244 CHAPTER13 SELECTING ANDMANAGINGMARKETINGCHANNELS
communicates clearly what it wants from its distributors in the way of market coverage,
inventory levels, marketing development, account solicitation, technical advice and ser-
vices, and marketing information. The manufacturer then seeks distributor agreement
with these policies and may introduce a compensation plan or other rewards for adher-
ing to the policies. For example, Dayco Corporation, a maker of engineered plastics and
rubber products, strengthens channel partnerships by running an annual week-long
retreat with 20 distributors’ executives and 20 Dayco executives.
Still, too many manufacturers think of their distributors and dealers as customers
rather than as working partners. Up to now, we have treated manufacturers and distrib-
utors as separate organizations. But many manufacturers are distributors of related
products made by other manufacturers, and some distributors also own or contract for
the manufacture of in-house brands. JCPenney sells national brands of jeans by manu-
facturers such as Levi Strauss in addition to a line of jeans under the Original Arizona
Jeans company private label. This situation, which is common in the jeans industry and
in many others, complicates the process of selecting and motivating channel members.Evaluating Channel Members
Producers must periodically evaluate intermediaries’ performance against such stan-
dards as sales-quota attainment, average inventory levels, customer delivery time,
treatment of damaged and lost goods, and cooperation in promotional and training
programs.
A producer will occasionally discover that it is paying too much to particular
intermediaries for what they are actually doing. As one example, a manufacturer that
was compensating a distributor for holding inventories found that the inventories
were actually held in a public warehouse at the manufacturer’s expense. Producers
should therefore set up functional discounts in which they pay specified amounts for
the trade channel’s performance of each agreed-upon service. Underperformers need
to be counseled, retrained, remotivated, or terminated.Modifying Channel Arrangements
Channel arrangements must be reviewed periodically and modified when distribution
is not working as planned, consumer buying patterns change, the market expands,
new competition arises, innovative distribution channels emerge, or the product
moves into later stages in the product life cycle.
Rarely will a marketing channel remain effective over the entire product life
cycle. Early buyers might be willing to pay for high value-added channels, but later
buyers will switch to lower-cost channels. This was the pattern for many products,
including small office copiers, which were first sold by manufacturers’ direct sales
forces, later through office-equipment dealers, still later through mass merchandisers,
and now by mail-order firms and Internet marketers.
Miland Lele developed the grid in Figure 5-4 to show how marketing channels
have changed for PCs and designer apparel at different stages in the product life cycle.
As the grid indicates, new products in the introductory stage of the life cycle enter the
market through specialist channels that attract early adopters. As interest grows,
higher-volume channels appear (dedicated chains, department stores), offering some
services, but not as many as the previous channels. In the maturity stage, where growth
is slowing, some competitors move their product into lower-cost channels (mass mer-
chandisers). In decline, even lower-cost channels emerge (mail-order, discount Web
sites, off-price discounters).^12