UNIVERSITY OF PRETORIA
RESEARCH PROPOSAL
An Evaluation of the Role of Channel Management Function
NME804: Individual Assignment
Innocent Pereira – 11171236
13/05/2011
TABLE OF CONTENTS
CONTENTS PAGE (S)
Proposal
1 Background and Overview 2
2 Reason for research 5
3 Purpose of the study 6
4 Sub Problems 6
5 Scope and limitations 7
6 Research methodology 7
7 Theoretical Overview 9
8 Activities of Channel Management Function 11
9 Implementation Models of Channel Management 11
10 Advantages of Channel Management 12
11 Risks associated with the Channel Management Function 12
12 Branded Channel Overview: MTN 13
13 Proposal layout of the Report 15
14 References 16
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1. Background and overview
According to Rangan and Bell (2006) Channel Management is a strategic challenge
demanding top-level managements’ attention. Business functions’ role redefinition and
the trend towards value-added services are reshaping the channel management
environment (Gatton 1998). The environment of business on a global basis is becoming
extremely complex and has been experiencing unprecedented continuous, rapid
change (Burnes, 1998). This rate of change is experienced in South Africa as well.
Traditional methods of channel management are now challenged with a need to deliver
a consistent customer experience, guided by a strategic channel operating model.
Competition today is increasingly being portrayed as competition among business
channel networks.
There is a growing need for go-to-market strategies that refine channel strategies and
managing distribution relationships (Gorchels, West, Marien, 2004). The market in
which companies operate is characterized by non-owned (outsourced) and a hybrid of
owned (Vertical integrated) combined with non-owned channel formats. Many firms
recognize that all offer significant opportunities to gain more value from sales and
distribution perspective. Traditionally firms specialised in performing some activities and
depended on others providing complementary activities including suppliers, distributors,
service providers, and consumers. The challenge is greatly how it is going to develop
and manage its relations with other channel member firms on whom it depends for
various product and services (Gatton, 1998). However, channel management has
evolved as an effective way of keeping costs down and improving efficiency, and carry
out marketing and distribution work through both owned and non-owned channels. One
way to meet this challenge is for companies to take a broad view of the field of inter-firm
relations and networks, as well as consumer experience expectations, and set up a
robust strategic channel management model.
According to Gatton (1998), by restructuring their channels companies have attempted
to capture several opportunities, lead by top management whom have adopted a
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strategic approach to lead the migration to the new channel vision. The advances in
technology have also significantly enhanced the firms to provide what the consumer
needs, sometimes even before the consumer know it themselves. Faster
communication between Supplier, manufacturers, distributors, and retail channel
members has vastly improved the supply chain management within those
environments. Gorchels, et al (2004) asserts that today most innovative corporations
are literally rewriting the rules of channel management and redesigning their distribution
strategies to take full advantage of the changes in technological and operational
innovations.
Senior management understanding and support of an evolving framework approach to
channel management and supply chain is necessary (de Koster, de Koster, & Delfman,
2007). Despite its importance, channel management discipline receives fewer attempts
to be adopted as a strategic issue by senior executive than they do other functions in
the business environment such as production, finance, marketing, etc. Due to lack of
managements’ full understanding of channel management as it evolves, they tend to
create roles and channel functions that are not linked to the environmental dynamics.
Therefore Management is unable to set a strategic tone towards:
Persuade channel participants to act in concert,
Identify and share critical data, and redefine their relationships with channel
members
To asses and apportioning investment, risk and reward
Also to manage complex decisions to design and implement a channel network
that crosses multiple functions and business units.
De Koster, et al (2007) asserts that for any company to be highly competitive at a global
level, it needs to have the best technologies and business processes at the lowest
possible cost. An efficient channel has the potential to deliver on this. The strategic
opportunities that may accrue from a good channel management structure are:
Greater cost efficiency - Cost savings and economies of scale through leveraging
technology has dramatically reduced sales cost (e.g. in transaction processing)
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Broader customer base – channel models have the ability to meet the needs of
techno-friendly buyer segments at the same time reducing distribution costs.
Deeper Customer relationships – Channel networks will improve the customer
relationship through a seamless consumer experience. Loyal consumers are
worth a lot.
Information and intelligence captured through the network of customer-supplier
relationship, which facilitates the development of new ideas for products,
services, and process accomplishments
Channel Management can be practiced through a firms owned or non-owned, or a
hybrid of channel participants. Channel management is characterized by strategic
decision on the following business decisions:
Channel network design
Defining the roles of network participants
Bringing the network members together
Measuring and rewarding network members
Building the supporting infrastructure
According to Rolnicki (1998) active cooperation is necessary to ensure all points of view
are taken into consideration. Cooperation requires mutual direction and definition of
process, enabling the collective associations or operating units to develop together.
