USA Sales & Distribution

Channel Strategies

Stephen N. Davis
Partnering With Clients to Drive Sustainable
Profitable Growth
February 2007

2000 - 2007 CXO Advisory Group

 What Well be Covering

Common mistakes when entering the USA

The channel marketing plan
What it takes to succeed in distribution
Managing channel relationships
Managing channel conflicts
Channel Trends
Points to remember

2000 - 2007 CXO Advisory Group 2

 The U.S. Marketplace

2000 - 2007 CXO Advisory Group 3

 Common Exporter Mistakes
Insufficient commitment by top management
Time & Finances
Launching in USA before fully established in Canada
Launching in more than one international market at a
time
Failure to develop an US marketing plan prior to
beginning to export
A program without a budget is a wish
Chasing orders instead of establishing a basis for profitable
operations and orderly growth.
Failure to modify pricing for reality of US market
Gray Market
Hiring the wrong advisors

2000 - 2007 CXO Advisory Group 4

 Common Exporter Mistakes

Insufficient care in selecting sales channels

Channels are not in sync with end-user targets
No targeted value proposition to the channel
Failure to treat sales channels on an equal basis
Failure to consider licensing or joint-venture agreement
Lack of sell cycle sales tools
Insufficient Start up Costs
Neglecting export business when domestic markets
are healthy.
Unwillingness to modify products to meet regulations
or cultural preferences of other countries.
Treating the US as one homogenous market

2000 - 2007 CXO Advisory Group 5

 Plan Your Entry into the Channel

If you dont know

where youre going
youll probably
wind up
somewhere else

2000 - 2007 CXO Advisory Group 6

 The International Marketing Plan

Strategy Program Execution

Goals Coverage model Media Campaign
Target Market Value proposition Communication
Product Business rules Incentives
Competition Sales model Education
Channels Pricing Outsourcing
Roles Sales Support
Alignment model
Customer Support
Model
Budget

2000 - 2007 CXO Advisory Group 7

 Have a Clearly Articulated Value Proposition

Elevator pitch is one of your most important elements

This is the essence of your business
You have 10 to 20 seconds to grab their attention
Then 20 to 40 seconds to expand the Business Value
Proposition
Spend the time to develop a compelling value
proposition

2000 - 2007 CXO Advisory Group 8

 Showing Value Is Always Important

Positions what youre offering as a solution to a

business problem rather than a commodity
Differentiates yourself, products and services from
competitors
Focuses customer into thinking on Return on
Investment(ROI) not price

2000 - 2007 CXO Advisory Group 9

 Example

We provide a flexible, interactive and

personalized system for delivery of medical
test results from a dedicated, comprehensive
content library.

We streamline the reporting of clinical

lab test results from the physician to the
patient in language that patients can
easily understand.

2000 - 2007 CXO Advisory Group 10

 It Takes a Long Time to Write Something Short

24 hours minimum 4 months maximum

8 hours to develop prioritized list
Problems your solving
What your offering
What makes you different from competition
Why youll win
4 hours to write first draft
4 hours testing your first draft with key individuals, advisors, etc.
and incorporating feedback
6 hours testing revised draft on larger group
2 hours to revise and incorporate feedback
But this isnt the end
Youll eventually have multiple elevator pitches for various
audiences
Investors, different customer types, strategic partners, etc.

2000 - 2007 CXO Advisory Group 11

 Sales Channels The Reality

A product with better distribution will

always win over a product with poor
distribution or customer access

Its not fair. Its not right.

But, its reality.

2000 - 2007 CXO Advisory Group 12

 Channel Strategy

Must start with the customer

How many channel partners do I need?
What channel partners should I have?
Build a channel partner profile
Link to end-user targets
Fit with existing channels
What role do they play?
Influence
Sales
Support
Technical
How do I choose them?
How do I measure them?
How do I generate business for them?
Do the financial requirements make sense for our company?

