What is distribution channel management

Channel management is more than just distribution or logistics, although these are obviously important. It is a way of thinking, a way of forming new connections with customers in order to explore new business opportunities. A channel is the essence of how customers and business interact; it is everything that contains how and where people buy a product or service and how and where they use that product or service. It is a business route to your client and a sustained relationship between the two. It determines the entire experience of buying and owning (or consuming. When we think in terms of channels, we must be thinking of strategy: effective channel management offers the opportunity to reinvent not only the business itself but the industry of which it is a part.

Let’s take a simple example: canned goods. Some customers will always prefer the traditional channel, that is, go to the local grocery store or supermarket to buy them. Certain customers will purchase the same product at a neighborhood store. But others will welcome home shopping via phone, cable, or the Internet. In all cases, the product – the canned ones – is the same. Only the channels vary. And it is the channel that imparts additional value to the relationship.

Today something very similar can be said for Amazon.com, the upstart who became the world’s largest retail bookstore, simply by offering shoppers a new channel via the Internet. The book is still a traditional book; the only thing that has changed is the channel. Rather than just buy a book, consumers choose a shopping and reading experience that varies greatly by channel.

Channel management, then, is a systematic way of reaching and serving customers, wherever they are and by whatever means they like. It is about identifying the most important customers for the business. It is about how to consummate the relationship with customers, how to communicate with them. The way to create and capture product value after the initial sale.

The end result of good channel management is something that suits the business, whatever it may be. Good channel management improves customer service. It offers the consumer a wider selection. Generate creative responses to your needs and aspirations. It can alter the fundamental definition of the business in which we find ourselves.

(RE) CHANNEL APPROACH

Product-based differentiation has traditionally been the cornerstone of corporate competitiveness. Market dominance corresponded to the best products. Although this was once true, it is no longer true. Now what is becoming a key factor is the quality of the service

1. Three factors explain the decreasing importance of pure product-based differentiation:

• Increasing global competition makes it easier to control any market.
• Rapid technological evolution has shortened the life cycle of products.
• Products are quickly imitated, copied, matched, or outperformed, no matter where they were produced or who brought them.

However, differentiating yourself from the competition is still important. Now, in addition to the difference between products, companies are distinguishing themselves by the services they provide to their customers. Services consist not only of what is offered other than the product (financing, delivery, coverage) but also the entire set of interactions for purchase and after-sales support. In other words, what really constitutes a channel are the experiences and relationships that the channel delivers.

Consequently, the management of these channels has become enormously important and certain high-performance companies – the channel champions – are already using it.

2. As the differentiation between products decreases, the differentiation in services becomes more important.

Excellence in service is not something lazy or ethereal. It has to do with the delivery of substantial and measurable benefits to the client, benefits that he values ​​and for which he is willing to pay. By delivering such benefits, channels fulfill three roles:

• Information flow (inbound and outbound)
• Logistics to deliver products and customer service
• Value-added services that enhance the product or service

Channel management offers the opportunity to deliver new forms of product and services. In today’s business world, the package of products and services is what determines a differentiation and a competitive advantage.

THE CHANNEL MANAGEMENT PROCESS

The channel management process as a whole. The only steps are five:

1. To  understand the segments and the needs of the clients in the matter of purchase and property.

The move from product-focused operations to effective channel management is substantial. A key element for this is to understand more clearly where value is added for the customer in the distribution chain. The channel management process begins by identifying end customers and gathering information about the current and possible relationship with them.

The objective is to deliver the right product-service package to the end customer at the right price. The only way for this to happen is to meet the customer. Automotive companies in particular have found that the best knowledge of purchasing processes allows them to identify new opportunities to add value. This has important implications for the balance of power between manufacturer and channel.

Customer insight is based on interaction with current and potential customers and the collection of data related to them. Based on such information, companies can target certain groups of customers in order to provide the service elements that they value. In addition to product-based market segmentation, service-based differentiation requires companies to segment markets by purchase and ownership.

