New Arrows In The Channel Quiver

In technology-based businesses, two elements distinguish great companies: execution in innovation and execution in marketing and sales. Some companies, such as Intel, combine these capabilities so skillfully (think of Intel Inside) that it is difficult to separate the two. Innovation involves creating great products and services, and marketing and sales involve dominating markets by creating the most effective marketing and sales channels and brands.

The channel's job is to effectively deliver information and products or services to customers, and to deliver the proceeds to the producers of those products or services. This challenging role is the same whether the channel is a direct account representative, an e-commerce channel owned by the company with the product or service for sale, or a contracted indirect channel such as a systems integrator, retail dealer, or manufacturer's representative.

The evolution of multi-channel strategies in technology-based business started in the 1980s, as technology markets expanded.

Then, most companies had one or two channels in place, but they hadn't developed a strategy how to direct them for maximum impact. Today, smart companies aim broad-based channels at big markets and specialized channels at smaller or niche markets, improving their chances of hitting sales targets. They are learning how to rationalize electronic and traditional channels to shoot marketing and sales dollars directly at opportunities. And they are learning to select the right channel arrow in accordance with market conditions, including technology adoption rates, industry cycles, government regulation, currency and interest fluctuations, political climate, and all the business variables that can affect sales success.

Channels can not only add value to products or services, but also actually create customer and shareholder value, brand equity, and market presence for a company. Some examples of winning channel management include:

Novell's VAR channel, one of the finest early examples of a technology-oriented channel, has many loyal members who

helped prop up Novell when the company had serious

technological problems to overcome; Cisco has augmented its excellent VAR channel with a successful web-based channel, multiplying its interactivity with customers and thus increasing its responsiveness; Amazon.com has built a business on the qualities of interactivity and convenience offered by the web channel.

Pushing information to customers, the Amazon electronic

channel was one of the first to recognize the value of

satisfying a customer's very specific information interests to capture aftermarket sales. Amazon's motto could well be, "Buy from us once, and we've got you forever."

How can your company create a powerful set of channels,

focussed at opportunities and the creation of value? We have isolated six principles that are critical to using channel management strategically. They form the basis of good channel selection, market and channel development, and the ultimate goal - sales! When these principles are applied in conjunction with good product management and pricing strategy, companies thrive.

An Integrated Strategy

Even though the branding people came up with a great can, and the channels were the highly successful ones Coke had always used, someone misread or miscalculated customers' preferences. Because one vital component of the strategy was out of sync, the entire strategy failed. The failure of New Coke was a failure to integrate the four vital marketing and sales disciplines into a cohesive strategy. Those disciplines are brand, service and support, offer, and channel. If all four disciplines are not in sync, results are likely to be disappointing. In the case of New Coke, the entire offering was a mistake.

When Coke's channel managers, who represented restaurants, bottlers, and grocers, let product managers know that customers did not want their Coke reinvented, brand managers quickly released the original recipe as Classic Coke, and the channels raced to replace the product. As a result of the managers' rapid action, "New Coke" hardly amounted to a blip in Coke's long string of successes.

Aligning brands with channels creates strong communications and promotional support for sales, high levels of brand equity, messages aligned to channel capabilities, and the right customer expectations. Integrating channels, offers, and support establishes the foundation customers need to respond to a company's offer and guarantees the right approach to the market, both pre-and post-sales.

Integrated strategies must be mindfully created, however, using cross-functional teams of marketing, product, sales, and support professionals, all focused on the customer segment they want to reach.

Hewlett-Packard's Internet software strategy is a strong

example of an integrated strategy, tying HP's brand, channels, customer support, and product offers to the enterprise Internet infrastructure buyer. Virtual Vault, a secure version of HP's HPUX operating system, is a core offering of HP's Praesidium Internet security software family. HP focused on branding Virtual Vault and integrating its strategies for channels and support.

The company secured new channel partners and tempted traditional HP sales channels to pick up Virtual Vault by emphasizing the value to their HP enterprise hardware customers. HP marketing and services teams created tools for customers, emphasizing the value of protecting extranet information. The powerful introduction of the Praesidium family was quite a coup for a company not generally recognized as a software powerhouse.

Technology Adoption Cycles

When a giant telecommunications provider wanted to sell

unified messaging software (unifying voice and data), it was frustrated by lack of market interest. Rather than using its typical telecom channels, the company realized it had to build a new channel, using VARs focused on these converging technologies. Meeting the challenge taught the company that its channel architecture needed to be flexible, providing special technical capabilities early in the technology adoption cycle, even if those same skills might not be needed by more sophisticated customers. Our experience in helping companies establish their channel strategies shows that the preferred route is seamless movement of products and services from channel to channel across the life-cycle of each product.

Many successful companies have thrived on strategies that take advantage of a specific stage in a product category's life cycle. VARs are another example of the baton being passed to the appropriate channel at a new stage in a product's life cycle. They generally abandoned the low end of the PC market to retail channels and e-commerce, focusing instead on building specialized "white box" systems without a major manufacturer's brand, or else reselling only configured or special systems that support their applications.

Another example upstream from the VARs are system integrators, who make their living in the so-called early technology and early majority periods of the product life cycle.

The Bottom Line

Active strategic channel management is now more vital than ever in creating value and stimulating sales. Two of the essential principles of channel management are the importance of an integrated strategy, and the use of channels appropriate to technology adoption and product category life cycles.

(Mary Margaret Gibson is a director in PRTM, the leading global management consultancy. This article is reproduced with permission from XIT Strategies Inc at

www.energizeyourchannel.com)