2000 - 2007 CXO Advisory Group 13

 Know Your Customers Buying Process

Sales Cycle Identify Prospect Qualify Proposal Close Deliver

Stage

Discover Need Seek Solution Review Vendor Agree on Check Start

Materials Solution and References Implementation
Identify Research
Determine Total Project Specs. Validate Assign
Business Goals Find Vendors
Scope of Project Coordinate Proposal Resources
Quantify Impact Get Information Estimates
Customers
RFQ Buying Process Start Training
Cycle & ROI
Confirm timing & Choose Vendor Manage Project
Objective Timing &
Budgeting Budget Sign off Pay Bills
Select Vendor Approvals
Contract signed
Purchase Order

2000 - 2007 CXO Advisory Group 14

 Typical IT Sales Cycle

Sales Cycle Demand

Prospect Qualify Develop Solution Proof Close Deploy Support
Stage Generation

Probability NA 0% 10% 20% 40% 60% 80% 100% NA

Generate Validate Qualify lead/ Develop Present Demonstrate Conduct Finalize Finalize
awareness potential opportunity customer solution capability to negotiations deployment support
Your Sales requirements
and pre- opportunity which exceed and finalize plan & plan,
Cycle qualified & identify & establish exceeds customer contract execute execute &
Objective prospects potential sponsor customer requirements monitor
sponsor relationship needs progress

2000 - 2007 CXO Advisory Group 15

 Distribution Channels - Examples

Field sales reps Internet sites

Corporate resellers Extranets
Master or local e-Marketplaces
distributors Direct Mail
Integrators OEMs
Value-added resellers Retail
Manufacturers agents Kiosks
Brokers Strategic alliances
Franchises Agents (consultants,
Telemarketers affiliates, etc.)
Inbound telesales agents

2000 - 2007 CXO Advisory Group 16

 Comparison of Major Channels

Retail Agent/Rep Distributor/VAR Acquisition Joint Venture Subsidiary

Time to Market Slow Slow Medium/Fast Medium Medium Slow

Management Control Low Medium Low High Medium High

Brand Control Low Low Low High Medium High

Cost of Sales Medium Low Low High Medium High

Development of In-House
Low Low Low Medium Low High
Expertise

Access to New Partners Low Medium Low Medium Medium Low

Risk Medium Low Low/Medium High Low High

Hands-On Sales/Marketing
High Medium High Low Low Low
Support

2000 - 2007 CXO Advisory Group 17

 Channel Value Add

High
High Touch
Channels Field
Field
Sales
Sales
Value VARs
VARs
Add Dis-
Dis- ir ect
Low Touch D
es
Of Sale tributors
tributors Sal nnel
Channels Retail
Retail Ch a
ls
Stores
Stores h a nne
Tele-
Tele- re ct C
marketing Indi
marketing
Internet
Internet nn e ls
Low ct C ha
Dire
Low High
Cost per Transaction

2000 - 2007 CXO Advisory Group 18

 What Do These Firms Have in Common?

2000 - 2007 CXO Advisory Group 19

 Creating Effective Budgets

A program without a budget is a wish

Cancelled at any point
Not credible to reseller
Cannot be strategic or justified to management
Costs cannot be measured or controlled
Must estimate costs of program design,
implementation and management
Coverage, sales model, support model, value proposition
Calculate as both cost of sales and return on investment

2000 - 2007 CXO Advisory Group 20

 Pricing For the Channel

Most companies dont know

how to set their price
Start-ups tend to underprice
and fail to include channel
margins
SRP vs Street Price
Natural street pricing exists
in retail products in the U.S.
Key is hitting the desired
street price
The channel prices up off
cost

2000 - 2007 CXO Advisory Group 21

 Price is the Focus
If You Cant Show Value

Customer is Buying

Price Value

Supplier is Selling

Buyer Tendencies: Supplier Tendencies:

Buy low-cost alternative Make todays numbers
All solutions are the same Let the company worry about
Make price the main focus delivery and service
Move on to the next sale fast

2000 - 2007 CXO Advisory Group 22

 Cost of Market Entry Options

Retailer Mark-up, 50% - 200%+

5-10% MDF, Slotting Fees
Agent/ Rep. Commission, 5%30%

Value Added Reseller Margin, 20-40%, 5-10% MDF

(VAR)
Distributor (stocks product) Margin, 10%50%, 2-5% MDF

Acquisition Fair Market Value

Joint Venture Varies

Own Build $12 million (US)

