This is a presentation that I gave on developing sales channels to a group of entrepreneurs at the Technology Capital Network in July 2007 in the Boston area

1. CXO
Advisory Group
Choosing the Right
Sales Channel
Stephen N. Davis
“Partnering With Clients to Drive
Sustainable Profitable Growth”
July 2007

2. What We’ll be Covering
Developing your channel strategy
• How to choose the right channel(s)
Types of sales channels
• Capabilities & limitations
What it takes to succeed
Managing channel relationships
Key points to remember
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

3. Sales Channels – The Reality
“A product with better distribution will
always win over a product with poor
distribution or customer access”
It’s not fair. It’s not right.
But, it’s reality.
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

4. Common Sales Strategy Mistakes
Confuse channel partners with final customers
Channels are not in sync with end-user targets
Channels do not fill company weaknesses
No targeted value proposition to the channel
Failure to treat sales channels on an equal basis
Failure to consider licensing or joint-venture agreement
Lack of sell cycle sales tools
Insufficient start up costs
Insufficient channel margins
Channel conflict
Treating the US as one homogenous market
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

5. Plan Your Entry into the Channel
“If you don’t know
where you’re going
you’ll probably
wind up
somewhere else”
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

6. Critical Questions You Must Answer
What is the customer profile?
Do I offer a whole product solution?
What is my average deal size?
How complex is my solution?
How long is my sales cycle?
What are my company’s Strengths and Weaknesses?
How much money is available for Marketing/Sales?
How and where do my competitors sell effectively?
What complimentary product sales opportunities exist?
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

7. You Need a Whole Product Offering
Pre-Sales Support
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Post-Sales Support
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

8. The Channel Marketing Plan
Strategy Program Execution
Goals Coverage model Media Campaign
Target Value proposition Communication
Market Business rules Incentives
Product Sales model Education
Competition Pricing Outsourcing
Channels Sales Support
• Roles model
• Alignment Customer Support
Model
Budget
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

9. Have a Written Plan with Measurable
Objectives
Build a customer profile?
What channel partners should I have?
• Build a channel partner profile
• Link to end-user targets
• Fit with existing channels
• What role do they play?
• Influence
• Sales
• Support
• Technical
How do I choose them?
How do I measure them?
How do I generate business for them?
Do the financial requirements make sense for our company?
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

10. Creating Effective Budgets
A program without a budget is a wish
• Cancelled at any point
• Not credible to reseller
• Cannot be strategic or justified to management
• Costs cannot be measured or controlled
Must estimate costs of program design, implementation
and management
• Coverage, sales model, support model, value proposition
• Calculate as both cost of sales and return on investment
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

11. Types of Sales Channels
Direct field sales reps Internet sites
Corporate resellers Extranets
Master or local e-Marketplaces
distributors Direct Mail
Integrators OEM’s
Value-added resellers Retail
Manufacturer’s agents Kiosk’s
Brokers Strategic alliances
Franchises Agents (consultants,
Telemarketers affiliates, etc.)
Inbound telesales CXO
agents Advisory Group
2000 - 2009 © CXO Advisory Group

12. Channel Benefits/Risks
Benefits Risks
Control Harder to scale
Higher gross margins Higher fixed costs
Direct customer relationship Less flexible – seasonal sales
Direct
Necessary for complex sale
Can scale quickly Ongoing investment in
Use established customer recruitment & training
relationships Big margin sacrifice
Fill product gaps Up front MDF investment
Indirect Companion selling Loss of customer relationship
opportunities & feedback
Local support Fighting for mindshare
Increased demand generation Quality of channel partner
Offload financing risk
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

13. Computer Distribution Channels
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

14. What Do These Firms Have in
Common?
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

15. Is Your Buyer Package up to Snuff?
Marketing materials
Price lists
Outline of your marketing campaign – Demand Creation
Product samples - Packaging
COOP/MDF funds and campaigns
In-store merchandising
Prospect & customer correspondence
Sales training for their personnel
Sales support
End user training
End user support
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

