 As-Salaam-Alaikum-Khawatin-oh-Hazrat. Basim Ahsan welcomes you to the virtual University of Pakistan. It is lecture number 29 of Brand Management, MKT 624. I'm going to continue my discussion on channel management, exactly from where I left it in the previous lecture. And I would like to draw your attention to the graphic illustration which I was talking about at the end of the previous lecture. If you take a good look at the illustration, you will see that Company Y has a set of mixed channels and also it is selling directly to its customers. Whereas Company X is selling directly, and while selling directly, it has two different models. Why is it that there is variation between the selling models of two companies? Not only that there are variations between the companies, if you take a look at just one company, it has a set of mixed systems to reach its customers. The one that is selling directly is more likely to make better margins than the one which is selling indirectly. This is what looks apparent. Why is it that the companies do not have identical systems? It is a question of historical backgrounds, sets of circumstances. The companies have been surrounded with initiatives that management of the two companies decided to take or not take at different points in time. So it is a mixture of all these factors which make a company decide what kinds of channels it is going to have. And it goes without saying that all these factors, meaning the historical background, the initiatives which the management of the company or the companies could have been taking or not have been taking, and the circumstances the companies have been surrounded by all are impacted by the three strategic factors that we discussed in the previous lecture. And those three factors are the profitability, sales revenues and product-market relationship, meaning whether it is a consumer consumable or a consumer durable or any other type of product that you are selling in the market. What is important is to see that all these factors have got to be viewed in a way that they improve the performance of the company. And the performance of the company is going to be improved only if we can enhance the channel performance. So channel performance enhancement is one thing. And another benefit that we look at or that we target while we decide about the channels is that we must end up deciding for something which offers competitive advantage to the company. So in other words we can say that while we enhance the performance of the channels we must also be able to gain some kind of competitive advantage. So measuring performance of channels rests upon three factors. One is the customer reach, the other is the operating efficiencies and the third one is the service quality. If a company cannot reach its potential customers it will not register sales or it will register sales which are at a lower level or a lower level and which automatically translates into lower profitability or maybe no profitability at all. If the cost to reach customers is very high then the company is compromising its profitability again because the cost is very high and the costs that pertain to reaching customers are logistics, warehousing, inventory management maybe returns also and so on and so forth. If customers are not very satisfied with the service meaning they don't like the way they are served in the marketplace that is going to affect the performance of the channels. What does it mean by not being served well? Well it could mean that the customers cannot really find your product here and there meaning everywhere they want meaning at the point of purchase of their preference and it may also mean the kind of service they expect while you deliver your product especially if it's a question of consumer durables. They may also not be satisfied with the way you offer services after sales have taken place and that's what you call after sale service. So in other words these three factors are the ones which decide for the company to what extent the company is going to be cost efficient and customer effective through the channels it has decided to put in place. I will repeat that cost efficiency and customer effectiveness are the two objectives which any company has to attain while it is going through the process of deciding what kinds of channels it should have and it is this cost efficiency and customer effectiveness which really decides whether a company should have direct channels or indirect channels. So in other words the level of optimization whether you achieve that through direct channels or through indirect channels is going to decide what is the best possible way for you to deliver your products. And it also goes without saying that whatever is happening in the marketplace by competitors meaning major players is also something that you have to take into consideration. And following the market norm is not a bad practice but that doesn't mean that you follow that without having to consider these strategic elements and all the considerations that I have been talking about. You must have very convincing answers to all the questions that we have raised so far or we have been discussing and all those questions in other words have got to be considered in the light of all the strategic factors that are the point of discussion at the moment. Meaning customer reach costs and customer service. These are the three strategic components for which any company must work in order to be effective in the marketplace and these are the ones which lead any company to achieve what you may call cost efficiency and customer effectiveness. Cost efficiency and customer effectiveness lay the very basis of the foundation for the decision whether you should go for direct or indirect. Direct channels include direct sales, telemarketing and e-marketing. Direct sales can take place in any form as long as goods are delivered directly. It has an element of telemarketing also because you receive calls and then on the basis of those calls you get into action. Something takes place on the operations side and then goods are delivered to the customers and so on and so forth. Telemarketing is very similar to what I have talked about and e-marketing is something which is gaining popularity in the western markets