2000 - 2007 CXO Advisory Group 23

 #1

Tech Marketing Budgets

Analyst Other
Web Relations activities
4.0% 2.3% 5.3%
Advertising
Research
23.2%
4.6%
Collateral
5.1%

Public
Relations
6.5%
Events
Direct 19.3%
M arketing
12.9% M arketing
Support &
Sales T ools
16.8%

Source: IDCs 2005 CMO Tech Marketing Benchmarks Database

2000 - 2007 CXO Advisory Group 24

 When Worlds Collide:
Misalignment of Marketing & Sales

Marketing sales:
We spend millions generating qualified
prospects and they fall into a black hole!

Sales says:
The collateral material is crap. It doesnt help
me in the sales cycle and the so-called leads
they send us are a waste of my time.

2000 - 2007 CXO Advisory Group 25

 When Worlds Collide:
Misalignment of Marketing & Sales

Company centric messaging doesnt support sales

effort
50% to 90% of marketing messages, collateral and
sales tools go unused
Sales people spend 40-60 hours each month creating
their own materials, responses, presentations
Only 10% of sales people present the best answer
to a customer solution

Solution: Produce sales-cycle relevant tools

and collateral
Source: AMA

2000 - 2007 CXO Advisory Group 26

 Sales Alignment Challenges

Alignment within
Alignment with the company
the customer Inadequate sales metrics
Not able to identify Solution selling is a
the decision makers cultural challenge
Not focused on right In fighting between
value propositions marketing and sales
Lack tools to help Everyone has sales impact
customer jump
decision hurdles
Alignment
Performance
metrics
with the market
Not aligned with customer
buying preferences or shifts
Channel issues need constant
attention
Consistency of strategy
Value proposition
Marketing mix

2000 - 2007 CXO Advisory Group 27

 Channel Concerns

Shrinking Margins
Growing service & consulting
revenues
Expanding capabilities
Obtaining new customers
Turnover of personnel & training
Vendors desire to try and cut
them out
Cash flow

2000 - 2007 CXO Advisory Group 28

 Is Your Buyer Package up to Snuff?

Marketing materials
Price lists
Outline of your marketing campaign Demand Creation
Product samples - Packaging
COOP/MDF funds and campaigns
In-store merchandising
Prospect & customer correspondence
Sales training for their personnel
Sales support
End user training
End user support

2000 - 2007 CXO Advisory Group 29

 Computer Distribution Channels

2000 - 2007 CXO Advisory Group 30

 Joint Venture/ OEM / Private Label

Quick penetration less risk

Established market presence
Provides localization of product
Handles all marketing, sales, distribution &
support
Provides ongoing market analysis
Provides ongoing competitive analysis
Usually won't carry competing product
Tough sale long sales cycle

2000 - 2007 CXO Advisory Group 31

 Approaching a Potential
Joint Venture/ OEM / Private Label Partner

Be Ready to Explain Key Product Advantages

Do Your Homework
Why should they be interested?
Fills competitive hole
Enhances existing product line
Prevents having to compete against you
You could develop market in your home country for their
products
How easy it will be to work with you
Support you will give them
Technical
Training

2000 - 2007 CXO Advisory Group 32

 Key Issues Licensing Agreement

Specs & Deliverables Marketing Obligations

Acceptance List Price of Product
Grant of License Performance Requirements
Terms Warranties
Payments Limitation of Liabilities
Bookkeeping Requirements Development Support
Ownership Rights to Updates
Use of Trademarks Termination
Training Source Code Access
Decision Making Authority

2000 - 2007 CXO Advisory Group 33

 Distributors

Sells to other channel players within designated area

Takes title to goods and is compensated by mark-up
upon sale
Sells suppliers goods to his own customers
No authority to act on your behalf
Maintains Inventory
Sells in original packaging
May or may not provide after sales services
Many products are taken on consignment basis

2000 - 2007 CXO Advisory Group 34

 What Distributors Look For

Products with proven demand

Product's packaging, ease of use & install
Marketing budget
Quality tech & Customer support
Ability to scale up to demand
Financial stability
Training
Distributor staff time required

