Download to read offline
Channel Strategies
- 1. US Channel StrategiesforUS Channel Strategies for European PhotonicsEuropean Photonics ManufacturersManufacturers Presented at Photonics EuropePresented at Photonics Europe April 27, 2004April 27, 2004 by Philip Crowleyby Philip Crowley CEO, Market Tech, Inc.CEO, Market Tech, Inc. Sponsored by:Sponsored by:
- 2. April 2004 MarketTech, Inc. OverviewOverview Channel PartnersChannel Partners Choosing a PartnerChoosing a Partner Strategies for SuccessStrategies for Success Other ConsiderationsOther Considerations
- 3. April 2004 MarketTech, Inc. Channel PartnersChannel Partners Catalog CompaniesCatalog Companies Stocking distributors with brand recognitionStocking distributors with brand recognition DistributorsDistributors Could be a non-stocking distributorCould be a non-stocking distributor Independent RepresentativesIndependent Representatives Sales Agent working on commission basisSales Agent working on commission basis Manufacturing CompaniesManufacturing Companies Channeling product through established companyChanneling product through established company
- 4. April 2004 MarketTech, Inc. Catalog CompaniesCatalog Companies BenefitsBenefits Stocking DistributorStocking Distributor Strong Marketing and BrandingStrong Marketing and Branding Some have direct sales force as wellSome have direct sales force as well DownsideDownside Cost of sales is high, around 30%Cost of sales is high, around 30%
- 5. April 2004 MarketTech, Inc. Non-Stocking DistributorNon-Stocking Distributor BenefitsBenefits Technical Sales ExpertiseTechnical Sales Expertise Marketing under Manufacturer brandMarketing under Manufacturer brand Typically has direct sales forceTypically has direct sales force DownsideDownside Cost of sales is high 20-30%Cost of sales is high 20-30%
- 6. April 2004 MarketTech, Inc. Independent Sales AgentIndependent Sales Agent BenefitsBenefits Cost of sales is low, around 15%Cost of sales is low, around 15% Sales transaction handled by manufacturerSales transaction handled by manufacturer Local direct sales presenceLocal direct sales presence DownsideDownside Typically smaller regional territoryTypically smaller regional territory
- 7. April 2004 MarketTech, Inc. Manufacturing CompaniesManufacturing Companies BenefitsBenefits Technical Expertise and InfrastructureTechnical Expertise and Infrastructure Strong Marketing and BrandingStrong Marketing and Branding Have direct sales forceHave direct sales force DownsideDownside Cost of sales is high, more than 30%Cost of sales is high, more than 30%
- 8. April 2004 MarketTech, Inc. Benefits of Working with a ChannelBenefits of Working with a Channel PartnerPartner Potentially lower fixed sales costsPotentially lower fixed sales costs Coverage of large geographic territoryCoverage of large geographic territory Immediate Access To The MarketImmediate Access To The Market Costs That Go Up And Down With SalesCosts That Go Up And Down With Sales Common Goals between partnersCommon Goals between partners Understanding of customer needsUnderstanding of customer needs
- 9. April 2004 MarketTech, Inc. Choosing a PartnerChoosing a Partner Product typeProduct type Component, Module or SystemComponent, Module or System Geographical territoriesGeographical territories Local, Regional or NationalLocal, Regional or National Partner profilePartner profile Size, technical depth, coverageSize, technical depth, coverage
- 10. April 2004 MarketTech, Inc. Choosing a PartnerChoosing a Partner Markets CoveredMarkets Covered Scientific, Industrial, TelecomScientific, Industrial, Telecom Target customersTarget customers End user or OEMEnd user or OEM Level of support requiredLevel of support required Applications, Service, TrainingApplications, Service, Training
- 11. April 2004 MarketTech, Inc. Strategies for SuccessStrategies for Success Invest time in your channel partner toInvest time in your channel partner to achieve desired resultsachieve desired results TrainingTraining Sales ManagementSales Management CommunicationCommunication Setting of ExpectationsSetting of Expectations What you expect in return for your supportWhat you expect in return for your support
- 12. April 2004 MarketTech, Inc. Strategies for SuccessStrategies for Success Make sure you have a written agreementMake sure you have a written agreement that will specifythat will specify Territory coveredTerritory covered Commission or distributor discountCommission or distributor discount RelationshipRelationship Conduct of businessConduct of business Term of agreement and terminationTerm of agreement and termination Any other relevant issuesAny other relevant issues
- 13. April 2004 MarketTech, Inc. Multiple Market StrategyMultiple Market Strategy Manufacturer DistributorDirect Sales Products OEM End user
- 14. April 2004 MarketTech, Inc. Master Distributor StrategyMaster Distributor Strategy Master Distributor Regional Rep 1 Regional Rep 2 Regional Rep 3 Master Distributor takes responsibility for choosing, hiring and training regional independent representatives for the manufacturer.
- 15. April 2004 MarketTech, Inc. Other ConsiderationsOther Considerations MarketingMarketing Costs, responsibilities, challengesCosts, responsibilities, challenges BrandingBranding Building your brand or…Building your brand or… Sales cycleSales cycle Time and effort requiredTime and effort required Product supportProduct support Commodity items vs. capital equipmentCommodity items vs. capital equipment
Editor's Notes
- #2 Thank you. Having worked for catalog companies, distributors and direct manufacturers over the years I would like to discuss ways one might bring photonics products to market using channel partners. Clearly many European manufacturers would prefer to have their own sales and marketing organization installed in the states but few early stage or small companies can afford the tremendous expense.