2. Formulate new channel concepts to capture value from both the customer and the product life cycle.

The goal of segmentation is for a company to design various product attribute packages and corresponding services that best match the needs and wants of different consumer groups. To be profitable, such packages must optimize the value given to each customer segment and yet be delivered economically. A deep understanding of customers can facilitate the development of one-to-one segments. In fact, channels are a means of individualizing mass service.

3. Pilot tests to refine the economy and the competitive positioning of concepts related to channels: structures, services and operating systems.

Whether it’s an entirely new channel or a carefully developed network, the recommended approach is to pilot test before launching. The pilot tests of the new channel allow to refine the economy and the competitive positioning of the concepts of the channel: structures, services and operating systems. Ideally, pilot tests are isolated from the core business as much as possible. The purpose is mainly to minimize risk and refine concepts before extending them. This test should be carried out on the periphery of the markets in order to minimize the reactions of the competitors until the business model that is intended to be developed is already robust.

4. Extend concepts quickly across different geographic segments and territories.

Once the channel offering is refined, speed is essential. Changes must spread quickly. By opening a new channel, a company can transform the market by being ahead of competitors. This is especially true when the end result is a one-on-one personal relationship with the end consumer.

5. Study the results and adapt the channel.

An effective channel provides two-way communication with the customer. This allows us to be attentive to what the client requires and modify the service offer of the channels in accordance with such requirements. If it is not done, what the channel can offer will be undermined over time. Channel management is a continuous process.

First step:

Understand customer needs

Customer service is often conspicuous by its absence.

Research in England, for example, showed that less than 25 percent of executives attached importance to hours spent with clients. At the same time, seven out of ten claimed that customer concern ranked first or second in priority for the organization’s success. Misconceptions about customer service abound, or customer service is misapplied and mismanaged. Sometimes it repels because of the excessive. Other times it doesn’t exist. (It is as futile to overwhelm the customer with care as to serve them too little. Excessive service adds costs without adding value.)

Without a doubt, the provision of a service is demanding. “While goods are produced first, then sold and ultimately consumed, services are sold first and then simultaneously produced and consumed. As consumers have to be present during the production of such services, even by phone or electronically, there is a closer interaction between buyer and seller, “say European academics Leslie de Chernatony and Francesca Riley. “The degree of consumer interaction and participation makes it more difficult to control the quality of the service. Sometimes service organization brands find themselves at the mercy of grumpy, upset, or just inefficient customer service staff. On the other hand, The customer experience can be affected by a myriad of unpredictable factors, such as increased customer flow, poor branch environment, or even the customer’s own mood. By effectively involving customers in the production process, organizations place themselves in a high-risk but potentially high-profit situation day after day as customers re-experience the brand. ”

Similarly, if the channels are not reinventing themselves, they will become less effective. If you start a dialogue with customers, it is better to listen to what they say and act accordingly.

On top of the complexity of providing excellent service – or perhaps because of it – superficiality and verbiage are endemic. But it is surprising how little is said about the essential problem that many executives face: how to ensure that their end customers receive the right service at the right price.

It would seem like a simple question to answer. The problem is that manufacturing and service companies have little or limited control over the service that the final consumer receives. At least half of the articles, and a good part of the services, flow through distribution channels. However, most of what is written about customer service – and it is a lot – either deals with services provided directly to customers (by airlines, banks, hotels, etc.) or simply evades the complexities of the service provided by intermediaries.

Second step:

Formulate new channel concepts

Customer insight provides a competitive advantage. It offers levers of value that can be operated by the company that has such knowledge. Companies that manage to get to know their customers have many and diverse ways of adding value, either by sharing this knowledge with current channel players to increase their value, or by creating new channels.

If companies know what their customers want, and how and when they want it, they can create channels that meet those needs.

In order to form meaningful – interactive – relationships with clients, it is essential to individualize the entire process of interaction with them. This seems obvious, but what frequently goes through the customer service area is a simple form. Recent history has seen the industrialization of the service as the customer experience has been standardized. The result is that people read a script and are puzzled when one asks them a question or leaves the stage artfully created and controlled by them. True customers do not play an assigned role.

Channel management is not customer management or prediction of customer behavior to deliver a standardized experience. Channel management is concerned with generating more value for customers by providing carefully differentiated and developed channels.

