One definition of a sales channel is that “it is the pipe through which a producer’s product flows to the user.”  Like all pipes it can be straight, crooked or have many branches.  And reflecting today’s new technologies the pipe can have a flow of information in two directions.

Which channel is best for your business?  As with all such broad questions the immediate answer is “It depends.”  It depends on how your customer wants to buy, the price and complexity of your product, the length of the buying cycle and a myriad of other intertwined elements.

The most common channels today are:

·         Direct, where a company’s sales people interact directly with the buyers

·         Indirect, where a company sells to distributers, who in turn sell to either other distributors or buyers

·         On-line, where the buyer contacts the company directly over the Internet

And, once a company decides on its main distribution channel, secondary or alternative channels often spring up.  Managing the relationships that arise due to multiple channels of distribution is a difficult and time consuming process. The failure to pick the right channel can result in business failure, as key buyers are missed and competitors swoop in and win sales.

Sales channels or Distribution is one of the classic “4 P’s” (Product, Place, Promotion, Price) of Marketing.  On May 3rd, Dick Lush and I will be discussing Sales Channels at 2:30 in Platform A at the Rhode Island Business Exchange (RIBX), and look forward to answering any questions you may have.

You can find out more information about RIBX, other speakers, directions, etc. here:  http://http.ribx.wordpress.com/.

RHM 

4/24/2012

In my last posting, I talked about a number of critical considerations/ activities that one must review when selecting to use an indirect channel. As I have said in other postings regarding channels  make sure you have an overall strategy and ask; will this channel selection support this strategy?  I then talked in more detail about the financial considerations and how this will have a great impact on the type of indirect method one chooses.

Personally, I believe the most critical consideration in implementing and maintaining an indirect channel of distribution is the partner programs.   The partner programs can be broken down into three major components. One, the strategy on why an indirect channel or partnership, two, the partnership selection process and three, the actual partnership programs.

Let’s look at these in more detail

Partnership Strategy:   What is the corporate strategy and will going indirect support this strategy?  Are you selecting indirect for added sales coverage, augmenting your product or service lines, augmenting a technology you do not have, or seeking to add specific skill sets from the distributor and or reseller? Whatever the case, make sure you understand the overall objective because in the long run if you do everything else and it doesn’t match your strategy, it will be nothing more than a waste of time and money.

Partnership selection: Assuming that everyone understands the strategy and how indirect will support this strategy, then the selection process is the next critical step. Selecting partners should be like conducting an interview for key positions within your company.  Some major areas to investigate are the following:

1-      What is the potential partner’s strategy and does it align with yours?

2-      Will this partner augment your product or service line or will he compete with you?

3-      Does this partner have the skill sets to sell your product or service?

4-      Does this partner have the support functions to provide best-in-class services?

5-      Does the partner’s territory/ coverage add or conflict with your territories?

6-      Will the compensation plan fit within you current sales force’s plans or if there is no direct sales force will the financials make it a win- win for each party?

7-      How well will the partners’ marketing function fit with your company’s marketing?

8-      Will the partner’s brand add or detract from your branding activities?

Partnership Programs:  Some of the programs that a best-in-class should contain are the following:

1-      Rules of engagement for your company and the distributors and resellers

2-      Well defined territory coverage for your company and the indirect partners

3-       Policies on demo units/loaners

4-      Policy on escalation and returns

5-      Warranty coverage, who, when and how long

6-      Volume, discount structure and are there any incentives

7-      Well defined joint marketing activities

9-      Promotional programs  (Push and Pull)

10-   Funding,  who funds what and when

11-   Schedule regarding investments in major activities  and mutual related  metrics

12-   Executive liaison for both parties

13-   Collateral for products and services that are tailored for the distributor and resellers

14-   Tradeshows/events/venues

As one can see going indirect requires a lot of planning and joint activities.   Indirect channels should be a true partnership not a vendor- reseller agreement.

If you would like more detail on areas of consideration for indirect or any other channels; give me a call (508-838-1073) or visit our Contact US.

RHL 02/22/11

If you are considering selling your product or service via an indirect channel (when you sell your product or service to an intermediary or middleman, who then sells it to the end user) there are numerous considerations that you must examine. As I have said in other postings make sure you have an overall strategy and ask; will this channel selection support this strategy?    Most people think that companies select indirect channels because they are less expensive to use and support than having your own direct sales force (your product or service is sold by your sales people directly to other enterprises or end users). Again, depending on your strategy, you might use indirect for sales coverage, augmenting your product line, or augmenting a technology you don’t have or to improve your brand awareness. In any case understand the main objectives first.

As for other considerations, be prepared to have thoroughly thought-out the following items (not a complete list but a good start):

• What are your partner programs (things like engagement rules, incentives, joint marketing, financials, etc)?
• What are your criterions for selecting partners (territory, skills, products, and name, just to list a few)?
• What products or services will the partners carry for you; do they already carry your competitor’s products or services?
• How will the partners and your direct sales force interact (will they compete or augment each other)?
• Is your product or service too complex for certain types of partners to handle?
• Financially, will you and your partners make any profit (Do you have sufficient margin built into your product to support this channel)?