nowadays. There are certain companies which are really huge and there are companies which specialize only in e-marketing whereas there are companies which have their own stores meaning the traditional stores and alongside those they are also engaged in e-marketing. The interesting part of the whole thing is that the results they are getting through with e-marketing are not cannibalizing their sales that are taking place on the stores side. So in other words e-marketing in most of the cases is adding to the traditional way of selling in those markets. What is the scope of e-marketing in our country is a question that we have to consider very carefully and I am going to talk about that a little later. Let's talk about indirect channels. You have distributors, then you have wholesalers and then you have retailers. So in other words indirect channels consist of different layers and all those layers play a very important function in their respective roles. Why is it that we have to have so many layers of the distribution before we reach the final consumer is again a question of customer reach and then the profitability and then the level of service. Just look at the consumer consumables. It is not really possible to start selling consumables which are beautifully branded to each and every customer all over the country if you start selling direct. You have to have specialized companies whether that play their respective roles between your production facilities and the points where those items which happen to be convenience items are sold to ultimate consumers. Why do we have wholesalers because once we have distributors there is again a question of customer reach. Maybe there are certain markets where you cannot really appoint very effective distributors because the markets are not big enough to optimize the operation on part of an independent distributor and therefore you may have to have a wholesaler who is kind of operating as a distributor with the meaning selling to the retailers in that particular area who in turn are selling to the ultimate consumers. So these are the indirect channels which we generally have for consumer consumables and that is the case almost all over the world. The next question is how do we look at direct versus indirect in the context of operating efficiencies. Once you have decided that you are going to go either direct or indirect naturally the efficiency of operations takes the driver's seat meaning if you are not very efficient in terms of your costs then it is going to affect profitability of the company. So if you are engaged into direct selling and you think your costs are very high I think that offers you an opportunity to look into alternatives. Just in order to decide that whatever you are doing has got to be optimized in terms of cost efficiencies because the objective remains that the efficiency has not to be achieved at the cost of profitability. I mean there is no point in selling very effectively or very efficiently to your customers that while you are not making any profits at all or you are making very very meager profits and at the end of the day you find out that the operation is not viable there is no duty of conducting that kind of operation. Direct channels although they offer very high margins but then do not forget that the responsibility of cost management and of those channels rests with the company. Let me take you back to the direct selling of the sandwiches. If you are delivering at the doorstep of your customers or consumers for that matter you may find out that your costs are very high and they may be so high that you find them almost forbidding and it is there that you may start considering getting into your own restaurants where instead of selling to your customers by sending your delivery people you actuate your customers to walk to your outlets meaning restaurants where you can sell them and you still sell them directly. There is no intermediary in between so that is what I meant by cost efficiency. You still may remain direct but you have to be very clear about the costs which are involved and the level of efficiency which you are wanting to achieve at a certain level of costs. So in other words there has to be a balance between that cost efficiency and customer effectiveness. Both have got to be achieved and there should be an equilibrium between the two. E-marketing is sort of the fast becoming the norm like I pointed out earlier and I also pointed out that there are many companies that are doing this kind of business meaning the ones that are following this kind of model in addition to their traditional stores and they are quite very successful but then there are companies that started as e-marketing companies and those companies are into, for example, books they are into selling CDs and so on and so forth. Those companies in those markets have been very effective and also have been very cost efficient. They do not have any traditional stores. Now this is not to say that they must also get into traditional stores. Again the point of consideration for those companies is if they are very cost efficient and at the same time they are also achieving customer effectiveness meaning customers are satisfied and they remain loyal to that kind of buying then there is no reason for the why those companies should not further fortify that kind of business. The only question is what kind of brand extensions they should get into or what kind of range extensions they should get into. Those are the issues that we have been discussing in the previous lectures and just try to think of those in the context of your channels and the whole thing will become very interesting and very exciting for you. Potential of sales through e-marketing in our country is also I would say quite very high but circumstances may not be very ripe at the moment for the lack of proper buying and selling regulations in relation to electronic buying and selling and that's what I'm saying and the fact that not many many people in this country have credit cards although the customer base of credit cards is very multiplying exponentially but still we have to go a long way before we start considering the e-marketing on a mass scale. This is not to say that we should be inhibited into going for e-marketing