Only 1% - 2% of products presented get chosen

2000 - 2007 CXO Advisory Group 35

 Manufacturers Agent/Commercial Agent

Alternative to own sales force

Both authorized to solicit orders in designated area
Receive salary or commission
Usually bear no credit risk
Maintains no inventory
Requires same support & training as internal
salesforce
Carries several lines
References, References, References

2000 - 2007 CXO Advisory Group 36

 Types of Retailers

Specialty Stores Discount Stores

Department Stores Convenience Stores
Supermarkets Off-Price Retailers

Superstores

2000 - 2007 CXO Advisory Group 37

 Retailers Classified By Service Type:

Self-service retailers
Customers are willing to self-serve to save money
Convenience stores and fast moving shopping
goods
Limited-service retailers
Most department stores
Full-service retailers
Salespeople assist customers in every aspect of
shopping experience
High-end department stores and specialty stores

2000 - 2007 CXO Advisory Group 38

 Retailers Classified By Product Lines:

Specialty stores
Narrow product lines with deep assortments
Department stores
Wide variety of product lines
Supermarkets
Convenience stores
Limited line
Superstores
Food, nonfood, and services
Category killers
Giant specialty stores

2000 - 2007 CXO Advisory Group 39

 Retailers Classified By Pricing Category:

Discount stores
Low margins are offset by high volume
Off-price retailers
Independent off-price retailers
TJ Maxx, Marshalls
Factory outlets
Levi Strauss, Reebok
Warehouse clubs
Sams Club, Costco

2000 - 2007 CXO Advisory Group 40

 Discount Stores - Target Corporation

First store opened in 1902

Currently has 1,147 stores in 47
states.
Builds brand name to heighten
barriers to entry in the market.
Successful built defensible niche
with middle and upper-end
customers - low price but high style.
Resurrecting old brand names for
own exclusive
Co brands with high profile partners
Sony & Virgin
Building own boutique product lines
soaps, candles, etc.

2000 - 2007 CXO Advisory Group 41

 Retailers Classified By Organization Type :

Corporate chain stores

Commonly owned / controlled
Voluntary chains
Wholesaler-sponsored groups of independent retailers
Retailer cooperatives
Groups of independent retailers who buy in bulk
Franchise organizations
Based on something unique
Merchandising conglomerates
Diversified retailing lines and forms under central ownership

2000 - 2007 CXO Advisory Group 42

 How Would You Classify

2000 - 2007 CXO Advisory Group 43

 Catalogers

Readers Have Bought Through Mail Before

Build a Track Record First
Why Should They Pick Up Product - 25 Words
You Pay For Ad Space & Catalog Production
Can Swap Product For Ads
Special Promo Mailings Might Pull Better Than
Catalog

2000 - 2007 CXO Advisory Group 44

 What does a good Reseller look for

Product for their market

Ways to increase revenue via
Consulting
Support
Reduced cost of sale
Investment and commitment
Good business proposition
Training & technical support
Sale & marketing support
Territorial exclusivity
Price stability

2000 - 2007 CXO Advisory Group 45

 VARs Choose Product On

% VARs Considering Factor

Extremely Important
Product Quality 87%
Order Fulfillment 55%
Profit Margins 45%
Price/Performance 45%
Commitment 43%
Technical Support 41%
Business Documentation 29%
Terms & Conditions 25%
Channel Conflict 21%
Sales Rep Assistance 17&
Sales Leads 17%
Co-op Advertising 6%

Source: VARBusiness

2000 - 2007 CXO Advisory Group 46

 Manage Your Reseller Relationship

Be selective resellers wont

Reduce potential territorial conflicts
Distributors will not maintain your reseller relationship
You have to do it directly
Segment your resellers
That work on large accounts with your direct sales force
Markets that resellers will be your salesforce
Specialized vertical markets
Resources should be based on this segmentation
Set realistic sales targets and ramp up
Provide sales cycle specific marketing tools
Communicate regularly
Train, Train, Train

