THE ART AND SCIENCE OF CHANNEL MANAGEMENT
Whatever your job title, if you work with channel partners - distributors, resellers, OEMs, retailers, integrators, etc. - you've got your hands full. You need to research and plan complex strategies. You need to attract and motivate thousands of individuals, in hundreds of reselling companies - while other suppliers and even your competitors try to steal your thunder. This blog discusses big-picture channel strategy all the way down to ground-level channel tactics. Channel mix. Channel compensation. Channel conflict management. Channel recruiting. Channel contracts. Channel programs. It's all here. Read on and send me your thoughts.
-- Bob Segal, Principal -- Frank Lynn & Associates
Why You Should Think About January in July
Ah, summer! Baseball games, barbeques, vacation. Why would anyone want to think about January now?
Well, if you manage a channel partner program or the associated sales team, now is a particularly critical time to think ahead to January. What happens in January? If you operate on a calendar year you have a new budget. You have a new, and undoubtedly higher, sales quota. Even if you are on a different fiscal year your partners have new budgets and so do your competitors. Your partner contracts may terminate and/or come up for renewal then. Partners’ new business plans will kick in.
Most importantly you will likely be introducing some new elements to your channel program. Perhaps you will add a Platinum partner tier on top of your Gold tier. Maybe you will introduce or change a quarterly growth rebate. Possibly you’ll modify the partner planning process or re-organize the sales team responsible for implementing the partner program.
Let’s “walk back” these new program elements. You begin implementing the program in January. That means you need a communications plan by December. That, in turn means you need final executive approval before Thanksgiving. The executives will have plenty of input, implying a series of meetings in November and possibly even earlier. That requires a completed legal department vetting by late October. So the program design must be 90% finished sometime in the first few weeks of October. The new program plan is not going to pop into existence in October, however. You will need to 4-8 weeks to collect and analyze relevant data. Perhaps longer if you need market research to augment the internal data or pinpoint the key opportunities or problems. This puts you into July to gather a team to begin the project.
Welcome back from vacation!
The Ten Most Compelling Reasons to Rethink Your Channel Strategy
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Mark Twain once said, “If you don’t like the weather in New England now, just wait a few minutes.” His point about constant change could also apply to channel strategy. Many companies don’t pay enough attention to market forces that will affect their channel success; hence change sneaks up on them. To stay ahead of these changes, here are the top ten reasons Frank Lynn & Associates has identified that cause companies to rethink their channel strategy.
#10 The Aftermarket
Manufacturers often overlook best practices, market changes and competition in this highly profitable segment of their business
An acquisition sets off a broad series of choices manufacturers must make about their potentially combined channel programs. Acquisitions at the distributor level can significantly shift the power in the relationship (see #7 below).
#8 New Competitors
New competitors have the freedom (or necessity) to explore novel routes-to-market. To cut off the competitors, market leaders may need to consider some unique strategies, such as creating a second brand, developing a skunk-works approach, etc.
#7 Shifts in Channel Power
A manufacturer can innovate to gain power, or it can allow its products to turn into commodities and hence lose power. A channel can add more value and gain power or it can merely book orders thereby losing power. Power is a key component of channel strategy and manufacturers need to constantly measure it, track it and devise plans to retain and/or increase it.
#6 New Channels
Entrepreneurs are always looking for ways to improve upon the existing methods of distribution. Probably the best example of this today is online resellers. Manufacturers need to consider if, when and how they should utilize the new channel and under what set of rules.
#5 New Markets
To successfully cover new markets manufacturers often must develop new channel policies, programs or partners.
#4 New Products
truly innovative new products often have sales or support requirements beyond the skills of existing resellers. Knowing when and how to match new products with the right type of partner is a key element of channel strategy.
#3 Changing Economics
Channel roles and responsibilities shift. Manufacturers must make sure they compensate their partners in a manner commensurate with the functions the channel currently performs.
#2 Excessive Channel Conflict, Insufficient Coverage
Strategically, manufacturers need to determine which of their actions will lead to conflict, how much conflict is acceptable and which mix of tactics will work best to manage conflict.
#1: Shifting End-User Needs
End-customers’ needs often evolve slowly. A shift in end-user buying, usage or support requirements is probably the biggest factor driving the need for a new channel strategy.
