Selling Through Channels

Marketing

Selling Through Channels
by Thomas Fee



Channels should be selected for their strategic advantage rather than the convenience or conventionality. The case for channels has become stronger and more complex with the advent of ecommerce. There are new schools of thought about selling through channels since some alternatives don’t include the element or perception of human involvement.

Unfortunately, most of the data about channels have more to do with marketing than sales. We’ll try to differentiate as we explore this fascinating approach to interacting with customers. According to Jeffrey Rayport, Assistant Professor in the Service Management Interest Group at Harvard Business School, “Every business today competes in two worlds, a physical world of resources that managers can see and touch and a virtual world made of information.”

This is a good perspective in which to view channels. There are traditional channels and whole new concepts about what channels are and ought to be. Let’s begin with the basics.

What Are Channels?

According to Berry Berman, author of Marketing Channels, channels can be defined as: “an organized network (system) of agencies and institutions which, in combination, perform all the activities required to link producers with users to accomplish the marketing task.”

Channels are mediums for selling and distributing goods and services. They are the link between makers and end users. As goods and services pass from creator to consumer, through channels, various elements may impact their condition or status, such as ownership, value-added dimensions, aging or technology.

Traditional channels include wholesalers, retailers, agents, manufacturer representatives, distributors and resellers as well as the overall concept of selling directly to end users or indirectly through channels such as those mentioned. In recent times channels have had less to do with human activity and more to do with the use of technology as a medium of doing business. These channels involve ecommerce, direct mail, electronic interface, logistics, made-to-order, customization and other more individualized modalities used for the movement of goods and services.

According to Stan Davis and Christopher Meyer, the authors of Blur, ecommerce has completely changed the boundaries and rules that dictated traditional business practices. The rules are now unknown or in the process of being discovered. This includes channels since ecommerce includes a number of them. These authors contend that instead of business driving technology the opposite is occurring, causing traditional understanding to be “Blurred.”

The purpose of all channels is to facilitate the transfer of goods and services to users and consumers in such a way as to enhance the experience between them and the makers of those goods and services. Channels have become part of the dialogue between makers and users to the point that with highly customized products and services, the user often participates in the design of the offering they are buying.

This is not just the case with high-tech products. For examples, certain motorcycle manufacturers include in the purchase price free flights to the plant for buyers to view the shop and personally select color schemes and other unique features they may want. On the other hand, some high-tech producers like Dell Computer use more traditional channels like direct sales to the end user to sell their goods and services.

The bottom line is that channels are and aren’t what they used to be, depending on the determination of what best suits the market and what creates the greatest competitive advantages for the seller. Sales organizations must be careful to apply an appropriate amount of knowledge and strategy to determine the best way to serve their users by selecting some, all or none of the traditional or unconventional ways to serve their customers.

In this article we will focus on the selling aspect of channels so as to avoid confusion about whether we are talking about the other aspects of channels like manufacturing, distribution, marketing or service after the sale. Therefore, we will talk about the selection, strategies, implementation and performance of sales channels.

Channel Selection

Marshall Fisher, in his HBR article, “What Is the Right Supply Chain for Your Product?” says, “Never has so much technology and brainpower been applied to improving supply chain performance.” Selecting the right channels to sell and distribute goods and services is a process that requires taking some risks and the willingness to change direction if the results are not what were expected.

The criteria for selecting channels are numerous and often interrelated. So although guidelines can be set, each may hold a different level of significance for the particular organization using them.

The elements that should be considered in regard to selecting channels are:

Offering – tangibles and intangibles 

Customers – new and existing and the amount of data about them  

Market – expectations of consumers and users 

Competition – pressures that impact expectations 

Selecting channels has at least something to do with what a company is offering. Pure service or intangibles offerings may require more “touch” than technology since they are intangibles and require an element of human relationship to communicate messages about them. Tangibles tend to be more clearly defined; although in today’s world of customization, their sale may also require a lot of contact with the user. The ideal channel allows the consumer to experience “high touch” and “high tech” to deliver the right solution.

One way to find out whether your offering is suitable for a particular channel is to ask users of like products and services what they prefer. Then based on the percentages of responses that fall into certain preference categories, make the offering available using proportionate resources to establish those channels. Where high tech is expedient, you can use ecommerce. Where high touch is required, you can use channels that emphasize more person-to-person contact.

