Engr 245 Session 05 Channel

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  • 1. Engineering 245The Lean Launch Pad
    Session 5: Channels
    Professors Steve Blank, Ann Miura-Ko, Jon Feiber
    http://e245.stanford.edu
  • 2. Channels
    How does each customer segment want to be reached?
    Through which interaction points?
    1
  • 3. Test Hypotheses: Channel
    2
  • 4. Two Critical Questions about Channels
    First one is obvious: How do you want to sell your product?
    3
    1
    Second one is subtle, but more important than the first: How does your customer want to buy your product?
    2
  • 5. How Do You Want to Sell Your Product?
    Yourself
    Through someone else
    Retail
    Wholesale
    Bundled with other goods or services
    4
    ü
    ü
    ü
    ü
    ü
  • 6. How Does Your Customer Want to Buy Your Product?
    Same day
    Delivered and installed
    Downloaded
    Bundled with other products
    As a service

    5
    ü
    ü
    ü
    ü
    ü
    ü
  • 7. Nature of Product Impacts Channel: Atoms or Bits?
    Access to customers changes dramatically
    Logistics related to product complexity
    People as products
    6
  • 8. The Sales “Channel”
    7
    Web
    System Integrators
    Your Company
    Your Customers
    Direct Sales Force
    Value-Added Resellers (VARs)
    Dealers
    Distributors
    Retail/Mass Merchants
  • 9. Types of Channels
    OEM
    VAR
    Reseller
    Distributor
    8
    Direct
    Indirect
    Licensing
  • 10. The Channel as a Customer
    Some products are embedded in others (OEM)
    Some products are resold by others (VARs)
    Some products are distributed by others
    Who’s the customer?
    9
  • 11. Distribution Complexity
    10
    Evangelists
    Global Systems
    Systems Integrators
    WANs
    Mainframes
    Direct Sales
    Higher Volume
    Minis
    LANs
    VARs
    Marketing Complexity
    PC Servers
    Higher Value Added
    Desktop PCs
    Retail
    Printers
    Keyboards
    ServiceTechnicians
    Web, Telesales
    Toner
    Solution Complexity
  • 12. How Are Channels Compensated?
    Commission
    Percentage of sales price
    Discounted pre-purchase
    11
  • 13. How Are Channels Motivated or Incented?
    Money! – what makes them the most?
    Training
    Marketing to the channel
    SPIF
    12
  • 14. Channel Economics: “Direct” Sales
    13
    ListPrice
    Revenue
    Cost of Goods(Supply Chain)
    Profit + SG&A + R&D
    EU Discounts
    End Consumer
    Source: Mark Leslie, Stanford GSB
  • 15. Channel Economics: Resellers
    14
    ListPrice
    Revenue
    Cost of Goods(Supply Chain)
    Profit + SG&A + R&D
    Reseller
    EU Discounts
    End Consumer
    Source: Mark Leslie, Stanford GSB
  • 16. Cost of Goods(Supply Chain)
    Profit + SG&A + R&D
    Channel Economics: Distributors/Resellers
    15
    ListPrice
    Revenue
    Reseller
    EU Discounts
    Distributor
    End Consumer
    Source: Mark Leslie, Stanford GSB
  • 17. Channel Economics: OEM or IP Licensing
    16
    ListPrice
    Revenue
    EU Discounts
    Reseller
    Distributor
    Master Distributor
    Profit + SG&A + R&D
    Cost of Goods(Supply Chain)
    End Consumer
    Reseller
    Profit + SG&A + R&D
    Cost of Goods(Supply Chain)
    Your Product Becomes Your Customer’s COGs
    Source: Mark Leslie, Stanford GSB
  • 18. Example: Book Publishing
    17
    Publisher
    National Distributor
    Printer
    Wholesaler
    Retailer
    Customer
  • 19. Book Publishing
    18
    Publisher
    National Wholesaler
    Distributor
    Retailer
    Customer
    Percent of Retail
    35%
    15%
    10%
    40%
    $7.00
    $3.00
    $2.00
    $8.00
    $20.00
    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
  • 20. Book Publishing Economics
    19
    Publisher
    National Distributor
    Wholesaler
    Retailer
    Customer
    Allowances
    Wholesale costs
    Bills
    Markup
    Credit guarantees
    Payment guarantees
    Payment guarantees
    Return rights
    Credits
    Payments
  • 21. Book Publishing Delivery
    20
    Publisher
    National Distributor
    Printer
    Wholesaler
    Retailer
    Prepare film (content)
    Receive
    Merchandise titles
    Determine allocations
    Sell magazines
    Deliver orders
    • Establish identity
    • 25. Create demand
    Prepare galleys
    Print and ship magazines
    Acknowledge returns
    Dispose of returns
  • 26. Bits vs. Atoms
    21
    Channel
    Web
    Physical
    Bits
    Product
    Physical
  • 27. Product and Channel Are Bits
    22
    Channel
    Web
    Physical
    • Rapid Agile and Customer development
    • 28. Fastest to acquire early customers and scale
    Bits
    Product
    Physical
  • 29. Web 2.0 – Product and Channel Are Bits
    23
    Channel
    Web
    Physical
    Bits
    Product
    Physical
  • 34. Product Is Bits, but Channel Is People
    24
    Channel
    Web
    Physical
    • Rapid Agile and Customer development
    • 35. Fastest to acquire early customers and scale
    • 36. Rapid Agile and Customer development
    • 37. Traditional sales channel
    • 38. May require installation
    Bits
    Product
    Physical
  • 39. Traditional Enterprise Software
    25
    Channel
    Web
    Physical
    Bits
    Product
    Physical
  • 47. Physical Products Sold Over the Web
    26
    Channel
    Web
    Physical
    • Rapid Agile and Customer development
    • 48. Fastest to acquire early customers and scale
    • 49. Rapid Agile and Customer development
    • 50. Traditional sales channel
    • 51. May require installation
    Bits
    Product
    • Rapid Customer development
    • 52. Logistics, shipping and manufacturing critical
    • 53. Customer service
    Physical
  • 54. Killing Traditional Storefronts
    27
    Channel
    Web
    Physical
    Bits
    Product
    Zappos
    Amazon
    Cafepress
    Netflix
    Consumer electronics
    Physical
  • 62. The Factories May Be in China
    28
    Channel
    Web
    Physical
    • Rapid Agile and Customer development
    • 63. Fastest to acquire early customers and scale
    • 64. Rapid Agile and Customer development
    • 65. Traditional sales channel
    • 66. May require installation
    Bits
    Product
    • Rapid Customer development
    • 67. Logistics, shipping and manufacturing critical
    • 68. Customer service
    • 69. Longer customer feedback cycle
    • 70. May require large capital requirements for scale
    Physical
  • 71. We Still Make Things that Need Salespeople
    29
    Channel
    Web
    Physical
    Bits
    Product
    Zappos
    Amazon
    Cafepress
    Netflix
    Consumer electronics
    Physical