To read the entire article please Click Here. To learn more about these 10 factors or to discuss other aspects of your channel strategy you can reach Bob at email@example.com or 312.558.4808.
From Strategy to Tactics: A Look at Partner Marketing Programs
Over the last few years many manufacturers have revamped their partner marketing programs - particularly co-op advertising and market development funds -- to create more accountability. What are the program objectives? Projected and realized results? Activity or utilization levels? Most importantly what was the return on investment? Some manufacturers have even replaced the traditional “entitlement” approach to funding these programs to one based on the merit of partner proposals.
Despite these efforts many partner marketing programs still fail to deliver on the strategic goals of the firm. The problem is one of translating strategy into tactics.
On the strategy side, planners may not have defined or properly communicated strategic targets to channel program managers. Strategic targets should include:
• Prioritized market segments - by size, growth rate, accessability, profitability, etc.
• Titles - who are the actual decision-makers, influencers, etc.
• Prioritized products including services, bundles, etc.
• Timing - relative to product introductions, marketing campaigns, etc.
• Partner types - what size or type of partner is the manufacturer betting on for the future? What type of partner is a best fit for targeted customer segments, titles, products, etc.
• Brand - what message does the company want to spread through partner-led campaigns
On the tactical side, channel program managers need to understand the strategic targets and make sure they are reflected in the partners’ marketing efforts. One way to do this is through the aforementioned proposal approach. This gives the manufacturer an advance look at the partners’ marketing initiatives and an opportunity to realign them, as needed, with strategic targets. A second, complementary way to do this is through the annual partner business plan process. The planning template should include a section on quarterly partner marketing initiatives. Channel account managers need to review their partners’ overall marketing approach (separately from specific proposals) to make sure it is aligned with the manufacturers strategic targets.
The final strategic component of a successful partner marketing programs is governance. Governance falls on the shoulders of the CMO or marketing director. They must take the lead in coordinating a diverse set of internal and external (resellers, alliance partners and marketing agencies) players to deliver on the firm’s strategic objectives.
Is Your Aftermarket an Afterthought?
Companies pursuing growth focus on their main products - equipment, hardware, whole goods, “big iron,” lead line, software licenses, etc. These products typically account for 60-80% of a manufacturer’s revenue. However, companies seeking growth often overlook their aftermarket. This is a big mistake. Aftermarket sales are a significant revenue growth opportunity and an even larger profit growth opportunity. Companies need to apply strategy to their aftermarket sales just as they do with their main products.
The aftermarket consists of several categories of products and services - parts, repair and maintenance services, professional services, accessories, supplies and software tools.
The aftermarket is of strategic importance for many reasons. First, as noted above, margins are higher than primary products and therefore the aftermarket represents a disproportionately larger (and often under-recognized) share of most companies’ overall profitability. Second, the aftermarket gives manufacturers, and their channel partners, an opportunity to build an on-going relationship with customers. With capital equipment, customers may only purchase once every three, five or even ten years. The aftermarket provides the manufacturer with an opportunity to maintain its brand image, predict the beginning of the next buying cycle and monitor customer needs/trends during the intervening years. Third, the aftermarket is an avenue for competitor entry, so manufacturers need to defend their aftermarket.
The first step in building an effective aftermarket program is ensuring that senior management is on-board and that a competent, strategy-minded executive is assigned to run/coordinate aftermarket sales and marketing.
With leadership in place, the company should then conduct a customer segmentation study looking at the aftermarket in terms of product needs, pricing, preferred sourcing, etc. After segmenting the customer base and developing appropriate strategies, manufacturers than need to administer those strategies through specific programs, policies, and tools.
To build a strong aftermarket strategy, manufacturers need to implement best practices internally and at their channel partners. To read more about this topic and get a complete list of best practices call 312.558.4808 or e-mail: firstname.lastname@example.org and I’ll send you my article on this topic.
Channel Resolutions for the New Year
Like newly glazed ice to a skater or fresh powder to a skier, January brings the opportunity to start anew. Twelve months to “get it right.” A new budget to spend on all the projects you contemplated, but postponed in 2012. I know I said in my previous post that 2013 results are almost pre-determined at this point. However, I was going to an extreme to make a point; there really are some actions you can/should take now. While the vision of a new start is still fresh in your mind, what channel resolutions should you make (and keep!) early this year? Here are a few suggestions:
1. Survey end-customers
Sure, your company conducts customer surveys all the time. Questions about products. Pricing. Brand messages. But when was the last time you asked customers about their channel preferences or buying process?