Effective Channel Management
The American Management Associations (2009) asserts that an effective channel
Management function will be informed by trends within Channel Management and Their
Impact on Decision Making. These trends are trend are easily understood through the
keeping a view and understanding of:
Effect Mergers and Acquisitions Have on Channel Management
The Role of Channel Partner and different Channel Partner Options
The Current Channel Flow of Goods and Services of Participants
Options That Are Available to Managers
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The association further asserts that once these trends are understood, then an effective
channel management function can be put in place through taking informed and
calculated decision in:
Channel Partner Selection
The Needs of Your Channel Partner
Policies and Procedures
Training and Motivating Your Channel Partner
Legal Considerations
This study attempts to evaluate the role of Channel Management function of the
Branded Channel a case study of MTN Service provider in South Africa. Through
understanding what makes an effective channel, the following points will be explored:
Why channel networks are structured the way they are? This includes
understanding the reasons for particular structures existing at different times and
places, the reasons for activities being divided up among them and the nature of
the relations or connections among the organizations and activities.
To what extent and how are the activities of different structures in a network are
coordinated, managed and controlled?
How and why does the structure and coordination of a network change over time,
i.e. how does it develop and evolve?
How do we identify and create optimal or better performing channel networks?
How do individual organizations in a network deal with their relations with others
in the channel network?
.2. Reason for research
Channel Management in South Africa is becoming a critical function in business to
ensure a seamless consumer interaction with products and brands. The researcher’s
reason for choosing the topic is to draw business managers and senior management’s
attention towards the strategic roles and functions of Channel Management into gaining
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a sustainable competitive advantage within a maturing South African consumer market
context.
3. Purpose of the Study
The purpose of this research is to evaluate the Channel Management function through
conducting a case study of MTN’s Consumer Branded Channel past and present and
future activities in developing effective channel strategies to access a broader base of
consumers and offer them better products and service. Thereafter, it’s also to offer
recommendations for a channel strategy in the face of growing market complexity based
on; evolving South African consumer market, trading partner dynamics, new options for
interacting with consumers and the changing regulatory environment.
4. Sub-Problems
In order to attract senior management’s attention to the imperative of formulating a
channel strategy and master complex channel dynamics, the following sub-problems
were identified:
1. What is the past, current and future functions of channel management?
2. What is the definitive characteristic of the future Channel management
function, and what qualities make the channel distinct and what does the
operational content look like?
3. What is the most appropriate and profitable implementation, and what are
the sources of financial value propositions for the channel?
4. What are the pros and cons that channel management function brings into
the entire business and its future strategic relevance to sustainability and
in gaining future competitive advantage?
These sub-problems will serve to guide the researcher in developing future strategic
intent for the Channel Management function.
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5. Scope and Limitations
With Channel Management only recently becoming a critical function in business to
focus on ensuring a seamless consumer experience and interaction with products and
brands in South Africa, there is limited readily available information. Therefore
knowledge and understanding of channel management may be restricted to the few
managers and units who have adopted the concept. Limited timelines is another limiting
factor; it would have been ideal to embark on full comprehensive evaluation of the
channel management function in the whole consumer market in South Africa. This
however is not possible and therefore it has been decided to focus on MTN South Africa
only.
6. Research Methodology
This study attempts to evaluate the Channel Management function through conducting
a case study of MTN’s Consumer Branded Channel. The Research Design for this
dissertation will therefore be in the form of a case study. Case study research is a
methodologically flexible approach to research design that focuses on a particular case
(Rosenberg & Yates, 2007). This will involve an empirical evaluation of the channel
management functions.
According to Robson in Saunders et al, (2007) a case study is the development of
detailed, intensive knowledge about a single case, or a small number related cases He
further states that the case study approach has considerable ability to generate answers
to the question ‘why?’ as well as the ‘what?’ and ‘how?’ questions. The researcher will
carry out qualitative research in order to get sound information regarding this case
study.
Creswell in Leedy, (1997) states that the researcher collects data using a variety of data
collection methods such as, interviews, observations and documentary analysis and it is
done during a sustained period of time. The methodology to be followed by the author
will be Qualitative research.
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Qualitative Research is a research that describes the phenomena in its totality. This
research consists of the understanding of social and cultural problems and is directed
on interactive processes to collect subjective information. This information in mostly
interactive with people is of great importance when conducting qualitative research.
(Cooper & Schindler, 2008)
Yin (2003) asserts that through established correct operational measures for the
concepts being studied one can meet the test of construct validity. The researcher will
use multiple sources of evidence, create a case study database (notes, documents, and
tabular material) and maintain a chain of evidence. Saunders et al (2007). Methods of
data collection have different advantages and disadvantages and, given this fact, it
would seem to make sense to try and achieve a balance and consistency.
