Sales and Marketing Channels

How to Build and Manage Distribution Strategy

Julian Dent, Michael White

• Publisher: Kogan Page
• Year: 2018
• Print ISBN: 9780749482145
• eBook ISBN: 9780749482152
• Edition: 3
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

Analyze, plan and manage profitable channels to market with this economic framework, ensuring maximum leverage of channel partners at every stage of the go-to-market process, with this fully revised third edition of the global bestseller, Distribution Channels - an essential toolkit for strategizing new and existing routes to market. Unprecedented upheavals in routes-to-market are challenging businesses of all types. Products are becoming services, online and offline channels are integrating, and new distribution channels are dictating terms to producers. Placing market access at the heart of business and marketing strategy, this revised edition of Sales and Marketing Channels (originally Distribution Channels ) addresses emerging business models and buying behaviours with practical steps, offering an efficient structure to extract tangible commercial value from partner relationships.Often referred to as the "Place" P in the marketing mix, this book and its host of downloadable resources integrate innovative case studies like AirBNB, the largest seller of rooms without ownership of any; Transferwise, the peer-to-peer Forex; plus, the rise of online retailers like Amazon and ASOS versus the decline of traditional stores like Macy's or BHS. Other updates include:
-The impact of cloud technology
-Advancing consumer channels
-Monetizing the distribution of intellectual property
-Plus the evolving 'gig economy', led by Uber and Deliveroo

PART ONE

Introduction

01

How to get the best out of this book

About this book

This book will help you be where your customers want to buy, whether that place is real or virtual. It will help you gain market access for your products and services, whether your customers are consumers, small businesses, global enterprises or the public sector. It will help you penetrate the market, whether you touch your customers directly or rely on the most complex ecosystem of intermediaries, distributors, partners and service providers.

This book is for chief executives, chief marketing officers, chief sales officers, directors of distribution, channels or go-to-market strategy, and everyone who works in their teams. In fact, it is for anyone whose role touches the marketing, sales, distribution and service channels of their industry. It is for anyone whose responsibilities include generating demand and fulfilling customer needs through the provision of products and services. It is for those responsible for gaining market access, reaching customers, servicing customers, and working with every intermediary that they need to count on to achieve their objectives.

This book is for the managers of the businesses that market, distribute, sell and service the products and services of other suppliers and it is for anyone who is involved in the frontline of these relationships. It is for anyone who manages the relationship between two or more players in the distribution system, be they partner account managers, partner business managers, channel managers, sales managers, buyers, programme managers, etc. And, of course, it is for the managers and ultimate directors of these critical roles. Everyone involved in these roles needs to know how to demonstrate the commercial value of their relationship with another player to win and retain business. They also need to understand the way their own business works to build relationships that work for both parties, be they the ‘buyer’ or ‘seller’ in the relationship. This book sets out how to do this in great detail.

This book is for business students too, and aims to fill a gap in the typical reading material available for MBA, Marketing or Business courses at universities or colleges because it deals with the ‘Place P’ in the marketing mix (the others being Product, Price, Promotion and People to make the Five Ps). Place is the most dynamic ‘P’, with dramatic shifts in power occurring between producers and intermediaries. It is the most complex ‘P’, requiring compelling commercial value propositions up and down the value chain. Place is the ‘P’ that sets the most difficult management challenges, requiring the ability to influence independent partners. If you are not convinced that you should be looking at ‘Place’ with new eyes, consider the following recent shifts in the balance of power:

• Online Travel Agents (OTAs) now grab an 18–25 per cent commission on those (lowest-priced) hotel rooms they find for customers. Hotels are fighting back by reinventing their loyalty schemes to cut out the OTAs and engage their customers through direct channels.
• The 18 largest information technology distributors now account for over 75 per cent of the sales in the global market (for companies like Hewlett-Packard, Dell, Microsoft, Cisco and the thousands of other vendors). They now control market access only 15 years after they had to beg vendors to fill their warehouses – a total reversal of power.
• Airbnb now sells more rooms than any other hotel operator, all without owning a single room, because it created a marketplace that didn’t exist five years ago.
• Almost anything that used to be sold as a product can now be sold as a service. Corporates no longer buy computers, printers or storage devices: they buy computing, printing and cloud back-up; many city dwellers no longer buy cars, they rent them by the hour using an app (when not hailing a taxi on Uber). In both examples, this completely changes what customers buy, how they buy and who they buy from. With services, place becomes a virtual battle ground for ‘eyes’, consideration and consumption. The consumption model will figure large in the new ‘gig’ and sharing economies.

We will expand on this list in the following chapters, but the combination of advancing technology, changing consumer behaviours (not just millennials), growth of social media and virtualization of location means that every business needs to work much harder to find and connect with its customers. More of tomorrow’s CEOs will be drawn from today’s directors of distribution and heads of channels than their colleagues in the ranks of CMOs, CFOs or CIOs.