End-customers are the starting point for all channel strategy, yet most companies are operating on assumptions and years-old (even decades-old) data. In 2013, you should conduct a definitive, end-customer segmentation and buying behavior research project.
2. Plan early for 2014
While 2012 just ended, 2014 is really not that far away. This is especially true if you’re contemplating changing your channel structure and/or the associated compensation levels. Changing channel requirements or benefits (discounts, rebates, programs, etc.) is a very detailed undertaking. It will directly affect your company’s financial results. To get it right, you should start looking at the data and contemplating options no later than March or April.
3. Find incremental business/channels
Virtually all business plans contemplate growth. But, do you actually know from where that growth will come in 2013? Will your boat rise with an industry tide? Will your channels partners take share from competitors? Will you simply raise prices?
In many cases the sources cited above will leave you short of your growth target. While the year is fresh, you need to consider new/incremental sources of growth. You need to look for “white space.” This white space can include new or under-served end-customers such as small companies, international markets, new decision-makers, emerging vertical markets, etc. Similarly you may have opportunities (to reach the new customers) via new channels. These channels might include direct-selling options (online, telesales, etc.), adjacent channels, Web-based resellers, technical or vertical specialists, etc.
To get a handle on incremental growth options you should undertake one of several opportunity assessments - brainstorming, market coverage analysis, adjacent channel research, etc.
4. Launch new products . . . the right way, in the right channels
Some statistics indicate that as many as 80% of new products fail to hit their sales targets. While multiple factors contribute to this alarming statistic one of the biggest is selling the product through the wrong channel. Too often companies just “round up the usual suspects,” e.g., their existing partners. If the new product is merely a revision of an existing product than the traditional channel probably makes sense. However, if the new product targets a new customer segment, presents a different value proposition, relies on a unique technology or requires any other significant deviation from past products you may need to find a new channel. Identifying, recruiting, and on-boarding a new channel takes considerable effort. The time to start is now, not a month or two before launch.
5. Identify wasted spending
Lurking inside every channel program is inefficiency and misspending. You might grant a deviated price to a distributor who isn’t meeting a competitive price, but rather a lower price from one of your other distributors. You might have distributors that stock little inventory because you’re willing to drop ship for free or a minimal charge. You might pay a bigger discount to a price-cutting large distributor even though a smaller one creates a much higher market share in its territory. You might even be giving an early pay discount to someone that doesn’t pay early! The failure to police contracts and watch program details means that most companies are paying more to their distributors than required. You need to review your contracts, programs, metrics, and procedures to squeeze out every drop of margin you deserve.
2013 will be half over before you know it, and as the months tick by the opportunity to impact results diminishes. Consider undertaking one or more of the above opportunities this month. Put a team together. Define objectives. Develop a plan. Bring in experts. Get it done.
Happy New Year - 2020
Hey, what about 2013?
2013 is already in the bag. You’ve already set sales goals. The budget is already in the hands of the CFO. You’ve already made whatever changes you’re going to make for your channel programs, discounts, rebates, etc. If you require business plans from channel partners they should be done by now or in the next few weeks.
Like I said, 2013 is in the bag. So, instead of worrying about 2013 you should be worrying about 2020. Why 2020? Because change happens incrementally, imperceptibly. Before you know it your product line is dated; your service level has slipped; you’ve got new, entrenched competitors; there are new buyers you don’t call on; three partners got big and powerful and now account for 50% of your sales; and entirely new channels are now active in your market. When did this happen? Why didn’t we do something about it when we could have? 2014 or 2015 are still to near. You need to consider how the world will look in 2020 and work your way backwards.
Our founder, Frank Lynn, called this process “look forward, look back.” In order for the world to look like X in 2020, where would it need to be in 2019? 2018? 2017? Get it? You need to consider 2020 in order to determine your channel strategy for, well, 2013.
Of course, imagining 2020 is not easy. As Yogi Berra allegedly said, “It’s tough to make predictions, especially about the future.” Tough, but not impossible. My favorite approach is scenario planning.
