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Channel Matters Blog > June 2013 > Achieving Channel Leverage

Achieving Channel Leverage

by Ralph D. McLemore
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The power of one! Stan White looks at how one channel manager can drive revenue results through many partners and customer relationships. Using real-world case studies and examples he explores why some organizations achieve channel leverage and why others end up losing money and market share.

Today the need to understand the value of channel partners and how to optimize their performance has never been greater. Regardless of industry type, reaching customers through intermediaries or distribution partners has been changing the landscape of nearly every company's go to market strategy.
One only has to look at the dramatic decrease in the number of companies that only sell directly to their customers as proof that indirect channels have become the "new competitive battlefield for many companies around the globe. The struggle to engage the best partners has been fueled by the need for businesses to find cost effective and efficient routes to their key markets and customers and the need to keep pace with their competition. Studies have found that the percentage of companies that only sell directly to end customers has fallen from over 50 per cent to less than thirty in the last 5 years! In technology industries, where partnering at some level has been actively maturing, the change is even more dramatic! I have clients in the tech space who say direct sales now accounts for less than ten per cent of revenue.
With this massive and rapid transition taking place one might infer that partnering to reach end customers is effective and has become easier to do...... "just look at how the market is changing!" However, before you re-engineer your company's sales engine or expand your partnering focus, ask yourself two simple questions?
  1. Why Partner?
  2. What do I need to do to partner effectively?
If you can answer these questions and execute with clarity, you have a good chance of succeeding and achieving what has been called "Channel Leverage".

Case study 1

I began focusing on these two questions a few years ago when I met with a large global industrial products manufacture. Having the answers would have saved them a lot of corporate stress and financial pain. They had many different product lines that were sold directly or in many cases through the same channel partners by different sales forces. This organization didn't differentiate between direct and indirect sales revenues and therefore had no differentiated planning process or accountabilities. No one was accountable for partner success or revenues and there seemed to be no real clear strategic intent or purpose that could be articulated with consistency on why partners were necessary in the first place.
Some business units embraced the activities of the partners while others ignored and even resented them. Unfortunately, their competitors approach was quite different and as the strongest partners became exposed to alternatives sources and products, they became dissatisfied and demanding of their longstanding manufacturing partner. When the manufacturer's products no longer differentiated them in the eyes of the partner their corporate ability or inability to partner strategically did! They came under attack and found it almost impossible to respond quickly and consistently across the company. Even under attack, there was still no clear understanding of why partnering was essential for them and as a result it was hard to create the necessary alignment of measurement and purpose amongst the various product groups. This made it difficult to reposition and articulate a more partner centric organization to their partners and demonstrate the actions and behaviors that would rebuild partner trust, loyalty and favor. The company came to the realization that their success was in many ways tied to partner success and this doesn't happen by chance. It would take the focus and effort of the entire organization to regain partner trust and establish new patterns of growth. They would need to know why and how to partner successfully as an organization and how to execute with the partners.
They set a course to achieve "Channel Leverage"

What is channel leverage?

Achieving the elusive 'Power of One' simply means retooling your sales engine to get the same 'horsepower' from one Channel account manager that you would have historically expected from an entire direct sales team.
How can one channel account manager (CAM) achieve such incredible leverage? At the heart of successful channel leverage are scalable processes working with and through an independent and fully enabled channel. In turn this flows from expertise in planning and decisive execution with new and existing channel partners. Simply put, channel leverage means the ability to achieve greater success for the vendor/manufacturer, their end-user customers and those with whom they partner through planning, investing and executing a clear channel plan. A highly attractive model if one can do it!

The need for common purpose

We often encounter channel leaders and managers who must operate within organizations that have little experience or competency with a channel leverage approach. It is critical that you, as the channel leader or manager have clarity on this and are able to evangelize what it takes for the best organizations to achieve this level of success and certainty in their route to market. You can't, or better yet, shouldn't try to go it alone! Your entire organization has to be involved and has to positively understand and believe the answers to the two questions I posed earlier.
  1. Why do we Partner?
  2. What do we as an organization, need to do to partner effectively?
Let's look at question #1:

Why partner?

Many companies enter the arena of indirect sales with good intentions but, without common purpose and understanding of why to partner and with no shared understanding of the role of the channel and their company's relationship with independent channel partners. The CEO might say we need to partner to increase our market share, profitability and return to shareholders! The Sales VP might say we partner to increase our revenues, reduce our cost of sales and get to new customers! Operations might say we partner to streamline our go to market strategy and get faster penetration to markets that are difficult to service. While these are all good reasons they are all internally focused on a self-serving agenda. An agenda that is only focused on achieving what the vendor/manufacturer needs and not what the partner needs .....or crucially .....what's best for the end customer. This can lead to a whole host of business problems with partners and your end customers.

