What are the 3 main forms of channel management? (With tips)
By Indeed Editorial Team
Updated 15 June 2022
Published 27 April 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
A channel strategy is usually created by a business to increase its sales and profits by selling a company's products or services through different channels. The main objectives of a channel strategy are to help a business reach new markets, grow its customer base and increase its market share. A well-thought-out channel strategy helps a business reduce costs, improve efficiencies and optimise its customer experience. In this article, we look at what channel management is, how businesses use it, what its three main forms are and examine some tips on how to maximise this type of business relationship.
What is channel management?
Channel management is an advertising practice used by organisations to promote both their brand and their product line. It involves creating live content that shows audiences how to use their products and how they improve their lives, with the primary aim of reaching new markets. A channel strategy involves creating a network of partners that can help a company increase sales and reach new customers. To do this, companies work alongside advertising agencies to create campaigns that then air on television networks, the radio and social media platforms. These are the channels that a company effectively manages.
How do businesses use channel strategies?
Channel strategies are important for two main reasons. Primarily, they're used:
1. As an advertising tool
Channel strategies help businesses advertise by optimising their ad campaigns and improving their ad targeting. This means that the right content is ready and waiting for the users it best applies to. For example, a fashion retailer selling male and female clothing might use micro-targeted ads to get an idea of which side to advertise to a customer via social media. Channel strategies help businesses track their ad performance and identify areas for improvement. Analytics play a big role here, as they reveal to businesses whether they're reaching their traffic targets via a series of pay per click ads.
2. For product distribution
Channel strategies help businesses distribute products by managing the distribution channels used. This involves making a product line public so that consumers can walk into stores or click a button online and receive the product. This means that it's the job of channel managers to create and maintain relationships with store owners and e-commerce platforms. A key part of this process is ensuring that a business delivers products on time and in good condition. This involves working with manufacturers, logistics providers and other suppliers to ensure that products are available as and when they're needed.
What are the different types of channel strategies?
There are three primary types of channel strategy. They are:
Businesses select an approach based on how relevant it is to their product line, how well it suits their brand's image and how it helps them reach out to their target demographic. For example:
Direct channel strategy
A direct channel strategy refers to the process of a business selling its products or services directly to customers without going through any intermediaries. This means that companies selling their products via an e-commerce website demonstrate a direct channel strategy, as the consumer buys and receives their product from them alone. This allows businesses to completely control the customer experience that they offer. For example, they can offer lower prices by cutting out the middleman.
This approach also allows businesses to better understand customer needs and wants as they receive compliments and complaints first-hand. To make progress, a business takes on this feedback quickly, aligning its product line to suit the customer's desires. It can be much harder for a business to get the same level of feedback from a third-party seller.
Related: What is customer satisfaction?
Indirect channel strategy
An indirect channel is a type of business channel that refers to an organisation selling its products or services through an intermediary. The most common type of indirect channel is the reseller, who buys products from the organisation and then sells them to customers. An example of this may be a technology shop that purchases various phone brands to sell to customers in different countries. Other types of intermediaries include distributors, agents and brokers. Organisations use indirect channels because they provide access to markets that may be difficult or expensive to reach directly as they're typically much more established.
Hybrid channel strategy
Hybrid channel strategies are useful for businesses that market and sell their products or services through a combination of direct and indirect channels. This approach is helpful for businesses that want to have more control over the sales process while still benefiting from the reach and relationships that indirect channels provide. It's typically a technique used by businesses who are already well-established themselves, whether this is online, on the high street or both. Hybrid channel strategies allow businesses to secure more of the market share by being readily available to customers wherever they shop.
Tips for using channel strategies
The goal of a channel strategy is to optimise the performance of a channel to help the company achieve its business objectives. An effective channel strategy considers the needs of both the company and the channels it partners with so that there's a balance between them. There are several factors to consider when developing an effective channel strategy, including:
Define the role of each channel partner
It's important for businesses to take a strategic approach to channel management because it ensures that each channel partner fulfils its role within the organisation's overall market strategy. By clearly defining the role of each channel partner, businesses avoid potential conflict, duplication of efforts and other inefficiencies that occur when partners are unclear on their respective roles. This clarity helps a business achieve its sales targets as it helps it streamline its sales practices.
There are several ways in which a business defines the role of each of its channel partners. For example, they can start by defining the business's primary market strategy. This means that third-party advertisers are clear on how a business wants to maintain its brand image and how it wishes to target its key demographic. This alone helps advertising experts understand the goal they're working towards and use their expertise to aid this. When working with several channel partners, the clearest way to define this is to set out specific roles and responsibilities.
Develop clear policies and procedures for each channel partner
To develop clear policies and procedures for each channel partner, it's necessary for a business to define the goals it wants to achieve through channel partnerships. Having a clear goal in common helps different organisations work together much more efficiently, as it clarifies and removes any misconceptions or guesses. This involves setting out clear policies and procedures for each channel partner by clearly communicating what they're expected to produce. For example, a business might expect a television advertisement to mention certain information for older demographics. This streamlines the communication and decision-making processes.
Having a set of guidelines in place ensures that everyone knows who to contact with questions or concerns. It also demonstrates to all involved who has the authority to make decisions about certain aspects of the partnership. This stops advertising agencies from contacting television networks on behalf of a business without its permission, for example. Providing clarity here helps build and maintain trust and cooperation between the business and its channel partners.
There are various ways in which a business creates incentives for each channel partner. The most common way is through economic incentive programmes, which include significant discounts on products, rebates and other financial incentives. Many companies also offer non-financial incentives, such as exclusive access to new products before they hit the market, training and support and additional promotional opportunities. This mainly depends on what product a business sells, as discounts work differently on cars than on shoes, for example.
Businesses generally create incentives for each channel partner to ensure that everyone works together towards a set of common goals. By clearly understanding what the business requires each channel partner to do, they can create a system where each channel partner is primarily focused on helping the business succeed. These incentives also build trust and cooperation between partners, which makes it easier to work together in the future.
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