Scenario planning is like writing a novel. Your company is the protagonist. Your competitors are the antagonists. Partners are “round characters,” e.g., someone who encounters conflict and is changed by it. Customers can be either flat or dynamic characters depending on the segment. You fill out the novel with stock characters - typically influencers and other minor characters in your business ecosystem. To make it all work you need to write the plot.
Since predicting the future is “tough,” we like to consider three or four scenarios. Standard scenario plots include “winners and losers, ” a “lone ranger,” “back to the future,” “challenge and response” among others. However, you and your team should tap the right-hand side of your brains and generate scenarios unique to the conditions of your own company, partners and markets. Be contrarian. Don’t blindly assume current trends will continue, but ask what would have to happen to change them.
Some of the variables you might want to consider are:
• What new buyers might enter the market?
• How will the buying process change?
• Given the above, how might channel partners adapt? Could they? Or, will entirely new channels emerge instead?
• What new technologies and competitors might be around by 2020? For a clue, look at your own product road map and then go visit some guys in the lab
• What macro factors - the economy, demographics, environmental issues, cultural changes, etc. - could impact your industry?
• How might shifting global factors impact your business?
If you’d like to discuss the channel scenario-planning process or would like help with a scenario project please feel free to contact me.
These plots are described in Peter Schwartz’s excellent book, The Art of the Long View. Doubleday, 1991.
Social Media in Channel Management?
While I’ve been skeptical about the role of social media (LinkedIn, Facebook, Twitter, You Tube, etc.) in channel management, lately my view has been, well, “evolving.” Today’s news that Microsoft just paid $1.2B for Yammer (the “Facebook for businesses”) just deepens my curiosity. I still believe that the best way for a manufacturer to interact with its channel partners is through its field sales managers -- augmented by e-mails, a partner portal/website, a partner conference, etc. These methods generally allow you to control the conversation and deal with critiques or problems privately. However, my view is evolving for four reasons. First, the methods I just praised aren’t effective for all manufacturers. Second, social media itself has evolved and is creating better avenues for engaging with channel partners. Third, I’ve been struck by how much younger employees of channel partners use their cell phones, tablets and the social media that these devices enable. Lastly, “controlling” the conversation can limit new ideas and allow problems to fester.
Hundreds of social media applications exist. Most have no or very little applicability to channel management. However, in my evolving view several social media applications deserve attention. Arguably, the most important are blogs written by the manufacturers’ employees. Channel executives may read the blog of a vendor’s sales VP. The channel’s salespeople may be more interested in a blog from a vendor’s product manager. The channel’s sales engineer might read a blog from his counterpart at the vendor. Independent blogs are another venue for informed conversation. While the blog post itself might be important, much of the relevance of a blog in channel management comes from the “back and forth” in the subsequent thread of comments. After blogs, LinkedIn is probably the next most viable social media option for channel communication. While I personally find Twitter a bit overwhelming (you can nevertheless follow me at @bobsegal), it’s my third choice of social media for channels. I haven’t used Yammer, but it seems like it might be a viable application for channels too.
Here are some ways you might consider using social media in your channel management efforts:
• Search for potential new partners - for example via geographic, keyword searches on LinkedIn
• Take the pulse of your channel by creating a partner “group” for your company on LinkedIn
• Create deeper links by encouraging your partners to “follow” specific employees in your company on Twitter. Your sales manager might “tweet” about an upcoming training session. Your product manager might “tweet” about a new product introduction. A channel marketing manager might “tweet” about changes to various partner programs
• Share news with partners. You can set up a general Twitter channel feed and/or specific feeds for key partners. You can also “live blog” and/or record speeches at your annual partner conference. 98% of partner employees do not attend your conference! So consider sharing information via blogs and/or “YouTube”
• Collect competitive intelligence. Use “alerts” and keyword searches to see what competitors are doing in their channel programs. Applications like Google Alerts or HootSuite provide these services
• Verify the quality of your partners’ pipelines. For example, use LinkedIn to see if your partners are really calling on all of the key players at big accounts
• Conduct partner training via YouTube or SlideShare
I hesitate to wholeheartedly recommend social media because I’m still not convinced that it represents a significant improvement over traditional methods. However, as a first step, I would recommend surveying various employees at your partners to ask if they use social media for business purposes, how often, and via which specific sites or applications. If you do decide to step into the social media pool, I would then recommend that you appoint a social media manager with experience using these tools. Please let me know if social media is working for you (or not), and what plans you have for it in the future. In the meantime, if you want a broader view of channel management consider coming to our Professional Sales Channel Management workshop.
