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.

1. XMBA296TThe Lean LaunchPadSession 4: ChannelsProfessors Steve Blank,JonFeiber, Jim Hornthal, Oren Jacobhttps://sites.google.com/site/xmba296t/

2. ChannelsHow does each customer segment want to be reached?Through which interaction points?1

3. Test Hypotheses: Channel2

4. Two Critical Questions about ChannelsFirst one is obvious: How do you want to sell your product?31Second 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?YourselfThrough someone elseRetailWholesaleBundled with other goods or services4üüüüü

6. How Does Your Customer Want to Buy Your Product?Same dayDelivered and installedDownloadedBundled with other productsAs a service…5üüüüüü

7. Nature of Product Impacts Channel: Atoms or Bits?Access to customers changes dramaticallyLogistics related to product complexityPeople as products6

8. Web Channels7

9. Physical Channels8

10. Types of ChannelsOEMVARResellerDistributor9DirectIndirectLicensing

11. The Channel as a CustomerSome products are embedded in others (OEM)Some products are resold by others (VARs)Some products are distributed by othersWho’s the customer?10

12. Distribution Complexity11EvangelistsGlobal SystemsSystems IntegratorsWANsMainframesDirect SalesHigher VolumeMinisLANsVARsMarketing ComplexityPC ServersHigher Value AddedDesktop PCsRetailPrintersKeyboardsServiceTechniciansWeb, TelesalesTonerSolution Complexity

13. How Are Channels Compensated?CommissionPercentage of sales priceDiscounted pre-purchase12

14. How Are Channels Motivated or Incented?Money! – what makes them the most?TrainingMarketing to the channelSPIF13

15. Channel Economics: “Direct” Sales14ListPriceRevenueCost of Goods(Supply Chain)Profit + SG&A + R&DEU DiscountsEnd Consumer Source: Mark Leslie, Stanford GSB

16. Channel Economics: Resellers15ListPriceRevenueCost of Goods(Supply Chain)Profit + SG&A + R&DResellerEU DiscountsEnd Consumer Source: Mark Leslie, Stanford GSB

17. Cost of Goods(Supply Chain)Profit + SG&A + R&DChannel Economics: Distributors/Resellers16ListPriceRevenueResellerEU DiscountsDistributorEnd Consumer Source: Mark Leslie, Stanford GSB

18. Channel Economics: OEM or IP Licensing17ListPriceRevenueEU DiscountsResellerDistributorMaster DistributorProfit + SG&A + R&DCost of Goods(Supply Chain)End ConsumerResellerProfit + SG&A + R&DCost of Goods(Supply Chain)Your Product Becomes Your Customer’s COGs Source: Mark Leslie, Stanford GSB

19. Example: Book Publishing18PublisherNational DistributorPrinterWholesalerRetailerCustomer

20. Book Publishing19PublisherNational WholesalerDistributorRetailerCustomerPercent of Retail35%15%10%40%$7.00$3.00$2.00$8.00$20.00For 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 Economics20PublisherNational DistributorWholesalerRetailerCustomerAllowancesWholesale costsBillsMarkupCredit guaranteesPayment guaranteesPayment guaranteesReturn rightsCreditsPayments

22. Book Publishing Delivery21PublisherNational DistributorPrinterWholesalerRetailerPrepare film (content)ReceiveSchedules

23. Print orders

24. Bundle counts

25. FilmMerchandise titlesDetermine allocationsSell magazinesDeliver ordersEstablish identity

26. Create demandPrepare galleysPrint and ship magazinesAcknowledge returnsDispose of returns

27. Bits vs. Atoms22ChannelWebPhysicalBitsProductPhysical

28. Product and Channel Are Bits23ChannelWebPhysicalRapid Agile and Customer development

29. Fastest to acquire early customers and scaleBitsProductPhysical

30. Web 2.0 – Product and Channel Are Bits24ChannelWebPhysicalGoogle

31. Twitter