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Channel Marketing Solutions: Managing Industrial Sales Channels

• Working With And Evaluating Sales Channel Partners

www.skodaminotti.com | 440.449.6800 | 6685 Beta Drive Mayfield Village, OH 44143

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Introduction

Industrial companies use various means to sell and move product from their manufacturing facilities to the end customer. This connection from manufacturer to customer is known as the channel. Historically this movement of product was through partners who would add value via their local relationships while also providing quick access to products via physical inventory. As manufacturing systems have evolved, through Just-in-Time (JIT), Lean Manufacturing, Six Sigma, etc., the need for physical inventory within the channel has been minimized. What this has meant is lower prices for the end customer or higher margins for the manufacture, or both. What this has meant for the sales channel is that they have had to re-invent themselves.

This e-book explores the following topics:

• Defining the sales channel and how it has evolved• Working with and evaluating channel partners• Implementing your channel strategy

If you are interested in learning more about channel marketing solutions, I invite you to continue reading this e-book.

About the AuthorJohn C. Moore, Managing Director, Strategic Marketing Programs

Prior to joining Skoda Minotti, John Moore spent 12 years as a principal and managing partner of Hilty Moore & Associates, Inc. He has assisted hundreds of clients with their industrial marketing challenges. Through over 1,750 engagements, John has led the firm in developing and implementing significant marketing and business growth strategies. This leadership has also been responsible for assisting with market intelligence required to validate strategic options and in marketing communication programs implementation.

Prior to launching Hilty Moore & Associates and for 10 years, John was an integral part of the Reliance Electric Motor Group’s marketing and sales team. He began his career at Reliance as a sales engineer and quickly advanced into the product marketing department. Responsible within the marketing department included new product development, pricing considerations, promotional activities and sales channel support. John concluded his career at Reliance by working in the newly created commercial marketing department where he was responsible for assisting management with developing marketing strategies, providing market research and managing product marketing communications programs.

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Channel Marketing: Managing Industrial Sales Channels

What is meant by sales channels? The sales channel is the leveraging of partners to generate revenues for the company and to optimize the transactional processes for getting products from manufacturers to end users. From a marketing perspective this strategy will include: promotion programs, product placement and pricing strategies.

In the industrial world there are many types of channel partners. Some more common types include: Distributors, Manufacturer Reps, Resellers, Catalog Houses and System Integrators.

At times the relationships with these channel partners can get confusing and complex. An example of this is outlined in the Handbook of Channel Marketing by Edwin Lee, 1996.

You should consider your channel partners and map relationships. This mapping may uncover conflicts or opportunities within the channel. While developing this map be sure to consider all levels in distributors including: large national distributors, local or regional distributors, independent distributors with a few local locations or single location, catalog houses, online distributors, and systems integrators. They all provide various levels of value-add. You need to determine what is required for your business and your customers.

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Channel Marketing: Managing Industrial Sales Channels

Selling Direct vs. the Channel

When working with distributors the issue of selling direct by the manufacture usually comes up. In the end, you should evaluate your business and your relationships to build trust and create the best long-term value for all. When conflict arises, you need to have an open and honest discussion with channel partners. They need to understand that the end user must be served with your product at a fair price, and you need to understand that the distributor may have the relationship with the end users.There are some disadvantages for manufacturers when considering the use of distributors. Having a channel partner involved may:

• Increase your costs of sales• Decrease your control of the product• Increase your frustration if you choose the wrong partners

There are some advantages for manufacturers to use distributors. If they did not have channel partners then they would:

• Need to increased people & facilities• Lose local market knowledge• Lose customer contact• Lose flexibility & fast response

Again, it comes down to the relationship. Who has the relationship with the end user, and would it cost you more to develop that relationship than working with a channel partner?

Exclusive Model vs. Open Model

When establishing your distributor partners there are various relationship models to consider. You can either have exclusive distributors who have predetermined sales territories and can only sell in these areas, or you can implement a model that is open. With this model you may sell via multiple distributors with little regard to territory or markets. Some manufacturers have implemented a hybrid system of open and exclusive. This may depend on the geographic region, the industry or the end user.

There are advantages and disadvantages to both the exclusive model and the open model.

The primary advantage of exclusive distributors is that you have a tighter relationship with your channel partners. You are able to have more control over the relationship and provide more guidance from top down.

With the open model you are able to sell via the distributor with who you may already have a relationship with your end user. Under the open model you lose some control and need to be careful of conflicts with other distributors and your direct sales team. Ways to manage conflicts include defining relationships and providing fair and open policies.

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Channel Marketing Solutions: Working with and Evaluating Channel Partners

Changes to the Channel

There have been many changes in sales channels over the years. What has not changed is that the channels are still in place.

Some channels have been minimized or have had to be redefined, but selling is about the relationship more than anything. All

things being equal it is the relationship that wins.