What Does It Cost to Manage an Indirect Channel?
You would think the answer to this question would be straightforward. It’s not. No two companies are organized the same way, account for costs the same way, or use channels the same way. Also, many companies are reluctant to share this information. Consequently, building a large database of comparative costs is virtually impossible. Trust me . . . I’ve tried. Nevertheless, over the years I’ve collected bits and pieces from my clients.
To make sense of channel management costs it first helps to understand the different types of channel structures. I’ve found that these vary from formal structures, typically with a centralized management team, to informal structures, typically managed ad hoc by the regional sales force. I mostly see the formal structures in the technology industry. They tend to have channel tiers (e.g., Gold, Silver, Bronze) with benefits tied to a comprehensive set of partner sales, marketing, training, certification and support programs. Also, if large enough -- e.g., over roughly $100M in indirect channel revenue -- they usually have separate direct and indirect channel salespeople (assuming the company sells directly).
I see more of the informal structures in the industrial market, where, arguably, product and market trends are less dynamic. These informal structures often eschew tiers, but may offer varied discounts to partners based on sales volume (rather than functional performance). In many of the informal systems the same salesperson that sells directly also manages the indirect partners in his/her sales region. In general, the informal structures have lower costs because they have a less comprehensive set of programs and fewer people tracking and managing these programs. Unfortunately, in these informal structures the direct and indirect costs are blended; allocating the costs would take a team of accountants (and arbitrators) a very long time.
So, I’ve looked at the more formal structures. What I’ve found based on my informal surveys is that the (centralized) channel management team costs the company about 0.75%-1.0% of indirect channel revenue. This includes salaries, benefits, systems, overhead, consulting/research and other expenses. These are costs associated with the (non-sales) people that manage the tiered structure and all the associated programs. These costs include management of any co-op/MDF fund programs, partner portals, other channel communications, deal registration programs, training and certification programs, annual partner meetings and/or advisory boards, channel research projects, etc. The actual monies paid out for co-op/MDF funds would add another 0.5%-1.0% on top of the management costs. In addition, companies incur the costs associated with the channel account managers (CAMs), e.g., the quota-carrying sales team. The salaries, commissions, overhead, and travel expenses of the CAMs adds another 3%-8% (of the indirect channel revenue). This sales cost estimate varies more due to the use (or not) of wholesalers and the presence (or not) of large dealers or retailers (where economies of scale push down the selling expense).
These numbers still exclude some important cost categories associated with indirect channels, most notably inventory, shipping, insurance, technical support, etc. Still, adding the figures I do have, means that managing indirect channels costs roughly from 4% to 9% of the revenue generated from these channels. In informal channel structures, I’m only guessing, but I think the figure could be as little as 2% (through OEM channels, for example), but more like 4%-5%.
If you’d like to discuss, debate or share your figures (I’ll sign an NDA!), please drop me a line.
The Screen Play
A screen play, as any football fan knows, uses distraction and a wall of blockers to keep the defensive team at bay.
After the recent Super Bowl and victory of my hometown New York Giants, I keep seeing everything in terms of football metaphors. Last week one of my clients was intensely reviewing their go-to-market strategy. However, they were focused on the channel, while overlooking the end-customer. My client, I observed, was about to fall for a screen play.
In a previous blog post “Who is the Customer?” I noted that many companies start thinking that their customer is the channel, not the end-user. This happens because manufacturers are in much more frequent contact with channel partners. And, that’s a key factor in the channel screen play.
The channel, whether intentionally or unintentionally, screens manufacturers from actual customers. To break through the screen and stay engaged with end-customers, manufacturers can pick from a wide range of tactics:
• Joint sales calls on end-users with the channel partner
• Informational calls on the end-user without the channel partner
• End-customer training events and webinars
• Formation of an end-user advisory council
• Customer research and “voice of the customer” surveys
• Engage with customers via the Web, customer portals and social media
• Participation in national and regional trade shows
• Assigned executive programs - where key managers meet occasionally with executives at selected end-customers
• Analysis of channel point-of-sale data
Share the findings with your channel partners. Use the data to drive your channel strategy. Just make sure to do whatever it takes to stay abreast of customer usage, sourcing and economic trends -- and break down the screen.
