Engr 245 Session 05 Channel

Engineering 245The Lean Launch Pad

Session 5: Channels

Professors Steve Blank, Ann Miura-Ko, Jon Feiber

http://e245.stanford.edu

Channels

How does each customer segment want to be reached?

Through which interaction points?

2

Test Hypotheses: Channel

3

Two Critical Questions about Channels

First one is obvious: How do you want to sell your product?

4

1

Second one is subtle, but more important than the first: How does your customer want to buy your product?

2

How Do You Want to Sell Your Product?

Yourself

Through someone else

Retail

Wholesale

Bundled with other goods or services

5

üüüüü

How Does Your Customer Want to Buy Your Product?

Same day

Delivered and installed

Downloaded

Bundled with other products

As a service

…

6

üüüüüü

Nature of Product Impacts Channel: Atoms or Bits?

Access to customers changes dramatically

Logistics related to product complexity

People as products

7

The Sales “Channel”

8

Web

System Integrators

Direct Sales Force

Value-Added Resellers (VARs)

Dealers

Distributors

Retail/Mass Merchants

Your Company

Your Customers

Types of Channels

OEM VAR Reseller Distributor

9

Direct Indirect Licensing

The Channel as a Customer

Some products are embedded in others (OEM)

Some products are resold by others (VARs)

Some products are distributed by others

Who’s the customer?

10

Distribution Complexity

11

Evangelists

ServiceTechnicians

Higher Value Added

Higher Volume

Direct Sales

VARs

Retail

Web, Telesales

Systems Integrators

Mainframes

MinisLANs

PC ServersDesktop PCs

PrintersKeyboards

Toner

WANs

Global Systems

Solution Complexity

Ma

rke

tin

g C

om

ple

xity

How Are Channels Compensated?

Commission

Percentage of sales price

Discounted pre-purchase

12

How Are Channels Motivated or Incented?

Money! – what makes them the most?

Training

Marketing to the channel

SPIF

13

Channel Economics: “Direct” Sales

14

Cost of Goods(Supply Chain)

Profit + SG&A + R&D

En

d C

on

sum

er

EU

D

isc

ou

nts

RevenueList

Price

Source: Mark Leslie, Stanford GSB

Channel Economics: Resellers

15


Profit + SG&A + R&D

En

d C

on

sum

er

EU

D

isc

ou

nts

Reseller

RevenueList

Price



Profit + SG&A + R&D

Channel Economics: Distributors/Resellers

16

En

d C

on

sum

er

EU

D

isc

ou

nts

Reseller

Dis

trib

uto

r

RevenueList

Price


Channel Economics: OEM or IP Licensing

Your Product Becomes Your Customer’s COGs

17


En

d C

on

sum

er

ResellerProfit + SG&A +

R&D


EU

D

isc

ou

nts

Reseller

Dis

trib

uto

r

Mas

ter

Dis

trib

uto

r

Profit + SG&A + R&DCost of Goods(Supply Chain)

RevenueList

Price

Example: Book Publishing

18

PublisherNational

DistributorPrinter Wholesaler Retailer Customer

Book Publishing

Percent of Retail

19

For their efforts, distributors take an additional 10% of retail. That means you get 35% of retail, the distributor gets 10%, the wholesaler gets 15% and the retailer gets 40% less any

discount they offer the end customer

PublisherNational

WholesalerDistributor Retailer Customer

35% 15% 10% 40%

$7.00 $3.00 $2.00 $8.00 $20.00

Book Publishing Economics

20

PublisherNational

DistributorWholesaler Retailer Customer

Wholesale costs

Markup

Allowances

Payment guarantees

Payments

Bills

Credit guarantees

Payment guarantees

Return rights

Credits

Book Publishing Delivery

21

PublisherNational

DistributorPrinter Wholesaler Retailer

Merchandise titles

Sell magazines

Acknowledge returns

Determine allocations

Dispose of returns

Prepare film (content)

Establish identity

Create demand

Prepare galleys

Receive Schedules Print

orders Bundle

counts Film

Print and ship

magazines

Deliver orders

Bits vs. Atoms

22

Bits

Physical

Product

Web Physical

Channel

Product and Channel Are Bits

23

Bits

Physical

Product

Web Physical

Channel

Rapid Agile and Customer development

Fastest to acquire early customers and scale

Web 2.0 – Product and Channel Are Bits

24

Bits

Physical

Product

Web Physical

Channel

Google Twitter Facebook Zynga Cloud Services

Product Is Bits, but Channel Is People

25

Bits

Physical

Product

Web Physical

Channel




Traditional sales channel

May require installation

Traditional Enterprise Software

26

Bits

Physical

Product

Web Physical

Channel


Microsoft SAP Oracle

Physical Products Sold Over the Web

27

Bits

Physical

Product

Web Physical

Channel

Rapid Customer development

Logistics, shipping and manufacturing critical

Customer service






Killing Traditional Storefronts

28

Bits

Physical

Product

Web Physical

Channel

Zappos Amazon Cafepress Netflix Consumer electronics



The Factories May Be in China

29

Bits

Physical

Product

Web Physical

Channel

Rapid Customer development

Logistics, shipping and manufacturing critical

Customer service



Longer customer feedback cycle

May require large capital requirements for scale




We Still Make Things that Need Salespeople

30

Bits

Physical

Product

Web Physical

Channel

Zappos Amazon Cafepress Netflix Consumer electronics


Cars Solar panels Wind turbines Bookstores Consumer electronics


Engr 245 Session 05 Channel

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