This document discusses channels and how products are delivered to customers. It addresses two key questions about channels: how you want to sell your product and how your customer wants to buy it. Different types of channels are examined, including direct sales, resellers, distributors, OEMs, and licensing. The economics of various channel models are analyzed using the example of book publishing. The impact of physical versus digital products on appropriate channels is also explored.
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
10. Types of Channels OEM VAR Reseller Distributor 9 Direct Indirect Licensing
11. 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? 10
12. Distribution Complexity 11 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
13. How Are Channels Compensated? Commission Percentage of sales price Discounted pre-purchase 12
14. How Are Channels Motivated or Incented? Money! – what makes them the most? Training Marketing to the channel SPIF 13
15. Channel Economics: “Direct” Sales 14 ListPrice Revenue Cost of Goods(Supply Chain) Profit + SG&A + R&D EU Discounts End Consumer Source: Mark Leslie, Stanford GSB
16. Channel Economics: Resellers 15 ListPrice Revenue Cost of Goods(Supply Chain) Profit + SG&A + R&D Reseller EU Discounts End Consumer Source: Mark Leslie, Stanford GSB
17. Cost of Goods(Supply Chain) Profit + SG&A + R&D Channel Economics: Distributors/Resellers 16 ListPrice Revenue Reseller EU Discounts Distributor End Consumer Source: Mark Leslie, Stanford GSB
18. Channel Economics: OEM or IP Licensing 17 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
20. Book Publishing 19 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
21. Book Publishing Economics 20 Publisher National Distributor Wholesaler Retailer Customer Allowances Wholesale costs Bills Markup Credit guarantees Payment guarantees Payment guarantees Return rights Credits Payments