Channel Systems

[Timothy Fong]

Hello,

I am wondering if any of you have worked on modelling the
environment around channel sales and marketing expenditures.
For example, a company spends on direct marketing and general
advertising and generates some revenue through internet sales,
but another portion through the VAR and the Retail Outlets, and
how various factors impact this dynamic and weight the trade-
offs.

Any papers or cases would be helpful in understanding this.
Thanks!


---------------------------------------------------------
Timothy Fong
From: Timothy Fong <timfong@ureach.com>
---------------------------------------------------------

["Ray on EV1"]

Timothy,

Yes. I have often provided the margin calculations differentiating sales
channels. Every industry I have worked with does this on a continuing
basis. But, they always approach it algebraically.

Since youve brought it to this channel, I am guessing that you are
interested in the dynamics. The dynamics impact the long term. Every
player invests something in the sales effort. Each is looking for ROI. To
fully address this issue, the complete channel(s) must be addressed. After
all, you dont want to bring in some one who cant realize a profit - this
just drains your resources trying to support them, decreasing your ROI.

So the idea is to look into each channel and the manufacturer to find their
costs. Look to each to find their ability (cost) to maintain customers.
Look to each to find their cost in acquiring new customers. All of this can
be looked at from different angles such as exposure and sales conversion
rates, but in the end, it all has to be turned into costs.

Additionally, you need to consider whether you are addressing new products
(thus new markets) or old products. The approaches are significantly
different.

Ray
From: "Ray on EV1" <rtjoseph@ev1.net>

[Timothy Fong]

Thanks, Ray. I read a study about the marketing dynamics of
cross-channel environments. Trying to optimize the flow from
one channel into the other -- the costs are considered
relatively obvious (but am I missing something) -- in this
scenario (eg phone versus web versus retail). What dynamic
forces are important to consider and is the model involve
a "decision" dynamic between one or the other? What would be
key feedback loops in such a situation?

Thank you.

---------------------------------------------------------
Timothy Fong
timfong@ureach.com
---------------------------------------------------------

[Alan Graham]

Tim and other colleagues,

People interested in sales channel design will likely find articles by
myself and Carlos Ariza of interest. A version appears in the proceedings
of the 2001 Atlanta SD conference, and a refined version should be coming in
volume 1 of 2003 SDR.

That work applies optimization to a model of multiple product lines and
multiple potential channels (direct sales, retail, VAR, phone/net etc.),
variously interconnected by brand image, common user base, and bundled
selling.

In addition to the optimization, there is also discussion of how
decision-makers normally make channel decisions, and why that
(boundedly-rational) process often gives suboptimal performance. Its a
demonstration "in the field" of the sorts of limits on decision-making that
Sterman, Paich, Diehl, Dangerfield and Roberts, et al. have been finding in
the laboratory.

regards,

alan

Alan K. Graham, Ph.D.
PA Consulting Group

Alan.Graham@PAConsulting.com
One Memorial Drive, Cambridge, Mass. 02142 USA

["Ray on EV1"]

Timothy,

It would be advantageous to differential between marketing and sales. Where
a marketing strategy can be carried out on the web or at retail (and
numerous other forms not addressed), phone is typical a sales campaign form.
This is also true if the web action is mass emails.

Telemarketing houses would lead us to believe that an effective marketing
strategy can be carried out over a phone line in 60 sec. But this is just a
sales pitch - both to the retail customer and the supplier. Marketing is a
dynamic process - information may be delivered into a bucket until the
decision level is reached; attitudes may be molded until a clear vision is
attained, etc.

The dynamics of the marketing channel can be more easily addressed by
looking at a supply chain model. The dynamics can be seen as material
movement down channels with speed properties and queues with differing delay
properties (for processing), and differing administrative commitment with
varying agenda for resource allocation.

Ray
From: "Ray on EV1" <rtjoseph@ev1.net>

[Yaman Barlas]

We did a research a few years ago on strategies of insurance management.

In this problem, policies are sold thru two different channels: a-
agencies, b- direct marketing salesforce.
The problem can be very interesting, because the two channels have
different structures, needs, motivations and control mechanisms.
Agencies are NOT part of the company and this brings with it a set of
causes and effects quite different from direct sales force:
- comission-motivated sales
- a need for the company to provide "service" to agencies (in addition
to customers)
- Sales-quality control problems
- ethical problems (In a controversy, on whose side would the agency be:
company or customer? It depends.
- ...
A short paper summarizing our research:
ÒDynamics of Strategic Insurance ManagementÓ (with K. Çýrak and E.
Duman), System Dynamics Review ,Vol.16, no.1, 2000, pp. 43-58.
Hope this is of some help...
Yaman Barlas
From: yaman barlas <ybarlas@boun.edu.tr>
---------------------------------------------------------------------------

Prof. Dr. Yaman Barlas
Endüstri Mühendisliði Böl.
Boðaziçi Üniversitesi,
34342 Bebek, Istanbul
Fax. 212-265 1800. Tel. 212-358 1540; dahili 1407, 1408
http://www.ie.boun.edu.tr/~barlas
SESDYN Group: http://www.ie.boun.edu.tr/labs/sesdyn/
-----------------------------------------------------------------------------