Who is the Customer?
Is there a word or phrase that really bugs you? Something that whenever you hear it instantly makes your blood pressure go up? For me, it’s when I hear someone refer to their channel as their “customer.”
“Wrong,” I want to yell out . . . and sometimes do, depending on the setting. It is easy to understand why a manufacturer would call a channel a customer. After all, the channel buys the product from the manufacturer and then sends payment.
However, the thinking that underlies this phrasing creates many problems for manufacturers.
First, calling channels customers leads to a mindset established by Marshall Field, the famed 19th century department store magnate who once quipped that, “the customer is always right.” Possibly so, however, we all know that the channel is not always right. Sometimes they have very valid input and complaints, but sometimes they demand irrational discounts, rebates, programs, support, etc. By thinking of the channel as the customer, the manufacturer puts itself at a negotiating disadvantage. This is why many channels insist upon being called “the customer!”
Second, thinking of channels as customers obscures the real customer - the end-user. Manufacturers need to be hyper-aware of end-users - segments, needs, trends, perceptions, etc. If a manufacturer considers the channel as the customer, it is a sign that the manufacturer has lost touch with the real decision-makers.
Third, manufacturers that call their channels “customers,” overlook the real role of the channel - as a partner. The channel may emphasize its “payment” to the manufacturer, but in actuality the manufacturer is paying the channel a discount and/or rebate (which leads to a gross margin) to perform specific activities. These activities include some mix of selling, marketing, inventory management, installation, integration, credit, collections, etc. Manufacturers and channel partners need to share a common understanding of each other’s role, and make joint plans based on this understanding. A manufacturer who considers their channel as a customer will lose sight of the channel’s role as a partner, with disastrous economic, market share or customer satisfaction consequences.
After taking such a hard line I will admit that in some cases, most notably when the end-user abdicates the brand decision to the channel, the “channel as customer” thinking has some, and I emphasize “some” validity. For example, when a homeowner buys a house they rarely, if ever, demand a specific brand of, say, insulation in the wall. The contractor, in this case, becomes a mix of channel and customer. However, even in these instances the manufacturer still needs to consider the contractor as a channel, lest they fall into the problems I noted in my second and third points above.
The two key points I’d like to stress are that manufacturers need to constantly be aware of their actual customers’ changing needs, and that manufacturers need to clearly define and insist on the activities performed by the channel.
 Although the phrase, “the customer is always right” is frequently credited to Field, it is also ascribed to Harry Gordon Selfridge the founder of London's Selfridges store and César Ritz of the famed hotel chain.
Make No Small Plans
“Make no little plans,” advised Chicago architect and urban planner Daniel Burnham. “They have no magic to stir men's blood.”
I’m a big fan of requiring distributors and other channel partners to write a business plan. Maybe not every partner, but, assuming you’re an important supplier, then at least for your large partners or your top tier, e.g. “Platinum” partners. Recently, I completed some work for a client recommending that their distributors’ compensation hinge, on part, on the distributors creating and receiving approval for their business plans. However, I continually get “push back” from distributors, channel managers, executives and others. They complain that business plans are just a paperwork exercise. That there is no way to effectively and objectively assess the quality of a plan. That plans don’t matter, only results do. That plans never “survive first contact with the enemy.” Each of these objections have that pithy, street-smart smidgen of truth. “Been there, done that,” they seem to be saying.
However, how do I square these protests with the positive results I see from most of my business-planning clients? First, the process of partner planning, like a fine wine, takes time to mature. Sure, the results in the first year can be mediocre. For go-go sales guys this is enough to torpedo any further efforts. This leads to the second conclusion . . . senior sales management needs to buy into the concept, pushing it forward through its awkward, freshman year and soothing the many voices of protest. By the second year, both partners and channel managers are beginning to see results. More partner salespeople attend training, boosting sales. Key account plans turn into some big wins. Previously fallow marketing efforts begin to take root, building customer awareness and conversion. Sure, only results matter. But absent a plan, why would anyone have faith that positive results will happen? Just remember that “hope is not a strategy,” (attributable to economist Benjamin Ola Akande, ex-New York mayor Rudy Giuliani, and several others).
So, what do you think? Are channel business plans a valuable sales tool or a waste of time?