Let’s explore the last item (financial considerations) in more detail, because at the end of the day, most companies are in the game to make money and if this can’t happen then the rest is academic (there are cases, particularly in a start-up mode, where getting your name out there is initially more important than making a profit, but let’s look at the other situations).

To go indirect, which can be two or three tier (you and a reseller or you, a distributor and a reseller) each company wants to make a profit.   So a key question for you is, is there enough margin to “share” it with your partners.  Example, let’s say you have a product that cost you $20 to manufacture and the average sell price (ASP) is $50, thus a profit of $30 and 60% margin ( in reality there are other costs ,but for discussion purposes we will keep it simple). In the direct model you will enjoy the $30 and show a profit. 

In the indirect model, each intermediary will want to have some profit also. Depending on the overall situation the intermediaries will ask for a percentage off the ASP so they can sell the product at a profit. The range varies greatly, but it is not uncommon for it to be anywhere from 20% to 60% off of ASP or list.

So with you are two tiered, can you afford to give, let’s say 40% off of the ASP in this example? Is a $10 profit okay for your company?   Now about the three tier situation.

Usually one assumes that the intermediaries have to sell the product for less than the manufacturer (unless they have some unique value propositions).  So given this assumption, let’s see what the margins look like now.              

                                Reseller sells for                               $45.00

                                Reseller buys for                              $40.00                   Reseller Margin                12%

                                Distributor sells for                          $40.00

                                Distributor buys for                         $30.00                   Distributor Margin           25%

                                 Manufacturer sells for                     $30.00

                                 Manufacturer cost                          $20.00                   Manufacturer Margin    34%

 Critical point is does one have enough margins for everyone to go indirect.  As you can see going with the indirect model poses some unique considerations and if they are not explored in detail not only will you lose money, but your creditability and customers.

If you would like more detail on areas of consideration for indirect or any other channels; give me a call (508-838-1073) or visit our Contact US.

RHL 02/08/11

Today’s environment has created challenges for all marketing organizations.  First, the economy is probably having a negative impact on your business, which is being reflected in your marketing budget, personnel and flexibility. All of this with increasing requests to generate additional leads (sales). The other challenge is keeping up with and utilizing appropriate new technologies that are emerging daily.

So the real question is not what do I do with fewer marketing dollars (no-one wants to hear this), BUT how to optimize your current resources (dollars and people) to generate additional revenues, all while staying within budget.

There are several ways to attack this challenge. 

• One method is to run a marketing campaign with a specific mix for a period of time (several months or more) and then analyze your results at the end of the specific time frame.  The good news is that you did run a marketing campaign, but the potentially bad news is that if the mix was incorrect, you not only wasted precious time but you have also spent or wasted a portion of your marketing budget.

• Another method is to run two campaigns with different marketing mixes simultaneously and analyze the results as in method number one. The good news here is that you might have gotten some positive results because the two campaigns probably covered a larger “audience”. Unfortunately if neither campaign met their objectives the time lost is huge AND the marketing dollars lost could cripple your remaining activities.

• A third method is to just do the same as you have been doing before.  Given the current economic environment, this approach will definitely be the worst choice as the economy has changed buying habits drastically and the new ways in which your potential clients are gathering information to make decisions.

• A fourth choice is to model your current marketing activities  along with  your goals and objectives, research all the best practices in your similar industries for marketing, create different business modules for the numerous distribution  methods and then integrate all this together and run it against your desired results.   The upside potential is that your might optimize your marketing mix.  More than likely you will have various “errors” in your model and thus end up with less than desirable results. Plus this takes considerable time and resources during which nothing is “happening”.

An alternative approach is to utilize Fire Alarm Marketing’s Marketing Resource Optimizer™ (MRO).  The benefits of our model are; (1) the best practices have been already researched, (2) the various marketing activities have been tested over many years and (3), the newer marketing technologies have been incorporated into the model.

The choice is yours on how to optimize your marketing mix.  Whatever method you pursue, start “optimizing “now before it is too late!

If you would like more details about our model, give us a call (508-643-0411) or contact US

RHL 10/12/10

Disintermediation initiated by consumers is often the result of high market transparency, in that buyers are aware of supply prices direct from the manufacturer. Buyers bypass the middlemen (wholesalers and retailers) in order to buy directly from the manufacturer and thereby pay less.

Source: http://en.wikipedia.org/wiki/Disintermediation

In his recent post, Dick suggests that the Internet will replace telemarketers.  Embracing the concept that power has shifted to the buyer, Dick points out how buyers today can use the Internet to gain information about a vendor’s products, pricing and reputation, cutting through the marketing puffery to narrow the vendor selection process to a handful that meets their needs.  Dick feels this will diminish the need for telemarketers, and result in the field sales force closing deals more rapidly with a knowledgeable buyer.