16. Joint Venture/ OEM / Private Label
Quick penetration – less risk
Established market presence
Provides localization of product
Handles all marketing, sales, distribution &
support
Provides ongoing market analysis
Provides ongoing competitive analysis
Usually won't carry competing product
Tough sale – long sales cycle
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

17. Approaching a Potential
Joint Venture/ Private Label Partner
Be Ready to Explain Key Product Advantages
Do Your Homework
• Why should they be interested?
• Fills competitive hole
• Enhances existing product line
• Prevents having to compete against you
• You could develop market in your home country for their
products
How easy it will be to work with you
Support you will give them
• Technical
• Training
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

18. Key Issues Licensing Agreement
Specs & Deliverables Marketing Obligations
Acceptance List Price of Product
Grant of License Performance Requirements
Terms Warranties
Payments Limitation of Liabilities
Bookkeeping Requirements Development Support
Ownership Rights to Updates
Use of Trademarks Termination
Training Source Code Access
Decision Making Authority
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

19. Distributors
Sells to other channel players within designated
area
Takes title to goods and is compensated by mark-up
upon sale
Sells suppliers goods to his own customers
No authority to act on your behalf
Maintains Inventory
Sells in original packaging
May or may not provide after sales services
Many products are taken on consignment basis
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

20. What Distributors Look For
Products with proven demand
Product's packaging, ease of use & install
Marketing budget
Quality tech & Customer support
Ability to scale up to demand
Financial stability
Training
Distributor staff time required
Only 1% - 2% of products presented get chosen
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

21. Manufacturers Agent/Commercial
Agent
Alternative to own sales force
Both authorized to solicit orders in designated area
Receive salary or commission
Usually bear no credit risk
Maintains no inventory
Requires same support & training as internal salesforce
Carries several lines
References, References, References
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

22. What does a good Reseller look for
Product for their market
Ways to increase revenue via
• Consulting
• Support
• Reduced cost of sale
Investment and commitment
Good business proposition
Training & technical support
Sale & marketing support
Territorial exclusivity
Price stability
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

23. VARs Choose Product On
% VARs Considering Factor
Extremely Important
Product Quality 87%
Order Fulfillment 55%
Profit Margins 45%
Price/Performance 45%
Commitment 43%
Technical Support 41%
Business Documentation 29%
Terms & Conditions 25%
Channel Conflict 21%
Sales Rep Assistance 17&
Sales Leads 17%
Co-op Advertising 6%
Source: VARBusiness
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

24. Manage Your Reseller Relationship
Be selective – resellers won’t
Reduce potential territorial conflicts
Distributors will not maintain your reseller relationship
• You have to do it directly
Segment your resellers
• That work on large accounts with your direct sales force
• Markets that resellers will be your salesforce
• Specialized vertical markets
Resources should be based on this segmentation
Set realistic sales targets and ramp up
Provide sales cycle specific marketing tools
Communicate regularly
Train, Train, Train
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

25. Cost of Market Entry Options
Retailer Mark-up, 50% - 200%+
5-10% MDF, Slotting Fees
Agent/ Rep. Commission, 5%–30%
Value Added Reseller Margin, 20-40%, 5-10% MDF
(VAR)
Distributor (stocks product) Margin, 10%–50%, 2-5% MDF
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

26. Key to Efficient Channel Management
Strengthen ability of channel partners to
deliver solutions
Train channel partners well & often - for
free
Enhance communications
Treat them like they’re your own
salesforce
Enable partners to sell complementary
services agressively
Deliver channel value with the web
• Demand creation
• Quality leads
• Support
• Information
• Links
• Feedback
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

27. When Worlds Collide:
Misalignment of Marketing & Sales
Marketing sales:
“We spend millions generating qualified
prospects and they fall into a black hole!”
Sales says:
“The collateral material is crap. It doesn’t help
me in the sales cycle and the so-called leads
they send us are a waste of my time.”
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

