According to Bob Segal, a principal with the channel consulting firm of Frank Lynn & Associates, many companies, especially smaller ones, manage their channel relationships on an ad hoc, informal basis. Segal suggests that companies develop a more formal, strategic approach to managing their channel partnerships. Conducting a “channel audit” might be a good first step.
Smart Business talked to Segal to learn more about this approach.
What’s wrong with a seat-of-the-pants approach to working with resellers?
Obviously, a strong personal relationship with the owner, salespeople and support people at your resellers is a good starting point. However, the nature of the overall relationship is too complex to simply rely on spur-of-the-moment decision-making. Many companies sell through hundreds of independent channel partners that require sales support, marketing tools, financial programs and technical assistance. Without a formal, detailed plan, the crush of details will overwhelm a supplier.
Also, channels are consolidating. Many companies now sell through large resellers such as Home Depot or Wal-Mart on the consumer/contractor side; big wholesalers such as Ingram or Tech Data in the technology market; or large distributors such as Motion Industries, Ferguson or W.W. Grainger in the industrial markets. These huge resellers expect formal, consistent programs.
What are some of the major challenges in working with intermediaries?
Channel partners can bring significant market coverage at a relatively low cost, especially when selling to consumers or small and mid-sized business customers. Many channels also add technical or logistics skills beyond the suppliers’ capabilities.
On the flip side, channels can pose several challenges. Simply communicating with so many people can be a problem. Gaining ‘mindshare’ is another challenge.
What is a channel audit, and how can it help?
Many companies know their channel sales are below goal or that intermediaries are complaining about seemingly random problems. However, unless someone undertakes a structured, objective analysis, the company may never uncover the root cause of their channel woes. We developed a channel audit that looks at more than 30 elements of the supplier/channel relationship.
We do in-depth prep work with our clients. In some cases, we will spend one to two weeks interviewing the client’s channel partners to see what they consider good, bad or missing in their supplier’s program. Then we spend two intensive days with the client reviewing channel strategy, channel sales, channel marketing, organizational and financial aspects of their channel program. It is a lot like going to the doctor for an extensive check-up.
Most companies will bring together the CEO, the VP of sales, the VP of marketing and one or two key channel sales and marketing managers. Often, the CFO will attend as well.
What is the typical output of a channel audit?
At the end, we provide clients with a report card. We rate the importance of each element and then give each a color-coded (green, yellow, red) performance rating. The ratings take several factors into consideration: investment and staffing; use of formal processes, tools and metrics; the existence or absence of specific channel programs; and, actual sales, share, profit and other performance data.
Beyond the quantitative scorecard, we also provide clients with a qualitative understanding of the score. Our commentary will pinpoint specific issues such as understaffing a particular marketing function, lack of training for channel sales people, or over-supporting under-performing resellers. At a basic level, a channel audit provides a company with a specific, actionable, measurable set of next steps.
After undertaking an audit, what are some of the typical steps a company takes?
One of the common things we find is suppliers who are overpaying relative to the functions performed by a reseller or resellers. So these companies will often revise their channel compensation programs with an emphasis on function-based, rather than purely volume-based, criteria.
Also, the channel audit often highlights companies trying to sell new products or move into new markets by relying on their traditional channel partners. Frequently, companies need to sign up new types of partners to open up growth areas. Based on this audit finding, many clients recruit new types of channels that offer better growth opportunities.
Companies that have already pursued an aggressive growth strategy can run into various types of channel conflicts, as I mentioned earlier. The channel audit will uncover actual and potential channel conflicts. We will then work with our clients to develop new policies/contracts, compensation, communications or other tactics to tamp down the conflict.
BOB SEGAL is a principal with the channel consulting firm of Frank Lynn & Associates. Reach him at (312) 558-4808 or firstname.lastname@example.org