but it's just to say that you've got to be very careful and very prudent before you start considering to venture into that field. And I would say you still have an opportunity and a challenge to do something electronically with the buy circle venting with the meaning by getting into some other way of getting payments from your customers. Maybe you can open accounts with certain banks where your customers can deposit money and you use your delivery people or you use courier services in the country to deliver your products. This could be very exciting and challenging but what do you think is a prerequisite? The prerequisite in this kind of a situation is that your product has got to have a very high level of differentiation and if the promise your product or your brand for that matter carries is very different from the ones that are being offered by competition then you have every chance to be successful. You are into e-marketing and you have a very interesting kind of payment procedure which may not involve credit cards if we think, I mean you and I think that the situation is not really right to carry out transactions on the basis of credit cards. Indirect channels although offer lower margins but then the channel management bears all the costs. The costs that you have to bear as a manufacturer are the margins that you dish out to the members of the channel and those margins are not very huge if you are dealing in consumer consumables in particular. The name of the game here is very high volumes. It goes without saying if you are dealing into that kind of a product line then you should register with very high levels of volumes because that is something which offers economies of scale. Other costs that you have to bear is transportation, the warehousing and inventory management but all those costs have got to be offset by the margins that you are gaining by selling very high volumes through the intermediaries that I've talked about meaning distributors, wholesalers and retailers. So this really provides you with a lot of incisive insights into the option whether you should go for direct or indirect channels and we have discussed the indirect versus direct in the context of customer reach. The objective still remains do not make any mistake about that. The objective still remains that you've got to achieve cost efficiencies and customer effectiveness. There's got to be a balance between these two. The next component that we are going to discuss relates very high level of service quality that we've got to offer while we are considering whether we should go direct or indirect. Direct marketing assures a good level of service because you are selling direct and you have a direct interface with your customer but it could be very expensive to maintain that kind of direct sales force. Let us go back to the example of the sandwiches. You may reach a point like I told you earlier where you start considering putting up your own restaurants only because the maintaining the sales force is very expensive. Not only it is very expensive, operationally it also sags the efficiency of your people because they have to counter so many different challenges in terms of traffic, in terms of time constraints, in terms of reaching difficult areas and so on and so forth. In comparison with that kind of delivery, you might be forced to think about putting up your own outlets which will require a certain level of investment to begin with but then that level of investment has got to be offset by the volumes you are going to sell in the hope that you are going to sell the very good volumes that you should make a decision in favor of those outlets to cut your direct delivery costs. Again, the objective is to maintain cost efficiency. So you have to weigh the pros and cons if the one system of delivery offers certain advantages you should consider that. If that system becomes cumbersome in terms of operations or in terms of costs then you have to consider the other one or maybe you have to consider something which is in between and that is why companies have a mix of the different systems. If we remain focused on fast food you still I think would like to maintain your direct delivery up to a certain level at the same time you also would like to have your own outlets and that is the practice at the moment not only in our country but all over the world. You have beautiful restaurants sitting here and there over the city landscapes and you also have direct delivery people who deliver the food at the ring of a telephone. Do not forget to maintain the balance between cost efficiency and customer effectiveness. Indirect marketing in terms of a high level of service offers certain disadvantages because it removes the company from the customer. There is no direct interface between the company and the customers but then if you are dealing in kind of a product which cannot be sold directly or if it can be sold directly it is not really practical and it entails very high costs and you cannot go and achieve the kind of customer reach which you must achieve then there's no way that you can ignore this. What do you do in that kind of a situation? You've got to have a very strong CRM department. If you do not have a separate CRM department you may assign this particular function to your sales people. Traditionally this function of customer relationship management was carried out and has been carried out by the sales people. Sales managers traditionally have been the very good CRM managers. So in other words we've got to make sure that we stay close to the customer meaning we've got to make up for the deficiency which a system offers meaning if the system really puts us apart from the customer only because it has to be that way then we've got to make sure that we have relationship management in place and we've got to have certain means whereby we can reach our customers and eliminate any gaps that may pop up along the line in terms of communication and in terms of relationships. Another disadvantage which the system of indirect channels offers is that companies are dependent upon so many different intermediaries who are dealing into so many different lines of products. It is not that all the intermediaries who are related to your company are dealing only in your