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Channel Lessons From Other Environments


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Atlee Valentine Pope on October 16 gave a presentation on best-in-class channel strategies. The presentation highlighted the complexity across channels and why an effective channel strategy must create winning relationships among all participants. Leading practices were then shared on how to evaluate a channel network and manage channel partners.

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Channel Lessons From Other Environments

  1. 1. October 16, 2013 Lessons From Other Environments: Channel Strategy
  2. 2. Agenda 1 Two Channel Business Models 2 Evaluating the Network 3 Managing the Channel Partner ©2013 Blue Canyon Partners, Inc. 2
  3. 3. 1 Two Channel Business Models ©2013 Blue Canyon Partners, Inc. 3
  4. 4. Channel Complexity Supplier Distributor Case Study #2 “We have a good position in the Case Study #1 “Our market is changing but our channel partners are not changing to meet new challenges. We believe they do very little except cut coupons off our price. They really are just blood sucking weasels.” ©2013 Blue Canyon Partners, Inc. End Customer market because our channel has always been a strategic asset for us. As the market changes around us, we expect our channel to partner with us to help us grow.” 4
  5. 5. Models that Don’t Work Supplier Distributor as “THE” Customer ??? Supplier Distributor as a captive “Conduit” End Customer as “THE” Customer •  In business-to-business markets, suppliers must recognize that ignoring a participant in the customer chain will not work •  Each of these perspectives creates a very real potential for problems and misalignment •  Effective channel strategy must set up the potential for ‘win-win-win’ relationships ©2013 Blue Canyon Partners, Inc. 5
  6. 6. Why do we need to have distributors? •  Trusted relationship •  Familiarity •  Regulatory requirements Access End Customers Gain Scale & Coverage Lower Cost to Serve •  Technical support •  Logistics, warehousing •  Efficiency ©2013 Blue Canyon Partners, Inc. 6 •  Feet on the street •  Timeliness/availability
  7. 7. Two Business Models Supplier Driven & Channel Driven ©2013 Blue Canyon Partners, Inc. 7
  8. 8. Supplier Driven Supplier Distributor Overall Lead Role, ‘orchestrating’ the customer chain Supporting Role at the Local Level Marketing and Promotion Explicit End Customer Relationship Management to achieve differentiation through products, services, customization Show that the quality of the Supplier’s channel partners is consistent with the overall Supplier value proposition Supports the efforts of the Supplier Selling, Pricing, Negotiating Supplier handles the sales process and negotiates ongoing umbrella contracts and individual bids directly with the End Customer Significant involvement both in setting the framework and in delivering services Strong supporting role in delivering services at the local level Significant role, involving some direct shipments to End Customer Strong supporting role in holding local inventories from which the End Customer can draw Overall Framework End Customer Service, Support, and Training Inventory and Logistics ©2013 Blue Canyon Partners, Inc. 8 End Customer
  9. 9. Channel Driven Supplier Distributor Overall Framework Supporting Role Overall Lead Role, ‘orchestrating’ the customer chain Marketing and Promotion Supporting role, through brand building and other programs that create end customer awareness and preference. End Customer Relationship Management to build loyalty and establish a strong position vis-à-vis the competition. Selling, Pricing, Negotiating Establishes a pricing framework consistent with market conditions and competition and develops business systems to facilitate sales. Channel Partner handles the sales process and negotiates contracts and prices as necessary. End Customer Service, Support, and Training Provides back-up services requiring specific areas of product or market expertise when needed Lead role in delivering various services to the End Customer. Inventory and Logistics Minor role to handle shortage situations and unique requests. Responsibility for holding sufficient local inventory to meet demand and for handing associated logistics. ©2013 Blue Canyon Partners, Inc. 9 End Customer
  10. 10. Principal Research Finding •  XYZ and its channel partners operate in two distinct business environments –  XYZ Lead: Where XYZ takes the “lead” role vis-à-vis the end customer and certain associated business functions –  Channel Lead: Where the Distributor takes the “lead” role vis-à-vis the end customer and certain associated business functions ©2013 Blue Canyon Partners, Inc. 10
  11. 11. 2 Evaluating the Network ©2013 Blue Canyon Partners, Inc. 11
  12. 12. Do we have the right network of distributors? Is the underlying market changing? •  Mindshare •  Technical know-how •  Value – added focus Is the channel a competitive asset? Distribution Network Is there too much noise and conflict ? ©2013 Blue Canyon Partners, Inc. 12 • Consolidation • Forward integration • New entrants Is the channel design correct? • Intensity of coverage • Authorizations • Exclusivity • Profitability • Territory Management • Service & support • Standards