The Partnership Concept
How would you describe your relationship with your channel? Are they important customers whose needs you must meet? Are they small businesses that mostly do what you ask? Do you give them your product and expect them to do the rest? Or, do you provide them with a wide array of marketing, sales, logistics, and financial support?
Actually, none of these describes the ideal relationship between a manufacturer and a channel. The ideal relationship is a partnership. In a partnership, the two parties agree upon a split of responsibilities and profits. Furthermore, regardless, of the relative size and power of each company, long-term success in manufacturer-channel relationships comes from adhering to the following six elements of partnership:
1.Complementary skills - You want to find resellers that do something you need, but can’t (afford to) do well - sell to small companies, integrate products from multiple vendors, consult in market niches, deliver a multi-vendor order same-day or overnight, etc.
2.Shared vision and commitment - When recruiting partners, and at the beginning of each year, you and each partner should develop a mutual plan and establish “rules of engagement” - who sells to whom, who performs what roles, who makes how much investment where, etc. This will reduce channel conflicts, build trust, and eliminate misunderstandings. Strong partnerships are also built on extensive information sharing - new product plans, POS information, business plans, market analyses, financial results, etc.
3.Ethics and integrity - Resellers that sell a lot, but don’t stick to the letter and spirit of agreements will hurt your bottom line (and your relationship with every other reseller) . . . and the same applies to you
4.Takes responsibility and doesn’t need to be overly managed - Sure, you’ll need to meet frequently, make some joint sales calls, do training. But, a reseller that consistently shirks agreed-upon responsibility (inventory levels, qualified sales people, marketing campaigns, etc.) is a huge profit drain
5.Has compatible work styles - Business hours, use of technology, detail-orientation, risk preference, dress style, corporate cultures (individualistic, team-oriented, plan-driven, etc.) should match, or, at least, mesh
6.Track record - For potential partners, look for an owner’s track-record of success with other manufacturers or in previous business experiences
Does Size Matter?
If you sold $10M, would you rather have a single $10M reseller or ten $1M resellers? No, it’s not a trick question. Rather, it’s an exercise to explore many of the key issues of channel strategy.
Consider the pros and cons of a concentrated versus a fragmented channel strategy. In the concentrated strategy, the 20:80 rule applies; 20% of your partners deliver 80% of your revenue. Probably 5% of your partners deliver as much as 50% to 60% of sales. The pros of these concentrated structures are:
|> ||Ease of communication-you don’t need to “herd cats.” Getting your message to, and agreement from, a small number of big partners is easier than communicating with hundreds or thousands of small partners|
|> ||Efficiency-the cost per dollar to manage a small set of big partners, arguably, is less than in a fragmented partner environment|
|> ||Sophistication-larger partners are typically better prepared to engage with you on complex technology/IT, sales and marketing initiatives|
On the proverbial other hand, having so much of your revenue in the hands of a small number of big partners raises several negative possibilities:
|> ||Power-big partners have significant clout, and frequently can make (unreasonable) demands of suppliers regarding compensation, support, functions performed, etc.|
|> ||Risk-if relationships with just one or two key partners fall apart (they add a private label line, they start pushing competing brands, etc.) you can lose a significant chunk of revenue in a short period of time|
|> ||Brand Premium-larger partners often actively sacrifice price to gain volume. Your street price (and premium brand position) can suffer as the elephants dance|
|> ||Value-Add-large partners rarely provide the industry, application or geographic specialization often needed in the early to mid phase of a market life cycle|
We could explore the pros and cons of a fragmented strategy, but really these are just the reverse of those discussed above.
Optimizing a channel strategy requires a channel-savvy management team and organization. Typically the company needs to pivot from a fragmented strategy early in a market life cycle to a more concentrated strategy later in the cycle. Many early market leaders are either unaware of this requirement or cannot manage the internal and external change/conflicts. In mature markets, where larger partners tend to dominate, manufacturers need to ramp up their “pull” market activities to build up countervailing power and directly maintain their premium brand messages.
I See a Tablet in Your Future
The emergence of tablet computers, most recently highlighted by Apple’s iPad, has significant implications for channel marketing and sales operations, well beyond the computer industry. The form, price, portability, connectivity, and convenience of tablet computers place them in a market “sweet spot;” between laptops and cell phones (which, of course, will still have their own substantial uses).