items. So in other words their attention their finances and their priorities are all divided among so many different products. If your brand happens to be the strongest among all the ones your intermediaries are carrying that is something else but even then they still have divided attention. So this is one of the disadvantages which this system offers and it becomes challenging for the companies managers and also for the sales managers to look into this disadvantage and to make it work in the favor of the companies and you can do that through very good relationships with different intermediaries and through very good monitoring of all the developments that are taking place in the market. It is because of that that sales people are supposed to be in the market over time. It is because of that that brand managers also have got to stay in touch with the marketplace so that they also have their fingers on the pulse of the market. It is on the basis of a very practical kind of a feedback that you make better decisions and which means staying close to the customer is the name of the game. Now this doesn't mean that you may not be communicating with your consumers or customers or you may not be developing a customer relationship management system. It doesn't mean that but what it means is under one set of circumstances one component that takes on an added importance that while under another set of circumstances another component takes on added importance and it is for you to decide what is more important where so that again you can maintain the balance between cost efficiencies and customer effectiveness. I keep repeating these are the two things that you must not forget when it comes to channel management. The system of indirect channels that therefore has built in disadvantage in not being as responsive as the system of direct channels is and the reasons that we have discussed in quite very detail. It is very interesting to note that what may look like the direct channels also carries elements of indirect channels and vice versa. To give you one example your retailers nowadays are offering e-marketing to their customers. Now this is something which may not be possible for those manufacturers that are into consumer consumables. Why? Because you are dealing in just about with one product or with one product line and it may not be very viable for your company to get into the e-marketing. Whereas by the time your product reaches retailers meaning when products of so many different manufacturers from all over the market reach major customers who are wanting to get into the e-marketing they really have a good chance to get into that because they have to offer a host of different items. I mean they are going to offer you a complete basket which you need for your households which carries almost everything which may not be the case with the manufacturers. So what I am talking about is that from your company right down to the retailer it has been a case of indirect channel system. Whereas from the retailer to consumer onward it becomes very direct. Well in a way it was direct even before but then it is a way of increasing sales. It is a way of exercising another model which still remains direct but it is a different model and it offers customers convenience and this is the model for the which is being followed by a good measure of retailers even in our market. This enhances the level of service because we are talking basically in the context of enhancements of service level that is why I am talking about this model because this does carry an element of a little stepped up service you send your equipment either by telephone whatever the model is whatever the way it works you send your order and the next thing that happens is you get delivery of all the items that you wanted. So that I think is a terrific case of a very high level of service. So if it enhances the service this way you may like to follow this model. So this is the case of what you might have learned or rather what you must have learned in some other course and this is what you call B to C meaning for business to customer or the business to consumer model and this is something which you may consider whenever you get into the practical field as a model which is going to supplement what the company has been doing traditionally. So in other words whatever the system meaning indirect system of channels or indirect system of channels the system has got to fulfill the customer needs and yet it must be able to offer a high level of or a decent level of profitability to the company. So customer needs and profitability and again these two are translated into what I talked earlier meaning customer effectiveness and cost efficiency. And you make better profits. If you are customer effective you are fulfilling customers needs in a very effective way and that is what channel management is all about. We should be very clear by now whether we should be having a direct system of channels or an indirect one. After having made the decision about the nature of the system whether we should now make sure that the system offers a good value to customers and to the company as well. It builds value to the customer in three different ways. Number one it offers value through product benefits. Now how does a system do that? The system does that by making sure that the product is delivered to the ultimate consumer the way it was promised. There should be no deviation from the promise. Meaning the contract must not be broken for the while the product is delivered to the ultimate consumer. How do you do that? Or how does the system do that? That's a very interesting question. Let me try to explain that for example. Suppose you're dealing in frozen items you've got to make sure that the total line of logistics and the chain of supply is cold in nature. Meaning at every point you've got to maintain the requisite temperatures meaning very low temperatures whatever the requirement is and by the time the product reaches the retailer it still has to have the same low temperature what is dictated by the company. Whether or not a retailer does it is a weighty question. You may be selling your product through a retailer who is one of the major players in the marketplace but what if the retailer cannot