USA Sales & Distribution Strategies Strategies

1. USA Sales & Distribution Channel Strategies Stephen N. Davis “Partnering With Clients to Drive Sustainable Profitable Growth” February 2007 2000 - 2007 © CXO Advisory Group

2. What We’ll be Covering Common mistakes when entering the USA The channel marketing plan What it takes to succeed in distribution Managing channel relationships Managing channel conflicts Channel Trends Points to remember 2000 - 2007 © CXO Advisory Group 2

3. The U.S. Marketplace 2000 - 2007 © CXO Advisory Group 3

4. Common Exporter Mistakes Insufficient commitment by top management • Time & Finances Launching in USA before fully established in Canada Launching in more than one international market at a time Failure to develop an US marketing plan prior to beginning to export • A program without a budget is a wish • Chasing orders instead of establishing a basis for profitable operations and orderly growth. • Failure to modify pricing for reality of US market • Gray Market Hiring the wrong advisors 2000 - 2007 © CXO Advisory Group 4

5. Common Exporter Mistakes Insufficient care in selecting sales channels • Channels are not in sync with end-user targets • 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 Neglecting export business when domestic markets are healthy. Unwillingness to modify products to meet regulations or cultural preferences of other countries. Treating the US as one homogenous market 2000 - 2007 © CXO Advisory Group 5

6. Plan Your Entry into the Channel “If you don’t know where you’re going you’ll probably wind up somewhere else” 2000 - 2007 © CXO Advisory Group 6

7. The International Marketing Plan Strategy Program Execution Goals Coverage model Media Campaign Target Market Value proposition Communication Product Business rules Incentives Competition Sales model Education Channels Pricing Outsourcing • Roles Sales Support • Alignment model Customer Support Model Budget 2000 - 2007 © CXO Advisory Group 7

8. Have a Clearly Articulated “Value Proposition” Elevator pitch is one of your most important elements • This is the essence of your business • You have 10 to 20 seconds to grab their attention • Then 20 to 40 seconds to expand the Business Value Proposition Spend the time to develop a compelling value proposition 2000 - 2007 © CXO Advisory Group 8

9. Showing Value Is Always Important Positions what you’re offering as a solution to a business problem rather than a commodity Differentiates yourself, products and services from competitors Focuses customer into thinking on Return on Investment(ROI) not price 2000 - 2007 © CXO Advisory Group 9

10. Example We provide a flexible, interactive and personalized system for delivery of medical test results from a dedicated, comprehensive content library. We streamline the reporting of clinical lab test results from the physician to the patient in language that patient’s can easily understand. 2000 - 2007 © CXO Advisory Group 10

11. It Takes a Long Time to Write Something Short 24 hours minimum – 4 months maximum • 8 hours to develop prioritized list • Problems your solving • What your offering • What makes you different from competition – Why you’ll win • 4 hours to write first draft • 4 hours testing your first draft with key individuals, advisors, etc. and incorporating feedback • 6 hours testing revised draft on larger group • 2 hours to revise and incorporate feedback But this isn’t the end You’ll eventually have multiple elevator pitches for various audiences • Investors, different customer types, strategic partners, etc. 2000 - 2007 © CXO Advisory Group 11

12. 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. 2000 - 2007 © CXO Advisory Group 12

13. Channel Strategy Must start with the customer How many channel partners do I need? 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? 2000 - 2007 © CXO Advisory Group 13

14. Know Your Customers Buying Process Sales Cycle Identify Prospect Qualify Proposal Close Deliver Stage Discover Need Seek Solution Review Vendor Agree on Check Start Materials Solution and References Implementation Identify Research Determine Total Project Specs. Validate Assign Business Goals Find Vendors Scope of Project Coordinate Proposal Resources Quantify Impact Get Information Estimates Customer’s RFQ Buying Process Start Training Cycle & ROI Confirm timing & Choose Vendor Manage Project Objective Timing & Budgeting Budget Sign off Pay Bills Select Vendor Approvals Contract signed Purchase Order 2000 - 2007 © CXO Advisory Group 14

15. Typical IT Sales Cycle Sales Cycle Demand Prospect Qualify Develop Solution Proof Close Deploy Support Stage Generation Probability NA 0% 10% 20% 40% 60% 80% 100% NA Generate Validate Qualify lead/ Develop Present Demonstrate Conduct Finalize Finalize awareness potential opportunity customer solution capability to negotiations deployment support Your Sales requirements and pre- opportunity which exceed and finalize plan & plan, Cycle qualified & identify & establish exceeds customer contract execute execute & Objective prospects potential sponsor customer requirements monitor sponsor relationship needs progress 2000 - 2007 © CXO Advisory Group 15

