Selecting a Sales Distribution Channel Has a Direct Impact on Revenue

We all know the 4 P’s of marketing (price, promotion, product and place) are critical for any company to be successful. Regarding place or distribution, there are a number of different methods; but the three most popular being: the direct model (one’s own sales force), indirect (reseller/distributors) and direct (online) marketing (emails, blogging, etc).

In this posting we will talk about the three models, along with their pros and cons illustrated by an example of a company that does each model well.

NOTE: each model has its own characteristics but you must start first with knowing your overall strategy and goals before you even consider which distribution/channel(s) to consider.  While generalization is always dangerous, I will ignore it and state that if one had to list just one key consideration for the three models it would be the following:

Direct model – Leads. Leads, leads – thus sales is the key functions

Indirect model – Selection of the partner(s) (who sells what, where and their value proposition)

Direct marketing – awareness and compelling messages (marketing)

Let’s look at the three models along with their pros and cons.

Direct Model

Functions                               Pros                                        Cons

Sales force                               Account control                      Costs

                                               Trusted partner                       Potentially very tactical

Product/service                       Address complex products        Long sales cycle

                                              High ASP                                Expensive support                                                                                                 Address applications                 Lengthy engagements

Services required                     Sales expertise                        Potential for lack of focus

                                              Incremental  revenues               Lengthy engagements

Marketing                                Inputs for requirements             Potentially opportunistic only

                                                Awareness/branding              Potentially sending mixed     Support                                                                                signals                                           

Financials                                Drive/control targets               Complex compensation

                                                                                           structure, high S&M

Channel                                   Control  of other                     Confusion/non productive

                                                channels

An example of a company that carries out the direct model well is an insurance company because they demonstrate knowing customer segmentation by their marketing campaigns. They know who they are focusing on, know the key messages and develop “packages” that address not just to customer attributes but with time sensitive pricing.

Now the indirect model (two or three tier channels).

Indirect Model

Functions                               Pros                                        Cons

Sales force                              Established/branded               No real loyalty

                                              Partner            

                                              Good segmentation                 Potential channel conflicts

Product                                 Established markets                No product loyalty

                                            Established programs              One of many sold by the reseller

Services                                Proven experience                   Potential costly support

Marketing                              Shared marketing                    Multiple marketing support

                                             expenses                                                                               

Financials                              Potentially expense                 Margin issues 

                                            sharing

A dominant vendor in the telecommunication who has some direct sales, but who predominantly depends on resellers/VARs.  Their great relationship is created by good programs, wonderful selection process, and the resellers are measured on customer satisfaction.

Direct (Online) Marketing Model

Functions                               Pros                                                    Cons

Sales force                             None –really marketing                 No real closed loop

                                             Less expensive (if done correctly)  Specific type products

Product                                  Potentially high margin               Volume for success                                                                                                   Usually commodity types           Commodity type     

Services                                 Proven experience                     Account control/quality                                                                                                                                           Potential costly support

Marketing                                Unified campaigns                   All about marketing                                                                                                  Volume sales                          Lack of customer loyalty                                    

Financials                               Potentially inexpensive             Potential poor returns

A major PC vendor probably wrote the book on best practices for the direct marketingmodel.  Their key strategy is reducing costs on the supply side and the end user side.They know their customers attributes and segmentation in great detail.

In summary, One, do your due diligence relative to your strategy and weighing whether, the pros outweigh the cons relative to your overall channel selection strategy.   Second, understand that most enterprises use a combination of two or three of the models which is where the fun begins.  Things like channel conflicts (who sells what, who gets paid, what territories are covered by who) come into play and nine-times out of ten, poorly designed models relative to channel conflict, results in missed objectives and goals or just complete failure. Third, make sure all supporting organizations are in sync with the selected model; if not there is a great potential that selected model will not realize its full potential. Fourth, establish goals and targets and then measure progress against these goals.

RHL  6/1/16

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