28. When Worlds Collide:
Misalignment of Marketing & Sales
Company centric messaging doesn’t support sales
effort
50% to 90% of marketing messages, collateral and
sales tools go unused
Sales people spend 40-60 hours each month
creating their own materials, responses,
presentations
Only 10% of sales people present the “best answer”
to a customer solution
Solution: Produce sales-cycle relevant tools
Source: AMA and collateral
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

29. Manage Channel Conflict
Areas of channel conflict
• Multiple channels calling on same account
• Specify territories or vertical markets -
segmentation
• Company selling directly to reseller accounts
• Specify company owned accounts -
reserved
• Specify reseller owned accounts - reserved
• Compensate direct sales force on sales
through resellers
• Have them work on accounts with key
resellers
• Pricing not consistent across channels
• Get your pricing structures in line
Conflict can not be eliminated
Changing business objectives
Company politics
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

30. Key Points That Can Make a Difference
Have realistic expectations
Top management commitment
Focus, Focus, Focus
Long Term View
Clear understanding of end-user targets and their
alignment with channel partners
Reduce channel conflict by clearly defining roles
and responsibilities for each channel
Develop comprehensive business rules for
managing program processes
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

31. Key Points That Can Make a Difference
Take inventory of your partners
• Does the 80/20 rule apply?
• Build profiles based on successful partners
• Align internal resources based on contribution
Invest in your partners
• Marketing
• Training
• Support
• Web
Use the Internet to enhance partner sales
Review your channel strategy yearly
• Identifies potential destructive channel conflict
• Tune channel support programs
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

32. Questions
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

33. CXO
Advisory Group
Contact Information:
Stephen Davis
Interim COO/VP Sales & Marketing |
Business Consultant | Sales Channel and
Business Development Expert | Author &
Speaker
“Partnering With Clients to Drive
Sustainable Profitable Growth”
Phone: (508) 528-7571
Email: sdavis@cxoadvisorygroup.com
Website: www.cxoadvisorygroup.com
Linkedin: www.linkedin.com/in/stephendavis
Twitter: twitter.com/stephendaviscxo

34. The CXO Advisory Group
CXO Advisory Group is a strategic operations advisory
and management firm comprised of proven C-level
executives with both breadth and depth of experience.
CXO Advisory Group Team members have achieved
success in positions ranging from: President/CEO to
COO, and VPs of Sales, Marketing, Corporate
Development and Human Resources.
Has proven success in business development and in
building US sales and distribution channels
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

35. How Can CXO Help You?
Business Strategy Services
• Audit business practices and organization
• Evaluate product and pricing strategies
• Evaluate effectiveness of sales channel
• Assess effectiveness of existing sales and marketing
programs
Market Entry Program
• Analyze competitive landscape
• Market launch strategy and plan
• Channel strategy and programs
• Establish sales channels
• Generate sales and manage relationships
• Identify and develop strategic partnerships CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

36. How Can CXO Help You?
Sales Channel Management
• Review and revise sales channel strategies
• Channel partner identification, prospecting and recruitment
• Eliminate channel conflict
• Channel contract development and negotiation
Interim Management Resources
• Interim CEO, COO, CMO, CSO
• Interim VP of Sales and Marketing
• Consultant on staff
• Launch team coaches
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

37. How Can CXO Help You?
Venture Advisory Services
• Fine tune operations, business strategy and market entry
• Assist with due diligence
• Strategic business assessment of portfolio companies
CXO
Advisory Group
2000 - 2009 © CXO Advisory Group

38. CXO
Advisory Group
Contact Information:
Stephen Davis
Interim COO/VP Sales & Marketing |
Business Consultant | Sales Channel and
Business Development Expert | Author &
Speaker
“Partnering With Clients to Drive
Sustainable Profitable Growth”
Phone: (508) 528-7571
Email: sdavis@cxoadvisorygroup.com
Website: www.cxoadvisorygroup.com
Linkedin: www.linkedin.com/in/stephendavis
Twitter: twitter.com/stephendaviscxo