2000 - 2007 CXO Advisory Group 47

 How the Channel Views
Vendor Internet Plans

2000 - 2007 CXO Advisory Group 48

 Key to Efficient Channel Management

Strengthen ability of channel partners

to deliver solutions
Train channel partners well & often -
for free
Enhance communications
Treat them like theyre your own
salesforce
Deliver channel value with the web
Demand creation
Quality leads
Support
Information
Links
Feedback

2000 - 2007 CXO Advisory Group 49

 Manage Channel Conflict

Areas of channel conflict

Multiple channels calling on same account
Specify territories or vertical markets -
segmentation
Company selling directly to reseller accounts
Specify company owned accounts - reserved
Specify reseller owned accounts - reserved
Compensate direct sales force on sales
through resellers
Have them work on accounts with key
resellers
Pricing not consistent across channels
Get your pricing structures in line
Conflict can not be eliminated
Changing business objectives
Company politics

2000 - 2007 CXO Advisory Group 50

 Channel Trends

New retail forms & shortening retail life cycles

Growth of non-store retailing
Mail order, TV, Online, Phone
Convergence
Merging of consumers, products, prices, competitors and
retailers
Mega retailers
Changing retail technology
Globalization
Production, retailers, wholesalers
Malls as communities and hangouts

2000 - 2007 CXO Advisory Group 51

 Channel Trends

Price competition is intense

Channel partners adding value, increasing efficiency,
reducing risk to remain relevant
Store within a store
Slotting fees to a whole new level

2000 - 2007 CXO Advisory Group 52

 Key Points That Can Make a Difference

Have realistic expectations

Top management commitment
Focus, Focus, Focus
Long Term View
Clear understanding of end-user targets and their
alignment with channel partners
Reduce channel conflict by clearly defining roles and
responsibilities for each channel
Develop comprehensive business rules for managing
program processes

2000 - 2007 CXO Advisory Group 53

 Key Points That Can Make a Difference

Take inventory of your partners

Does the 80/20 rule apply?
Build profiles based on successful partners
Align internal resources based on contribution
Invest in your partners
Marketing
Training
Support
Web
Use the Internet to enhance partner sales
Review your channel strategy yearly
Identifies potential destructive channel conflict
Tune channel support programs

2000 - 2007 CXO Advisory Group 54

 Questions

2000 - 2007 CXO Advisory Group 55

 The CXO Advisory Group

CXO Advisory Group is a strategic operations advisory

and management firm comprised of proven C-level
executives with both breadth and depth of experience.

CXO Advisory Group Team members have achieved

success in positions ranging from: President/CEO to
COO, CFO, and VPs of Sales, Marketing, Corporate
Development and Human Resources.
Has proven success in building US sales and distribution
channels

2000 - 2007 CXO Advisory Group 56

 How Can CXO Help You?

Business Strategy Services

Audit business practices and organization
Evaluate product and pricing strategies
Evaluate effectiveness of sales channel
Assess effectiveness of existing sales and marketing
programs
US Market Entry Program
Analyze competitive landscape
Market launch strategy and plan
Channel strategy and programs
Establish sales channels
Generate sales and manage relationships

2000 - 2007 CXO Advisory Group 57

 How Can CXO Help You?

Sales Channel Management

Review and revise sales channel strategies
Channel partner identification, prospecting and recruitment
Eliminate channel conflict
Channel contract development and negotiation
Venture Advisory Services
Enhance financeability
Fine tune operations, business strategy and market entry
Assist with preparation of investor presentation
Identify potential venture partners
Contact potential capital sources
Presentations to capital sources

2000 - 2007 CXO Advisory Group 58

 How Can CXO Help You?

Interim Management Resources

Interim CEO, COO, CMO, CFO, CSO
Interim VP of Sales and Marketing
Consultant on staff
Launch team coaches

2000 - 2007 CXO Advisory Group 59

 Thanks for Attending!

For more information on driving profitable growth:

Email us at sdavis@cxoadvisorygroup.com
Call Steve Davis at (508) 528-7571
Visit on the web at http://www.cxoadvisorygroup.com

2000 - 2007 CXO Advisory Group 60