- #3 First I will discuss the types of channel partners that are used in the photonics industry along with some of the benefits. Next, how one might go about choosing the right partner. I will next speak to strategies you could use to have a successful implementation of a channel strategy. Finally I would to mention a few other considerations that could affect your decision.
- #4 Many english language words used in the US have mutilple meaning which may not make sense. When I talk about partners I use the word in a loose sense, I am not discussing a marriage between companies but maybe it is more like you are dating. There are several types of channel partners to chose from that provide good examples . Catalog companies like ThorLabs, Newport, New Focus are well known brands that operate as stocking distributors. A straight distribution company may be a non-stocking distributor that does not channel it’s products through a catalog but takes a less direct approach to marketing products. Independent sales representatives operate as an agent selling products for commission only. In some instances smaller manufacturers have teamed up with larger manufacturers to market and sell their products.
- #5 Catalog companies are a great way to bring your products to market if your products fit well into the markets and customers served by the company. There is typically strong brand recognition with an established catalog company and they provide a reasonable amount of marketing and sales effort. The cost is fairly high around 30% or perhaps more.
- #6 A non-stocking distributor would market the manufacturers product under the existing brand name. For many manufacturers wanting to establish their own brand identity they may find this a suitable alternative to a catalog distribution channel. In some cases it may provide for a higher level of sales expertise in one specific product category. This may also be preferable for manufacturers of higher cost products such as capital equipment where the sales cycle is much longer. The cost of sales still tends to be high as is the case with catalog companies.
- #7 Although the cost of compensation can vary depending on the product type the relative cost of sales in using an independent sales agent or rep as they are sometimes referred to is low. Larger manufacturers in fact may prefer to handle the processing of the sales transaction themselves making this a great alternative to using a distributor. That said many agents also sell some products as a distributor buying at a discount form the manufacturer and selling direct to the customer. Although there are a few large firms, typically sales representatives cover a limited territory warranting the use of multiple agents to cover the whole of the US.
- #8 Many times it may make sense for the manufacturer to partner with an already established manufacturing company marketing products to similar markets. This channel has many of the same benefits as the catalog distribution route, strong branding, marketing and sales, but may be better suited to certain types of photonics products. Lasers would be a good example.
- #9 So why work with a channel partner rather than go direct. Covering the whole of the US and Canada with one or two direct sales people would be difficult at best. A channel partner already has access and existing customers providing immediate access for your products. Frankly with most channel partners you have variable costs that go up and down with sales. You may have common goals and complimentary products for a given market. A more local presence will provide a better understanding of customer needs. You should always think globally but act locally.
- #10 In choosing a partner there are many considerations. Are you manufacturing a component, module or complete system. What are the technical complexities of and pricing of your product? Are there a few key local or regional territories that make up the bulk of your market? Or perhaps you need complete coast to coast coverage. What is the profile of your potential partner? Are you better off working with a small group, a partner with technical sales people or are your looking only for a partner to build the right relationships? What is the territory the partner covers, how many sales people do they have.
- #11 Is your potential partner also engaged in the markets you are targeting? Is your product targeting the end user perhaps in a research application or are you planning to work with original equipment manufacturers or OEM who will design your product into a system they will sell to the end user. Will your partner handel applications support, service or training of customers?
- #12 Once you have chosen a partner to work with make sure you invest time in your mutual success. Product and sales training, make sure your partner has effective sales management in place. And from personal experience I can not stress enough the importance of frequent communications between partners. Also setting expectations upfront will put the partner relationship on the right track. Keep in mind that partners will also want to set expectations regarding their expectations for support form the manufacturer.
- #13 Most channel partners will not spend time and money selling your products without a written agreement. The purpose of an agreement is not to tie the partners into a never ending relationship but to set forth the boundary conditions for the relationship to be successful. The geographic territory covered, which may be the whole of north america or just a few key states. Are you paying a commission or providing a distributor discount what is the percentage from list price? What is the relationship, sales rep, distributor, other. How do you intend to conduct business together? The term exclusive non-exclusive and termination clauses in an agreement. Any other relevent issues unique to your situation. I also recommend having it reviewed by your attorney.
- #14 One example I would like to provide has been used to move products in quite dissimilar markets. In this example a manufacturer has a product line that is primarily sold through a direct sales channel to OEM customers perhaps even in a few market segments. There is also a need for a product using the same technology in an end user market for scientific research. With this product a distributor channel is used perhaps a catalog company that is focussed on the research market. The benefit here is that the manufacturer keeps his fixed sales costs down while penetrating a much wider array of markets.
- #15 Another example I would like to provide is the master distributor-rep. The manufacturer picks a single channel partner to work as the master distributor while authorizing the distributor to choose additional partners to act as independent representatives. The benefit here is that the distributor is a single point of contact for all sales transactions and sales management for the manufacturer while also allowing for a much larger geographic coverage. In addition the master distributor may be able to choose additional representative more quickly given his already existing relationships.
- #16 Other considerations for a sucessful implementaiton of whatever channel strategy you chose include how you plan to market your product, through your channel partner by yourself, what are the financial and logistical challenges. Building a brand is expensive and time consuming. Maybe you want to build your own brand to further your companies recognition in specific markets or perhaps this is not important to your success and you decide to sell your products under your partners brand. Are you setting the proper expectations with your partner regarding the sales cycle and the effort required to capture new customers. Product support is important to all customers. That said the level required as you may know is quite different depending the the type of product. I hope my presentation today has provide you with some food for though. Thank you.