The ABCD of Channel Management
Multinational companies are expanding their product portfolios, getting into new regions, and serving multiple end markets to continue their growth aspirations. This complex environment challenges a company’s CEO, CMO, sales leaders, and business unit presidents to effectively plan the sales process to serve their large, diversified customer base. A good salesperson is worth her weight in gold, but adding salespeople without a planned approach to channel management becomes an expensive proposition.
Building, training, and deploying a direct sales force is quite expensive, and companies with products and systems containing high-technology content typically lean toward this direct model. However, a majority of companies have a combination of both direct and indirect sales channels, where representatives outside the company help the original equipment manufacturer (OEM) sell their products. Indirect sales channels can range from resellers and independent sales representatives to value-added distributors and system integrators.
I have managed businesses with a mix of both direct and indirect sales channels, but I’ve been surprised by how some companies place little to no importance on actively building and managing indirect sales channels.
In this article, I explore the Always Be Closing Deals (ABCD) mentality of channel management and give pointers based on my personal experiences with building channel management processes and expertise. As much as it is tempting for large firms in the B2B world to disintermediate the channels, one has to thoroughly weigh the pros and cons of doing so. Indirect sales channels pull the demand from the front-line customers to the factory floors, and when done well, it gives you the lowest cost-of-sale-per-dollar of revenue.
Certainly, the positive effect of having indirect sales channels is the ability to scale quickly and get broader market penetration at the lowest possible cost. This allows companies to put more feet-on-the-street in multiple markets and multiple regions quickly. This model works well for midsized companies that are resource constrained and selling products that are not complex engineered systems.
Companies do face some challenges with channel partners when it comes to their ability to influence the product brand image, get direct customer feedback, and obtain market intelligence. Further, without direct customer contact, it becomes challenging to get a bigger share of the end customers’ wallet.
Don’t forget, your channel partners may be multiproduct line partners who sell not only your products but also your competitors’ products. In a recent example, one of our channel partners was competing with our company on services and rental offerings without our knowledge, which led us to open our own service and rental business in the region. These conflicts in scope should be addressed during partnership structuring.
For a partnership to work, a few things need to happen between the partners. An OEM will be very interested in getting customer feedback on product performance and data on installed base to later serve customers with services and replacements. Further, the OEM will be interested in gathering data about industry trends and competitive knowledge of the end markets. Finally, the OEM will expect to meet or exceed the sales target assigned to the channel partner.
Similarly, the channel partner looks for sales training, marketing collaterals, product training, engineering support, and, of course, increased sales. As you can imagine, the common goal for the partnership is to achieve top-line growth for both the parties.
Based on my experience in building channels in high-growth markets serving multiple end markets, I have listed three critical considerations for a typical industrial OEM:
- Channel Mapping, Structuring, and Due Diligence
Thorough mapping of the channels to various end markets, key accounts, different product lines, and different regions of the world helps you think through the efficiency and cost of building indirect sales channels. Pay close attention to any exclusivity demands of the partners and the overlapping of products and regions. Structuring agreements for 12 to 24 months provides an optimum time frame in which to test out the partnership.
Conduct the right amount of due diligence before bringing a channel partner on board. Understanding the partner’s company structure, financials, historical track record, product and market fit, and SWOT analysis is critical. Finally, for any partnership to be successful, it is important to make sure the chemistry works, the values are aligned, and the ethical standards of the partner match those of the OEM. In some emerging markets, I have sought the help of American or Canadian consulates’ business attachés to help identify reputable and ethical partners.
Channel partners are independent businesses who look after their own goals. OEMs should make sure they are getting the right amount of attention and resources they need from their partners to grow in selected markets. Doing a Pareto analysis of your partners’ performance and culling the bottom performers helps keep the channels robust and productive.
Having more channel partners is not always better, something I learned the hard way. Channel partners need marketing support, application engineering support, and technical training. If one does not have the staff to meet those requirements, the channel performance goes down over time, and no amount of blaming is going to help rebuild the trust in the relationship.
- True Partnership
Key to building any successful partnership is establishing clear guidelines and rules around the engagement. There needs to be open and transparent communication about sales pipelines, lead generation, and lead management. Aligning and setting annual and quarterly performance goals and having timely discussions around performance are important to keeping the partnership true to form.
OEMs sharing tools and templates on best practices with the channel partners and creating a community where partners learn from each other helps increase the level of engagement. Going on joint sales calls and capturing market intelligence and customer feedback is invaluable to any OEM aiming to further optimize the channels.
In one of my previous companies, we invited channel partners from multiple countries to witness the pre-launch of a new product line. We got tremendous feedback from our partners on our product configuration, marketing plan, and launch price; as a result, our engineers and supply chain leaders had to go back to the drawing boards and alter our launch program significantly. When OEMs include the partners in their multigenerational product planning process, it’s a win-win for all.
Compared with direct sales channels, creating channel partnerships is much more cost-effective, but to make it work and deliver value, one has to continue investing in the channels. Co-investing with channel partners to incrementally add salespeople will incentivize them to deliver incremental growth. Other investment ideas include providing regular sales and technical training, sharing marketing and advertising costs, and helping to build social media platforms for your channel partners. Giving price discounts helps meet short-term volume needs but is not considered an investment for long-term growth.
Proactively connect the channel partners to your company’s engineering, manufacturing, and product teams. Encourage your engineering team and product managers to visit the partners and make joint sales calls. There is immense value to tightly integrating the channels with the technology and manufacturing teams. Support the channel partners with business systems like CRMs or LEAN so that the partnership is mutually beneficial.
In a resource-constrained environment, it is important for leaders to allocate sales costs appropriately to get maximum benefit on top-line growth. The normal metrics of bookings, backlog, sales, and book/bill ratio are good to measure, but leaders should go one level below and look at other factors, such as where sales are not coming and whether there is any merit in allocating resources to a slow-growth segment or product line.
Doing a deep review on channel performance once or twice a year at the senior leadership level helps keep the channel strategy robust and current. Some channel partners are not only your partners but also your customers, and companies should treat them accordingly. Reaching beyond traditional advertising and trade shows to allocate part of your marketing budget to working with channel partners on joint investments will be much more powerful and yield tangible results.
Finally, channel partners are an extension of your company brand, and therefore it is important to make sure the partners are in line with your company’s values.
The Bottom Line
In a complex global business environment, your strategy and approach to channel management makes a big difference in achieving strong, profitable growth.