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2000 - 2007 © CXO Advisory Group
Stephen N. Davis
“Partnering With Clients to Drive Sustainable Profitable Growth”
February 2007
USA Sales & Distribution Channel Strategies
USA Sales & Distribution Channel Strategies
2000 - 2007 © CXO Advisory Group 2
What We’ll be CoveringWhat We’ll be Covering
Common mistakes when entering the USAThe channel marketing planWhat it takes to succeed in distributionManaging channel relationshipsManaging channel conflictsChannel TrendsPoints to remember
2000 - 2007 © CXO Advisory Group 3
The U.S. MarketplaceThe U.S. Marketplace
2000 - 2007 © CXO Advisory Group 4
Common Exporter MistakesCommon Exporter Mistakes
Insufficient commitment by top management• Time & Finances
Launching in USA before fully established in CanadaLaunching in more than one international market at a timeFailure 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 MarketHiring the wrong advisors
2000 - 2007 © CXO Advisory Group 5
Common Exporter MistakesCommon 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 6
Plan Your Entry into the ChannelPlan 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 7
The International Marketing PlanThe International Marketing Plan
ProgramCoverage modelValue propositionBusiness rulesSales modelPricingSales Support modelCustomer Support ModelBudget
StrategyGoalsTarget MarketProductCompetitionChannels
• Roles• Alignment
ExecutionMedia CampaignCommunicationIncentivesEducation Outsourcing
2000 - 2007 © CXO Advisory Group 8
Have a Clearly Articulated “Value Proposition”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
PropositionSpend the time to develop a compelling value proposition
2000 - 2007 © CXO Advisory Group 9
Showing Value Is Always ImportantShowing Value Is Always Important
Positions what you’re offering as a solution to a business problem rather than a commodityDifferentiates yourself, products and services from competitorsFocuses customer into thinking on Return on Investment(ROI) not price
2000 - 2007 © CXO Advisory Group 10
ExampleExample
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 11
It Takes a Long Time to Write Something ShortIt 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 endYou’ll eventually have multiple elevator pitches for various audiences
• Investors, different customer types, strategic partners, etc.
2000 - 2007 © CXO Advisory Group 12
Sales Channels – The RealitySales 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 13
Channel StrategyChannel Strategy
Must start with the customerHow 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 14
Sales Cycle Stage
Know Your Customers Buying ProcessKnow Your Customers Buying Process
Customer’s Cycle Objective
Discover NeedIdentify Business GoalsQuantify Impact & ROI
DeliverCloseProposalQualifyProspectIdentify
Seek SolutionResearchFind VendorsGet Information
Review Vendor MaterialsDetermine Total Scope of ProjectRFQTiming & Budgeting
Agree on Solution and Project Specs.Coordinate Buying ProcessConfirm timing & BudgetSelect Vendor
Check ReferencesValidate Proposal EstimatesChoose VendorSign off ApprovalsContract signedPurchase Order
Start ImplementationAssign ResourcesStart TrainingManage ProjectPay Bills
2000 - 2007 © CXO Advisory Group 15
Typical IT Sales CycleTypical IT Sales Cycle
Your Sales Cycle Objective
Sales Cycle Stage
Probability
Validate potential opportunity & identify potential sponsor
Qualify lead/ opportunity
Develop customer requirements & establish sponsor relationship
Present solution which exceeds customer needs
Demonstrate capability to exceed customer requirements
Conduct negotiations and finalize contract
Finalize deployment plan & execute
Generate awareness and pre-qualified prospects
Finalize support plan, execute & monitor progress
SupportDeployCloseProofSolutionDevelopQualifyProspectDemandGeneration
0% 10% 60% 80%20% 40%NA 100% NA
2000 - 2007 © CXO Advisory Group 16
Distribution Channels - Examples Distribution Channels - Examples
Field sales repsCorporate resellersMaster or local distributorsIntegratorsValue-added resellersManufacturer’s agentsBrokersFranchisesTelemarketersInbound telesales agents
Internet sitesExtranetse-MarketplacesDirect MailOEM’sRetailKiosk’s Strategic alliancesAgents (consultants, affiliates, etc.)
2000 - 2007 © CXO Advisory Group 17
Comparison of Major ChannelsComparison of Major Channels
High
Medium
Low
Low
Medium
Low
Low
Slow
Retail
LowLowLowHighMediumHands-On Sales/Marketing Support
HighLowHighLow/MediumLowRisk
LowMediumMediumLowMediumAccess to New Partners
HighLowMediumLowLowDevelopment of In-House Expertise
HighMediumHighLowLowCost of Sales
HighMediumHighLowLowBrand Control
HighMediumHighLowMediumManagement Control
SlowMediumMediumMedium/FastSlowTime to Market
SubsidiaryJoint VentureAcquisitionDistributor/VARAgent/Rep
2000 - 2007 © CXO Advisory Group 18
Channel Value Add Channel Value Add
ValueAddOf Sale
Cost per Transaction
High
Low
HighLow
InternetInternet
Tele-marketing
Tele-marketing
RetailStoresRetailStores
Dis-tributors
Dis-tributors
VAR’sVAR’s
FieldSalesFieldSales
“Low Touch Channels”
“High Touch Channels”
Direct ChannelsIndirect Channels
Direct
Sales
Channel
2000 - 2007 © CXO Advisory Group 19
What Do These Firms Have in Common?What Do These Firms Have in Common?