maintain that temperature meaning if the retailer abuses the temperature and the customer, final consumer gets something which is abused in terms of quality what is going to be the result? A disgruntled and dissatisfied customer that is something that you've got to make sure doesn't happen and that is something which a good channel system ensures. If you take a look at different products not only frozen products meaning ice cream or meat items or even chilled items like packaged yogurt or in certain cases packaged vegetables and so on and so forth there are so many different products which you see in the marketplace nowadays all over the country which have got to be either chilled or kept frozen with the help of refrigerators or freezers and whatever the case may be it basically boils down to the effectiveness of the channel to what extent it delivers that product the way it is promised to be delivered. So in other words if a product is a frozen product it does have to be announced since it is frozen it must come to you in a frozen way but that goes without saying so it has to be a built-in feature of the channel system that the product is delivered the way it is to be delivered and that ensures the service quality that ensures the product quality and that ensures so many different things which translate into customer effectiveness inventory management is another way through which a good channel system can be very customer effective and also cost efficient and that is how a good channel system adds value to the company and offers value to the customer. This is something that we have been talking about to consume in different lectures all along the course that in order to be good professional managers in the present day's world your systems have got to be supported by the latest technology and inventory management nowadays is all computer based meaning information based you have got to have the right information in place so that you can make your decisions in a timely manner meaning your informational needs have got to be in a proper perspective for you to make the timely and rightmost decisions if you do not know the quantity of expired items in one of your warehouses and those items escape the attention of the management there and find their way into the market and eventually into the hands of the consumer what is going to happen the consequences that can be guessed as well by you as by me so this is one example of the good inventory management helping companies and helping the general systems to develop the value for the company and for the customer inventory management nowadays is not taking place only at the company level it is taking place at the level of distributors and it is taking place at the level of retailers the fact of the matter is that it is very very important at the retail level because the number of items that retailers are dealing in nowadays is astronomical and therefore their knowledge of what they have and what they do not have what they have and reserve and what is it that is lying in abundance or you see beyond the required level of inventory is something which they must know because that affects order placing and order placing affects your production planning and it becomes kind of an iterative circle in which everyone moves and everyone has got to move in a smooth way with no hiccups breaks and so on and so forth in other words a good inventory management system is the backbone of the supply chain management which has taken on and added significance in present days general management if you have done the course on supply chain management so much the better if you have not done so it is very important for you to understand the significance of that area because nowadays production taking place remotely and brand management taking place at a different place the need to coordinate the two areas of management has become much more important than it has been before and I am talking about this in reference to those marketing companies that do not have their own production facilities and they outsource those things to other manufacturers and this is something in which you are going to study for the while you go through the course of international marketing and I think there are certain marketing companies even within our country that do not have their production facilities and outsourcing is taking place as a modern concept and given that concept the management of the supply chain takes on an added significance and that is what I am saying and given that kind of a setup the importance of inventory management takes on added significance as well that is my point regardless of the system whether it is direct or indirect another thing which is very important for the system is imparting training and knowledge to your customers if you are selling the products about which information giving and imparting of knowledge is absolutely important you have got to stay very close to your customer in imparting that knowledge if you are selling industrial equipment for example you have got to give all instructions to your customers because the machinery that you have sold may be very new and modern which generally is the case and you have got to impart total instructions in their total relevance to all the people who are going to operate that machinery this is how you build value through a good channel system another factor is product assortment a good channel system allows itself to carry all the products in terms of the complete assortment if you go back to the brand extension concept you will recall that the products are extended by form by format, by ingredients by flavors by taste and so on and so forth so what I am saying is that a good channel system has got to make sure that total product assortment is available and it is available all through the intermediaries whether it is a direct channel or an indirect channel if it is direct well you as a company have got to have complete assortment and if it is indirect all the intermediaries have got to carry all the assortments so that no customers and no consumers are disappointed disappointment means shifting to a competitive item and that is something you have to keep your customers from doing because the good channel system has got to create a very good level