The Internet has also brought change to the channels and channel strategy. At one time it was thought that the Internet would

kill the channel. If anything, I think the Internet has opened up options for the customer. It has also blurred the lines a little

between manufacturers and channel partners. There are manufacturers who are selling direct on the Internet and distributors

or resellers selling like manufacturers. When it comes to the Internet, it is the organization that gets the best exposure through

SEO and online advertising, and has the easiest customer interface system that gets the order. But, to keep the order, it is still

the relationship, the service and the product quality that will keep the customer coming back.

Another change with the channel comes from not needing local inventory due to the improvements in manufacturing techniques;

business processes such as JIT, Lean manufacturing, better and less expensive delivery systems; and quicker communication

systems. On the other hand, some channels partners continue to add value to key customers who need local inventory. Others

carry inventory as a differentiator or because the items are higher volume and thus quicker inventory turns.

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Channel Marketing Solutions: Working with and Evaluating Channel Partners

Working with Channel Partners

How do you determine whether you should use channel partners, or how do you determine you have the right channel partners?

To address the first question, you should evaluate your sales efforts and options. Do you have enough direct sales people to

adequately serve your customers or to grow the business to the level you want? If you do not, then you then need to decide

what type of channel partner will meet your objectives. Do you just need sales people or manufacturers’ representative? Do you

need a national distributor? Do you need smaller local distributors?

You also need to determine the best type of distributor that will add value. To get a competitive edge or to meet specific

sales goals, this may mean using a channel that serves a different industry or an adjacent industry. For example, I have

seen significant growth for companies that consider using a non-traditional channel for their industry. There is usually less

competition for their products and the non-traditional channel partners have the relationships with the end users.

Measuring Channel Members’ Performance

From time-to-time you should evaluate and rate your channel partners. You should decide what is important to measure; and

generally it is a combination of items. Some businesses look at overall sales, new sales, sales growth, profitability, training

course attended, joint sales calls, inventory carried, payment terms, or sales coverage. Whatever criteria you use should match

your business objectives.

Other items to consider when measuring channel members’ performance:

• Sales-per-salesperson ratio

• Number of new customers

• Local tradeshow involvement

• Number of competitive suppliers

• Close rate on quotes – what percentage turn into orders?

The evaluation should be conducted monthly or quarterly. Top performers should be rewarded and under-performers should be

encouraged to improve. If these underperformers continue to show up at the bottom of the list quarter after quarter they should

be encouraged to move on. You can also reward and discourage through pricing policy.

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Channel Marketing Solutions: Working with and Evaluating Channel Partners

At least once a year you should meet with channel partners one-on-one. During these meetings you should review:

a. Current situation / ratingsb. Directional vision / desire objectivesc. End customer expectationsd. Geographic coveragee. Product limitations & opportunitiesf. Competitive environmentg. Financial limitationsh. Timeline for desire changei. Marketing programs and pricing policy

This conversation should also include a detailed evaluation of current sales and together you should build a model that defines change based on mutually accepted objectives. Any gaps in the current situation and the desired position should be explored so that a strategy can be imple-mented that achieves growth for you and your channel partner. During this review meeting, I would also suggest you review your channel partner agreement, make any necessary changes and then both you and

your channel partner sign the document.

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Channel Marketing Solutions: Working with and Evaluating Channel Partners

Implementing Your Channel StrategyYou have decided you want to sell via distributors, or you have revised and realigned your channel partners to bet-ter meet the needs of your business objectives and customers. Now, you need to implement the strategy so that your channel partners are successful. You need to give them the marketing and sales tools they need. You need to continue to talk and support them. Finally, you need to be open and honest about the relationship. If you do this then you are likely to have positive results from your Industrial Sales Channel partners.

Summary of Actions:

• Analyze your channel strategy – does it align with your business objectives and your end users’ needs?• Determine whether your channel provides the coverage you need geographically and by industry• Investigate alternative or non-traditional channels for distributing your product • Conduct annual relationship planning meetings with channel partners – review & revise mutual objec-

tives• Revise / renew channel partner agreement – define relationship• Rate your channel partners Monthly / Quarterly based on criteria that are important to your business –

communicate results and reward, encourage or realign goals• Choose the best partners to continue working with and eliminate non-performers• Realign pricing as needed to encourage / discourage actions and to maximize profits• Evaluate current marketing programs and budget for supporting channel marketing programs• Implement new marketing programs or provide sales tools to support channel partners

I have learned a great deal regarding distributor relationships over my twenty plus years of industrial marketing. Much of this came from my experience of working for and with distributors, reps and integrators and some from in-dividuals that I have worked with along the way like our Distributor Sales Manager when I was at Reliance Electric, Wayne Huron. If I can pass on my experience and assist you in growing your business through channel marketing please let me know.