To understand sales and marketing channels, you need to be a student of business models and be comfortable dealing with financial terms. We know that this doesn’t sound much like the traditional view of marketing, but it’s better for us to be straightforward with you now about this and be kind in helping you achieve the required level of mastery in the rest of the book. In fact, this book is written for people who don’t consider themselves to be masters of the economics of business. It aims to provide you with confidence, as well as the competence, to talk commercially about your sales and marketing relationships, and to provide pragmatic insights into the challenges faced by each of the parties involved in marketing and distribution of products and services. There must be an economic incentive for every element in your sales and marketing channels. No incentive means no, or limited, market access. You will be amazed at the opportunities this insight unlocks, and so you will find that all the financial content of this book is always in the context of making you better at managing your sales and marketing channels.

There are many books and courses about finance. Some are for financial people; many are for the ‘non-financial’ manager. Most of these books talk about product companies; some even include a chapter or two about service companies. There are also books about distribution channels and systems, often from a sales or marketing perspective, dealing for example with how to minimize channel conflict or increase your power in the relationship with the channel. However, we have yet to find a book that deals with the business models of companies whose role is primarily to distribute products and services, written for people whose job specification does not require a qualification in accountancy … so here it is!

How this book is set out

This is the third edition of this book, and in this one we have reframed the title, updated a large proportion of the content and added a new section with multi-industry sectors to reflect the full diversity of sales and marketing channels, many of which are undergoing substantial change.

This edition is a book of two halves. The first half (Parts One to Three) lays the groundwork to enable you to analyse, understand and work with any type of distribution system across every industry sector. The second half takes you on a tour of sales and marketing channels in many different sectors, highlighting their special characteristics, unique challenges and how they solve them. It shows how sales and marketing strategies have evolved and shares some best practices that should prove thought-provoking and relevant to any sector. These sectors range from capital goods, such as cranes, factory machinery or industrial equipment, through to intellectual property such as music, films, books, software licences and brands via sectors as diverse as consumer products, travel and hotels, and services of all types. We have chosen the sectors to give you as broad an exposure to sales and marketing channels as possible so that, even if you don’t work in one of these sectors, you will learn much that you can apply to yours. In addition, there will be further sectors available in the online chapters, so keep checking back as we will add to these over time.

In the first half of the book, Part One provides an overview of the business of getting products and services to market and the major trends and developments in market access and distribution strategy. This is where you will see just how fast-changing this space is, and gain an understanding of the forces that are propelling these changes.

Part Two sets out the business models of all the major types of intermediary (‘players’) in a distribution system, in the following structure:

• The role of the player – although there are some special cases and exceptions, in most industries the roles of the key players are very consistent. However, the labels that are applied in each industry can vary confusingly and, in some cases, are used interchangeably and in others can carry quite specific meanings. To make sure the labels applied in your industry do not mislead you, we define the key roles, so you can recognize which players you are dealing with.
• How their business model works – the principal characteristics of each player’s role in the distribution system determine the fundamental shape of their business model. They will be subject to some well-understood economic dynamics and each will have one or more ‘big issues’ that define their management’s priorities. We orientate you to the key features of the business model and show how these are driven by each player’s role and the structure of the industry or distribution system. We explain the business model in plain English and provide a consistent framework for mapping the key numbers. We provide numerous examples of each type of business model so that you can see how the forces in its market have shaped its business profile and affected its business performance.
• The measures that matter and how to manage the business using them – we define and explain all the key measures and how and why they are used. We provide some basic benchmarks to give you a sense of the norms for each measure and help you understand what can be done to improve each one. We show you how the measures interact so that you understand the pressures that managers of each player are under and the trade-offs they are constantly juggling. We provide some case studies and examples of how failing businesses have been turned around and how successful players have executed their strategies in detail.
• How to get the best from that player – or how to articulate your value proposition. Once you understand the key objectives of the managers you are dealing with, you can ensure that you position your own company’s value proposition in terms that will mean something. You can show how your proposals will impact their business model to the good. You can demonstrate that allocating more of their resources to your products and services is good for both of you, and that attacking the segments in which you want to grow is going to deliver a higher return on investment for them. Equally, you can defend your corner when asked to concede margin or increase market development funding, by pointing out how little this will benefit their overall performance. We aim to increase your confidence to go high in your account relationships by understanding the overall business model and taking the conversation up to the strategic level.

Part Three focuses on what we term the final-tier trade channel players – the ones that touch the customers, and often are only accessible to suppliers through the intermediaries covered in Part Two. There is a huge variety of final-tier trade channels, yet the one thing they almost all have in common is that they provide the services that fulfil a supplier’s brand promise. In this section, we focus on the unique characteristics of service provision. These players can make or break a supplier’s success in the market, yet are often ill-served and supported by their suppliers. To help you avoid repeating this mistake in the way you design and manage your sales and marketing channels, we use the same structure as in Part Two: the roles of the players; how their business models work; the measures that matter; and, finally, how to get the best from these players.

At the end of this book, we have provided all the useful quick reference material you may need and a glossary of technical terms. Although we encourage you to read the entire book to learn what a powerful resource it can be for you with its hundreds of examples and insights, we also encourage you to dip into the book when confronted with specific challenges or new situations. Some of the more technical elements of the business models will not make compelling reading until you are dealing with a real issue and then you will welcome the detail of the explanations and the depth of the examples.

