Channel Management from the eyes of an Automotive OEM

A well-managed channel is instrumental to a successful sales performance and is a source of competitive advantage for the company. You get the access to sell your product to a larger pool of customers quicker and do it better than your competitors.

?What is Channel Management and why is it important??

Channel management, simply explained, is where and how you sell your product/service and how you manage the people and the processes involved in it.?

The automotive industry, for example, has many stakeholders involved in its downstream operations such as dealers, parts distributors, equipment suppliers, construction partners, media, and marketing agencies. Each stakeholder adds value to the business ecosystem in ways such as improving network presence, efficient distribution capabilities, advanced equipment support, expertise in marketing, etc.?

?There are several benefits of having the right set of partners, a few include

• A new car sales showroom located in tier 2 and tier 3 cities helps expand the sales network for the brand and opens new opportunities to sell.
• A spare parts distributor with access to independent repair shops can provide access and reach to the unorganized sector thereby allowing the company to penetrate the unorganized automotive spare parts market.
• Equipment suppliers help improve productivity that helps offset rising input costs such as manpower costs.

What makes Channel management so challenging and important?

One fundamental expectation from business owners or channel partners is to get consistent financial returns and ensure that the customer experience they provide continues to bring repeat customers.?

Managing stakeholder expectations is quite challenging for an OEM due to the diverse background of the people involved in the business and the nature of challenges that each face. There is no cookie-cutter approach that can be applied to all partners that would solve the problems. Instead, it is about balancing the quantitative aspects such as performance metrics and key result areas with the qualitative aspects such as maintaining and managing relationships with your stakeholders. It is an investment in people, process, and maintaining consistency and agility over time that helps build a strong network and create a competitive advantage.

Let us consider the example of a Car manufacturer in India and its efforts to manage its Sales and Aftersales network.?

A car dealer's approach towards a business would vary significantly across different parts of the country. If I were the owner of a car dealership, I would continue to invest in the business if the returns from the business keep growing each year. For a car manufacturer, each of these Dealer partners are the face of the company in the markets. Each process, every interaction with a customer at a dealership has an impact on the car manufacturer’s brand. A superior experience to the customer can ensure business continuity while a poor customer experience can be detrimental to both the dealership and the car manufacturer. Each activity at a dealership is linked to a metric that affects the financial performance of the dealership. Thus, it becomes important to have the right set of people and processes implemented to ensure that the end customer gets a superior experience from the partners and our partners continue to grow.?

For a car manufacturer, managing its channel is like managing several independent companies. The field Sales and Aftersales managers from the car manufacturers are critical to ensure that a customer gets the same experience at every showroom/service center of the car manufacturer across the country. Like I mentioned before, not all dealers are the same, and not all of them need the same type of support from a car manufacturer. To understand it better, it is important to look at your dealer partners from a perspective of different stages of maturity in their business life cycle. Based on my personal experience, I categorize the dealerships into 3 main categories: Introduction Phase, Growth Phase, and Maturity Phase.?

Introduction Phase

This is the phase that begins when a dealership begins its business with a Car manufacturer. The Car dealer is new to the Car manufacturer's systems in terms of day-to-day operations, processes, or even internal IT applications.??

?A lot can go severely wrong during this phase. What gets implemented here helps build the long-term business. A lot of hand-holding needs to be done by the car manufacturer during this phase to get things right.?

Three major tasks need to be prioritized by a car manufacturer to support the new dealer.

1. Hire the right set of People: A new dealer/supplier needs the right mix of experience and freshness among its teams to operate well. To be more specific, I would look out for people with a depth of experience for the key decision-making roles and, give them the freedom to pick their teams. I would recommend getting involved with the Dealer owner in the interview process to ensure that they meet the basic criteria of skill set and attitude.?
2. Provide hands-on Training: Train your people on the everyday tasks, make them aware of the key result areas, and expectations in terms of process adherence. In my previous assignment, we would have several case studies and roleplays along with the dealership personnel to demonstrate process adherence. It is important to make the team aware of their everyday responsibilities and explain the link between their actions and the key performance metrics. Make each member in the team aware of his/her work and how it adds value to the overall business.
3. Develop Performance Roadmap: Engage with each team member and develop specific goals for each area. Make these goals specific and time-bound. Review them regularly and reward the achievers. Get the Dealer owner involved in the recognition process. This helps build a performance-oriented team from the initial days itself.?