On Monday, the New York Times ran an article highlighting commercial iPad deployment by General Electric, Wells Fargo, and Medtronic among other corporate users. On a call with financial analysts, Apple’s CFO claimed that 80 percent of the Fortune 100 is now deploying or piloting iPads.
There really isn’t that much you can do on a tablet relative to a laptop; its just that tablets are easier to carry, share, and use with multimedia. They can also tap into the vast ecosystem of app developers. I think tablets are likely to impact manufacturers’ channel operations in several areas:
Partner Portals- to reach tablet-enabled channel salespeople, manufacturers will need to adapt their portals. More video. Apps that link to the portal - imagine a deal registration app, or a special-promotion app, for example
Product Demos- channel reps will want vendors to contribute tablet-ready demo content. This means more multi-media and Internet links as part of the demo. Reps might also want to initiate a simultaneous chat session with vendor support people during the demo
Channel Training and Support- same thing as above
Trade Shows- tablets will allow salespeople to venture beyond the booth to offer demos, collect contact information, etc. Using the GPS features might even allow for a variety of new selling opportunities
Apps- end-customers and channel partners will look to vendors for any number of potential apps for the tablet (and vice versa, manufacturers will push partners and end-customers to use vendor-written apps). Third-parties may also develop apps, either to fill gaps left by vendors or to handle functions that cut across multiple vendors
However, distributors are notorious laggards in the adoption of technology. Therefore, I suspect that the early inroads will happen in more tech-savvy channels and at the end-user level. Traditional resellers will be pulled into the tablet market by others.
Even among tech-savvy channels and end-customers, tablet adoption is not a slam-dunk. Manufacturer IT budgets are already strained. Furthermore, how do you secure and audit all the potential information flowing through such portable (and potentially losable devices)?
Like most new technologies, people are probably overstating the speed of adoption, but underestimating the eventual impact.
The Mathematics of Growth
It’s early January, and you are staring at twelve months of open road. No bad first quarter to overcome. No end of year deals to close. No dwindling marketing budget to stretch. Just twelve months of pure optimism.
Of course, you have a growth target. 5%? 10%? 15%? More?
How will you get there? The more you stare at the growth target, the more overwhelming it becomes.
There is an old riddle that asks, “How do you eat an elephant?” Of course, the answer is, “one bite at a time.” The lesson is that achieving daunting goals can only be accomplished by breaking them into smaller, logical parts. To achieve a revenue goal, some people simply break the yearly goal into monthly or quarterly goals. While the smaller number might make your heart beat slower, it does nothing to develop a definitive course of action.
As an alternative, we’ve developed an approach we call Components of Growth. Mathematically, we disaggregate growth where you’re target revenue equals =
Base Business + Net Churn + Net Economic Growth + Net Price Change + Gap Closures + Growth Initiatives
Channel sales and marketing managers need to develop different strategies for each of these components of growth.
Base Business - although the percentage and rate may vary, every company has repeat buyers. Do you know the size of this segment? Do you know which customers (and partners) fit here? If yes, you need to keep this segment content, however, you may be able to reduce the amount of time you spend here.
Net Churn - some of your base business will erode every year (luckily, the same is true for your competitors). You and your channel partners need a separate plan to identify and retain wavering customers. Similarly, you need a rapid response plan to capitalize on miscues by competitors.
Net Economic Growth - the economy will rise and fall apart from any steps you or your company takes. However, you can target the economic winners, de-emphasize the economic losers and implement tactics in response to the economic ebb and flow. For example, focusing on lower price products, cost-reduction messages, and channel financial “health” in the face of an economic downturn.
Net Price Change - price increases can alleviate some growth pressure . . . as long as the quantity of sales doesn’t fall faster than prices go up. The reverse is true for price decreases. Price increases require working with partners to sell the continued value of your products. Price decreases often mean pushing into new channels and customer segments in search of additional volume.
Gap Closures - many companies, possibly yours, have distribution gaps - in certain geographies or industries. To maximize growth, your sales team needs to assess the number and mix of channels region by region, industry by industry, customer segment by customer segment.
Growth Initiatives - individual growth initiatives provide the greatest upside potential, but also the greatest risk. These initiatives can include new product launches, adding new types of channels, entering new customer segments or application areas, selling solutions or services in addition to tangible products, etc. Each of these initiatives requires a separate channel plan.
You’ve got twelve months. But, do you have a plan for each component of growth?
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