Although we aim to educate you through this book in the general and specific aspects of sales and marketing channels, with lots of practical, real examples, every...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Figures
• List of Tables
• About the authors
• Preface
• Acknowledgements
• PART ONE Introduction
• 01 How to get the best out of this book
• About this book
• How this book is set out
• 02 The business of getting products and services to market
• Marketing and sales channels, and distribution strategy
• Distribution strategy matters
• Challenging business dynamics
• Business models are key to value propositions
• A structured approach to positioning your channel value proposition
• 03 Major trends and developments in market access
• Introduction
• The myth of disintermediation
• From products to services
• Emergence of the cloud, apps and microtransactions
• Multi-channel (omni-channel) challenges
• Consumer channels: more than just retail and e-tailer
• Commercial channels and ecosystems
• The ‘gig economy’ channels
• PART TWO Distributors, wholesalers and intermediaries
• 04 The role of the distributor for sales and marketing channels
• Distributors, wholesalers and intermediaries
• Customer role – core functions
• Supplier role
• Supplier role – core functions
• How distribution improves the supplier’s business model
• 05 How the distributor business model works
• What do we mean by business model?
• Role defines business model
• Profit is a very small number between two very big numbers
• Managing working capital is a balancing act
• The measures that matter and how to manage with them
• 06 Managing distributors – margins and profitability
• Multiple margins
• Gross margin and value-add
• Margin mix or blended margin
• Contribution margin
• Net margin and operating margin
• 07 Managing distributors – working capital
• Working capital management
• Supplier credit
• Inventory
• Customer credit
• Working capital cycle
• 08 Managing distributors – productivity
• Earn and turn
• Contribution margin return on inventory investment
• Returns on working capital
• 09 Managing distributors – sustainability
• Sustainability – longer-term business health
• Return on net assets and return on capital employed
• Return on invested capital
• Value creation
• Managing value creation on an operational basis
• 10 Managing distributors – managing growth
• Growth dynamics
• Internally financed growth rate formula
• Economies of scale – profitability
• Economies of scale – working capital management
• Risks of growth – diseconomies of scale
• 11 Understanding the distribution landscape
• Introduction
• Typical landscape evolution
• 12 How to get the best from distribution strategy
• Building and leveraging distribution partnerships
• The engagement process
• Managing the account relationship
• Making compelling business cases
• Summary of Part Two
• PART THREE Managing final-tier sales and marketing channels
• 13 The roles of the final-tier channel players
• The final-tier channel players
• The possible roles of final-tier channel players
• Matching channel roles to channel players
• Different roles command different compensation models
• Applying this framework to your industry sector or channel
• 14 How the business model works for final-tier channel players
• Role defines business model
• Service-provision business models – people and platforms
• Special features of the people-based service business model
• Special features of the platform-based service business model
• 15 Managing final-tier channel players – sales and utilization
• People-based service business model
• Platform-based service business model
• 16 Managing final-tier channel players – gross margin and recoverability
• People-based service business model
• Platform-based service business model
• 17 Managing final-tier channel players – working capital management
• The cash-to-cash cycle
• People-based service business model
• Platform-based service business model
• 18 Managing final-tier channel players – value creation and growth
• Value creation and improving the numbers
• Managing growth – the integrated business model
• 19 How to get the best from final-tier channel players
• Introduction
• Segmenting the final-tier trade channel
• What the final tier looks for in a vendor
• What the final tier looks for in a distributor
• Managing the account relationship
• Some rules of thumb for making compelling business cases
• Selling ‘with’ the final tier in an advocacy role
• Summary of Part Three
• PART FOUR Managing distribution in individual industry sectors
• 20 Introduction to managing distribution in individual industry sectors
• 21 Insights from managing capital goods distribution
• Introduction
• Specialist challenges and how the sector tackles them
• Exposure to the business cycle
• Extremely high cost
• Shifting ownership and consumption models
• Difficult locations and extended supply chains
• Political complexities
• Critical competencies
• Key metrics
• 22 Insights from managing consumer goods distribution and retailers
• Retailers and retailing
• Multichannel and omni-channel
• Specialist challenges and how the sector tackles them
• Critical attributes and competencies
• Key metrics
• 23 Insights from managing services distribution
• Introduction
• Specialist challenges and how the sector tackles them
• Critical competencies
• Key metrics
• 24 Insights from managing hotels, restaurants, catering and travel distribution
• Introduction
• Specialist challenges and how the sector tackles them
• Critical competencies
• Key metrics
• 25 Insights from managing intellectual property distribution
• Introduction
• Specialist challenges and how the sector tackles them
• Critical competencies
• 26 Insights from managing franchised distribution
• What is a franchise?
• The franchise system model
• Specialist challenges and how the sector tackles them
• Critical attributes and competencies
• Key metrics
• Key ratios
• Glossary of technical terms
• Index
• Backcover