Innovate and Transform the Channel Strategy, An Imperative During the Transition to the Next Normal

By: Jim Fogarty, Principal

The COVID-19 virus continues to extract an enormous human and economic toll on our global community. While many countries are reopening, many others are still on the upslope of the epidemic. For those countries re-opening, risks remain,[1] the best method is unclear, and each one is essentially taking a trial-and-error approach.[2] Consequently, experts anticipate the process will be fraught with challenges and the “dance” will be more difficult than people realize.[3]

The economic consequences of the shock are coming into sharp relief. While the U.S. just reported its unemployment rate jumped to 14.7%, the European Commission warned that GDP across the 19 countries that use the Euro may contract 7.5% this year, and it could be more severe if the pandemic lasts longer than envisioned or the recovery strategy is late or disjointed.[4] We have not seen numbers like these since the Great Depression, and similar dour statistics and forecasts exist for other regions of the world.

The scope and scale of the consequences of the COVID-19 shock are profound. Experts and intuition suggest the next normal will be unlike our pre-COVID-19 experience. Within this context, companies must adapt channel strategies to survive and ideally thrive in the next normal. Teams that move early and decisively will do best. Research demonstrates that progressive companies that strike the delicate balance between cutting costs to survive and investing to grow during a recession are 37% more likely to outperform their competitors by 10% or more three years after a recession.[5]

To help management teams gain competitive advantage, FL&A continues to talk with and capture insights from clients and colleagues at manufacturing firms and indirect sales channels in various industries across the globe. The purpose of this, our third, Management Brief, is to define actions to help management teams evolve, innovate, and transform a channel strategy. These actions build on the ones we shared in our first two briefs (see Figure One – next page). FL&A suggests management teams consider several additional actions to proactively adapt the channel strategy.

Reimagine the Channel Strategy 2.0

COVID-19 is a catalyst for change. Some companies must adapt channel strategies to maintain market coverage because the financial stress is reshaping their direct sales teams and network of indirect channel partners. Other companies can embrace the opportunity to eliminate pre-existing inefficiencies or extend changes precipitated by the pandemic. All manufacturers can reframe, redesign, and potentially transform the channel strategy.

Companies’ market coverage will change as the financial stress of the pandemic force management teams and channel partners to change roles and staffing levels of sales teams. The financial shock will also cause some channel partners to close or sell. Within this context, management teams should proactively define and track leading indicators, spot and monitor risks, and proactively create contingency plans to maintain coverage in areas at risk.

The disruption also enables some manufacturers to eliminate pre-existing inefficiencies. A manufacturer of door hardware, for instance, seeks to motivate and reward more of its channel partners to ship prefabricated door openings to eliminate commonly recurring contractor installation errors since its sales team cannot consistently visit job sites. This change also allows the manufacturer to redirect the efforts of its sales team to higher-value activities from one that typically consumes 20% of its time.

Given the behavioral changes necessitated by COVID-19 and the changing social norms and preferences, many companies can embrace and extend changes precipitated by the pandemic. A manufacturer of professional tools, like many manufacturers, directed its sales team to deliver online training and demonstrations to prospects and customers since it cannot visit them. As it transitions to the next normal, the manufacturer may professionally record and deliver these sessions so it can provide a consistent experience, scale the practice, and enable its sales professionals to engage more contractors and increase its market coverage.

All companies can reframe, redesign, and potentially transform the channel strategy. To do so, manufacturers should proactively and systematically research and assess how end users are changing their buying behaviors to capture insights and inform changes that can further evolve or transform it. To frame the insights and inspire the changes, FL&A suggests management teams consider the following actions:

  • Test and refine customer segmentation models—as manufacturers engage with prospects and customers, management teams should systematically evaluate and identify the meaningfully different and persistent buying behaviors and channel preferences that are emerging amongst its target end users and determine if these changes differentiate behaviors or practices of groups of them. For example, as companies and end users prove the efficacy of virtual interactions and digital tools during the pandemic, many will continue to use them in the next normal. Many may also actively search for and embrace additional digital tools to further increase efficiency; enhance the resiliency of sourcing, maintenance, and repair practices; and mitigate persistent health risks. As patterns such as these emerge and substantively differentiate the behavior of one group from another, the team should redefine end-user segmentation models and the related profiles and personas
  • Redefine value propositions—for each new end-user segment, management teams should redefine the value proposition required to provide an outstanding customer experience. For end users enduring severe financial stress, defeaturing and repositioning products or helping them change capital expenditures to operating expenses may prove beneficial. Manufacturers can provide alternative financing mechanisms or convert products to services to achieve this outcome (e.g., XAAS, anything as a service). The on rush of digital technology, especially the promise of the Internet of Things (IoT), broadens the range of possibilities. Beyond altering attributes of the foundational products or services, the teams should consider other elements of value that distinguish the company from its competitors
  • Redefine sales processes—management teams must adapt the supporting sales process(es) as target end-user segments and value propositions change. The steps required to engage end users as they progress through the evolving purchasing journey and the sequence of the steps are likely to change. Management teams must recognize the changes and redesign the process(es) so the company effectively engages end users and coordinates the touchpoints and transitions
  • Adapt market coverage models—as teams refine the inputs that shape the channel strategy, they must refine the market coverage model that defines it. Many manufacturers will have to adapt to the practical reality that the severe shock will reshape their direct sales teams and the landscape of indirect sales channels. Further, as teams explore options to enable and perform specific steps of the sales process and embrace and integrate more digital tools, they should investigate and define ways to transform the coverage model. While the consumer world is replete with examples of outside firms disrupting market models (e.g., Amazon, Spotify, Netflix, Uber, Warby Parker, etc.), the COVID-19 disruption affords manufacturers an opportunity to disrupt their own models. Manufacturers can also engage end users and channel partners in activities to brainstorm, design, experiment, and refine it
  • Align principles and policies— importantly, as market coverage models evolve, management teams should also assess and adapt key principles and policies that enable it including conflict management mechanisms and practices. Appropriate changes to coverage philosophies, authorizations, and rules of engagement will ensure the new design engenders constructive rather than destructive conflict within and across direct and indirect sales channels. Management teams should also proactively design and execute change management and communication plans to facilitate the transition to the new model

Align Critical Supporting Elements

As management teams adapt channel strategies, they must consider the downstream effects on critical supporting elements of it. Among a variety of issues, teams should intentionally and proactively adapt the human resource-related elements and the sales and channel management processes to support the changes and transition.

As the roles of the direct and indirect sales resources change, teams should update position profiles and competency models, align sales talent with the new positions, modify training curriculums and delivery mechanisms, and evolve compensation plans to motivate and reward the right behaviors in the appropriate way. Changes in compensation design are particularly important as sales roles evolve from transactional to more consultative ones.

Management teams must also instill increased rigor in the sales and channel management processes and tools to effect the changes. Structured planning processes, performance management mechanisms, and formal coaching practices provide first-level sales and channel management professionals with the structure they need to implement the changes and consistently execute them. These processes, practices and tools also help the field team proactively engage with end users and channel partners and drive more consistent results.

Summary

The COVID-19 disruption represents significant ongoing uncertainty and risk for an indeterminate period. Demand patterns will remain unstable and end-user purchasing behaviors will continue to change and, in some cases, in profound ways. In this environment, manufacturers must proactively monitor market dynamics and adapt channel strategies. Progressive manufacturers that are purposeful and proactive and inform changes with market insight can seize the opportunity to transform channel strategies and the critical elements that support it. Agile manufacturers will reset the competitive landscape and capture market share during and after the transition to the next normal.

We invite you to share with a member of our team your perspectives regarding the implications of the COVID-19 disruption for your company’s channel strategy and to discuss the issues that concern you most. We are happy to share our perspectives and insights with you. You are welcome to contact us at the following addresses:

John Henderson:                        hendy@franklynn.comCarl Cullotta:                       cpc@franklynn.com
Jim Fogarty:                        jfogarty@franklynn.comStephen Martin:                       smartin@franklynn.com
Tracy Moag:                         tmoag@franklynn.com 

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1 Erin S. Bromage, Ph.D., “The Risks-Know Them-Avoid Them”, https://www.wral.com/coronavirus/erin-bromage-virus-spread-particles-droplets/19094009/, May 11, 2020

2 Max Fisher, “Reopenings Mark a New Phase: Global ‘Trial-and-Error’ Played out in Lives”, The New York Times, May 7, 2020

3 Thomas Pueyo, “The Hammer and The Dance”, Medium, April 2020

4 Charles Riley, “Europe Risks Botching Its Big Plans to Rescue the Economy”, CNN Business, May 6, 2020

5 Ranjay Gulati, Nitin Nohria, and Franz Wohlgezongen, “Roaring out of Recession,” Harvard Business Review, March 2010

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