Design Your Channel Strategy in Line with Your Market Lifecycle
By Diane Krakora, Founder, Amazon ConsultingTypes of Channels
In creating a multi-channel strategy, we incorporate five types of channel partners: OEM, Direct, Alliances, Solution Providers, and Mass Distribution. At various stages of the market development, different partners become more effective channels. As the market for a product or technology matures from Introduction (where wireless is now) to Growth (CRM) to Maturity (Adobe Acrobat Software) to Consolidation (computer systems), different channel partners move into the primary focus. However, you always need to keep a strategy for incorporating all five in your business and sales plans.
OEMWhen designing a product or service in a new market, a good way to quickly and cost-effectively build sales is to develop Original Equipment Manufacturer (OEM) relationships. In this model, you license your technology to another company that embeds your products into its solution. Usually your technology or products are hidden “inside” the OEM’s solution.
For example, Aether Systems (wireless and mobile data solutions) has an OEM relationship with Neomar Inc (wireless microbrowser). Aether licenses Neomar’s microbrowser and integrates it into their wireless solution. Neomar gets increased utilization of their product and Aether gets a great technology that advances the attractiveness of their wireless solution to enterprises.
Utilizing OEM partners is a great way to generate revenue and gain product usage for a fairly unknown technology or company. The key to OEM sales is to choose partners that will quickly get large quantities of your product into the market. An OEM relationship can also validate your technology and solution. You can build on the success of your OEM venture by promoting the relationship in your direct and indirect sales efforts.
One challenge with OEM relationships is that you usually don’t get branding rights (no “Intel Inside”), so you may be missing an opportunity with each sale from your OEM partner to generate market awareness for your product and company. You can minimize this effect by aggressively promoting awareness that the OEM partner has licensed your technology or incorporates your product in its solution.Another challenge with this model is gathering the necessary customer feedback for product and service improvement. Since you as a manufacturer are removed from the customer purchasing the products, you miss feedback and input in the sales cycle.
Direct
Direct sales are critical in the early stages of market development, especially with a technical product. In this strategy, you promote new products and new technologies by hiring a sales team to communicate directly with customers. On-line sales are also a popular component of a direct strategy.
With a direct sales model, you receive direct feedback from potential customers on the features, benefits, and value proposition of your product or service. You also control the sales messages, selling cycle, and technical implementation. These factors are critical if a young company (or product) wants the flexibility to adapt quickly to market reaction and changes.
For example, Allegis, a Partner Relationship Management (PRM) software company, primarily sells direct. The company has 25 sales people who call on large businesses for sales opportunities. Allegis also provides all of the implementation and integration services for its software. The direct sales model works for Allegis because the technology solution is new the marketplace. Most people have not heard of PRM, so Allegis needs a direct sales force to educate the market on the rapidly evolving value proposition. The challenge with this model is scalability – how can you reach a significant number of potential customers without hiring a large sales force?The key to successful direct sales is focusing on communicating clear product value in a market filled with technical products. The challenge most technical companies face in an early market is promoting the product or solution’s value to customers instead of promoting the cool whiz-bang technology.
Even in later stages of market development, you should always keep some direct touch with customers to maintain visibility into customer preferences and market dynamics. It can take the form of joint selling with channel partners, direct key accounts, or on-line resources. Direct key accounts provide manufacturers with important feedback and recommendations on product and service enhancement and on the competitors’ offers.
You can also gain leverage and customer feedback through a direct electronic commerce model (on-line), but this venue may have limitations because it requires hefty advertising to draw customer interest to the web site.
Alliances
By developing sales and marketing partnerships with other software and hardware companies, you can enhance your ability to offer a “full solution” to the marketplace at any stage of the development cycle. Alliances are especially relevant in an early market phase when solution providers haven’t yet adopted selling your products. Before traditional channel partners are willing to invest in learning and servicing a new technology or product segment, you can gain traction in the market with a full product solution by effectively partnering with other hardware and software companies.
Appropriate alliance partners sell compatible products (hardware or software) that are targeted at your same audience. The goal of an alliance partnership is to recommend each other’s products as a part of full-solution sale.As an example, Hewlett Packard might create an alliance partnership with an enterprise software company, such as CRM software provider Siebel, to encourage and empower the sales and technical teams within the alliance organization to recommend HP servers. We also see alliance partnerships between two software companies or between two hardware companies. Intel may partner with HP. Siebel, a CRM software provider, may partner with Aether, a wireless application provider. In a developed market, alliance partners can immediately expand their sales reach and revenue stream by attaching to the other’s established channel partners. HP could increase sales leverage by working not only with the Siebel direct sales team, but also collaborating with its solution providers.
One challenge to address in creating alliances is designing relationships that are relevant to the marketplace. An alliance marketing the products from a server manufacturer and an enterprise software company makes sense. A union between a disk drive maker and an enterprise software company does not.
