decide how much depth we need to have so we can summarize our understanding from the graphics that I could have went through rather we all went through like the following depth and breadth of distribution are interrelated in other words if the channel happens to be very broad it should be a little long otherwise you will have problems of monitoring and control you have to have intermediaries between yourself and the final consumer because you are wanting to control a product which happens to be a convenience item and therefore healthcare products would fit very well into this particular example however if distribution does not really happen to be very wide it may not be very deep as well because we do not really need to have the kind of monitoring and controls that we saw in case of convenience goods here we are talking about healthcare services not healthcare products healthcare services whereby we get into some co-ordinated effort with the community centers healthcare centers and the primary or secondary schools where we go and distribute our products once in a while or maybe around the year the fact remains that the channel in this particular case that does not happen to be very wide and therefore it does not really have to be that much deep as well and then we also have learned that we also have the possibility of dealing directly with the target audience and we do that when we are selling something which happens to be a specialty good kind of a thing and given that specialization we are offering something which does not really have to do in its substitutes by others as well as by ourselves because it takes a lot many resources in order to have a replication of that particular concept meaning the concept of the physical facility that you have a hospital like I talked about so the whole thing boils down to yet another concept that we have learned and that is the concept of efficiency and effectiveness we take a look at the breadth and depth of distribution channels by also making sure that whatever channel we have has got to be the most efficient and most effective at this particular juncture I feel the need of talking about the concept of integration and I suppose with a lot of confidence that we all are knowledgeable about that particular concept when we talk of vertical integration which is either back part integration or forward integration it is also known as upstream and with the downstream the concept of integration when you go back if you happen to be a manufacturer or an organization and you go back to deal with your suppliers and if you like to deal with yourselves with the biotech and control of the channel backwards if you integrate yourself backwards if you like to own things by way of having your own supply chain from your organization downwards when you are distributing a certain product you are talking about the downstream or forward integration so we are not to be confused about all these terminologies the back part integration is upstream and forward integration is downstream as long as we are clear about these two concepts we are all done with what integration is all about we know that we like to integrate channels because we want to have better control of what is happening either upstream or downstream talking of an example from a hospital that may like to own a wholesaler setup of medicines and all related supplies that come to the hospital is a wonderful example of upstream integration or backward integration the hospital is going backward or upstream in order to integrate that particular level of the supply chain so in other words it doesn't really have to deal with the commercial wholesalers sitting in the marketplace buying different requirements for the hospital whether it is just one facility or it happens to be a chain of facilities the supply chain basically is owned by the hospital and that is what you call integration and don't forget the fact that integration basically is carried out to have better controls and to assure quality you assure quality of products when you own one particular level of the channel now if I give you another example of downstream distribution that could be an organization having certain stakes with its distributor in the marketplace now the reason I am talking about certain stakes because in a case of non-profits not many non-profits own or rather integrate forwardly or downstream because of the nature of their products in most of the cases and I would draw your attention to the fact that even if non-profit organizations can afford to have their own distribution set up they should not really jump to it before committing a very high level of capital cost because they can have access to commercial intermediaries who already exist in the market and benefit from their services and expertise therefore I talked about a certain level of stakes that a non-profit organization may have in a distribution set up the reason the organization would have stakes in that set up because it is convinced that it needs to have better monitoring and control of whatever is being distributed at the distributor's level and the organization it goes without saying has to be a resourceful organization in order to undertake this kind of venture but the fact remains that this is an example of downstream or forward integration so you get into the concept of integration only when you think that it is going to be more profitable to the organization and given the basic character of a non-profit organization we have to have all profits put into our reserves so that we can invest the same into future projects or existing programs in order to make them more efficient and more effective let me show you a graphical representation of this particular concept to make it more clear as you can see from this particular slide we are starting backwards or rather upwards or upstream all terminology is denoting the same concept and this is the right most box and from there we flow into the organization now this backwards or upwards the point could be the one where the wholesaler is supplying all the medicinal supplies to one particular hospital and this is the point that the hospital or in other words the organization may consider buying or putting up a similar kind of a facility mostly when organizations are resourceful enough they like to buy existing setups because they get all the systems and procedures installed only the ownership changes hands and the new owners like to make the existing organization even more efficient and effective and thereby integrating the whole operation into the supply chain which flows into the organization so from this particular graphic I think that this particular concept is very well clear now if you go further from the organization which is right in the center rightwards that's what you can see from the presentation is the forward area and the forward area ends up at a box as you can see from the arrow line this is the forward or downward or downstream area this is where a distributor or a company representative could work by then this is where the organization is distributing this is where the organization is distributing its program and this is where it may like to have certain stakes in the distribution setup to make the monitoring and control of the overall distribution situation the more effective and from there you go down to the client now the important thing here is that we certainly can draw a relationship here with the earlier slide that we looked at in terms of the depth and breadth of distribution and this in other words can be a representation of one particular line or those particular lines which flow from the primary source which was organization or the supplier and which took us right down to the final consumer so that is the kind of relationship which this representation has with that particular diagram let me further throw some light on to this particular explanation again going back to the slide which showed us the depth and breadth of distribution concentrate on the line which is between the organization and the wholesaler and that's where the concept of integration fits in and you are with me I'm sure the concept of integration in terms of back-but integration because here things are going in a different direction wholesaler happens to be upstream and he's the one who's going to supply the medicines to the hospital and therefore he's the one or that organization is the one which your nonprofit meaning the hospital is eyeing to take over and this is how this particular concept of integration fits into the diagram which I talked in order to explain the depth and breadth of distribution by the same token you can draw your own examples and fit those into these two graphical representations in order to have a better clarity of the distribution channels and the concept of backward and forward integration I would like to have the opportunity here to say once again that the distribution setup basically is the reflection of the market size it is the size of the market in relation to the product or the program that you are offering that defines the breadth of the channel and that breadth of the channel leads to establishing the depth of the channel meaning the number of tiers that you have between the organization and the final consumer and after you are done with all those strategic considerations you get into the concept of integration which should be trust upon only if your organization happens to be resourceful enough in terms of human as well as financial resources and has the ability to absorb the systems and procedures of the organization which you are eyeing to take over this is a concept which basically leads organizations towards attaining more autonomy and more independence over the supply chain but they have to make sure that they are going to be more efficient and more effective thereby making more profitability and not getting stuck in there that is the bottom line that we have to keep in mind in terms of integration