Dick’s 6/1 blog, “Selecting a Sales Channel Has a Direct Impact on Revenue” identified Online Distribution as one of the major distribution channels in use today. This blog is focused on a company that decides to sell its product online, managed by itself, as opposed to using an online aggregator, e.g., Amazon, EBay, Zappos, Overstock.com, etc.
Several characteristics are common to Online Distribution, or e-commerce, as it was originally called:
The product is generally a non-technical commodity.
The company is committed to Marketing, in the sense of building and maintaining brand awareness, by reaching the target audience using all the tools available, e.g., direct mail, email, trade shows, print, catalog, YouTube, Instagram, word-of-mouth, etc.
An established supporting infrastructure exists, that can not only turn around orders in hours, but also can immediately resolve customer service issues.
As the product is generally a commodity, two factors are necessary for success.
One is volume. Most commodity products tend to have small margins. The vendor must generate a volume necessary to cover the fixed costs of Marketing and infrastructure above the product costs. High volume will also help cover the costs related to the inevitable returns that will be generated.
Second is a well-articulated value proposition that differentiates the company’s product from all the others in the market. While this differentiation can be price, this will not last long. A differentiating feature or function of the product is a better, longer lasting value proposition.
The company need not be limited to the B2C space. An award winning B2B site/online vendor is RTS cutting tools. A comparable B2C company is SeaBear.
The complexity of today’s distribution efforts often means that companies start with either Direct distribution or Indirect Distribution (VARs or Distributors) and then begin to think about implementing Online distribution. There is an inevitable conflict when a company employs both Direct and Indirect channels. Layering a new channel, Online, on top of these existing channels increases the potential level of channel conflict.
Management should examine all the pros and cons of opening Online distribution for their offerings. You can review many of the issues using of Online Distribution by reviewing our Online Distribution Checklist available here. If you are starting out with a new product or are examining channel alternatives Contact us to help you over the rough spots.
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.
One of the critical activities relating to revenue generation is selecting the right Price,(4P’s are Price, Place, Promotion, and Product) for your product/ service.
But for this posting we will only talk about which pricing strategy is appropriate for your company; but let’s first review some basic terms.
Price is an amount of money or value that is given in the exchange of goods or services.
Pricing strategy considers your targeted market segments, market environment, your competitions, internal financial goals, buyer’s payment process, timing international exchange issues and most important, your company’s goals and objectives.
Some of the pricing objectives can be: profit/margin objectives, increasing market share, ROI goals, maintaining/holding sales volume or defending your market share.
Some pricing attributes are: list price (published price), discounts, and credit terms.
Given that, let’s look at a few (this is not a complete list, but gives you a range of ideas to work with) pricing strategies in more detail.
The ROI pricing strategy uses the return on investment calculation to set the product price based upon defined time and profit structure.
The Price skimming strategy is where goods are sold at higher prices so that fewer unit sales are needed to break even, versus a Penetration pricing strategy, which entails setting the price low with the goals of attracting customers and gaining market share.
Freemium price strategy is offering a product or service free of charge and then charging a premium for advanced features or functions.
Marginal pricing strategy is setting the price of a product to equal the extra cost of producing an extra unit of output.
Aggressive (predatory) pricing strategy is used against competitors. It is illegal in some countries
Premium pricing strategy is the practice of keeping the price of a product or service artificially high to encourage favorable perceptions among buyers.
Price discrimination strategy is setting a different price for the same product in different market segments.
As you can see, a pricing decision is not one dimensional, but must be looked at from various aspects.
Most importantly, does your pricing strategy support your company’s goal(s) and objective(s)? If not than you are wasting a lot of time, energy, money and resources!
For additional information, contact us and request our Pricing Strategy Checklist.
One old and critical saying for any business is “Know who your customers are”
Regardless if you are trying to gain market share, grow your customer base, enter new markets, sell new products/services; it is extremely important to know who you are targeting because this will increase the probability of “getting the order”.
One of the key activities in knowing who your customers are is called segmentation.
Markets are people or groups with needs, ability to purchase and buy products and or services. Examples are: the transportation industry, sports arena
Overall markets can be divided into two major sections; Business (industries) and Consumers. These are sometimes called B2B (Business to Business) and B2C (Business to Consumers).