The most successful channel designs are those that attack the problem at the level of specific customer segments or even individuals. Value creation reflects how service needs vary between clients based on a correct and precise understanding of their needs and the economic aspect of satisfying them. Companies have to manage channels in a flexible and intelligent way, this implies using different formats within the same channel as well as alternative channels to deliver the desired products and services to the target segments. The first-class airline passenger does not expect to queue to pick up their tickets at the airport. The economy class passenger is willing to do so in exchange for a lower cost. They share the same plane, the same flight, but they buy different service packages, for which they pay different prices. In its traditional sense, segmentation used to distinguish consumers by their purchasing power, there are many segmentation techniques, including product attributes, needs analysis, psychographic factors, attraction of a certain lifestyle, etc. Fundamentally, they all refer to how the customer thinks of a product while making the purchase decision.

Third step:

Pilot testing

Whether it’s an entirely new channel or a carefully evolved network, it’s always a good idea to pilot test before launching.

The tests of the new channel allow us to refine the economic aspect and the competitive positioning of the channel concepts: structures, services and operating systems.

When piloting a channel concept, several aspects need to be considered:

The core staff team: There should be a core team that has overall responsibility for running the pilot work and monitoring and learning from the experience.

Venue Identification : Identify those areas of the business where the pilot test will be carried out. It is evident that some offer better possibilities of success and learning than others. It is important to establish selection criteria that will include geographic aspects, market potential, propensity to change, energy and performance of executives and staff, and local infrastructure.

Identification of resources: The pilot tests require human and financial resources to a degree that obviously varies from one test to another. It is necessary to clearly outline them and weigh the costs against the possible measured benefits, it is important to adhere to a series of basic principles:

• The pilot test must gather the best personnel
• A dedicated management group, focused solely on achieving pilot success, is preferable.
• Personnel should be chosen for their ability to perform detailed and execution tasks, rather than for their specialized knowledge or control over resources.
• The pilot test needs an inherent protective system so that selected personnel are not forced to return to their previous responsibilities.
• Other essential characteristics of the staff are enthusiasm, entrepreneurship, problem solving ingenuity, ease of adaptation to change, and perseverance.

Communications: At all stages of the process it is essential to communicate in simple and easily understood language. The entire process must be one of discussion and feedback. There must be a continuous dialogue between the basic team and those who participate in the test. In particular, communication should reinforce confidence in the pilot test and its guiding concept. You should also highlight significant conquests and progress.

Identification of the process: A clear process should be exposed and known to all, emphasizing the creation of direct communications with all stakeholders, definition of roles, responsibilities and incentives, presenting the operation of the test and determining the value of the test. measured against agreed targets.

Hazard awareness: It is important to identify potential hazards and obstacles, incentives may be required, at the same time, it must be continually reiterated that change requires considerable commitment and investment and that results will take time to materialize.

Fourth step:

Quick extension

For channels to become a reality, concepts need to be rapidly expanded by segment and geographic area.

Now that the pilot test is complete, the challenge is to start realizing the benefits of the new channel proposal quickly on a wide scale. The pilot test must generate either so much data that it is necessary to completely review the program, or the knowledge and confidence to proceed to extend it as quickly as possible.

Often, the competitive advantage of a new channel concept comes from being the first. It often happens that at a high level ideas are easier to identify and copy. Therefore, to be the winner it is essential to get ahead of the competition in the refinement of small details and simply be the first. So this accumulation of knowledge and this advance are surprisingly difficult to imitate.

Four are the main elements of a successful and rapid extension.

1. Strategic planning with high-level decision-making that will determine resource levels, risks, planned extension areas and deadlines.
2. Tactical planning includes the systematic selection of where and when the extension will take place.
3. Execution Methodology, a set of written instructions, detailed and clear, that several teams can use simultaneously to carry out the extension.
4. Control and measurement, quantifiable and clear goals must be established.