Two of the most popular computers in the consumer market today are Gateway and Dell. The consumers of these products seem to be attracted by the “direct” channel, in which they can individually select the power and features they want in their PCs. This is a tangible that requires high touch to connect with the consumer. Gateway has followed this strategy backward into setting up “company stores” where consumers can go in and play with Gateway computers, talk to Gateway employees and order their selection on-line.

Cigars, on the other hand, are experiencing a boom in orders by mail, phone and the Internet. They are commodities. Once people decide their preferences, the product is bought on price. They are just as likely to order cigars by phone or email as they are to visit the local smoke shop. The driving force here is usually the time involved in going to and from the shop, even though it is perceived to be a pleasant experience.

One problem that many web offerings have is that they have the high tech piece down pat, but the high touch part is not so good. According to Bill Gates, offerings must become more high tech and high touch to succeed in the future.

Users and customers are the most likely place to find out what channels offer the best return on investment for sellers. Customers are more highly educated. They not only display strong preferences about what they want but have definite opinions about how they want it “packaged.” They will be glad to tell you what features and services they consider necessary or optional, how much input they want in the creation of their purchase, how soon they expect it and how much it should cost. All of these factors are essential to selecting the channel that can cater to these preferences.

The market is another consideration in choosing channels since it will often influence how people expect to interact with providers. Fast food is an example. Most people expect fast food to be delivered over the counter, in person, at a time when they show up at the store. On the other hand, consumers of periodicals seem to be willing to wait for the product to come to them. The Internet has “blurred” the boundaries of contact and the value chain. Articles of many publications can now be found on-line. More and more, people want to be able to specify the information they want at the time they want it and are using the Internet to get it on demand.

Competition is another factor to be reckoned with in selecting channels. Competitors may change the market’s perception of what represents an acceptable channel by offering their goods and services using extraordinary means. Career coaching firms now offer personal advice about an individual’s professional pursuits using “chat” technology. They offer value-added services to the providers they use, like job search web sites, as well as offer advice from career coaches to a wide-ranging audience of users. They have combined the high tech of chat technology with the “high touch” of personal contact between coach and client to provide a truly unique offering.

Many of the functions of traditional recruiting practices have been displaced by Internet services. The Internet has enabled direct contact between hiring officials and job candidates with greater efficiency while eliminating the cost of the middleman.

Channel Strategies

Strategies should always begin with an attempt to define the proposed outcome of a given situation or scenario. The steps in developing strategy are: set objectives, explore the options and select the best approach to achieving the desired outcome.

More than ever, companies today must know what business they are in and who their customers are. I was once asked in graduate school to answer these two questions for a funeral parlor. If you think about it, there are many considerations depending on your point of view. Ecommerce has only served to expand the confusion. The good news is that if you can figure this out ahead of your competitors, you’ll get the mind share of new markets made available by the Internet.

The Digital Subscriber Line (DSL) business is a direct result of users wanting better, faster access to information and services. DSL makes that possible by allowing users to access use of their existing telephone wires. As a result, companies who provide this service are springing up like mushrooms, telling their prospects how they can help them get greater market share using broadband technology. They convince customers that using this technology will enable them to do more business regardless what business they’re in. Regional Bells, who have had this technology for about ten years, have missed the boat because they were not responsive to customer demand. They are only now jumping on the DSL bandwagon and experiencing mediocre results.

Business needs are being redefined by the technologies that support them. As such, technology is allowing business to invent new methods that are getting them included in new industries having new clients. Channels have become technology-based with proven impact on the ability to sell and distribute increased amounts of goods and services.

Another good example is the transportation of goods. The concept of logistics has overtaken this industry. Manufacturers now expect offerings to include everything from daily truck rental to complete systems that allow them to outsource everything except the actual process of building products.

Selecting channels in this kind of world demands that providers consider a wide variety of options. One channel may work for one customer, and another may be required for the next. Options must be left open for providers to use whatever channel best serves the individual customer and base those selections on the potential return on investment in them.

Application software providers use this “variety” approach well. They will often partner with a value-added reseller (VAR) or distributor who specializes in an industry, geographical area or other defined market in order to secure business in that niche. These specialists sell and install essentially the same systems in a variety of industries, leveraging their familiarity with established practices. Leverage of this kind is often a key decision factor in the user’s selection of a solution.