16. Distribution Channels - Examples 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 agents 2000 - 2007 © CXO Advisory Group 16

17. Comparison of Major Channels Retail Agent/Rep Distributor/VAR Acquisition Joint Venture Subsidiary Time to Market Slow Slow Medium/Fast Medium Medium Slow Management Control Low Medium Low High Medium High Brand Control Low Low Low High Medium High Cost of Sales Medium Low Low High Medium High Development of In-House Low Low Low Medium Low High Expertise Access to New Partners Low Medium Low Medium Medium Low Risk Medium Low Low/Medium High Low High Hands-On Sales/Marketing High Medium High Low Low Low Support 2000 - 2007 © CXO Advisory Group 17

18. Channel Value Add High “High Touch Channels” Field Field Sales Sales Value VAR’s VAR’s Add t Dis- Dis- D irec “Low Touch es Of Sale tributors tributors Sal nnel Channels” Retail Retail Ch a ne ls Stores Stores han Tele- Tele- re ct C marketing Indi marketing Internet Internet nn e ls Low ct C ha Dire Low High Cost per Transaction 2000 - 2007 © CXO Advisory Group 18

19. What Do These Firms Have in Common? 2000 - 2007 © CXO Advisory Group 19

20. 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 2000 - 2007 © CXO Advisory Group 20

21. Pricing For the Channel Most companies don’t know how to set their price Start-ups tend to underprice and fail to include channel margins SRP vs “Street Price” • Natural “street pricing” exists in retail products in the U.S. Key is hitting the desired “street price” The channel prices up off cost 2000 - 2007 © CXO Advisory Group 21

22. Price is the Focus If You Can’t Show Value Customer is Buying Price Value Supplier is Selling Buyer Tendencies: Supplier Tendencies: Buy low-cost alternative Make today’s numbers All solutions are the same Let “the company” worry about Make price the main focus delivery and service Move on to the next sale fast 2000 - 2007 © CXO Advisory Group 22

23. 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 Acquisition Fair Market Value Joint Venture Varies Own Build $1–2 million (US) 2000 - 2007 © CXO Advisory Group 23

24. #1 Tech Marketing Budgets Analyst Other Web Relations activities 4.0% 2.3% 5.3% Advertising Research 23.2% 4.6% Collateral 5.1% Public Relations 6.5% Events Direct 19.3% M arketing 12.9% M arketing Support & Sales T ools 16.8% Source: IDC’s 2005 CMO Tech Marketing Benchmarks Database 2000 - 2007 © CXO Advisory Group 24

25. 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.” 2000 - 2007 © CXO Advisory Group 25

26. 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 and collateral Source: AMA 2000 - 2007 © CXO Advisory Group 26

27. Sales Alignment Challenges Alignment within Alignment with the company the customer Inadequate sales metrics Not able to identify Solution selling is a the decision makers cultural challenge Not focused on right In fighting between value propositions marketing and sales Lack tools to help Everyone has sales impact customer jump decision hurdles Alignment Performance metrics with the market Not aligned with customer buying preferences or shifts Channel issues need constant attention Consistency of strategy Value proposition Marketing mix 2000 - 2007 © CXO Advisory Group 27

28. Channel Concerns Shrinking Margins Growing service & consulting revenues Expanding capabilities Obtaining new customers Turnover of personnel & training Vendors desire to try and cut them out Cash flow 2000 - 2007 © CXO Advisory Group 28

29. 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 2000 - 2007 © CXO Advisory Group 29

30. Computer Distribution Channels 2000 - 2007 © CXO Advisory Group 30

31. 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 2000 - 2007 © CXO Advisory Group 31

32. Approaching a Potential Joint Venture/ OEM / 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 2000 - 2007 © CXO Advisory Group 32

33. 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 2000 - 2007 © CXO Advisory Group 33

34. 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 2000 - 2007 © CXO Advisory Group 34

35. 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 2000 - 2007 © CXO Advisory Group 35

36. 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 2000 - 2007 © CXO Advisory Group 36

37. Types of Retailers Specialty Stores Discount Stores Department Stores Convenience Stores Supermarkets Off-Price Retailers Superstores 2000 - 2007 © CXO Advisory Group 37