Focus on the customer and the partner

The strongest sales and marketing strategies start with end customers at the center of focus. This is also true in a partner oriented business strategy with the added consideration of how the vendor and channel partner can combine to better serve the end customer, and how doing so makes good business sense for both. Too often manufacturers treat their partners as customers and are frustrated when their partners treat them as vendors not partners. Partners need to act like partners and manufacturers need to understand that their partners do things for their own reasons and are not simply an extension of their own sales force. Common sense that is hard to turn into common practice.
A partner program or plan that is solely "us" centric is doomed from the outset. Experience shows that it will inevitably fail in the long term because it misses three important ingredients of success that the best partnering organizations have wide-spread clarity on and embrace with rigor.
  • How does this better serve the end customer?
  • How is this of value to the partners we will recruit to accomplish the above?
  • How does it extend our capabilities and or efficiencies to reach end customers in our chosen markets?

Meeting customer needs

History records the many failures of the infamous 'better mouse trap'. By itself a product or service is never enough to serve a market or customers within it; customers look for a "whole product" offering before making a buying decision. Examples of this are easy to find. Let's say you manufacture alternative energy products: wind, geo thermal or solar. With a wide range of markets to choose from you target the hot-opportunity residential segment and the millions of homes across the globe that are receptive. Even with market receptivity, few if any customers will want to order over the internet and throw up some panels on their roof or place a turbine in their back yard. Product is not enough! They will seek advice from a reputable expert whom they trust, they will want plans and estimates of cost, risk and rewards, they will want to easily place an order, perhaps, receive some financing, get a good installation and implementation, have a solid warranty and repair capability available to them, and have access to any needed routine maintenance. In the customer's mind these additional elements make the product 'complete' or 'whole' and may even be the basis on which they differentiate and choose which alternative energy product to purchase.
The manufacturer's question has to be.... do we go it alone and provide all this directly.... or work with partners to reach and support our customers buying process, expectation support and overall satisfaction? Which approach will serve the customer better, more effectively and at a lower cost? If the answer is with a partner(s) then you are making a decision which is designed to create leverage through a partner relationship. Leverage is achieved by understanding what the customer will want to make your offering complete and compelling and then finding partners who provide the various pieces that satisfy and motivate the customer to take action with your product. Providing the all capabilities and presence demanded by customers might be cost prohibitive if going it alone, but with the right partner(s) you can make mutual contributions and attain mutual profitability.

What's in it for the partner?

Partners must see and receive business benefit through the partnership. They need to be compensated fairly for the work you have outsourced to them such as finding customers, selling your product, implementing, servicing and maintaining it. You are asking them to represent your brand, build your business and find and maintain good customers. Too often, partnering is done to off-load costs and effort with very little consideration or understanding of how partners make money..... and... why it's critical they do!
I have seen many companies that expect partners to do all the heavy lifting and invest as a rite of passage. Many have falsely considered this to be channel leverage. After disappointing results and partner plans left unexecuted, they become frustrated with the channel partner experience and even question the strategy over all. Channel partners also express their frustration with this approach from manufacturers. They see agendas that are not well thought out, don't reflect an understanding of market or customer realities and are full of risk with low reward. This is definitely not channel leverage, unless it is the leverage achieved by competitors who have thought through the questions we described earlier and recruited the best of the dissatisfied partners you left behind.

Case study 2

An example of this I witnessed was with a firm in the logistics industry that was trying hard to get its product out in front of its target market and customers with a small direct sales force. When I first worked with this group I realized that there were a very select group of companies that they could target and that while the customer base was small, the sales where complex and revenues were significant. Direct seemed the way to go based on product complexity, maturity and the need to find early adopter customers! A few years later, I reconnected with this group and they were focused on a new strategy....a channel partner strategy. I asked what had changed and why the new focus. The answer was disappointing to say the least. They felt they could more affordably nurture relationships and connections with target customers if they had someone already in the locations where the customers resided. The problem however, was that the product and service they offer needed a lot of pre sales work and explanation; the company had not really considered how difficult and expensive this would be for their new partners. The product was hard to sell and management and the channel sales forces felt they could get a better return on effort from other offering they represented. As a result within 18 months the strategy was scrapped. It was an extremely expensive experiment for the company that cost them money and market share. They lost substantial ground from where they were once positioned and had to retool the sales engine one more time. What they thought was partner leverage turned out to be a corporate land mine.
I have experienced, and listened first hand to stories from partners who have lived through a one sided relationship with a seemingly attractive product and company. Inevitably, revenues for both parties were less than expected; trust suffered and investment and focus on the product declined and the manufacturer was painted with a non-partner friendly brush which limited their success and customer traction for years to come.