2000 - 2007 © CXO Advisory Group 20
Creating Effective BudgetsCreating 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 21
Pricing For the ChannelPricing For the Channel
Most companies don’t know how to set their priceStart-ups tend to underprice and fail to include channel marginsSRP 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 22
Price is the Focus If You Can’t Show Value
Price is the Focus If You Can’t Show Value
Buy low-cost alternativeAll solutions are the sameMake price the main focus
Make today’s numbersLet “the company” worry about delivery and serviceMove on to the next sale fast
Customer is Buying
Supplier is Selling
ValuePrice
Supplier Tendencies:Buyer Tendencies:
2000 - 2007 © CXO Advisory Group 23
Cost of Market Entry OptionsCost of Market Entry Options
Margin, 20-40%, 5-10% MDFValue Added Reseller (VAR)
Mark-up, 50% - 200%+5-10% MDF, Slotting Fees
Retailer
$1–2 million (US)Own Build
VariesJoint Venture
Fair Market ValueAcquisition
Margin, 10%–50%, 2-5% MDFDistributor (stocks product)
Commission, 5%–30%Agent/ Rep.
2000 - 2007 © CXO Advisory Group 24
Tech Marketing BudgetsTech Marketing Budgets
Advertising23.2%
Events19.3%
Web4.0%
Other activities
5.3%
Analyst Relations
2.3%
Marketing Support &
Sales Tools16.8%
Research4.6%
Collateral5.1%
Public Relations
6.5%
Direct Marketing
12.9%
#1
Source: IDC’s 2005 CMO Tech Marketing Benchmarks Database
2000 - 2007 © CXO Advisory Group 25
When Worlds Collide: Misalignment of Marketing & Sales
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 26
When Worlds Collide: Misalignment of Marketing & Sales
When Worlds Collide: Misalignment of Marketing & Sales
Company centric messaging doesn’t support sales effort50% to 90% of marketing messages, collateral and sales tools go unusedSales people spend 40-60 hours each month creating their own materials, responses, presentationsOnly 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 27
Sales Alignment ChallengesSales Alignment Challenges
Alignment with the customer
Not able to identify the decision makersNot focused on right value propositionsLack tools to help customer jump decision hurdlesPerformance metrics
Alignment with the market
Not aligned with customer buying preferences or shiftsChannel issues need constant attentionConsistency of strategyValue propositionMarketing mix
Alignment within the company
Inadequate sales metricsSolution selling is a cultural challengeIn fighting between marketing and salesEveryone has sales impact
2000 - 2007 © CXO Advisory Group 28
Channel ConcernsChannel Concerns
Shrinking MarginsGrowing service & consulting revenuesExpanding capabilitiesObtaining new customersTurnover of personnel & trainingVendors desire to try and cut them outCash flow
2000 - 2007 © CXO Advisory Group 29
Is Your Buyer Package up to Snuff?Is Your Buyer Package up to Snuff?
Marketing materialsPrice listsOutline of your marketing campaign – Demand CreationProduct samples - PackagingCOOP/MDF funds and campaignsIn-store merchandisingProspect & customer correspondenceSales training for their personnelSales supportEnd user trainingEnd user support
2000 - 2007 © CXO Advisory Group 30
Computer Distribution ChannelsComputer Distribution Channels
2000 - 2007 © CXO Advisory Group 31
Joint Venture/ OEM / Private LabelJoint Venture/ OEM / Private Label
Quick penetration – less riskEstablished market presenceProvides localization of productHandles all marketing, sales, distribution & supportProvides ongoing market analysisProvides ongoing competitive analysisUsually won't carry competing productTough sale – long sales cycle
2000 - 2007 © CXO Advisory Group 32
Approaching a Potential Joint Venture/ OEM / Private Label Partner
Approaching a Potential Joint Venture/ OEM / Private Label Partner
Be Ready to Explain Key Product AdvantagesDo 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
productsHow easy it will be to work with youSupport you will give them
• Technical• Training
2000 - 2007 © CXO Advisory Group 33
Key Issues Licensing AgreementKey Issues Licensing Agreement
Specs & DeliverablesAcceptanceGrant of LicenseTermsPaymentsBookkeeping RequirementsOwnershipUse of TrademarksTrainingDecision Making Authority
Marketing ObligationsList Price of ProductPerformance RequirementsWarrantiesLimitation of LiabilitiesDevelopment SupportRights to UpdatesTerminationSource Code Access
2000 - 2007 © CXO Advisory Group 34
DistributorsDistributors
Sells to other channel players within designated areaTakes title to goods and is compensated by mark-up upon saleSells suppliers goods to his own customersNo authority to act on your behalfMaintains InventorySells in original packagingMay or may not provide after sales servicesMany products are taken on consignment basis
2000 - 2007 © CXO Advisory Group 35
What Distributors Look ForWhat Distributors Look For
Products with proven demandProduct's packaging, ease of use & installMarketing budgetQuality tech & Customer supportAbility to scale up to demandFinancial stabilityTrainingDistributor staff time required
Only 1% - 2% of products presented get chosen
2000 - 2007 © CXO Advisory Group 36
Manufacturers Agent/Commercial AgentManufacturers Agent/Commercial Agent
Alternative to own sales forceBoth authorized to solicit orders in designated areaReceive salary or commissionUsually bear no credit riskMaintains no inventoryRequires same support & training as internal salesforceCarries several linesReferences, References, References
