Engr 245 Session 05 Channel

Engineering 245The Lean Launch Pad
Session 5: Channels
Professors Steve Blank, Ann Miura-Ko, Jon Feiber
http://e245.stanford.edu

Channels
How does each customer segment want to be reached?
Through which interaction points?
1

Test Hypotheses: Channel
2

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

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

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

Nature of Product Impacts Channel: Atoms or Bits?
Access to customers changes dramatically
Logistics related to product complexity
People as products
6

The Sales “Channel”
7
Web
System Integrators
Your Company
Your Customers
Direct Sales Force
Value-Added Resellers (VARs)
Dealers
Distributors
Retail/Mass Merchants

Types of Channels
OEM
VAR
Reseller
Distributor
8
Direct
Indirect
Licensing

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

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

How Are Channels Compensated?
Commission
Percentage of sales price
Discounted pre-purchase
11

How Are Channels Motivated or Incented?
Money! – what makes them the most?
Training
Marketing to the channel
SPIF
12

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

Channel Economics: Resellers
14
ListPrice
Revenue
Profit + SG&A + R&D
Reseller
EU Discounts
End Consumer

Profit + SG&A + R&D
Channel Economics: Distributors/Resellers
15
ListPrice
Revenue
Reseller
EU Discounts
Distributor
End Consumer

Channel Economics: OEM or IP Licensing
16
ListPrice
Revenue
EU Discounts
Reseller
Distributor
Master Distributor
Profit + SG&A + R&D
End Consumer
Reseller
Profit + SG&A + R&D
Your Product Becomes Your Customer’s COGs

Example: Book Publishing
17
Publisher
National Distributor
Printer
Wholesaler
Retailer
Customer

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

Book Publishing Economics
19
Publisher
Wholesaler
Retailer
Customer
Allowances
Wholesale costs
Bills
Markup
Credit guarantees
Payment guarantees
Payment guarantees
Return rights
Credits
Payments

Book Publishing Delivery
20
Publisher
Printer
Wholesaler
Retailer
Prepare film (content)
Receive
Schedules
Print orders
Bundle counts
Film
Merchandise titles
Determine allocations
Sell magazines
Deliver orders
Establish identity
Create demand
Prepare galleys
Print and ship magazines
Acknowledge returns
Dispose of returns

Bits vs. Atoms
21
Channel
Web
Physical
Bits
Product
Physical

Product and Channel Are Bits
22
Channel
Web
Physical
Rapid Agile and Customer development
Fastest to acquire early customers and scale
Bits
Product
Physical

Web 2.0 – Product and Channel Are Bits
23
Channel
Web
Physical
Google
Twitter
Facebook
Zynga
Cloud Services
Bits
Product
Physical

Product Is Bits, but Channel Is People
24
Channel
Web
Physical
Traditional sales channel
May require installation
Bits
Product
Physical

Traditional Enterprise Software
25
Channel
Web
Physical
Google
Twitter
Facebook
Zynga
Cloud Services
Microsoft
SAP
Oracle
Bits
Product
Physical

Physical Products Sold Over the Web
26
Channel
Web
Physical
Bits
Product
Rapid Customer development
Logistics, shipping and manufacturing critical
Customer service
Physical

Killing Traditional Storefronts
27
Channel
Web
Physical
Google
Twitter
Facebook
Zynga
Cloud Services
Microsoft
SAP
Oracle
Bits
Product
Zappos
Amazon
Cafepress
Netflix
Consumer electronics
Physical

The Factories May Be in China
28
Channel
Web
Physical
Bits
Product
Rapid Customer development
Logistics, shipping and manufacturing critical
Customer service
Longer customer feedback cycle
May require large capital requirements for scale
Physical

We Still Make Things that Need Salespeople
29
Channel
Web
Physical
Google
Twitter
Facebook
Zynga
Cloud Services
Microsoft
SAP
Oracle
Bits
Product
Zappos
Amazon
Cafepress
Netflix
Cars
Solar panels
Wind turbines
Bookstores
Physical

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Engr 245 Session 05 Channel

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