Education

Managing ‘channel hygiene'

R. Shekar | Updated on: May 22, 2011

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The board was concerned about ‘channel hygiene'. Its concern was how to regulate the levels of supply of merchandise to the levels of retail demand in order to maintain a reputation for fair trade practices and build up the brand equity of the company.

The emergence of mobile connectivity had come to dominate and define new rules for winning the share of the mind and the wallet of the young buyers. The practices of the trade and the prices applied to their customers, controlled at will until recently by the manufacturers, stood rudely challenged as a consequence. Relentless deal-making between the communities of buyers and sellers relegated the manufacturers to the sidelines. The prices were no longer determined by the manufacturers alone; the traders constituting the ‘channel' kept upsetting the equilibrium in the marketplace, by defining the ‘street prices‘ at which they were sold.

If the company regulated the dynamics of demand creation and retail pull, they could pump just the requisite quantum of goods in the pipeline. Such a move could not only protect the prices recommended by the company, but also ensure fair trade practices and value for money for the customers.

A failure to regulate the supplies encouraged artificial hoarding and speculation by the trade. The temptation to conclude bulk deals at lower prices helped some traders get rich quickly at the cost of the manufacturers who found the business unviable.

Uncontrolled imports through the grey channel and fluctuations in the prices applied to customers by the trade required instituting a system of monitoring the prevailing dynamics of supply and demand and protecting the integrity of the prices applied to the products on sale.

Data points

As a hot contender, the company began tracking its own commission structure offered to the trade with that of the industry leader.

Eight key criteria were identified for daily comparison across 20 key cities in the country: Trade commission; Subvention; Promotional support; Turnover discount; Prompt payment discount; Price protection; Technical handling fee; and Commercial adjustments

How the data connect

The Field Market Intelligence Personnel employed by the company were required to flash the movement of commission structure on a continuous basis to the headquarters. Depicted for instance is the comparison with the market leader in one of the towns on any given day.

Question for the Directors

The commission structure offered by the hot contender was 19.5 per cent, while the industry leader offered a mere 12 per cent. The differential of 7.5 per cent reflected the superiority of the overall management of the market leader.

If the hot contender were to remain ‘hot' and stay competitive, how quickly and by how much should it bring down the differential is the question the board has to find an answer to.

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Published on May 22, 2011
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