Market segments are groups of potential customers with common characteristics. Examples of a segment are within transportation, sports cars or within sports, football fans.
Dividing a market into meaningful and relatively similar groups or segments is called market segmentation
Segmentation is divided into two major sub catorigies. Macro segmentation and Micro Segmentation.
In the Business markets, Macro segmentation consists of the following attributes: geographic, customer type, customer size, and product use. Micro segmentation consists of the following type attributes: purchasing criteria, purchasing strategy, importance, and personal characteristics.
In the consumer markets segmentation consists of geographic (city, metro, size, etc.), demographic (age, gender, family size, etc.), psychographic (lifestyle) and behavioral (occasions, benefits, uses).
Other considerations for defining/segmenting your targeted groups are: competitor comparisons, potential technology disruption, are the segment(s) large enough, are the segment(s) unique, are the segment(s) financially independent, are the segment(s) reachable/accessible, are the segment(s) measurable?
A well-developed segmentation plan will fail unless the following issues are addressed:
How should the sales force be organized relative to the targeted segments?
What services, if any, will the new segment(s) require?
Who will provide the new services for the segment(s)?
How do you contact the new segment?
Can you support the new operations for each segment?
Also note that if you are considering international segments than there are many more areas to consider, which a topic is for another time.
For more information, contact us to have a more detailed discussion and also receive our Segmentation Check List.
Many bloggers and authors have defined the role of Marketing as “getting the right product to the right market at the right time.”[i] In this context the right product includes the features/functions/benefits that the target market wants, at a price that fits market expectations as well as the seller’s goals.
Products and markets vary tremendously, ranging from commodity products and markets to highly diverse offerings serving the same market. Two examples are the coal industry and the airline industry.
Coal is a highly compressed bio-fuel that can be used to generate heat, which can heat homes or make electricity, as well as in the manufacture of steel. Today there are numerous sources of coal worldwide. China represents nearly half of all global demand according to the International Energy Agency (IEA).[ii] Yet total demand for coal has declined during the past few years. Besides the downward pressure on demand due to alternative energy sources and environmental regulations, as the Chinese economy has slowed, so has their demand for coal. In short, coal producers worldwide operate in a classic commodity market.
How does a coal supplier differentiate this “commodity” product?
By Bundling By combining a package of goods (coal) and services (credit, payment terms, delivery options, packaging, etc.) a supplier can differentiate his offering from a competitor. In a true commodity market, everyone will eventually match everyone else’s offerings, so a supplier must continually innovate his offerings, adding additional products or services plus fit his buyer’s needs.
By Focusing While the coal market may look identical, there are optimum segments for each supplier. In coal, metallurgical coal demand is different from home heating coal demand, which is different from coal for generating electricity. Likewise, there are price-only buyers and there are buyers of bundles. Differentiating by product and market may return the most positive result.
Air transportation from New York to Los Angeles is a different market. One can fly by commercial airline, and within that segment by First, Business, or Economy class. Additionally, ticket pricing allows a buyer to choose time of week and time of day for potentially lowest fare, not to mention when the buyer purchases his ticket.
Alternatively, one can choose to purchase a fractional share of a jet service, or purchase a private plane.
Suppliers to these different segments, which range from the “lowest price” buyer to a buyer of a plane, have to differentiate their products/services from their competition. Not surprisingly, the definition of differentiation to the price buyer is the same as to the commodity coal buyer, bundled products and focusing on a specific segment e.g., the buyer who will accept a non-refundable ticket vs. one who wants a refundable ticket.
The differentiation by the fractional jet or plane seller is different, ranging from appeals to cost savings, to convenience to ego and status.
As shown, every seller must differentiate his product to meet the needs of the identified target market. This differentiation is shaped by the nature of the market (e.g., commodity vs. prestige) and as a result the seller’s offering must contain those features/advantages/benefits that make it “right” or most appealing.
When was the last time your analyzed your differentiation and its appeal to your target market? Have you already seen a drop in demand in one product line or in a foreign market, for example?
If that is the case, or if it has been more than a year since you analyzed your differentiation, call us for a discussion to help you get back on the right track.