All four elements contribute to a successful extension, however, along the way it is still necessary to be aware of certain frequent errors and correct them soon if they appear. Many times the extension fails due to errors such as the following:

• Not applying enough resources early in the process – especially, not dedicating key extension staff to the pilot phase.
• Do not anticipate or prepare for pitfalls such as legal barriers to the execution plan, or conflicts with other channels.
• Neglecting the lessons learned in the pilot phase
• Losing sight of target clients or other elements of the business in the effort to meet quantifiable extension objectives
• Do not set or use milestones for decisions on course correction.

Fifth step:

Study the results and adapt the channel

Companies and channels fail when they end learning. To survive, learning and evolution are essential, but learning is inevitably difficult, capsizing for various reasons:

Lack of senior management commitment.

The senior management team must be truly dedicated in order to achieve the necessary commitment. Senior managers have to invest enough time to really understand the issues at hand, people’s concerns, and what’s really going on. They have to gather instinct as well as intellect and especially when it comes to entering new channels.

Auto restricted options

Most managers reach the summit because they knew how to succeed in a box. They do not think differently, they are not given to pick up new ideas that come from outside the box. With multiple seeds that generate more concepts. (The concept is easier if the seeds can be justified with serious business arguments.)

Inability to learn from experience

As Harvard’s Chris Argyris points out, companies are notoriously inept at learning from experience – indeed, experience is one of the great mysteries of organizational life. Managers are assumed to benefit from experience, because better decisions can be made, however, while personal experience is recognized as important, the importance of collective corporate experience is often unknown.

Lack of flexibility and authority

Learning requires flexibility and a willingness to risk something new, plus the authority to try things out and the confidence to deal with failure in a constructive way. Unfortunately, most managers are uncomfortable at the idea of ​​learning from their mistakes. Another awkward idea Chris Argyris raises is that managers are more likely to sweep an error under the corporate carpet than to expose it to learn from it. This type of reaction is rational in the usual corporate environment where anything less than perfect success can be a stumbling block in the race. But at the same time; Innovation is very difficult: without learning, pilot programs are useless.

Handle uncertainty

Every company that is learning generates uncertainty and ambiguity in areas that were previously clear, managers have to learn to deal with this more hazy and difficult to understand environment. Change programs are equally fraught with uncertainty.

Accept responsibility

Individuals must take responsibility for their learning. They cannot blame others for a lack of development opportunity, as it is incumbent upon them to seek and create their own.

Learn new skills

In particular, managers must acquire listening skills and be able to act as facilitators. Whoever dictates is not adding learning value.

Build trust

Trained within the concept of divide and rule, many managers find that it is not easy for them to trust others.

STRATEGIC CONQUESTS

Despite the countless structural and human factors that make learning difficult for companies, they have to learn. Learning is the way to relate the launch of new channel concepts to the first step in channel management, that is, understanding the needs of customers. Learning is the path to what Charles Lucier, Leslie Moeller and Raymond Held call “ strategic innovation ”

Strategic innovations are not brilliant insights but powerful value propositions that have their roots in an outstanding business model developed through experience. Nor are they written on stone tablets. The concept that leads to ultimate success is often radically different from the one that started the process. The business model and value proposition eventually require notable adaptations based on learning.

Strategic innovations are rare because the reasoning process behind them is relatively unknown. Traditional strategic planning reduces the probability of a conquest. Few strategic conquests occur in companies with strong strategic planning processes. The emphasis of strategic planning is usually oriented towards gradual improvement, the process goes from finding out data to programming or formulating strategies. Instead, the planning to achieve conquests goes from the investigation of data to what has been called ideation and from there to learning by doing. In addition, strategic innovations are especially difficult for established protagonists, whose mentality tends to take root in the here and now and worries about the possible cannibalism of today’s business.

Lucier and his colleagues analyzed the creation of shareholder value, between 1972 and 1996, in more than 1,300 large companies whose shares are sold on US exchanges. They also explored the cases of 65 companies that were counted for at least a decade in the top 10% in terms of value creation for shareholders. The investigations revealed that more than 80% of the strategic innovations they studied had arisen from the application of one of the following four concepts:

• Retail sales
• Elimination of steps in the value chain
• Concentration and reduction of complexity
• Brand leverage

Research confirmed that strategic innovations do not happen very often, in 75 companies in the US over 40 years, only 1.3 companies per decade, per company attempted strategic progress. Almost half (0.6 per company, per decade) achieved this, thus acquiring a competitive advantage of at least five years for the innovator.

