Channel Logic vs. Pretzel Logic
More distribution does not necessarily mean more sales. Frequently the opposite is true. Knowing that certain types of channel partners do more damage than good, it is critical that you develop a clear, logical strategy for building your channels and for selecting which channel partners to include.
If you do not have a logical, disciplined channel partner selection strategy, you will end up with a channel that will:
- Add no value;
- Neither “win” new customers nor build market demand;
- Turn your product and brand into a commodity;
- Siphon off business from you and your value-added channel partners; and
- Prevent you from attracting the type of channel partners that will actually invest in building new demand for your product.
This is a self-induced problem, and fortunately it is one that can be remedied. Before moving on to the remedies, it is important to better understand the source of the problem. I have taken on a number of turnaround projects that not surprisingly included saving a brand that was being scorched by poorly chosen channel partners.
Although there may be good reasons to tap into channel partners, you must be clear on what your product needs at this time and if a particular channel is going to be willing and able to deliver what you need. The goodness of fit of any channel partner depends on your product and changes over time.
For example, for a new product, your immediate marketing objectives are to increase visibility and to educate prospective customers. Ask yourself:
- Will a particular channel partner help you gain visibility and to educate?
- If so, how does this compare to your cost of direct customer acquisition? If it is comparable or gives you much needed leverage, proceed on.
- If not, how quickly can I back away?
Once again, if a particular channel partner will not make the necessary investments to increase your product’s visibility and educate prospective customers, then they will not expand your market by winning new customers, will default into price based competition, will “steal” customers that were educated elsewhere, will discourage investments in visibility and education by other partners, will turn your brand to a commodity, will not earn their channel margin, and to top it off, will eventually lose interest themselves in your product as their own margins continue to shrink due to the price-based competition that they set in motion.
The ability to back away when the fit is poor requires discipline to recognize that even sizeable orders from the wrong type of channel partners have the nutritional value of sugar, and the same effect on your company’s metabolism. Once again, it requires a clear, logical channel strategy.
When trying to build new market demand for your product, only select channel partners that will actually invest in educating their customers as to why your product will solve their problem better than the alternatives. And understand that the vast majority of channel partners will not make the necessary investments.
In addition, you cannot expect a distributor to be as choosy in this selection of channel partners as you want to be. Do not try to outsource this responsibility. Instead, plan to at least initially forgo distributors in order to ensure that you build a channel that will help you to create new demand.
Now, what is the remedy if you find yourself already saddled with a poorly designed channel structure? An effective approach that we recommend is to carefully introduce a Minimum Allowable Price policy (MAP). As with most change, it is not without its drama, but done right, it will result in a new channel comprised of value-added partners.
A MAP is not that different than a “no shirt, no shoes, no service” policy. You are not telling the partners at what price they can sell, you are just being clear that you will decline future orders from them if they choose to go beyond the MAP guidelines. In addition, you have the right to define where they can sell your product and where they cannot, which eliminates a good portion of the “race to the bottom” problem. All this is legal, but it needs to be handled deftly.
Will certain existing channel partners push back hard against these changes? Of course, but your goal is to reward channel partners who are generating new demand and to eliminate those who were not. Those who are committed to building new demand for your product will loudly applaud the MAP.
Always choose channel logic over pretzel logic or sugar. Poorly conceived channels are a self-induced problem that can be remedied through concise, disciplined action. Need help? Ask Threadian.