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.
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
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).
Functions Pros Cons
Sales force Established/branded No real loyalty
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
Financials Potentially expense Margin issues
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.