Now, the central lesson is to learn by doing, that is, the development, through experience, of a value proposition and a notoriously superior business model. Learning by doing means that learning is driven by experience fed back by refining the business model.

From a managerial perspective, conquests pose three key challenges:

First: there has to be a commitment, the aspirations have to be high and the participants have to accept the risks and be willing to wait patiently for the benefits, all that takes time and attention

Second: this commitment has to be maintained for several years. To ensure the success of strategic innovation, it may be necessary to organize pilot tests over several years.

Third: conquests require differentiation management. They require sharp and different measurements, and these measurements must be communicated and refined; a direct connection must always be kept open from senior management to pilot tests and back to senior management

CHALLENGES OF DISTRIBUTION CHANNELS

There are three factors to consider during the distribution channel management process:

1. Manage conflicts between channels

The core of the channel management process is formed by the knowledge of customers, the identification of segments among them that add value, and the development of operating systems aligned with customers. Its transformation into effective channel management can be undermined and revolted by conflicts between them. Multiple channels are an inherent part of channel management , so differences between them are inevitable. Companies need increasing capacity to recognize potential conflicts between channels and to consciously decide between compensating elements or to invest in those capacities that allow them to manage the conflict.

1. Maximize channel economies

To stay ahead of the race, companies must proactively drive change. Channels are the new battlefield and will be constantly changing. Only those companies that match or exceed this rate of change will survive. The winners of the future will be those companies brave and insightful enough to continually invent new channels and vigorously manage them.

1. The advantage of one-to-one marketing

The end result of dynamic distribution channel management is one-to-one marketing. The future is in one-to-one segments. The beauty of electronic commerce is simply that it allows an intimate dialogue with customers. But don’t get carried away with enthusiasm: the Internet is an excellent tool for gaining a channel edge. However, it is not the only tool, nor is it the last word.

MINIMIZE THE CONFLICT, MAXIMIZE THE DIFFERENCE IN THE DISTRIBUTION CHANNELS

The classic ways of managing the conflict between distribution channels has to do with minimizing competition between the different channels, differentiating as much as possible what each one offers. It can be achieved through product variations, pricing strategy, and advertising and promotional programs.

Conflicts have two basic causes. One is the differences in incentives and pricing. The other is the competition to win the same clients.

Price issues need to be looked at integrally to avoid arbitrariness when comparing channels and levels in the distribution hierarchy, to prevent one channel from dominating other major channels, and to ensure that the necessary value-added services can be supported by appropriate channels. Some degree of competition for customers may be advisable, but any harmful matches should be identified at the planning stage.

The management of conflicts between channels is also a structural and operational matter. Management must necessarily ensure that companies are organized and managed in such a way that they connect with customers – the right customers at the right time and in the right way. Conflict management is as organizational an issue as any other.

This means that customer service cannot be delegated by lowering it down the line. Delegating improvement in customer service to some customer service function is a sure sign that the results will be disappointing. Furthermore, delegating responsibilities to any functional organization without much foresight and attention from top management rarely brings satisfactory results.

Connecting with customers doesn’t mean smiling at them, although it helps. It means building channels that deliver value to customers and then establishing the processes and operating systems that deliver that value effectively. The operational challenge is broad. Business processes relevant to the effective management of a given channel always have several functional areas. Requires taking into account sales, marketing, operations and financial, skills in strategic, operational and information systems are required.

The challenge is for companies to perceive the impact on their effectiveness of organizing their activities not around functions but around channels.

MAXIMIZATION OF CHANNEL ECONOMIES

As service-based differentiation grows, new segments are discovered, and ownership and purchase segmentation becomes more complex, a transformation is taking place in many businesses.

There is more than one Michael Dell.

For change to occur, new ways of thinking about business economics are required. Companies must find opportunities to change the market economy by changing channels or realigning current ones.