Measuring Instrument
The measuring instruments will include open ended questionnaires, Structured and
semi-structured interviews, documents, and records from organisations channel
leadership within MTN and four other companies that practice or have previously
practiced channel management. The researcher will conduct structured and semi
structured interviews with the Senior Managers, middle managers of the business unit
at Head office. To assure internal validity, researchers have to establish casual
relationship where certain conditions are shown to lead to other conditions.
Sample Size and Characteristics.
The researcher has chosen to follow a Qualitative methodology, and a non-probability
sampling. Coopers and Schindler (2008) describes three types of non-probability
sampling approach; Purposive, Snowball sampling, and convenience sampling
available. Sampling techniques considered by the researchers’ have been divided into
two types:
Probability/representative sampling
Non-probability/purposive sampling
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With probability sampling, the chances of each case being selected from the population
are known and are usually equal for all cases. Consequently, the technique is often
associated with survey and to a lesser extent experiment research. With non-probability
sampling, this criterion is not meet and should be used with caution Saunders et al
(2007).
The researcher’s method of sampling will be purposive sampling; a non-probability
sampling procedure which chooses the sample based on who is thought would be
appropriate for the study. This is used primarily when there is a limited number of
people that have expertise in the area being researched.
The population size to target in this case study comprises of MTN Sales and Service
functional areas. The target population will be sub divided into three namely:
Exec Members, responsible leadership of the channel function
Middle managers/operational managers,
Junior frontline manager
Sales staff members.
7. Theoretical Overview
From an operational standpoint a channel is the path a product or service takes as it
moves from the manufacturer to its end user or consumer (Rolnicki, 1998). According to
MTN’s branded channel strategy (2008), the key task of the channel was to ensure a
seamless customer experience in all branded point of consumer contact (sub-channels).
Rangan and Bell, (2006) asserts that channel management first and foremost
responsibility is to achieve demand generation and fulfillment. Senior managers of most
companies involved in moving goods from suppliers to end user would agree: their
distribution channels are outdated and unwieldy, serving neither customer nor channel
members as well as they should be (Rangan and Bell, 2006).
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In reviewing some channel management material participants agree on problems but
solutions have been hard to pin down. Rangan and Bell (2006) notes that channel
issues are overshadowed by the fact that:
Channel decisions involve a lot of parties and are influenced by a host of factors
such as legal, relationships and entrenched customer behavior.
Channels often lack a strategic home, often viewed as tactical
As a result of the two above, channels lack in strategic leadership and are often
then viewed as a primary vehicle to just reach consumers.
This trend has created within corporations the need for a new approach to channel
management, one that addresses consumers’ needs as well as drive profitability of all
channel players guided by sound governance.
Selecting a channel for high-tech products requires the combination of three distinct
sub-channels; sales channel, delivery channel and service channel (Gorchels, et al
2004). According to The Report South Africa publication (2008), there has been a great
uptake in the mobile phone industry. It also notes that the industry remains remarkably
unchanged, characterized by complains regarding high prices, uncompetitive fees and
poor service. Research Surveys (2006), asserts that with the market having three major
players; MTN and Vodacom licensed 1993, and Cell C licensed 1993, there are already
signs of the market rapidly getting saturated. More than 50% of the people in major
towns have cell phones. The survey by Research Surveys (2006) further reveals that
53% of South Africans already use mobile phones. Looking into these indicators, the
market is most likely shifting from a consumer acquisition market to a consumer
retention market as there will soon be less and less unconnected individuals.
The independent communications Authority of South Africa (ICASA) introduced number
portability in November 2006. Dr Tracy Cohen (ICASA), asserts that there is a move
from regulating a duopoly to a system of managed liberalization for a more competitive
market. Currently, according to the MTN 2008 strategy document, market share split
(after removing unused sim cards) stands at Vodacom 49%, MTN 41%, and Cell C at
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10%. These players will all start to build capability to aggressively defend this market
share and churn from each other via portability whenever possible. Channel
management will be at the centre of this strategy execution.
8. Activities of Channel Management Function
A channel Management function is typically a way on which a company chooses to
go to the market of potential consumers and fulfillment of any orders that are placed
(Weitz and Wensley, 2002). According to Anderson and Coughlan in The Hand Book
for Marketing, (2002), Channel Management is concerned with three broad
categories:
Channel structure – Strategic choices such as how many player and in what
form (to own or to have independent channel players)
Channel Governance – the framework that ensures orderly pursuit, through
contracts, use of incentives, and monitoring
Channel relationship management (Including consumer relations) – actions
that frame the daily environment of the channel operations, through
accumulation of and use of power, and relational norms
In short the management of channel activities has a great potential for developing a
competitive advantage. And the advantage accrued from good channel management is
strategic as it is often durable, complex, difficult to put in place, and often difficult to
imitate (Leedy, 1997). Rolnicki (1998) asserts that being a channel executive today is
more challenging as channels change in the blink of an eye, and channel conflicts lurks
everywhere, but so does opportunity for success.
