channel lessons from other environments

Lessons From Other Environments: Channel Strategy

October 16, 2013

Agenda

Two Channel Business Models 1

Evaluating the Network 2

©2013 Blue Canyon Partners, Inc. 2

Managing the Channel Partner 3


Two Channel Business Models 1

Channel Complexity


Supplier

Distributor

End Customer

Case Study #1 “Our market is changing but our channel partners are not changing to meet new challenges. We believe they do very little except cut coupons off our price. They really are just blood sucking weasels.”

Case Study #2 “We have a good position in the market because our channel has always been a strategic asset for us. As the market changes around us, we expect our channel to partner with us to help us grow.”


Models that Don’t Work

•  In business-to-business markets, suppliers must recognize that ignoring a participant in the customer chain will not work

•  Each of these perspectives creates a very real potential for problems and misalignment •  Effective channel strategy must set up the potential for ‘win-win-win’ relationships

Supplier Distributor as

“THE” Customer

???

Supplier Distributor as a

captive “Conduit”

End Customer as “THE” Customer

Why do we need to have distributors?


Access End Customers

Gain Scale & Coverage

Lower Cost to Serve

•  Trusted relationship •  Familiarity •  Regulatory requirements

•  Feet on the street •  Timeliness/availability

•  Technical support •  Logistics, warehousing •  Efficiency

Two Business Models

Supplier Driven

& Channel Driven


Supplier Driven

Overall Framework

Overall Lead Role, ‘orchestrating’ the customer chain

Supporting Role at the Local Level

Marketing and Promotion

Explicit End Customer Relationship Management to achieve differentiation through products, services, customization

Show that the quality of the Supplier’s channel partners is consistent with the overall Supplier value proposition

Selling, Pricing, Negotiating

Supplier handles the sales process and negotiates ongoing umbrella contracts and individual bids directly with the End Customer

Supports the efforts of the Supplier

End Customer Service, Support,

and Training

Significant involvement both in setting the framework and in delivering services

Strong supporting role in delivering services at the local level

Inventory and Logistics

Significant role, involving some direct shipments to End Customer

Strong supporting role in holding local inventories from which the End Customer can draw


Supplier End Customer Distributor

Channel Driven

Overall Framework Supporting Role Overall Lead Role, ‘orchestrating’ the

customer chain

Marketing and Promotion

Supporting role, through brand building and other programs that create end customer

awareness and preference.

End Customer Relationship Management to build loyalty and establish a strong

position vis-à-vis the competition.

Selling, Pricing, Negotiating

Establishes a pricing framework consistent with market conditions and competition and

develops business systems to facilitate sales.

Channel Partner handles the sales process and negotiates contracts and

prices as necessary.

End Customer Service, Support,

and Training

Provides back-up services requiring specific areas of product or market expertise when

needed

Lead role in delivering various services to the End Customer.

Inventory and Logistics

Minor role to handle shortage situations and unique requests.

Responsibility for holding sufficient local inventory to meet demand and for

handing associated logistics.


Supplier End Customer Distributor


Principal Research Finding

•  XYZ and its channel partners operate in two distinct business environments –  XYZ Lead: Where XYZ takes the “lead” role vis-à-vis

the end customer and certain associated business functions

–  Channel Lead: Where the Distributor takes the “lead” role vis-à-vis the end customer and certain associated business functions


Evaluating the Network 2

Do we have the right network of distributors?

Distribution Network

Is the underlying

market changing?

Is the channel design

correct?

Is there too much noise

and conflict ?

Is the channel a

competitive asset?


• Consolidation • Forward integration • New entrants

• Intensity of coverage • Authorizations • Exclusivity

• Profitability • Territory Management • Service & support • Standards

•  Mindshare •  Technical know-how •  Value – added focus

Is the underlying market changing?

