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By Marc Metzner, Principal, The Alexander Group, Inc.
“Take advantage of the enemy’s unpreparedness; travel by unexpected routes and strike him where he has taken no precautions,” Sun Tzu.
Channel optimization has always been a critical success factor for business. Just by moving through their product maturity curves, companies have had to alter their distribution strategies and deploy new channels. So, even without implementing anything “new,” it’s hard enough to keep up.
Today, to further complicate the situation, three forces have made channel optimization even more difficult: the Internet, CRM, and low-cost capital. These forces have turned channel optimization into do-or-die warfare.
Your competitors are building multi-channel go-to-market strategies and experimenting with new approaches that leverage information availability and Web-enablement of other channels. While threatening, the situation creates opportunities to leverage each of these three new forces through a multi-channel competency that can exploit new channel strengths.
A Look at the Impact of Each Force
Force #1: The Internet is fundamentally changing distribution and if you are not doing it, then it’s being done to you. The Internet “liberates information,” causing disintermediation.
To understand disintermediation, let’s look at the reach vs. richness characteristics of a channel, first expounded on by Phillip Evans in Thomas Wurster in Blown to Bits, Harvard Business School, 1999. Reach (how much of the target market you cover) and richness (how deeply you cover) are the key sources of value that channels provide. Taken together, these create a “frontier” that defines channel value -- some add more reach, some more richness.
The traditional view of disintermediation is that newer, cheaper channels give up richness to gain reach and continually emerge to both expand and further sub-divide the market (top graphic). The Internet, however, (bottom graphic) blows away the current trade-off frontier by providing more of both.
Force #2: CRM, when designed with the sales requirement in mind, is a powerful tool for channel integration across the customer lifecycle and across the sales process.
The AGI Channel Optimization Principle states: “Continuously evaluate ways to drive sales and service activities to the lowest cost channel that can successfully execute the desired value proposition.” CRM allows you to do this effectively.
This example (view graphic) shows how a customer within a defined segment can buy a product or service with its buying requirements being delivered or met by various channels. A company would plan this process based on segment requirements and use CRM to ensure that the necessary information sharing takes place and that performance can be measured and customer satisfaction and cross-selling maximized.
Force # 3: Capital Markets are allowing a constant flow of new business models, many of which are built around new distribution approaches, to get funding. That means that if there is a vulnerability in your distribution model, someone will be attacking it, with new energy and no legacy systems limitations.
Like a “simulation” experiment, if enough different models are created, eventually the weak spots in your distribution model will come under fire. If that’s where the margin lies in your value chain it can be devastating.
What the Three Forces are Doing to Strategy
We’ll now highlight some of the results that these three forces are having on go-to-market strategy.
The first is distribution model obsolescence. Overnight it seems, the three new market forces can make a profitable coverage process obsolete.
Companies must recognize when channels are at risk, have contingency plans, and be willing to take swift action. Another approach is to get out in front and change the channels to avoid obsolescence yourself or to force obsolescence on your competitors.
The second result of the three new forces is the transformation of the traditional channel roles as they are forced to evolve.
The third result is the quickening of the growth stages that a company naturally goes through as its products become familiar to the market. This progression normally requires different channel solutions.
The fourth result of the three new forces is that with today’s pace of discontinuous change, focusing only on incremental changes in distribution will put a company at risk of falling hopelessly behind.
Punch line: Your channel mix must change faster than it ever has before or your competitors will do it first and displace your market position.
Baby Steps or Sprinting?
Incremental changes will not be sufficient to allow a company to continue on its current growth path.
We believe companies need to organize their channel integration around the principle of marketplace agility. This could be summed up as getting there first and getting there right. This is the survival strategy for today’s channel warfare markets.
As time to market became was the key in yesterday’s markets where technology drove competitive advantage, the key in today’s markets, where relationship control drives competitive advantage, is rapid channel deployment.
As leader of two of the The Alexander Group, Inc.’s consulting practices (Channels and Telecom), Marc Metzner oversees the firm’s thought leadership and methodology development in these areas. He can be contacted at 203-975-9344, ext. 585, or via e-mail at mmetzner@alexandergroupinc.com.
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