2000 - 2007 © CXO Advisory Group 37
Specialty StoresDepartment StoresSupermarkets
Discount StoresConvenience StoresOff-Price Retailers
Superstores
Types of RetailersTypes of Retailers
2000 - 2007 © CXO Advisory Group 38
Retailers Classified By Service Type:Retailers Classified By Service Type:
Self-service retailers• Customers are willing to self-serve to save money• Convenience stores and fast moving shopping
goodsLimited-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 39
Retailers Classified By Product Lines:Retailers Classified By Product Lines:
Specialty stores• Narrow product lines with deep assortments
Department stores• Wide variety of product lines
SupermarketsConvenience stores• Limited line
Superstores• Food, nonfood, and services
Category killers• Giant specialty stores
2000 - 2007 © CXO Advisory Group 40
Retailers Classified By Pricing Category: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 41
Discount Stores - Target CorporationDiscount Stores - Target Corporation
First store opened in 1902Currently 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 exclusiveCo brands with high profile partners – Sony & VirginBuilding own boutique product lines – soaps, candles, etc.
2000 - 2007 © CXO Advisory Group 42
Retailers Classified By Organization Type :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 43
How Would You ClassifyHow Would You Classify
2000 - 2007 © CXO Advisory Group 44
CatalogersCatalogers
Readers Have Bought Through Mail BeforeBuild a Track Record FirstWhy Should They Pick Up Product - 25 WordsYou Pay For Ad Space & Catalog ProductionCan Swap Product For AdsSpecial Promo Mailings Might Pull Better Than Catalog
2000 - 2007 © CXO Advisory Group 45
What does a good Reseller look forWhat does a good Reseller look for
Product for their marketWays to increase revenue via
• Consulting• Support• Reduced cost of sale
Investment and commitmentGood business propositionTraining & technical supportSale & marketing supportTerritorial exclusivityPrice stability
2000 - 2007 © CXO Advisory Group 46
VARs Choose Product OnVARs Choose Product On
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%
% VARs Considering Factor Extremely Important
Source: VARBusiness
2000 - 2007 © CXO Advisory Group 47
Manage Your Reseller RelationshipManage Your Reseller Relationship
Be selective – resellers won’tReduce potential territorial conflictsDistributors will not maintain your reseller relationship
• You have to do it directlySegment 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 segmentationSet realistic sales targets and ramp upProvide sales cycle specific marketing toolsCommunicate regularlyTrain, Train, Train
2000 - 2007 © CXO Advisory Group 48
How the Channel Views Vendor Internet Plans
How the Channel Views Vendor Internet Plans
2000 - 2007 © CXO Advisory Group 49
Key to Efficient Channel ManagementKey to Efficient Channel Management
Strengthen ability of channel partners to deliver solutions Train channel partners well & often -for freeEnhance communicationsTreat them like they’re your own salesforceDeliver channel value with the web
• Demand creation• Quality leads• Support• Information• Links• Feedback
2000 - 2007 © CXO Advisory Group 50
Manage Channel ConflictManage 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 lineConflict can not be eliminatedChanging business objectivesCompany politics
2000 - 2007 © CXO Advisory Group 51
Channel TrendsChannel Trends
New retail forms & shortening retail life cyclesGrowth of non-store retailing
• Mail order, TV, Online, PhoneConvergence
• Merging of consumers, products, prices, competitors and retailers
Mega retailersChanging retail technologyGlobalization
• Production, retailers, wholesalersMalls as communities and hangouts
2000 - 2007 © CXO Advisory Group 52
Channel TrendsChannel Trends
Price competition is intenseChannel partners adding value, increasing efficiency, reducing risk to remain relevantStore within a store
• Slotting fees to a whole new level
2000 - 2007 © CXO Advisory Group 53
Key Points That Can Make a DifferenceKey Points That Can Make a Difference
Have realistic expectationsTop management commitmentFocus, Focus, FocusLong Term ViewClear understanding of end-user targets and their alignment with channel partnersReduce channel conflict by clearly defining roles and responsibilities for each channelDevelop comprehensive business rules for managing program processes
2000 - 2007 © CXO Advisory Group 54
Key Points That Can Make a DifferenceKey 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 salesReview your channel strategy yearly
• Identifies potential destructive channel conflict• Tune channel support programs
2000 - 2007 © CXO Advisory Group 55
QuestionsQuestions
2000 - 2007 © CXO Advisory Group 56
The CXO Advisory GroupThe 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 57
How Can CXO Help You?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
programsUS 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 58
How Can CXO Help You?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 59
How Can CXO Help You?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 60
Thanks for Attending!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