Engineering 245The Lean Launch Pad<br />Session 5: Channels<br />Professors Steve Blank, Ann Miura-Ko, Jon Feiber<br />htt...
Channels<br />How does each customer segment want to be reached?<br />Through which interaction points?<br />1<br />
Test Hypotheses: Channel<br />2<br />
Two Critical Questions about Channels<br />First one is obvious: How do you want to sell your product?<br />3<br />1<br />...
How Do You Want to Sell Your Product?<br />Yourself<br />Through someone else<br />Retail<br />Wholesale<br />Bundled with...
How Does Your Customer Want to Buy Your Product?<br />Same day<br />Delivered and installed<br />Downloaded<br />Bundled w...
Nature of Product Impacts Channel: Atoms or Bits?<br />Access to customers changes dramatically<br />Logistics related to ...
The Sales “Channel”<br />7<br />Web<br />System Integrators<br />Your Company<br />Your Customers<br />Direct Sales Force<...
Types of Channels<br />OEM<br />VAR<br />Reseller<br />Distributor<br />8<br />Direct<br />Indirect<br />Licensing<br />
The Channel as a Customer<br />Some products are embedded in others (OEM)<br />Some products are resold by others (VARs)<b...
Distribution Complexity<br />10<br />Evangelists<br />Global  Systems<br />Systems Integrators<br />WANs<br />Mainframes<b...
How Are Channels Compensated?<br />Commission<br />Percentage of sales price<br />Discounted pre-purchase<br />11<br />
How Are Channels Motivated or Incented?<br />Money! – what makes them the most?<br />Training<br />Marketing to the channe...
Channel Economics: “Direct” Sales<br />13<br />ListPrice<br />Revenue<br />Cost of Goods(Supply Chain)<br />Profit + SG&A ...
Channel Economics: Resellers<br />14<br />ListPrice<br />Revenue<br />Cost of Goods(Supply Chain)<br />Profit + SG&A + R&D...
Cost of Goods(Supply Chain)<br />Profit + SG&A + R&D<br />Channel Economics: Distributors/Resellers<br />15<br />ListPrice...
Channel Economics: OEM or IP Licensing<br />16<br />ListPrice<br />Revenue<br />EU Discounts<br />Reseller<br />Distributo...
Example: Book Publishing<br />17<br />Publisher<br />National Distributor<br />Printer<br />Wholesaler<br />Retailer<br />...
Book Publishing<br />18<br />Publisher<br />National Wholesaler<br />Distributor<br />Retailer<br />Customer<br />Percent ...
Book Publishing Economics<br />19<br />Publisher<br />National Distributor<br />Wholesaler<br />Retailer<br />Customer<br ...
Book Publishing Delivery<br />20<br />Publisher<br />National Distributor<br />Printer<br />Wholesaler<br />Retailer<br />...
Print orders
Bundle counts
Film</li></ul>Merchandise titles<br />Determine allocations<br />Sell magazines<br />Deliver orders<br /><ul><li>Establish...
Create demand</li></ul>Prepare galleys<br />Print and ship magazines<br />Acknowledge returns<br />Dispose of returns<br />
Bits vs. Atoms<br />21<br />Channel<br />Web<br />Physical<br />Bits<br />Product<br />Physical<br />
Product and Channel Are Bits<br />22<br />Channel<br />Web<br />Physical<br /><ul><li>Rapid Agile and Customer  development
Fastest to acquire early customers and scale</li></ul>Bits<br />Product<br />Physical<br />
Web 2.0 – Product and Channel Are Bits<br />23<br />Channel<br />Web<br />Physical<br /><ul><li>Google
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Engr 245 Session 05 Channel

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Engr 245 Session 05 Channel

  1. 1. Engineering 245The Lean Launch Pad<br />Session 5: Channels<br />Professors Steve Blank, Ann Miura-Ko, Jon Feiber<br />http://e245.stanford.edu<br />
  2. 2. Channels<br />How does each customer segment want to be reached?<br />Through which interaction points?<br />1<br />
  3. 3. Test Hypotheses: Channel<br />2<br />
  4. 4. Two Critical Questions about Channels<br />First one is obvious: How do you want to sell your product?<br />3<br />1<br />Second one is subtle, but more important than the first: How does your customer want to buy your product?<br />2<br />
