Switching Sales Channels, Don’t touch that dial just yet

 

This is the seventh in a series regarding Sales Channels

 

One reader, who felt that the scorecard was a good guideline in defining the appropriate channels for many enterprises, wanted some insight on what should be considered in changing/ adding another channel, as her current channel is underperforming.  Well when the reader asks, we deliver, so let’s start with the following scenario of a company having direct sales only and wanting to add an indirect channel.

 

Again, make sure you have a sales strategy or that your sales strategy is updated.  Many times enterprises are locked into a strategy and don’t realize they have changed, the environment has changed or both have changed and thus the strategy is no longer valid.  But let’s assume your sales strategy is still valid;  here are five key considerations for switching or adding an indirect channel of distribution.

 

 

1-Product selection for the potential resellers

Do the products within your portfolio meet the following criteria?

            – Have margin-sharing room?

– Not complex, lending themselves to easy (low cost) training?

– Fit within distributors/resellers portfolios?

– Minimal conflict with the products the direct sales team carries?

– Does your infrastructure support SKDs, tracking and ordering for the resellers?

 

If your answers are yes to at least 3 or 4 of the five then continue.  If you answer NO to most of the above, going indirect is not out of the question but more difficult.  You will need to implement the following actions items:

 

Action items

-You will need to compensate for the product issues by excelling on other reseller program components

-Consider repackaging some of the products or adding services to the products that are oriented just to the resellers.

-Consider resellers who could use your products to complete their portfolio and thus will be less demanding on issue such as discounts.

 

2- Reseller segmentation

Perform an analysis on potential resellers and see who meets these criteria:

-Are they capable of selling the selected products ?

                -Do they have the necessary infrastructure to support these products?

-Can you segment resellers to minimize conflict with other resellers and your direct sales force?  Segments can be by geography, customers or products as

 examples.

-Do the selected resellers have compelling value propositions that support your selected products?

-Do you have compelling value propositions that will motivate the reseller to sell your products?

 

If you cannot segment the reseller so that there is minimum conflict, then I would say this is a major issue and indirect channel will be a struggle.

 

Action Items

            -Segment so that there is no or minimum overlap with your direct sales force

            -Develop specific value propositions for the resellers and for their end users

 

3- Reseller program

Again, assuming your strategy is still sound, then it is mandatory to have a well thought- out reseller program.  As a minimum you must have the following:

-Some type of “classification” of reseller types. i.e. sliver, gold, which outlines their objectives, revenues targets, products they will handle, etc.

-For selected products, what type of support you will provide

-Discount or points off the structured program (note: if you have low margins or your discounts would cause negative margins, then like the product packaging, look at bundling with the resellers products or bundling other product or services to improve the margins and value propositions.)

-A mutually agreed upon measurement system that covers items like sales, customer satisfaction, training and leads

-Certification programs (can be optional)

-Reseller agreements

-What joint marketing will be available to the resellers

-Well defined rules of engagement for the resellers and your direct sales force.

-Financials- prepare a complete forecast analysis to understand realistic revenue targets, realistic costs and thus true margins.

 

If you have not developed these elements or can not have a “best-in-class” reseller program (especially the financials, classification and measurements), then I would highly caution that going into indirect distribution, as this will not be a successful venture.

 

Action Items

            -Develop an indirect program and test/review it with potential resellers

            -Build a complete business case that supports resellers AND your sales force

            -Educate ahead of time the sales force about the pending channel change

 

4- Financials

Going indirect will have a startup costs just like a product introduction, but what differs is that there are specific activities in dealing with resellers and that most people underestimate these startup costs.  So, build a complete business case just like one would do for any product introduction; but pay special attention to the following areas.

         Joint marketing cost with the reseller(s) ( events, travel, promotions, incentives, sales support, etc)

         You will need a portion of your current sales force or new hires to focus on the resellers

         The revenue sharing plan must consider the direct sales force and the reseller needs

         Support to the resellers ( training, collateral, demos, programs, technical backup, returns, trouble shooting, customer engagements, etc)

          

Action Items

            -Related to action item in 3- develop a complete business case.

            -Have measurements and timeline with key milestones to determine progress.

 

5- Cultural Environment

Here is one area that is either overlooked or becomes a stumbling block in many companies.  What I am talking about is the overall attitude about resellers, starting with the company’s management and moving on through the organization.  The old adage, action speaks louder than words, is applicable here, and both have a major impact to the success of the new relationship(s).  If people within your organization say and do things differently internally  than they do externally regarding resellers, the word gets out quickly and before you know it your resellers are abandoning ship or worse, not letting you know how they actually feel.

           

Action Items

-Educate management and key people involved in this transition on the reseller world and what the relationships are, what should be expected and why we are doing this in the first place.

-Develop roles and responsibilities for key executives regarding reseller’s involvement and support.

 

In conclusion, one can see that adding or converting to another channel is not just looking at which products to distribute, but require execution of what I call the “surround components” which are the real keys for entering into the indirect channel world.

 

Next time we will discuss direct sales and converting or adding direct marketing.  Till then, happy selling

 

RHL 9/24/09

 

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