•  Consolidation –  Regional to global suppliers –  End customer mergers –  “mom & pop” to big business distributors

•  Forward integration –  Packagers to system integrators –  Component suppliers to equipment suppliers

•  New entrants –  2-step distributor/reseller –  Chinese players –  E-commerce



Market Map Structure & Economics U.S. Mobile Electronic Upgrade Aftermarket Overview [$-Millions]

Manufacturer OEMs &

“A/M Only” $2,980

Mass Marketers & W’hse Clubs

$219

Distributors Est. $358 or less

12-V Specialists [0-5 Stores]

$777

Non-Enthusiast $409

Traditional Channel

Retail Channel

Expediters $103

OEM Dealer $103

Fleets $137

Enthusiast 16-25 Year-Old

$1,025

Enthusiast Over

25 Years-Old $913

12-V Specialty Chains

[5+ Stores] $628

Electronic / Appliance

Stores $987

Catalog, Mail Order, & Online

$146

OEM Channel Source: Blue Canyon Research, Frost & Sullivan, and VDC

Auto Parts Retailers & other

$120

Arrow Scale = ¼ pt. Per 1%

Families with Children

$496

Vehicle Demographic

s X

Note: End Customer segmentation and percentage

splits are Blue Canyon’s preliminary estimates, to be

modified and refined based upon external outreach interviews and

other additional research. 7%

33%

4%

3%

3%

20%

19% 12%

1%

6%

3%

5%

Case Study


Is the channel design correct?

Intensive Selective Exclusive Product / Brand placed Product placed in limited number Product placed in one outlet in In as many outlets as possible of outlets in each defined territory each specific territory In every defined territory

Supplier drives the marketing efforts; loss leader pricing; end customer has minimal need post-sale service

Need for significant partnership between supplier and channel; end customer has strong brand preference and seeks best service

Need for channel management to avoid conflict at local level; end customer has a preference for both brand and a particular distributor;


It’s Not Competitor Intensity, It’s Too Much XYZ Distributor Intensity

The greatest “competitor intensity” is in Quadrant 2, in which performance is the best in terms of market share and nearly as strong as Quadrant 1 in terms of gross

margin. Competitor intensity is roughly equal in the other three quadrants. Quadrant 4, in which overall performance is weakest, includes the largest

Territories, including some mega-Territories. Quadrant 3, in which performance is quite weak, mirrors Quadrant 1 along most ‘demographic’ measures.

Competitor Locations 1,816 867 567 897

Size ($ millions) 1,786 896 483 945

Competitor IntensityTop 50 Territories - 2002 Data

0.00 0.20 0.40 0.60 0.80 1.00 1.20

Quadrant 1

Quadrant 2

Quadrant 3

Quadrant 4

Number of Competitor Locations / $1M in Territory Size (NEMA data)


Is there too much noise and conflict?

Source of Conflict •  Goal divergence •  Lack of attention •  Territory saturation/border

skirmishes •  Competition for Margin •  Pricing administration •  End Customer coverage dispute •  New product launches •  Regional direct sales •  Roles and duty confusion •  Training

Through its research, Blue Canyon has identified the most frequent sources of

conflict with sales channel partners. Channel conflict must be kept within

constructive boundaries, avoiding the dangers associated with vicious cycles

on pricing and loss of key channel partners who can effectively and efficiently work with critical end

customers.

Channel Conflict Assessment

©2013 Blue Canyon Partners, Inc. 18 Source: Blue Canyon interviews

Two items were a consistent irritant to the channel: Program Complexity/Price administration and Order to Delivery processes. The other items clustered around an average of four.


Managing the Channel Partner 3

Understand Your Distributors


•  Focus on Abbott •  Minimal distraction from other lines Share of Wallet

•  Full service on pre & post-sales support

•  Order processing and logistics Capabilities

•  Prioritize where market growth meets strong distributor performance Performance

•  Strong, viable, well-positioned •  Distributor is willing to invest Sustainability

•  Pick your battles; reward on loyalty and competency building.

Distributor Management

What capabilities are necessary to win?


Capabilities Required to Win


•  Few distributors provide the service in green; there is greater differentiation in the market by adding these capabilities

•  The light green areas are problematic. Distributors have on-line software but the desired functions may not exist or be accessible to customers except via a customer service representative.

•  The white areas offer value because customers mentioned them as unfulfilled-- when you need something fast it can’t be delivered “soon enough;” and accessible on-line training and record keeping is a void for some.

Source: Blue Canyon external interviews, research and analysis

Case Study

Implementation Tool: Supplier – Channel – Customer Dashboards


channel lessons from other environments

Business

suppliers channel partners

end customer awareness

customer chainsupporting

customer chainmarketing

channel design

end customermarket

lead role vis

captive conduitend customer