So let's wrap up our discussion and make sure we understand the key takeaways. As we've said in our lecture before, understanding channel functions and flows are critical to effective channel solutions. So let's take a look at how the channel flows and functions operated in the Cemex case. As we look at the slide, what we see is we have Cemex, the cement manufacturer who's trying to get goods and services available to the customers. The way they do this is with the help of additional channel members like sand manufacturers, brick manufacturers, lime manufacturers and steal broad manufacturers. All these suppliers are selling into wholesalers, so Cemex and these manufacturers are providing bulk delivery promotions and financing to these wholesalers, while the wholesalers are in turn, providing payments and providing access to dealers and carrying inventory for Cemex. The dealers, which is the next channel level down, are also engaged in a number of different flows. So for these dealers, wholesalers are offering and helping with local deliveries, providing variety and their product assortment, providing some deals which may be a little bit shady, and maybe helping out with a little bit of financing and in return, dealers are sending back sales revenue and perhaps carrying the inventory of the wholesalers as well. At the next level down, we see that the channel flows that are happening is that the dealers are providing inventory availability, product variety, purchase, convenience and delivery. And again, maybe some more deals to the end customer. And in return, consumers are sending back revenue to the dealers or sales. The other members of this channel, who are also providing some flows and functions, include friends and family who might help customers save or Tonga's who help, encourage, organize and organize savings as a group and as a social mechanism. Now I will tell you that understanding these flows is one of the most misunderstood aspects of channel strategy by most firms. So your ability to get this right will make all the difference in solving your channel problems. Let's look at what happened with Cemex. >> Cemex developed a program that was initially called Patrimonio Hoy in Mexico. This was conceived as a project to understand the customers in the self construction segment better. It was a major component of Mexican homebuilding concentrated in low income neighborhoods. Patrimonio Hoy has generated recognition in goodwill for the company. It's innovative approach reduced significantly the cost and time needed by the poor to improve their housing 40% less costs and move in one year. The next best alternative was to wait seven years and pay two times as much. So it was definitely improvement. Now let me show you a short video about that program at this point. >> [FOREIGN] >> So let's impact this further key to their channel strategy was the recognition that they had to selectively perform channel functions to fill gaps in the efficiency and effectiveness of how channel benefits were currently being delivered. Also key to their strategy was to establish a program that would manage a symbiotic or mutually beneficial program with their preferred channel partners. The young guns. Let's take a closer look at how Cemex did this. So they developed a dealer network called Construrama, and this was a branded organization, and it supplied vendor managed information systems and logistic software to dealers to help them better manage inventories. Now, at the time, the dealers were primarily using paper and pencil books for accounting. Cemex also used its volume buying power to increase the product variety, an assortment available to dealers, and they made this channel function more affordable to them. Let's watch a video now to give you a perspective of this network from the dealers point of view. [MUSIC] >> Dealers agreed to pay a $500 membership fee and they agreed not to sell any cement brand other than Cemex. So this created exclusivity for Cemex and shut out other competitors that might enter the Mexican market. Cemex helped the dealers develop preset molds for walls and other structures, and in this way they sealed up the retail channel for years to come. This program also helped to spur a secondary market bricklayers plumbers to support the patrimony Hoy effort. The program was so successful that it has since been deployed throughout Latin America and in Egypt. Concert drama is branded separately from Cemex and most people do not realize tha Cemex was the creator of this program. Currently, more than 30 businesses form part of Cemex's network, which enjoy benefits such as standardization and maintenance of their storefront, attractive internal image and branding through expert advice on the layout of the sales point, adequate lighting, cleanliness, order placement and marketing of sales items. In addition to uniformed personnel and the use of widespread advertising. Construrama also included brand promotions, shared access to specialized training for owners, two employees and family business management, finance, billing, inventory management and customer service, as well as achieving savings and insurance contracts, among other economic benefits. And although the owners retain full control of their stores and decision making independence, they can count on Cemex's years of experience as a global leader in building materials and reap the rewards of a network with over 2100 stores in Latin America. Cemex is the owner of the Contour on the License, and affiliated distributors are given training and tools to improve efficiency and customer service. The Contrurama model moves away from the large retail chain that seeks to replace locally owned businesses. Instead, Contrurama lends its image, brand name and world class experience to local businesses, allowing them to compete with the large chains while retaining their personal touch in close relationships with the community. And over time, what has happened is that the young guns have prospered from the business that they gained through their partnership with Cemex, while the old dealers have retracted and as the old dealers get older, the young guns have bought them out. Now, don't miss a key learning point here, and that is that your channel partners need to be compensated accordingly for the value that they deliver in the activities that they perform. And this is the cornerstone of successful channel management. And with that, let me just say that these strategic partnerships can be really essential to channel strategy success. In fact, one of the best ways to lock up a channel or route to market is through partnering or pie expansion of the mutual benefits for both parties and all those involved. Another key takeaway is the ability to successfully conduct a channel function analysis. As I said before, this is one analysis that most firms, especially those that have never been exposed to channel strategy concepts, will regularly miss. So this sheet identifies and graphs out the channel system so you can see that from Cemex. The next level down is a construction wholesaler, and from there, the products and services might then go to small neighborhood dealers who then sell to the end consumer that do it yourself buyer. So in this sheet you identified the names and types of each channel member in the channel that you're investigating. This list should be the same as in the routes to market template D for the channel you're focusing on in this exercise. The end user is also a channel member for the purpose of this exercise, so you should list them as a member of this particular channel. The end user can be a channel member, particularly if they perform the necessary functions like construction in this case. Here is the channel benefit analysis, as we did on the board, you can see the list of channel benefits and the weighting of these benefits from the consumer's perspective. I like for these two some 200 to incorporate the fact that customers cannot have all benefits all the time because our costs are not unlimited. By summing these 200 this forces trade offs, and it identifies which benefits are most important in which are less important. These numbers can come from market research or from a conjoint analysis of consumer preferences, and all of these techniques can be learned in any market research course. Now we evaluate how well these benefits are supplied by the current channel and as you can see the grade point average in terms of value created on each of these benefits is pretty dismal