The transformation of companies is on the agenda. Strategy guru Gary Hamel, co-author of Competing for the Future, argues that there are three types of companies. First there are “the real makers,” companies like British Airways and Xerox. These are the aristocracy – well managed, always high-performing. Immediately, says Hamel, there are the seconds, “peasants who only keep what the lord does not want.” “This group usually has about 15% of the market – like Kodak in the copier business or Avis; Avis’ motto: We try harder, it was a monument to the peasantry in its mission statement. Striving harder does not lead to anything, ”says Hamel with disdain.

Third are the “breakers”, the revolutionaries in the sector, these are the companies that, in the Hamel concept, are creating the new wealth – like Starbucks in the coffee business. “Companies must be wondering who is going to capture the new wealth in their sector,” he says.

When Hamel talks about change, he is not thinking of returns on the periphery. “The primary objective is to be the architect of the transformation of the sector, not only of corporate transformation,” he says. Companies that view change as an internal affair are in danger of falling behind. What you should do is look beyond the boundaries of your industry. Hamel estimates that if you want to see the future ahead, 80% of learning will take place outside the borders of business and industry. In this regard, companies are not very skilled. “Fortunately for them, companies in most industries suffer from the same blindness,” says Hamel. “There is nothing inevitable about the future. No one has exclusive data about the future. The goal is to imagine what you can do. ”

In a 1997 Harvard Business Review article, W. Chan Kim and Renee Mauborgne – two academics from the French business school INSEAD – outlined the results of a five-year study. They studied 30 high-growth companies in the world and found that what distinguished them from the least successful firms was their approach to strategy.

This research gave rise to the theory of “value innovation” – something with important implications for channel management. Essentially, what Chan Kim and Mauborgne suggest is that the most successful companies don’t just try to get ahead by one step but rather reinvent the Game.

They explain it this way: “the less successful companies had a conventional attitude. His strategic thinking was dominated by the idea of ​​staying ahead of the competition. In stark contrast, high-growth companies paid scant attention to the idea of ​​matching or outperforming their rivals. What they wanted was to downplay their competitors by using the strategic logic that we call value innovation. ”

THE ELECTRONIC CHANNELS

The Internet is not the first electronic channel that has been tried. Previous attempts to create interactive channels were costly failures. Walter S Baer, ​​a senior policy analyst in RAND’s Science and Technology division, has traced the history of electronic commerce for the past 20 years. Baer notes that technologies for electronic home services have been around for much earlier than is commonly thought. Television developed in the 1920s and at the New York World’s Fair in 1939 there were videophones. But it was not until the 1970s that the growth of cable television in the United States sparked real interest in the concept of the “wire nation.”

In the 1970s videotext (Viewdata) and teletext (Ceefax) began in the UK. In the 1980s the French government made large investments in the Minitel service. More recently, American companies gave new impetus to the idea of ​​interactive home services, including the Full Network, a service that could offer households two-way video, audio and data.

During the history of unprofitable e-commerce, the types of services offered were curiously similar, Baer notes. Typically these were

• News and sports information
• Information on special topics (travel, recipes, etc.)
• Interactive education
• Home shopping
• Banking and financial services
• Ticket order (entertainment and travel)
• Interactive games
• Video on demand and paid transmission
• Email and conversation services

If the list seems familiar, it is because it contains the same advertised areas as today’s Internet services.

Although much is said about electronic commerce, it is surprising how little has been written about how to handle the transition from a traditional business to one based on the Internet. Electronic channels are not a magic table. With few, but honorable exceptions, most companies continue to struggle to create profitable Internet-based business models. As is so often the case, reality is always lagging behind hyperbole.

Shikhar Ghosh sums up the situation thus: “The Internet is fast becoming an important new channel for commerce in a number of businesses – much faster than could have been predicted several years ago. But for most executives, especially those of large and well-established companies, it will not be easy to determine how to take advantage of the opportunities that this new channel is creating ”

The Internet is a fascinating new frontier. Open up new horizons to the business world. But it would be foolish to suppose that it is an easy option. The point is that they are worth investing time and money in because they hold the possibility of enormous power. Today, however, many companies are throwing money at the Internet in the blind hope that it will transform their business overnight. On the other hand, many are simply running, fearful that their competitors will crack the code on the electronic channel before they do.

