Author Archives: Steve C.

Evolving a Channel

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A while back Schwinn hit the wall on increasing sales through their boutique dealers, so they examined the idea of entering the mass market…Wal-Mart, etc. Just like many of us have done when we decide to expand distribution or retail presence in hope of picking up additional revenue.

Here’s what they decided to do; build a new model for the mass market. Sounds familiar doesn’t it? Leave the prestige brand in the boutiques, but sell a cheaper model in Wal-Mart. How many of us have done that, or at least considered it? A lot, I’ll bet.

However, there are indeed consequences to every action in life. Schwinn proceeded to lose over 1700 of their dealers (out of 3,000). Of course the company claimed that those remaining dealers sold 80% of the bikes. On the face of it, at least, I am in full agreement with the principle. I think the execution was botched:

They could have done it better: establish a new line with a new name, i.e. BullRider built by Schwinn. Calm the established “boutique” channel by pro-actively approaching the channel partners and telling them your plans in advance. This helps you hold your channel together while you take the heat. Market the heck out of BullRider in the print media that is read by your target customers (figure out what Wal-Mart buyers read, probably TV Guide). Let normal attrition diminish your boutique dealers over the next year or two. Increase the level of support to your remaining boutique dealers, with some sort of value-add…maybe sales training classes paid for by Schwinn, or Schwinn paid-for in-store selling events, etc. Hold tight to your current channel by marketing the top line upwards. Build partner loyalty by showing your loyalty to them (with money, as there’s no finer way). That’s the right way.

I suggested a similar program to a guitar manufacturer a few years ago. They rejected the recommendation. They continue to languish. Too freaking bad.

A Channel Perspective

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To a hammer, everything looks like a nail. To me, everything looks like a channel. As a channel guy, I have a channel perspective.

Years ago, I was National Sales Manager for Insignia Solutions’ retail products. It was a nice line of software, fairly successful. The first PC Emulator for the Mac; it let you run PC apps on the Mac for the first time. At the time; very cool. Now; commonplace and ordinary. Insignia also had an OEM group that sold software to partners like HP, SGI, and others.

The OEM guys were very old-school, big company, adversarial types. Each OEM client was handled like some sort of “friendly enemy”. At some point the CEO called for the teams to get together: at this meeting the retail team and OEM team discussed channel approaches. I felt like they could be much more effective if they used channel management techniques on each of the partner accounts, transforming them from friendly enemies to individually managed third-party channels.

My lobbied-for price reduction on the retail software from the Board of Directors came down, driving a sales surge of about 300% over the next 6 months. Looking at this success, I suggested applying that reduction to the partners using a channel pricing approach. The OEM contracts were locked in for 1 year, except for unilateral price reductions. The big job was convincing the partners to pass on the price reduction to customers, by talking about attach rate of software to hardware.

Luckily, the first partner approached was HP, who was very responsive to the pricing change, and immediately saw how they could profit from the price reduction. The Insignia OEM team then used marcom and promos to sell the reduction to HP’s sales force, just like you would do a price roll-out in the channel. Of course, the idea of MDF (Market Development Funds – a kind of channel marketing) for a partner was a little too radical for these folks. Even so, using channel management techniques, the OEM team at Insignia was able to nearly double their attach rate.

Sometimes a nail really is a nail

Channels

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Channels are just ways of getting your products, services, and messaging to the target customer or user. Nothing more and nothing less. The first weaver who made a bunch of nice scarves and gave them to her brother to sell in the next town was building a channel.

A lot of us are familar with distributors, who handle everything from electronic components to wine and liquor, depending on their area of focus. And we know about retailers; from the big-box stores like Wal-Mart and Best Buy, to the little mom-and-pops selling Olive Oil in the Mall.

Those are channels. So are the companies who customize software and put it together with hardware and sell it to your employer – those are VARs – Value Added Resellers. Just more of the players in the channels.