1. NSF I- Corps
The Lean LaunchPad
Lecture 4:
Distribution Channels
How does your Product
Get to Customers?
Version 6/22/12

2. Channels
How does your Product
Get to Customers?

3. © 2012 Steve Blank

4. Who Are Our
Customers and How
Do We Reach Them

5. Physical versus Virtual Channels

7. How Do You Want Your Product to
Get to Your Customer?
 Yourself
 Through someone else
 Retail
 Wholesale
 Bundled with other goods or services
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8. Web Channels
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9. Physical Channels
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10. How Does Your Customer Want to
Buy Your Product from your Channel?
 • Same day
 • Delivered and installed
 • Downloaded
 • Bundled with other
 products
• As a service
 • …
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11. Types of Channels
Direct Indirect Licensing
– OEM
– VAR
– Reseller
– Distributor
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12. Distribution Complexity
Global Systems
Evangelists Systems Integrators
WANs
Mainframes
Marketing Complexity
Direct Sales
Minis
LANs
VARs
PC Servers
Desktop PCs
Retail
Printers
Keyboards
Web, Telesales Service
Technicians
Toner
Solution Complexity
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13. How Do the Economics Work in
Different Sales Channel?

14. How Are Channels Compensated?
– Commission
– Percentage of sales price
– Discounted pre-purchase
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15. Channel Economics: “Direct” Sales
List
Your Revenue Price
End Consumer
Discounts
Cost of Goods
EU
Profit + SG&A + R&D
(Supply Chain)
Source: Mark Leslie, Stanford GSB
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16. Channel Economics: Resellers
List
Your Revenue Price
End Consumer
Discounts
Cost of Goods
EU
Profit + SG&A + R&D Reseller
(Supply Chain)
Source: Mark Leslie, Stanford GSB
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17. Channel Economics: Distributors/Resellers
List
Your Revenue Price
End Consumer
Distributor
Discounts
Cost of Goods Profit + SG&A +
EU
Reseller
(Supply Chain) R&D
Source: Mark Leslie, Stanford GSB
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18. 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?
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19. Channel Economics: OEM or IP Licensing
List
Your Revenue Price
End Consumer
Cost of
Distributor
Distributor
Discounts
Master
Goods Profit + SG&A +
EU
Reseller
(Supply R&D
Chain)
Cost of
Goods Profit + SG&A
Reseller
(Supply + R&D
Chain)
Your Product Becomes Your
Customer’s Cost of Goods Source: Mark Leslie, Stanford GSB
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20. How Are Channels Motivated or Incented?
– Money! – what makes them the most?
– Training
– Marketing to the channel
– SPIF
19

21. Book Publishing
Channel Example

22. Example: Book Publishing
National
Publisher Printer Wholesaler Retailer Customer
Distributor
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23. Book Publishing
National
Publisher Distributor Retailer Customer
Wholesaler
•Percent of 35% 15% 10% 40%
Retail
$7.00 $3.00 $2.00 $8.00 $20.00
• You get
-35% of retail
- the distributor gets 10%
- the wholesaler gets 15%
- the retailer gets 40%
-less any discount they offer the customer
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24. Book Publishing Economics
National
Publisher Wholesaler Retailer Customer
Distributor
Allowances
Wholesale costs
Bills
Markup
Credit
guarantees
Payment
guarantees
Payment
guarantees
Return rights
Credits
Payments
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25. Book Publishing Delivery
National
Publisher Printer Wholesaler Retailer
Distributor
Prepare film
Receive
(content)
 Schedules
 Print orders Determine Merchandise
 Bundle allocations titles
counts
 Film
Sell
Deliver orders
magazines
 Establish Prepare
galleys Print and ship
identity
magazines
 Create
demand
Dispose of Acknowledge
returns returns
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26. Medical Device
Channel Example

27. Product flow/Channel
Electronic Partners/
Health Fluid Synchrony
OEMS
Records
Electronic Support Pump + Bundled
Records Services Controller Kits
Hospitals
(Anesthesiologists
Patients Neurosurgeons)
Pain Clinic
(Anesthesiologists
Neurosurgeons)

28. Hospitals
Pain Clinics
Channels (Direct)
• Direct to institutions
• Some formularies involved in purchase decisions
• Some doctors make purchase decision directly
• Device company/Doctor relationship is key
• Heavily influenced by :
• Clinical study results
• Regulatory approval
• Reimbursement