of customer appeal if a channel system cannot create that kind of appeal the consequences again are understandable and those are going to be quite very negative no brand can afford to be missed out by any retailers because that diminishes the brand value and the diminished brand value is going to affect your customer value and it is going to affect the value which otherwise can offer to the company in a positive way we have talked about the good channel system the offering or rather the building value for the customer and for the company through products apart from products a good channel system can also get the build value for the company and also for the customers through offering services now let us try to learn how a good channel system can do that and going back to the case of selling industrial products you know the importance of after sales services to which you offer after sales and in order to be able to do that there are certain factors which you have to keep in mind and those are that you have got to have trained staff and those are that you have got to have service centers you have got to have complete technical support you have got to have a policy of easy returns meaning if you have sold certain items which have not turned out to be for the market by the customers standards that you have got to be prepared to receive those back at the service center and at the same time be able to replace that with another one which is free of any faults these are the basic factors which you have to make sure do exist before you start considering as to how a good channel system can build value for the customer and also for the company we have taken it for granted that we must have some prerequisites in the form of training facilities training centers and the technical support and once we have those we can offer these services in two different ways the one is the transaction services these are the services which you offer while you are going through the process of sales you have got to make it easy for the customer to be able to make the decision as quickly as possible in other words if you are selling a product for which a customer has to study and then analyze and then make comparisons with the competitive items it is your duty meaning it is the job of the channel member who is doing selling at any given point in time to make sure that the customer makes the final decision as soon as possible and that is possible only if you can give the customer the rightmost information and if you can convince the customer about the service at the point in time for example if somebody has come to you to buy a refrigerator or a conditioner and you are part of the total market which is selling all these items the customer can just go next door peep in and talk with the other retailer for some other brand so you have got to make sure before the customer starts thinking on those lines you give the customer so much comprehensive information and the kind of service that the customer is not actuated to go elsewhere so that is the transaction service which you have to think of while making your sales other examples I would expect you to think of in relation to transaction with services one could be delivery somebody has bought an item transporting which is a hassle you can offer that kind of service and if you offer that service as part of a company policy the word spreads around and you are known for that transaction service the other service which you can offer or which you do offer always and you have to offer is the after sale service very comprehensive starting with the 3S which we have been talking about in relation to brand management whether you have got to make sure that the spare parts are available you have got to make sure that the service centers are in shape for you to offer the right most services and you have got to make sure that the technical support is in place so in other words it is the combination of all these services which offer value to the customer and by the time you have delivered the service a customer must feel satisfied and they must have the realization that the customer has gained a certain level of good value each of the benefits meaning either through products or through services or through the benefits the important thing is where you are selling products which are to be accompanied by services the combination of the product and the service has got to be the most optimal you may be selling a product which is of very high quality and which really is much better than the ones being sold by your competition but if you are not offering a product service which must accompany that product whether a transaction service or an after sales service your product may not sell as well as competition despite the fact that competition is not as good as you are so in other words just the quality of the product is not a guarantee to a very strong competitive position the product has got to be accompanied by the requisite service that's the lesson and that is the way through a good channel system with the value for the customer and also for the company the factor is that the emergence of service centers by so many companies that offer a combination of products and services is a testimony to the realization on part of the companies that this aspect of the marketing meaning coupling service with products is so very important that without this coupling we just cannot succeed in the marketplace and we just cannot have the competitive advantage meaning the kind of competitive advantage which we must sustain in order to remain successful in the marketplace so that is the lesson for today and that is all for the channels in terms of what kind of channels we should have what are the strategic considerations for the right most channel system and how a good channel system builds value for the company and offers value to the customer because we must not forget that brand management is all about customers and these are the two basic components around which brand management revolves so much for today and we are going to pick up the threads from where we are leaving today the topic of channel management has not come to an end yet and I will be talking about channel management a little more in the next lecture Allah Hafiz until then