CHANNEL BASICS
46
Auditing
what channel functions get performed by each channel member in the
existing
channel system,
by whom,
at what levels, and
at what cost, provides several
important benefits:
1. Detailed knowledge of the capabilities of each
channel member allows them
to diagnose and remedy shortcomings in the pricing and provision of service
outputs to targeted segments.
2. An audit may identify gaps in service outputs desired by targeted end-user seg-
ments, such that service providers can add necessary new channels or revise
currently existing ones to address the shortcomings.
3. Knowing which channel members have incurred the costs of performing which
channel functions helps members allocate channel profits equitably. In turn,
channel members can better preserve a sense of fairness
and cooperation and
avert channel conflicts.
Our discussion in this section accordingly focuses on identifying and describing
channel functions, as well as outlining how managers can audit channel systems to
identify a zero-based channel,
service gaps, or excessive costs.
Specific channel members can specialize in one or more channel functions, even
as they remain excluded from other activities. This exclusion condition may make
it appear tempting to remove another member from the channel (i.e., change the
channel
structure). But the specialized functions performed by that channel mem-
ber cannot simply be eliminated. After a channel member leaves the channel, its
functions must shift
to some other channel member, to preserve the service output
provision. An exception arises only if the eliminated channel member was per-
forming activities that also were being addressed elsewhere in the channel, such
that its contributions to the service output were redundant. For example, when an
employed salesperson and an independent distributor’s
sales rep call on the same
customer, they waste effort and resources. The channel may be better off using one
or the other, not both, types of salespeople.
Every channel function contributes to the production
of valued service outputs
and also produces costs. Table 2.1 uses CDW as an example and offers some exam-
ples of channel cost-generating activities associated with each function.
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