What's the best route to market?

The best route to market will likely change over time depending on where your product or service is in its life cycle, and the coverage needed to satisfy market demand effectively and profitably. When your product or service is complex, struggling to get recognition in a particular target market or position in a market category, a direct route to market might be preferred. However, as the offering gains presence, and traction....and market demand stars to grow, you might need to rethink the strategy to achieve price competitiveness, appropriate coverage and profitability.

Case study 3

A good example of this evolution can be seen in the early days of companies like Xerox and IBM who literally went door to door, office to office, to expose customers to the benefits of acquiring machines that put black dots on paper or had the ability to place the power of data and data analysis on your desktop. This strategy proved both successful and profitable. However, as markets began to mature, customer demand expanded and the needs of customers changed. What also changed was how customers wanted to access and acquire these products and companies like Canon and Compaq arrived on the scene better prepared to meet these demands through indirect routes to market. They placed their bets on channel partners and the bets paid off heavily. Channel partners have the potential to be more responsive to the end customer and can effectively drive long term sustainable growth and profitability to the manufacturer. What companies like Canon and Compaq discovered was that partners could provide more intimate levels of service across a wider geography, partners already had customers that were easy targets for their products, and partners could affordably identify and adapt to changing market dynamics.

A channel leverage example

We talked earlier about the contribution the right partners can make to market access and completing your product and appeal. Understanding the reasons to partner, recruiting and selecting the right partners and providing the support they need to achieve revenue is critical. In the right circumstances, given the right support, the economics of partnering and the ability to capture market are overwhelming. Here is a simple example to illustrate sales leverage through partners. Let's say you have a mid-size company that manufactures electrical components. It's a big market and the competition is fierce. You analyze the market, its customers, the requirements beyond product needed to help your product be successful, and you decide to sell through channel partners. You size the market and decide to hire 50 channel managers who will each manage 20 key partner relationships. The ideal partner you have targeted has at least 10 sales people each and these sales people each manage an account base that contains 20 key customers on average. Let's do the math.
1 (channel manager) X20 (partners) X10 (partner sales people) X20 (key client accounts) = 4000 highly managed, key customer relationships per Channel Manager. When we multiply this by the number of partner managers hired by this mid-sized company ( 50 ) we have created access to 200,000 key customers! A direct sales force would have to make 200,000 contacts to reach these same customers while the channel team can cover this same customer base with 1000 contacts. Potentially this is Channel Leverage and demonstrates the power that one effective Channel Manager can have.
Sounds simple.....just a little math! Right? So then why are channel success stories outweighed by channel failures or ineptitude?

Enabling channel leverage

While the math is important to a good channel program, a channel strategy needs a strong program plan and field execution. The Channel Managers and the entire organization that supports them must understand the plan and the role they play in achieving it. Organizations need to make the right investments in their partners and in their channel management team to get them ready for revenue. Additionally, the competencies needed by an effective channel manager must be recognized, defined, enabled and coached across the channel team. These include planning, partner engagement, and business knowledge, influencing and leading partners to success. Business results for the mid-sized company we just described, depend upon the ability of the 50 channel managers to influence, motivate and manage effective partner outcomes. This is the true power and contribution of the channel manager, and if appropriate programs and processes are also in place, is the key to channel leverage and mutually profitable partnerships.
Everyone needs to be on board
World class channel organizations know how to answer the two critical questions:
  1. Why we partner? AND
  2. How to do it effectively?
If your organization does not have widespread clarity and agreement around this, you will need to create it. Firstly, you need to focus on creating understanding and alignment around this to create a plan that will work for you and your partners. With the guidance of understanding and a plan, all areas of the partner facing organization can take part in various aspects of execution and do it with confidence and precision. Two simple questions have guided some of the best-selling organizations in the world to channel partner success and will likely guide the next generation to come.
These are some initial keys to attaining channel leverage; leveraging the power of one channel manager to achieve results from many
Last modified on 6/30/2013 10:18:29 PM
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