The challenge for providers is to choose the best channel for each customer or type of customer. We live in a world of customization and tailoring made possible by the many alternative channels available to consumers. Users want the generic offering “their way.” Providers must find ways to supply them or risk losing the business to competitors who can. Technology has made it possible for smaller, hungrier, more flexible offerings to compete in this kind of environment. It is difficult for larger competitors to be as flexible if they are unwilling or unable to adapt.

In industries where flexibility seems to be limited, like airlines, the result of inflexibility is growing customer resentment. Traditionally, this has given way to inventiveness and the replacement of major providers as a response to poor customer service. For example, you can now get telephone service through many local TV cable providers. The install dates are shorter, and the service is perceived to be better than that available through established providers. It’s only a matter of time before cost-effective alternatives to sardine-can airline travel experiences are available.

Implementation

Implementing channel strategies is a huge challenge. Companies typically devote teams of people to particular channels. This creates an internal demand to justify the need to make a channel self-supporting when in fact it may never play more than a small part in the overall business. This is not bad or good. It simply means that providers must understand that channel teams may have to either be temporary or become experts at executing more than one channel strategy. This means that generalists in the field of channels will have to provide expertise by assessing the ROI and effectiveness of given channels in given situations. They must also be capable of showing others how to implement certain strategies.

There is a lot of theorizing going on right now about reshaping companies into project- based teams. This means that all employees of a company will be assigned on a project-to-project basis until their task is completed. Then they will be re-assigned to another project. Sounds a lot like an alternative to outsourcing everything.

Since channels must be flexible to meet the highly variable demands of users, provider employees must learn to adapt to an environment of constant change, both in their overall approach and individual responsibilities regarding the execution of channel strategies. Those who are not capable or willing to work in this kind of environment will not survive.

Implementation is a difficult area for providers because they are mired in established cultures and practices. Those who are not able to adapt will suffer. Providers must be able to tailor services to meet individual customer’s needs, especially in the business-to-business arena. This means that employees involved with channels must be flexible in applying their knowledge and skills of customers to design channels that best suit individual customer’s needs. They must also understand why a particular channel appeals to a particular customer or market. There is not much room for error because in many cases the business is won simply because of the channel selected.

Implementation is the most challenging part of channel sales because it is in a period of constant change driven by customer, competitive and market issues. Doing things the same old way just doesn’t work. Providers must follow the lead of the driving forces in their industry, product and service areas to stay alive. This will allow little time for soul-searching and requires lots of openness to new ideas and approaches.

Channel Performance

Selling is a performance-based endeavor. As such, channel performance is based on results. Organizations are learning to measure the performance of channels, but it is no easy task.

Conventionally, individuals and teams were responsible for sales performance. How do you administer discipline to an electronic channel? The concept takes some time to get used to. The bottom line is that alternative channels are still managed and implemented by people. The bigger problem is finding managers who understand enough about channels to help those who are implementing them solve problems.

Management of sales channels requires an understanding of several things in addition to the standard requirements for managers. Channel managers need to understand:

Strategic objectives 

Customers 

Markets 

Communication 

Technology 

Competition 

Any one of these elements is enough to spend a career on. The fact that organizations are lacking qualified people who can understand enough to manage several areas of task knowledge is stifling growth. Management has become weak and out of touch in many organizations. It is no longer the area where the organization’s best and brightest reside. You are more likely to find people with charm and political acumen in most management of organizations. They’ll have to go when it comes to managing channels. There are no substitutes in this area for knowing what you’re doing.

Performance is a matter of knowing:

Where you are going 

How you will get there 

Recognizing achievement 

Channel performance is dependent on a complex relationship between knowledge, tasks and people. Performance is now measured using variables that are combinations of human effort, technology-related factors and virtual organizations. It is difficult to define the measurements, much less recognize when or how they have been achieved.

Measuring the performance of channels is a job for experts. The problem is, no such experts exist because unconventional channels are still in their formative stages. Expertise must develop along with the channels themselves.

Conclusions

Channels have changed. Technology has ushered in a new age of flexibility and tailoring in the sales of goods and services. Channels are new ground for most organizations. They like the idea of technology being beneficial but have developed few ways to measure its potential or actual impact on their business.

People are still the knowledge base of any business. Selecting those whose applied skills set the examples of competence in the areas of expertise relating to channels would be a good move for the organization looking to succeed in this vital arena. As many have predicted, the success of business in the age of knowledge will go to those who have the best people.


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Thomas Fee tomfee@procentral.com