If you would like a copy of the differentiation checklist we use in discussing and defining differentiation with clients, so indicate on the Contact Us – Guide.
I have often wondered if it was just me or has the quality of project management declined considerable?
Just recently on a business trip, I was talking to two other people over dinner. During the conversation, I learned that one individual was a project manager for a very large engineering firm and the other individual was the president of a social media company that hired full and part time project managers. You guessed it, when I asked them their opinion about project management the flood gates opened up. Yes, good project managers are very hard to find!
We all agreed that the basics attributes alone were very often missing, let alone the more “advanced attributes.” Given this confirmation, I decided to list the fundamentals of project management and why they are so important. While these may seem obvious, it is amazing how many project managers do not do any of these basic tasks correctly.
First, Agendas for meetings
With no agenda a number of things happen. One, you are insulting members of the team who wonder, “why are we having a meeting?” and “my time is not of any value”. Second, how can anyone be prepared or review what is to be discussed, thus wasted time, confusion, repeat discussions that probably some members thought tasks had either been resolved or even completed. This all leads to a waste of time, lack of communication and from the client’s point of view, major incompetency and waste of money (no value added here). Remember, agendas should be distributed before any meeting.
Second, Defined tasks
I cannot think of any project/program that does not have tasks to be performed. Given this, tasks need to be defined, have some sort of schedule and a priority given to the tasks. Without this process, how can anyone know what is going on, if there is any progress, and do those tasks that lead to/support the overall goal or objective?
Third, Assigned members to the tasks (accountability)
With no one assigned to tasks, no one is held responsible to doing a task(s), thus tasks either get delayed or worst do not even get done. With no one being held accountable, this leads to complete inefficiencies. Members get frustrated/ disillusioned/ morale declines and worst of all the client suffers.
Fourth, Status updates
It is not good enough to have tasks assigned, there have to be regular updates as to the progress of each tasks. The reasons for this are: some indication of where we are towards completion, the ability to flag potential issues and thus deal with them and obvious as it seems, know when tasks are actually completed.
In summary, as I stated, these are the very fundamentals of project management and as straight forward as they may seem, it is amazing how many projects lack some, if not all of these attributes.
Many sport coaches when asked why they have a winning record, state that their players execute the basics to perfection and that is why they win. So take a page out of the sports play book and manage the project’s basics to perfection and meet the goal or objectives with professionalism.
3 of our top 5 blogs over the past 5 years are about structuring sales organizations. The are:
These blogs by Dick, which deal with Business to Business companies, have been read by thousands of people, with several insightful comments posted by readers.
Five years in, it is worth reviewing these blogs in the era of exploding Internet sales and almost real time delivery by large Internet vendors.
Most of the headlines and news about Internet sales comes from consumer products and sales. B2B sales are both the same and different from consumer sales. They are the same, in that buyers are using the Internet to research vendors; gaining knowledge of products, usages, and current customer reactions (ratings). They are different, in that generally speaking, B2B sales carry a higher price point, one that often requires multiple levels of approval and/or is decided by a committee.
This higher price point, often in 6 or 7 figures, requires that a representative of the selling company present the Features/Advantages/Benefits of the seller's product or service directly to the (knowledgeable, web trained) buyer. This can be done through direct or indirect sales channels, but it requires face-to-face human contact.
How B2B companies address this requirement is often the difference between success and failure. If the sales force (direct or indirect) is not well trained, does not professionally convey the salient messages and does not create trust in the seller, then the sale is lost…even if the product itself is demonstrably better.
What's changed in the past 5 years since these posts above were published? Primarily the ability of the buyer to more fully research the vendor and the vendor's products, to the point where some vendors are removed from a short list, and they don't even know it.
Today, B2B companies must ensure that their web site represents them fully and accurately. It must be designed for all type of devices, be easy to navigate and have all information easily available, i.e., About Us, Case Studies, Details and Diagrams, Most Frequently Used Applications, etc. Today the web site is the first step in distributing a product and failure to present well will often not allow you to take the second step.
For more information regarding this post and its implication to your business contact us for a 2 hour no obligation phone call. (We will ask for background information prior to the meeting.)