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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