  5. 5. How Do You Want to Sell Your Product?<br />Yourself<br />Through someone else<br />Retail<br />Wholesale<br />Bundled with other goods or services<br />4<br />ü<br />ü<br />ü<br />ü<br />ü<br />
  6. 6. How Does Your Customer Want to Buy Your Product?<br />Same day<br />Delivered and installed<br />Downloaded<br />Bundled with other products<br />As a service<br />…<br />5<br />ü<br />ü<br />ü<br />ü<br />ü<br />ü<br />
  7. 7. Nature of Product Impacts Channel: Atoms or Bits?<br />Access to customers changes dramatically<br />Logistics related to product complexity<br />People as products<br />6<br />
  8. 8. The Sales “Channel”<br />7<br />Web<br />System Integrators<br />Your Company<br />Your Customers<br />Direct Sales Force<br />Value-Added Resellers (VARs)<br />Dealers<br />Distributors<br />Retail/Mass Merchants<br />
  9. 9. Types of Channels<br />OEM<br />VAR<br />Reseller<br />Distributor<br />8<br />Direct<br />Indirect<br />Licensing<br />
  10. 10. The Channel as a Customer<br />Some products are embedded in others (OEM)<br />Some products are resold by others (VARs)<br />Some products are distributed by others<br />Who’s the customer?<br />9<br />
  11. 11. Distribution Complexity<br />10<br />Evangelists<br />Global Systems<br />Systems Integrators<br />WANs<br />Mainframes<br />Direct Sales<br />Higher Volume<br />Minis<br />LANs<br />VARs<br />Marketing Complexity<br />PC Servers<br />Higher Value Added<br />Desktop PCs<br />Retail<br />Printers<br />Keyboards<br />ServiceTechnicians<br />Web, Telesales<br />Toner<br />Solution Complexity<br />
  12. 12. How Are Channels Compensated?<br />Commission<br />Percentage of sales price<br />Discounted pre-purchase<br />11<br />
  13. 13. How Are Channels Motivated or Incented?<br />Money! – what makes them the most?<br />Training<br />Marketing to the channel<br />SPIF<br />12<br />
  14. 14. Channel Economics: “Direct” Sales<br />13<br />ListPrice<br />Revenue<br />Cost of Goods(Supply Chain)<br />Profit + SG&A + R&D<br />EU Discounts<br />End Consumer<br /> Source: Mark Leslie, Stanford GSB<br />
  15. 15. Channel Economics: Resellers<br />14<br />ListPrice<br />Revenue<br />Cost of Goods(Supply Chain)<br />Profit + SG&A + R&D<br />Reseller<br />EU Discounts<br />End Consumer<br /> Source: Mark Leslie, Stanford GSB<br />
  16. 16. Cost of Goods(Supply Chain)<br />Profit + SG&A + R&D<br />Channel Economics: Distributors/Resellers<br />15<br />ListPrice<br />Revenue<br />Reseller<br />EU Discounts<br />Distributor<br />End Consumer<br /> Source: Mark Leslie, Stanford GSB<br />
  17. 17. Channel Economics: OEM or IP Licensing<br />16<br />ListPrice<br />Revenue<br />EU Discounts<br />Reseller<br />Distributor<br />Master Distributor<br />Profit + SG&A + R&D<br />Cost of Goods(Supply Chain)<br />End Consumer<br />Reseller<br />Profit + SG&A + R&D<br />Cost of Goods(Supply Chain)<br />Your Product Becomes Your Customer’s COGs<br /> Source: Mark Leslie, Stanford GSB<br />
  18. 18. Example: Book Publishing<br />17<br />Publisher<br />National Distributor<br />Printer<br />Wholesaler<br />Retailer<br />Customer<br />
  19. 19. Book Publishing<br />18<br />Publisher<br />National Wholesaler<br />Distributor<br />Retailer<br />Customer<br />Percent of Retail<br />35%<br />15%<br />10%<br />40%<br />$7.00<br />$3.00<br />$2.00<br />$8.00<br />$20.00<br />For their efforts, distributors take an additional 10% of retail. That means you get 35% of retail, the distributor gets 10%, the wholesaler gets 15% and the retailer gets 40% less any discount they offer the end customer<br />
  20. 20. Book Publishing Economics<br />19<br />Publisher<br />National Distributor<br />Wholesaler<br />Retailer<br />Customer<br />Allowances<br />Wholesale costs<br />Bills<br />Markup<br />Credit guarantees<br />Payment guarantees<br />Payment guarantees<br />Return rights<br />Credits<br />Payments<br />