  13. 13. Is the underlying market changing? •  Consolidation –  Regional to global suppliers –  End customer mergers –  “mom & pop” to big business distributors •  Forward integration –  Packagers to system integrators –  Component suppliers to equipment suppliers •  New entrants –  2-step distributor/reseller –  Chinese players –  E-commerce ©2013 Blue Canyon Partners, Inc. 13
  14. 14. Case Study Market Map Structure & Economics U.S. Mobile Electronic Upgrade Aftermarket Overview [$-Millions] Mass Marketers & W’hse Clubs $219 Retail Channel Auto Parts Retailers & other $120 Fleets $137 7% Catalog, Mail Order, & Online $146 33% 3% 1% 12% Traditional Channel 19% Distributors Est. $358 or less Enthusiast 16-25 Year-Old $1,025 12-V Specialty Chains [5+ Stores] $628 Families with Children $496 6% 5% Arrow Scale = ¼ pt. Per 1% 3% OEM Channel X Vehicle Demographic s Enthusiast Over 25 Years-Old $913 12-V Specialists [0-5 Stores] $777 20% $2,980 Note: End Customer segmentation and percentage splits are Blue Canyon’s preliminary estimates, to be modified and refined based upon external outreach interviews and other additional research. Electronic / Appliance Stores $987 4% Manufacturer OEMs & “A/M Only” Non-Enthusiast $409 Expediters $103 ©2013 Blue Canyon Partners, Inc. 3% OEM Dealer $103 14 Source: Blue Canyon Research, Frost & Sullivan, and VDC
  15. 15. Is the channel design correct? Intensive Selective Exclusive Product / Brand placed In as many outlets as possible In every defined territory Product placed in limited number of outlets in each defined territory Product placed in one outlet in each specific territory Supplier drives the marketing efforts; loss leader pricing; end customer has minimal need post-sale service Need for channel management to avoid conflict at local level; end customer has a preference for both brand and a particular distributor; ©2013 Blue Canyon Partners, Inc. 15 Need for significant partnership between supplier and channel; end customer has strong brand preference and seeks best service
  16. 16. It’s Not Competitor Intensity, It’s Too Much XYZ Distributor Intensity Competitor Intensity Top 50 Territories - 2002 Data Competitor Locations Size ($ millions) Quadrant 4 1,816 1,786 Quadrant 3 867 896 Quadrant 2 567 483 Quadrant 1 897 945 0.00 0.20 0.40 0.60 0.80 1.00 1.20 Number of Competitor Locations / $1M in Territory Size (NEMA data) The greatest “competitor intensity” is in Quadrant 2, in which performance is the best in terms of market share and nearly as strong as Quadrant 1 in terms of gross margin. Competitor intensity is roughly equal in the other three quadrants. Quadrant 4, in which overall performance is weakest, includes the largest Territories, including some mega-Territories. Quadrant 3, in which performance is quite weak, mirrors Quadrant 1 along most ‘demographic’ measures. ©2013 Blue Canyon Partners, Inc. 16
  17. 17. Is there too much noise and conflict? Source of Conflict •  •  •  •  •  •  •  •  •  •  Goal divergence Lack of attention Territory saturation/border skirmishes Competition for Margin Pricing administration End Customer coverage dispute New product launches Regional direct sales Roles and duty confusion Training ©2013 Blue Canyon Partners, Inc. Through its research, Blue Canyon has identified the most frequent sources of conflict with sales channel partners. Channel conflict must be kept within constructive boundaries, avoiding the dangers associated with vicious cycles on pricing and loss of key channel partners who can effectively and efficiently work with critical end customers. 17
  18. 18. Channel Conflict Assessment Two items were a consistent irritant to the channel: Program Complexity/Price administration and Order to Delivery processes. The other items clustered around an average of four. Source: Blue Canyon interviews ©2013 Blue Canyon Partners, Inc. 18
  19. 19. 3 Managing the Channel Partner ©2013 Blue Canyon Partners, Inc. 19
  20. 20. Understand Your Distributors Share of Wallet Capabilities •  Focus on Abbott •  Minimal distraction from other lines •  Full service on pre & post-sales support •  Order processing and logistics Performance •  Prioritize where market growth meets strong distributor performance Sustainability •  Strong, viable, well-positioned •  Distributor is willing to invest Distributor Management •  Pick your battles; reward on loyalty and competency building. ©2013 Blue Canyon Partners, Inc. 20
  21. 21. What capabilities are necessary to win? ©2013 Blue Canyon Partners, Inc. 21
  22. 22. Case Study Capabilities Required to Win •  •  •  Few distributors provide the service in green; there is greater differentiation in the market by adding these capabilities The light green areas are problematic. Distributors have on-line software but the desired functions may not exist or be accessible to customers except via a customer service representative. The white areas offer value because customers mentioned them as unfulfilled-when you need something fast it can’t be delivered “soon enough;” and accessible on-line training and record keeping is a void for some. Source: Blue Canyon external interviews, research and analysis ©2013 Blue Canyon Partners, Inc. 22
  23. 23. Implementation Tool: Supplier – Channel – Customer Dashboards ©2013 Blue Canyon Partners, Inc. 23