9. Implementation Models of Channel Management Function
A channel function is unique to the company’s circumstances. It can vary as to the
activities performed by a particular company, which include the sophistication of the end
consumer channel members and as well as other factors.
The major implementation models:
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Outsource model – By implementing this model, a company use independent
parties as part of the channel members, while maintaining them under minimal
corporate control
Vertical integrate model - In this model, a company aggressively increases
channel control through owning the channel
Hybrid model – combines both models
The market coverage and service levels strategy that you choose to pursue often
dictates the model of channel management function that you pursue (Rolnicki, 1998).
The executive’s choice is determined by the complexity of the products and how much
customer support, training and other forms of support it requires. For instance if your
product is of a complex nature, you may need to pursue a specialized strategic channel
approach. Gorchels et al (2004) argues that Channel design decisions could be
influenced by:
According to desired control over the distribution network
According to the size of the market to be serviced
According to the cost of distribution network
According to the flexibility of the network
10. Advantages of Channel Management Function
Much of the early work in channels focused on identifying the functions of channels and
explaining when and why these functions have utility (Anderson 1965)
Increase Service Quality – provides a customer service model
Reduced Operating Cost – through lean operational models, systems and
processes improvement, quality measurement, and people efficiency.
More focus on strategic issues
11. Risks Associated with Channel Management
Some risks faced by companies in their Channel Management function include the
following:
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A bureaucratic structure – Channels can create an unnecessary bureaucratic
process, frustrating the core process of servicing the consumer.
Channel Member recruitment- finding a working model of selection
Disruption in Operation – The continuous implementation of change process
can disrupt business processes and lead to human resource concerns such as
lower morale, confusion and loss of workers.
Monitoring and governance – lack of capacity to monitor and execute the
channel governance role.
Channel power base – inability to manage the power base and losing it to the
independent/outsourced channel member. A possibility of conflict as a
consequence of power.
Lack of clarity of the form of strategic channel leadership – risk of the
function being misplaced for leadership.
12. MTN Branded Channel
According to the MTN Distribution and optimization strategy, MTN, established in 1994
and operating in 21 countries, is a major player in the mobile phone industry in South
Africa, focused in servicing the individual, corporate, commercial and international
markets.
Products include the following:
Voice
Data
VOIP
Hand set gadgets and accessories
These products are offered through the following mediums:
Dealer owned direct store network
MTN owned Call Centre Network
Virtual/Electronic retailing
Corporate account managers
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MTN’s approach to the market is geared towards the following view of serviceable
segments:
Corporate Clients
SME Clients
High Value Individuals (Consumer)
Youth Consumer
Mass Market Consumer
Bottom of pyramid consumer
With increasing competition in the telecommunications market, customer winning battles
increasing in volatility to frequent occurrence of customer churn, lead to the Branded
Channel Function being created in January 2008.The channel consolidates the then
fragmented channels known as independent dealers channel and, service centers
channel, functions that were previously performed by the different divisions under
Consumer Sales Operations.
As the telecommunications market gradually becomes saturated and increment of new
customers slowing down, maintaining and retaining customers has become the focus of
attention more than ever. The challenge is how to actively develop new customers and
at the same time reduce churn rate on old customers. One of the key mandates of the
Branded channel is to come up with a superior customer experience and a system that
allows for:
Improved channel distribution
Customer churn predictions
Thriving churn predictions model
Customer detainment strategy (retention)
Operationalisation of the supply chain strategy (Business Plan Vs Sales forecast)
Value innovations for customer satisfaction (right combination of value offerings
for new business)
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13. Proposed Layout of the Research Report
Chapter 1 – Background and overview
This chapter presents a brief background to the subject-matter, discussing the reasons
for embarking on this research. Also providing an overview of the MTN Channel
Management Function, it details the purpose of the research, including a synopsis of
each chapter in this paper.
Chapter 2 - Literature Review and Channel Management Framework at MTN
This provides a theoretical foundation for the research from various secondary sources,
introducing the various concepts and frameworks used. Also, present the result of an
extensive review of literature conducted over the course of this study. The definition for
the term channel management, the MTN Branded Channel frame work, which
underpins this paper, is introduced in this chapter.
Chapter 3- Research methodology used
This Chapter will discuss the various techniques and tools used to acquire, analyze and
present the data. The research strategy and methods used to conduct the primary
research will be explained.
Chapter 4 -Findings and Results
The responses to questionnaires, result of interviews conducted will be analyzed in this
chapter. The results and findings of the primary research will be presented in this
chapter.
Chapter 5 – Recommendations and conclusion
This chapter concludes the dissertation by providing recommendations to senior
management of MTN and creating awareness to the strategic challenge of the Branded
Channel at MTN.
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