In certain sectors, the development of electronic channels is reminiscent of the space race. In the 1950s and 1960s, the United States and the Soviet Union injected amounts of money into their respective space programs because each feared the other would overtake them.

Electronic channels will transform entire industries, but it will not be by luck but by effective channel management. The application of computing in the eighties has lessons for us. The companies that took best advantage of computing at the time were those that had a clear idea of ​​what they intended to achieve with it.

The question asked by knowledgeable organizations in the 1980s was. What business are we in? In the early 1990s this changed as companies like Dell began to ask: What is the best business model? Today the question changes again. Now it is: What can e-commerce do for the customer? Actually, it’s about applying the new technology to the right aspect of the business. In a word, it is useless to create electronic channels as an end in itself. Digital technology is highly effective when tied to a specific strategic goal.

HOW TO TAKE ADVANTAGE OF THE ELECTRONIC CHANNELS

Companies can take advantage of electronic channels at three levels

• As information platforms
• As trading platforms
• As platforms to forge and maintain customer relationships

The impact on the business increases as you go up the levels. Currently, most companies use electronic channels as information platforms, although they are increasingly experimenting with novel ways of using them as platforms for transactions and as a means of forging more complex relationships with their customers.

The progression from information platform to relationship platform is logical. There is a temptation to jump to the third level by going over the first two, but in most cases this will not work.

This may be possible over time, when customers become more comfortable with e-commerce, but for now it is wiser to develop e-channels level by level. The most effective electronic channels are those that have evolved from low-value platforms to high-value platforms.

The point is that customers demand a quality information platform before being willing to enter into electronic transactions. If we visit a website that does poorly with the basic tasks of providing information, we will not feel confident in its ability to complete transactions. The client has to feel satisfied on both levels to feel willing to engage in meaningful dialogue or an electronic relationship. It is done well on the first level, and then you can proceed to the other two. This does not mean that it is impossible to develop all three levels simultaneously. It simply suggests that effective evolution builds on already acquired skills.

The evolution of technology – essentially, bandwidth – also favors this approach. As the Internet gains speed and more ability to deliver high-quality images as well as personalized service, business opportunities are also increasing.

Companies trying to move directly to the third level, which is high impact, run the risk of being defrauded by technology. There are indications that once customers have had a bad experience with a channel, they feel less willing to try it a second time. Customers do not know, nor are they interested in knowing, what the mistake was. They only know that they got a bad response from the company and therefore consider the company to be a bad risk. A customer who visits a website and takes the time to fill out a marketing questionnaire is very impressed if their information is reflected in the marketing material the company delivers – and it would seem absurd to the contrary. Customers are not interested in technology glitches, they are only interested in results.

Level 1 – Information Platform

Electronic channels are already widely used as information platforms. The best technologies mean that their functionality improves rapidly. Today, such channels are used to provide customers with instant information on product specifications and characteristics. They also give the buyer the ability to individualize features and options in order to make a personalized purchasing decision.

Level 2 – Platform for transactions

At the second level, electronic channels provide additional information and a mechanism for transacting. Such systems are already used to give quotes, place orders, check availability and access additional services such as financing or insurance. The stumbling block here remains the security of payment. However, this probably does not pose a serious problem for the future development of electronic channels. Some clients will feel more comfortable with a parallel payment channel, preferring to place their requests electronically but pay by traditional means. But credit cards and other instant payment methods increasingly mean that the electronic channel can provide a complete system for transactions.

Level 3 – Platform to manage customer relationships

This level incorporates the first two. This is where electronic channels can have their greatest impact. By engaging in sustained dialogue with customers, they theoretically offer a way to sell to one-on-one segments.

The key attribute of the electronic channel is its ability to “push” information as well as “pull” it. If too much information is pushed, the client becomes irritated and disconnects. Today much of what is said about e-commerce is about supplying information to customers. Well managed, the electronic channel is not only a resource for communication with customers, but can contribute to each element of the value chain.