Growth Phase

The growth phase is similar to the teenage phase among humans where there is extreme energy to do a lot more but you lack the mentorship and the resources to get it right. In this phase, the business grows rapidly, the key business metrics also indicate substantial growth but gaps begin to appear in communication with customers and in process adherence within the dealership. The frequency of process lapses increases with time, and it does not get due attention due to the rapid growth happening all across. The main challenge that the dealers face is?scaling up?while maintaining the process standards. Due to the sudden rise in volumes, some critical steps tend to get skipped. A poorly implemented process might fail thereby snowballing into dissatisfied customers and thus drop in retention and revenues. This is one of the critical periods for the long-term sustainability of the business which depends on the foundations laid out during the introduction phase.?

Some of the critical factors for success in this phase are

1. ?Enable Dealers to be Data-driven: The managers at a car dealership, in my view, are nothing less than superheroes. The number of internal and external challenges they face each day is extraordinary. In this overwhelming, high-intensity role, it is easy to get lost amidst the chaos at a dealership. It is then that the Car manufacturer should spend the resources in remapping the skill sets of the managers, make them data driven and provide necessary trainings to the people at the dealerships. As the volumes grow, managers need to balance their field presence on the shop floor or customer facing showroom executives with understanding of the quantitative elements that drive the performance. Managers must be trained on developing a better grasp of the key enablers that help in achieving those performance metrics.
2. Manage Financial Resources (Working Capital Management): The second challenge that I see the most is the financial management at the dealerships. A dealership business model runs on significant short-term borrowings to manage their working capital. However, the significant volume rise during this phase places the need for efficient financial planning. Most dealerships struggle during this phase to either get adequate financing or to manage their working capital for their regular operations. A thorough check on the receivables and developing an efficient payables model for the cash conversion cycle would help ensure that the dealership has the resources to maintain the necessary growth needed. In addition, a monthly/quarterly overview of the key financial metrics would help identify the areas that need immediate attention.
3. Institutionalize Countermeasures implementation: There will be problems at regular intervals be it equipment breakdown, improper commitment during new sales, or simply unable to track what your team is doing at work. Instead of getting overwhelmed by the problems, a car dealership needs to develop a robust root cause analysis and countermeasure implementation mechanism. A second line team to understand, analyze and implement countermeasures needs to be developed to help institutionalize the problem-solving capabilities of the dealership.

Maturity Phase

The maturity phase is similar to the people in their mid-40s. There is sufficient background experience available to know and operate the business effectively, but you cannot grow or do the things that you could do during your teenage years or your early 30’s. In this stage, the day-to-day operations are managed seamlessly and the occasional problems are managed by the people within the dealership. The challenge at this stage is mainly with maintaining the growth and maintaining consistent profitability. With the cost of manpower, rentals rising each year, and with limited capacity, the key criteria in this phase are to identify avenues for growth and reduce costs. These can be done in two ways

1. Improve Capacity Utilization: Increase capacity utilization by adding additional shifts, adding new productivity-improvement tools, introducing automation at various work stages. This enables better utilization of the fixed assets and reduces expenses on unproductive tasks. Including more digital elements in the customer journey helps reduce the dependency on non-value-adding expenses in day-to-day operations. This frees up space, gives additional time for the manpower to focus on value-adding tasks that bring higher revenues to the business.
2. Expand Network & Reach: Identify new areas for expansion by having a hub and spoke model or by having mobile outlets that give them the freedom to reach out to the customer thereby expanding the scope of geography for the business. These run at relatively lower costs and help improve the reach and spread of the dealership.

Conclusion/Take Away

From an OEM point of view, understanding where the stakeholder is in terms of its life cycle would help fine-tune the strategy that best suits the requirements. It also enables to effectively plan the resources to deliver the optimum output. A well-planned out strategy would consider these elements so that the resources are deployed most efficiently and the businesses get the best results.

With the changing landscape of business with more businesses going online, OEMs are now faced with a new challenge of managing the traditional business model of dealerships and franchises while exploring an omnichannel approach. OEMs want to be closer and in more direct contact with the customers than ever before. We are amid a transition for the business models that have managed to deliver in the past for the automotive sector.?

On the other side, a traditional dealership business model will have to look at the business viability in the long term amidst this transition. It is for certain that from a dealer point of view, the business model needs to adapt and fine-tune its approach. We do not know with certainty on what will happen next, but we know for sure that, technology adaptation is going to alter the dynamics of the channel management structure for the automotive industry and many industries alike.?

The reason I have not mentioned the decline phase in the industry life cycle is that I believe that the business model as such is going through a transition. The next phase may result in growth or decline based on how the business model adapts to the changing landscape in the automotive sector. How we adapt the business models to the new change will determine the new structure for the Channel management Strategy.

It is an interesting space to be in!!