The second challenge is creating and communicating a strong value proposition to the sales and services teams of your alliance partner and to the market place as a whole. Partnerships are successful only if they result in selling more products and services. To be able to empower another organization to sell your goods and services, you need to develop and communicate a clear benefit that the customer receives from the relationship.
Unfortunately, many alliance relationships end up solely as “Barney” relationships – with a handshake, a hug, and a press release (everybody loves everybody). The key to successful strategic alliances is to define a joint value proposition that meets the needs of the customer and increases sales and profitability for both organizations. These alliance relationships should be mutually beneficial, where each organization recommends the other’s products and services when appropriate.
Solution Providers
As the market matures and the product becomes increasingly “whole” and known, most organizations turn to solution providers for increased sales. For high technology products, solution providers are also called:
We tend to lump them all into a “service provider” label, because their main focus is to design solutions (products and services) to meet end-customer business needs.
These solution providers specialize in your general area of technology (networking, wireless, etc) and perform the function of recommending or reselling your products and services to customers. Usually, they combine reselling or recommending other companies’ products with their own custom products and services to provide a “full solution” that addresses a particular specialized need.For example, Accenture, a systems integrator, creates an e?business solution for clients by combining Siebel’s CRM software, SAP’s Enterprise Resource Planning (ERP) software, Vitria’s application middleware software, HP’s servers, and its own integration services and business process methodology.
You can reach a greater number of potential customers by building relationships with solution provider organizations. Empower an army of specialized solution providers to communicate your value proposition, and to recommend, sell, install, and support your products to customers. If you plan your solution provider program meticulously, you can increase market reach and revenues and still receive good customer feedback through your solution provider partners.
The challenges lie in engaging, educating, and empowering the individuals at your solution provider partners to effectively represent you. Be aware that solution providers offer differing levels of pre- and post-sales services to customers. This may be a benefit, as we know customers vary in their service interests and needs. And, aligning the customer service needs with the appropriate solution provider may be a challenge, especially if you are offering a technically complex product or service.
The key to working with solution providers is to effectively educate and motivate them to ensure the end-customer receives the level of service desired.
Mass Market
When the market reaches maturity and your product becomes “mainstream,” you can gain additional sales leverage and economies of scale by utilizing distribution organizations. High tech distributors, such as Ingram Micro Inc. and Tech Data Corp., sell to a wide variety of resellers and retailers. They have specialized services that provide economies of scale in shipping, warehousing, and credit financing options. Many also offer promotional and support services to vendor partners. This model is called two-tier distribution because your products pass through two organizations before they reach the end customer.
Adobe, for example, sells thousands of Acrobat software packages to Ingram Micro. Ingram sells volumes of packages to several stores – one of which is Staples (office supply retailer). It’s easy for end-customers (you, for example) to find Adobe software. We simply walk into any Staples (or one of the other dozen Adobe retailers) and buy Adobe Acrobat (or go on-line at Staples.com). The product has passed through two hands – Ingram Micro and Staples – to get to the customer.
As a business-to-business example, Cisco sells its hubs and routers to distributors such as Ingram Micro and Tech Data. Resellers looking to provide networking solutions to their customers then purchase Cisco’s products from the distributor. By utilizing distribution organizations, Cisco can expand its reach to tens of thousands of resellers, which in turn increases its reach to hundreds of thousands of customers.
The challenges in a two-tier distribution model are to understand the customer buying preferences, produce clear product benefits, and excellent customer service. In the Palm example, the Palm channel managers only know that Ingram Micro sold ‘X’ units and possibly to whom (Staples, etc). Retailer information (or reseller for business-to-business sales) is strongly guarded by distributors. In this mass-market model, the manufacturer has no visibility into the profile or needs of the end-user customer. What features made them buy? With this model of two-tier sales, you need to find additional means of gathering customer feedback and preferences.The second challenge of the mass-market model is to maintain customer satisfaction. Because the information on product features and benefits flows through two sets of organizations before reaching the end-customer, you risk incorrect customer expectations set by the retailer or reseller.
When utilizing a distribution model, it is critical to create end user awareness of the product features and benefits because you are relying on correct information passing from one hand to the next. Also, if the user has questions about their product, he or she is most likely going to contact the manufacturer directly, instead of the retailer or reseller. The key to effective distribution is to ensure customer satisfaction by providing detailed product information to all three audiences (distributor sales and services teams, retailer/reseller, and potential customers) as well as excellent end-customer support.
Now that you know which type of channel to use at different stage of product and technology adoption, next month we discuss integrating these channels into a cohesive plan.
This is the third of a 4-part column on increasing sales through a multi-channel strategy.
To view Part 1 of this column, please click here.
To view Part 2 of this column, please click here.
To view Part 4 of this column, please click here.
Questions and comments welcome to dkrakora@amazonconsulting.com.