38. Retailers Classified By Service Type: Self-service retailers • Customers are willing to self-serve to save money • Convenience stores and fast moving shopping goods Limited-service retailers • Most department stores Full-service retailers • Salespeople assist customers in every aspect of shopping experience • High-end department stores and specialty stores 2000 - 2007 © CXO Advisory Group 38

39. Retailers Classified By Product Lines: Specialty stores • Narrow product lines with deep assortments Department stores • Wide variety of product lines Supermarkets Convenience stores • Limited line Superstores • Food, nonfood, and services Category killers • Giant specialty stores 2000 - 2007 © CXO Advisory Group 39

40. Retailers Classified By Pricing Category: Discount stores • Low margins are offset by high volume Off-price retailers • Independent off-price retailers • TJ Maxx, Marshall’s • Factory outlets • Levi Strauss, Reebok • Warehouse clubs • Sam’s Club, Costco 2000 - 2007 © CXO Advisory Group 40

41. Discount Stores - Target Corporation First store opened in 1902 Currently has 1,147 stores in 47 states. Builds brand name to heighten barriers to entry in the market. Successful built defensible niche with middle and upper-end customers - low price but high style. Resurrecting old brand names for own exclusive Co brands with high profile partners – Sony & Virgin Building own boutique product lines – soaps, candles, etc. 2000 - 2007 © CXO Advisory Group 41

42. Retailers Classified By Organization Type : Corporate chain stores • Commonly owned / controlled Voluntary chains • Wholesaler-sponsored groups of independent retailers Retailer cooperatives • Groups of independent retailers who buy in bulk Franchise organizations • Based on something unique Merchandising conglomerates • Diversified retailing lines and forms under central ownership 2000 - 2007 © CXO Advisory Group 42

44. Catalogers Readers Have Bought Through Mail Before Build a Track Record First Why Should They Pick Up Product - 25 Words You Pay For Ad Space & Catalog Production Can Swap Product For Ads Special Promo Mailings Might Pull Better Than Catalog 2000 - 2007 © CXO Advisory Group 44

45. 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 2000 - 2007 © CXO Advisory Group 45

46. 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 2000 - 2007 © CXO Advisory Group 46

47. 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 2000 - 2007 © CXO Advisory Group 47

49. 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 Deliver channel value with the web • Demand creation • Quality leads • Support • Information • Links • Feedback 2000 - 2007 © CXO Advisory Group 49

50. 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 2000 - 2007 © CXO Advisory Group 50

51. Channel Trends New retail forms & shortening retail life cycles Growth of non-store retailing • Mail order, TV, Online, Phone Convergence • Merging of consumers, products, prices, competitors and retailers Mega retailers Changing retail technology Globalization • Production, retailers, wholesalers Malls as communities and hangouts 2000 - 2007 © CXO Advisory Group 51

52. Channel Trends Price competition is intense Channel partners adding value, increasing efficiency, reducing risk to remain relevant Store within a store • Slotting fees to a whole new level 2000 - 2007 © CXO Advisory Group 52

53. 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 2000 - 2007 © CXO Advisory Group 53

54. 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 2000 - 2007 © CXO Advisory Group 54

56. 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, CFO, and VPs of Sales, Marketing, Corporate Development and Human Resources. Has proven success in building US sales and distribution channels 2000 - 2007 © CXO Advisory Group 56

57. 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 US Market Entry Program • Analyze competitive landscape • Market launch strategy and plan • Channel strategy and programs • Establish sales channels • Generate sales and manage relationships 2000 - 2007 © CXO Advisory Group 57

58. 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 Venture Advisory Services • Enhance financeability • Fine tune operations, business strategy and market entry • Assist with preparation of investor presentation • Identify potential venture partners • Contact potential capital sources • Presentations to capital sources 2000 - 2007 © CXO Advisory Group 58

59. How Can CXO Help You? Interim Management Resources • Interim CEO, COO, CMO, CFO, CSO • Interim VP of Sales and Marketing • Consultant on staff • Launch team coaches 2000 - 2007 © CXO Advisory Group 59

60. Thanks for Attending! For more information on driving profitable growth: • Email us at sdavis@cxoadvisorygroup.com • Call Steve Davis at (508) 528-7571 • Visit on the web at http://www.cxoadvisorygroup.com 2000 - 2007 © CXO Advisory Group 60

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