Why is this important?

Channels are the means by which a product (or service) gets from the manufacturer to the customer.

Channels are defined in two categories, direct and indirect:

• Direct channels are those owned and operated by the manufacturer – its sales force, shop-front, web site, etc.
• Indirect channels are those owned and operated by third-party businesses. Those third-party businesses may be distributors, retailers, value-added resellers, websites or any combination of resellers.

Sooner or later most business owners will face the issue of expanding their market reach. They could consider the direct channel options such as increasing their sales force, opening new stores, opening branch offices in new regions, or they could consider the indirect channels option by partnering with businesses which already have those facilities.

Often the choices are not as straightforward. There may well be situations where a direct presence is required to facilitate the channels or there may simply be situations where a combination of direct and indirect channels presents the best option.

However, though the concept of introducing channel partners to your business may seem like an easy option, this may not be the case.  While indirect channels generally offer a faster and more cost-effective option to reach more customers, it is a far more complex option.

Ensure that you are fully aware of the many complexities involved in establishing a successful channels strategy.

What to do

Getting started

Use the following checklist to kick start your channels strategy thinking.

Start with the customer

Consider your current marketplace and customer base:

• Why did your customers buy from you?
• Would they have bought your product from a third-party?

If not, what needs to have been put in place for them to consider buying from a third-party?

Consider your new marketplace and potential customers:

• Are there social or cultural differences to consider?
• Are there language differences to consider?
• Is there a tendency to do business with a local?

Is there a preference for locally manufactured products?

Assess your product

• Does it comply with your target market’s standards/regulations?
• If not, what needs to be changed for it to comply?
• Does it require technical or specialist sales capability?
• Does it require technical or specialist installation/implementation?
• Does it require technical or specialist post-sales support or service?

Consider the Costs

Product Costs

• How much will it cost for any product modifications to comply with local standards/regulations?
• How much will it cost to produce language-specific documentation?
• Does the product have to be repackaged? What are the costs involved?
• Are there any other localisation costs?

Sales Costs

• What commission rates are you prepared to pay?
• What volume incentives are you prepared to pay?
• What are the local expectations of commissions and incentives?

Marketing Costs

• Who pays for marketing literature?
• Who pays for local advertising/promotion?

Training Costs

• How much will it cost to train the channel?
• Who pays for it?
• Is there periodic retraining required?
• If so, how much will it cost and who pays for it?
• Are there any post-sale/installation/implementation/support training requirements?
• If so, who pays for it?
• Shipping & storage costs?
• Will the product be shipped individually or in bulk?
• Who pays shipping costs?
• Who pays agent fees and customs export/import duties/ taxes?
• Who will store the product?
• What will it cost? Who pays for it?

Internal Costs

• What will it cost to establish a channels program?
• Additional staff costs for channels sales, support and management
• Travel costs for meetings etc
• Administrative costs

The list above is not definitive, it is indicative of the many costs that you need to consider before you enter the channels world.

Channel Options

Once you have worked through your checklist, consider the options available to you when establishing a channels strategy:

• Distributors – appoint and manage their own reseller channels
• Value-added Resellers (VARs) - add their own value proposition to the products they resell
• Resellers - simply sell your product to their customers

Distributors provide an excellent entry into new regions for high-volume products. They are generally less interested in lower-volume products. Because a distributor is effectively a middle-man, expect lower margins, but higher volumes, from product sales.

VARs provide an opportunity to expand the current marketplace by offering your product along with or as a part of their product and or service.

Resellers offer an alternative for lower-volume products which may not be suited to a distributor. Expect higher margins, but lower volumes, from product sales.

When determining your options, take into consideration all of the customer and product requirements as well as all of the costs you’ve outlined above.

Channels program development

Before you consider approaching any appropriate channels partner, it is recommended that you develop a draft channels program recognising that it is most likely to change based on your negotiations with your potential partner.

Your channels program should include:

• The structure you will have in place to support the channel
• The plans/programs in place to assist the channel
• Your performance expectations from the channel, with regard to:
  • Sales
  • Support
  • Administration
• Your policies to eliminate any conflict between direct and indirect channels with regard to:
  • Markets
  • Territories
  • Products
  • Pricing
  • Discounting
  • Exclusivity
• The ‘Terms and Conditions’ of your arrangement with regard to:
  • Periodic meetings and reviews
  • Performance reporting
  • Non-performance
  • Your Channels Partner Contract

When developing your channels program, bear in mind that you are developing the basis of a two-way relationship. Your program must reflect a win-win attitude with regard to your channel partner. It’s not going to be a successful partnership if one or both parties must refer to ‘contractual obligation’ to get things done.

A good Channels Program is one which:

• makes it easy for your partner to sell your product
• makes it easy and pleasurable for your partner to do business with you

After all, your partner’s success is your success.

Where to go for help

Do It Yourself

Call Australian Business Marketing Services 1800 505 529 to engage a consultant, or visit our website

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