29. Farm Sensor Industry
Channel Example

30. Channel Model: Service Provider
Product
Money
OEM Nutrient
Data
Large farm
Us
Small farm
USDA/EPA Licensing/sales

31. Channel Model: Service Provider
Product
Money
OEM Nutrient
Data
Large farm
Product
Us
Small farm Service
USDA/EPA Licensing/sales

32. Dental Product
Channel Example

33. COST / PROFIT ANALYSIS
Licensing Revenue Model
Per unit cost and profit estimation
Our revenue 4-8% revenues List price
End user
Univ. Manufacturing
Maintaining Raw License
R&D License & Distribution
IP fee materials fee
Packaging
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34. Licensing of Technology Ecosystem
University Insurance
Agencies
2-4% license fee
$$$
DMX
R&D
Products
Procedures
Health-Care
IPs
Providers: $$ End
4-8% royalty Hospitals User
~$40 Practitioners
Customer Clinics
segment: Large
corporations
J&J, GSK, 3M
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35. Medical Device
Channel Example 2

36. •
•
•
•
•
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38. Dental Product 2
Channel Example

39. Channels
Direct Sales Big Distributors
Private Practice Institutional Purchasing
Dentist Dentist Department

40. Channels
Direct Sales Big Distributors
80% Market Share
30% Margin
Private Practice Institutional Purchasing
Dentist Dentist Department

41. Channels
Continuing
Education Magazines Trade
Courses & Email Shows
Direct Sales Big Distributors
80% Market Share
30% Margin
Private Practice Institutional Purchasing
Dentist Dentist Department

42. Online Rental
Channel Example

43. PM Tools
Rentpost.com
Listings Rentjuice.com
Provider Buildium.com
Craigslist Rentingsmart.co
Potential Padmapper.com
Propertyware.com
Landlords Rent.com
Apartment.com propertymanagemnt360
Show, Advise, Valuate
Forrent.com
Rentjuice.com
Realtors
Propertyware.co
Trulia.com
Sell, Advise
Credit Checks
Landlords
Safetenantcheck.c
Erenter.com
Buildium.com
Property Listings,
Managers Checks Payment Facilitator Maintenance
Rent Payment
Listings, Rentpayment.com Ratings
Checks Clearnow.com
Rent Payment Yelp.com
Tenants Online Cheque
Angie’s List
Rentingsmart.co
Maintenance
Furnishing Moving Find information Maintenance Finding
Service Zoospi.com
Providers Redbeacon.com
Taskrabbit.com
Servicemagic.com Schedule Tools
Setster.com
Web Info Zoospi.com
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44. Dental Product 3
Channel Example

45. COST / PROFIT ANALYSIS
Direct Sales Revenue Model
Our revenue $27 List price $40 *
Per unit cost and profit estimation %32 cut
End user
Raw active Manufacturing & Profit + R&D + License
Distributor
ingredient Packaging fee
$6 ? ($5) ~$11 ~$13
* Competition
• NuProprophy paste (Novamin$50)
• NuPro desensitizer (Novamin$93)
• MI varnish (Recaldent$100)
• Gluma desensitizer (Glutaraldehyde$130)
• Health-Dent desensitizer (Fluoride $49)
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46. Direct Sales Ecosystem
R&D & University Insurance
Regulation
Agencies
$?
$$??
Raw Materials
Manufacturing
$6/pk DMX
R&D
Products
Customer
$5/pk Procedures
Segments;
Formulations IPs
Health-Care $$?? End
&Packaging
-32%($27) Providers: User
- Hospitals
Product - Practitioners
Sales & $40/pk - Clinics
Distribution
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47. Channel Example

48. • F-dopa iodonium intermediate
• F-dopamine iodonium intermediate Precursor Synthesis
Reagents
• ABX • Siemens Explora
GMP • Eckert & Ziegler Precursor in Cassette
Cassette • GE MX module for TracerLab
Components
• Eckert & Ziegler • Synthra
GMP • Siemens Explora Cassette (device)
Compliant • Neoprobe • TracerLab/ GE
Synthesizer
• Siemens PETNet
• GE Amersham
PET Drug • Cardinal Health Finished product
Distributor • AAA • Iason
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I-Corps Final Presentation 12/14/11

49. Channel Example

50. Travel Industry
Channel Example

51. Travel Services:
Impact of Changing Technology

52. The Advent of GDS Systems (1980 -1995)

53. Turning the Screen Around
Online Travel (1995-2010)