  21. 21. Book Publishing Delivery<br />20<br />Publisher<br />National Distributor<br />Printer<br />Wholesaler<br />Retailer<br />Prepare film (content)<br />Receive<br /><ul><li>Schedules
  22. 22. Print orders
  23. 23. Bundle counts
  24. 24. Film</li></ul>Merchandise titles<br />Determine allocations<br />Sell magazines<br />Deliver orders<br /><ul><li>Establish identity
  25. 25. Create demand</li></ul>Prepare galleys<br />Print and ship magazines<br />Acknowledge returns<br />Dispose of returns<br />
  26. 26. Bits vs. Atoms<br />21<br />Channel<br />Web<br />Physical<br />Bits<br />Product<br />Physical<br />
  27. 27. Product and Channel Are Bits<br />22<br />Channel<br />Web<br />Physical<br /><ul><li>Rapid Agile and Customer development
  28. 28. Fastest to acquire early customers and scale</li></ul>Bits<br />Product<br />Physical<br />
  29. 29. Web 2.0 – Product and Channel Are Bits<br />23<br />Channel<br />Web<br />Physical<br /><ul><li>Google
  30. 30. Twitter
  31. 31. Facebook
  32. 32. Zynga
  33. 33. Cloud Services</li></ul>Bits<br />Product<br />Physical<br />
  34. 34. Product Is Bits, but Channel Is People<br />24<br />Channel<br />Web<br />Physical<br /><ul><li>Rapid Agile and Customer development
  35. 35. Fastest to acquire early customers and scale
  36. 36. Rapid Agile and Customer development
  37. 37. Traditional sales channel
  38. 38. May require installation</li></ul>Bits<br />Product<br />Physical<br />
  39. 39. Traditional Enterprise Software<br />25<br />Channel<br />Web<br />Physical<br /><ul><li>Google
  40. 40. Twitter
  41. 41. Facebook
  42. 42. Zynga
  43. 43. Cloud Services
  44. 44. Microsoft
  45. 45. SAP
  46. 46. Oracle</li></ul>Bits<br />Product<br />Physical<br />
  47. 47. Physical Products Sold Over the Web<br />26<br />Channel<br />Web<br />Physical<br /><ul><li>Rapid Agile and Customer development
  48. 48. Fastest to acquire early customers and scale
  49. 49. Rapid Agile and Customer development
  50. 50. Traditional sales channel
  51. 51. May require installation</li></ul>Bits<br />Product<br /><ul><li>Rapid Customer development
  52. 52. Logistics, shipping and manufacturing critical
  53. 53. Customer service</li></ul>Physical<br />
  54. 54. Killing Traditional Storefronts<br />27<br />Channel<br />Web<br />Physical<br /><ul><li>Google
  55. 55. Twitter
  56. 56. Facebook
  57. 57. Zynga
  58. 58. Cloud Services
  59. 59. Microsoft
  60. 60. SAP
  61. 61. Oracle</li></ul>Bits<br />Product<br />Zappos<br />Amazon<br />Cafepress<br />Netflix<br />Consumer electronics<br />Physical<br />
  62. 62. The Factories May Be in China<br />28<br />Channel<br />Web<br />Physical<br /><ul><li>Rapid Agile and Customer development
  63. 63. Fastest to acquire early customers and scale
  64. 64. Rapid Agile and Customer development
  65. 65. Traditional sales channel
  66. 66. May require installation</li></ul>Bits<br />Product<br /><ul><li>Rapid Customer development
  67. 67. Logistics, shipping and manufacturing critical
  68. 68. Customer service
  69. 69. Longer customer feedback cycle
  70. 70. May require large capital requirements for scale</li></ul>Physical<br />
  71. 71. We Still Make Things that Need Salespeople<br />29<br />Channel<br />Web<br />Physical<br /><ul><li>Google
  72. 72. Twitter
  73. 73. Facebook
  74. 74. Zynga
  75. 75. Cloud Services
  76. 76. Microsoft
  77. 77. SAP
  78. 78. Oracle</li></ul>Bits<br />Product<br />Zappos<br />Amazon<br />Cafepress<br />Netflix<br />Consumer electronics<br /><ul><li>Cars
  79. 79. Solar panels
  80. 80. Wind turbines
  81. 81. Bookstores
  82. 82. Consumer electronics</li></ul>Physical<br />
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