While I strongly agree with Dick’s premise, my conclusion is that the role of the telemarketer will expand, rather than contract and that the disintermediation that will occur will result in the loss of field sales jobs.

The chart below, from Parcus Associates, represents the steps in a buying/selling relationship.

Marketing’s role is clear in the “create awareness” and “identify needs” stages.  The question is, when it comes to closing the sale, is a field salesman needed?

Dividing the world into two groups, commodity and non-commodity; for a commodity sale, where the buyer has learned about the vendor’s products, pricing and reputation from the Internet, a telemarketer can close the deal.  Assuming that he/she has all the necessary information, some latitude in making decisions around the sale and a salesman’s ability to close, the telemarketer replaces the need for a field salesperson.  If a firm feels that their commodity-type product can only be sold through relationships, they will ultimately lose to the Internet/Telesales firm with the lower costs.

Dick will argue that specialty products with diverse applications, typical of many Business-to-Business sales will require a field sales force, either direct or through channels.  His rationale is that due to the long sales cycle, the technical nature of the sale and the relatively large dollar amounts involved, the buyer will only buy from someone they can see and trust.

Bunk!  In most of today’s high-tech sales, the salesperson opens the door and buys lunch.  The real selling is done by the pre-sales engineer talking to the technical people at the buyer.  The SE takes the buyers technical team through the features/advantages/benefits of the product, answering questions from the buyer’s team about their specific applications.  The salesman in these meetings usually nods, smiles and drinks another diet Coke.

When it comes time to “close” the multi-thousand dollar deal, the VP of Sales or some management representative appears on the scene, makes a last minute financial concession to the buyer, and closes the deal.  In this case the field salesman usually buys the dinner.

In the case of a high-value technical sale, the SE type information can be handled by highly trained technical telemarketers using WebEX or the equivalent.  Using a CRM system, the telemarketer can nurture the account, reaching out to them at the appropriate time and following them through the sales cycle.  When appropriate, the telemarketer can dispatch the management team to close the deal.

So instead of diminishing the role of the telemarketer, I see the Internet increasing their role, taking the place of an expensive field sales person whose participation in the sales process is being subsumed by a combination of Marketing, generating the awareness and leads, and in-place telemarketers and technical support personnel, who are in constant contact with the buyer.

What are your thoughts?  Do you see the death of relationship selling as I do?

5/19/2010

Telemarketing’s basic function is to provide “warm” leads to the sales force through the following process:

1- Marketing provides telemarketing with some form of an offer, along with a script, a promotional piece and usually a competitive analysis.

2- Telemarketing calls existing or potential customers by using either using its existing “customer list” or a list generated from an event such as tradeshows or seminars, to discuss the offer, along with why their product or service is the best.

3- If there seems to be interest by the customer, then telemarketing documents the required information and forwards the “warm” list to the sales organization.

4- Sales then strategize on a plan of attack and calls on the potential customers.

5- As part of their strategy, sales can provide a variety of activities such as product demos, testimonials, various presentations and eventually some form of a proposal.

In my previous posting, I talked about various Sales Models. Let’s look at the traditional Direct Sales Model process.

1- Marketing generates awareness, often by offers on the products/services for sale, through promotions around these offers and aimed at targeted markets.

2- As stated above, telemarketing or sales themselves develops “warm” leads.

3- Sales pursue the leads and develops a strategy for each account

4- On the customer side, when the customer has a need to be addressed, they generate inquiries to a number of potential vendors about their products along with some formal request via a RFI/RFP.

5-The customer “listens” to a selected subset of vendors.

6-The vendor does not control the situation but has a big influence on the client through activities such as providing information, competitive analysis, and their relationships.

Let’s now look at the Internet and its capabilities as related to telemarketing and sales functions and how it has changed them.

Fundamentally the consumer/buyer is now in controlm not the selling organization. Here is why.  First the potential buyer can do most of the research especially in areas such as product or service information, what other users are saying about the product/service, what the competition has to offer, and what market analysts are saying. These are usually provided by the telemarketing (functions 1, 2, and 5 from above) and some of the sales activity.

Second, the potential buyer eliminates many of the potential vendors from the final list without the vendors even knowing about it.

Third, the Internet or more specifically, social media is helping sort out all the marketing hype versus the reality of vendor’s offerings.

So is the Internet replacing telemarketing? Well the political answer is MAYBE. My Answer is a definite YES!

Given the criteria that I mentioned, if you look at the evolution of the sales model coupled with the Internet capabilities, it is obvious the telemarketing’s role is diminishing over time.   I say diminishing because there will be certain types of organizations or products and services that will benefit from telemarketing.

So, if you have a telemarketing function, are you looking at how it is being used now and how it will be used in the future and how it will interact and utilize the Internet capabilities?

RHL 5/14/10