• Your Channel Strategy is Outdated; Time to Ask the Right Questions

    A review of your channel programs may result in a startling revelation: your current channel strategy is based on outdated channel programs, which are failing to keep pace with market evolution and changes in channel strategy, and thus costing you share and profit.  Unfortunately, this scenario is not uncommon, particularly in the IT industry.

    In light of these challenges, how can you update your channel programs to make them more profitable?  A recent white paper entitled “Profitable Channel Management: What Questions Should You be Asking?,” published by Chicago-based Lynn & Associates, outlines the elements of a profitable channel model.

    Most manufacturers think of channel programs in terms of economics, but they actually go well beyond economics to impact nearly every element of channel relationships.  An actionable definition of a channel program involves the formal written and stated elements of a channel relationship.  The program is not comprised just of a contract or pricing structure, but defines all the aspects of a channel relationship, including the contract or legal framework of a channel relationship, the price/discount structure and related economic policies, sales and merchandising offered to the channel or through the channel, technical requirements of the channel, and policies and procedures defining the operational relationship.  It may help to think of a channel program as the “recipe book” for managing channel relationships.

    The specific components chosen for a channel program will be unique based on the needs of the target end user and the role your channels will play in meeting those needs.  However, most successful channel programs share common components.  Here are the main elements of channel programs and how to make sure they produce a profitable channel model.

    1. Agreement: Most successful channel programs share a contractual agreement that is defined in scope and time frame.  The most successful agreements outline a specific time frame to the channel authorization, which provides a basis for regular review of the program.  An agreement should also provide a general definition of channel responsibilities, a statement of the distribution policy, a description of the authorized territory for the channel, reference to products that the channel is authorized to represent, an outline for process for review of the channel relationship and a definition of basis for termination of the relationship.

    2. Pricing/Economics: A profitable channel program should outline the price/discount and channel compensation structure.  Included in this description should be the polices for price changes and any information about price protection for the channel, specific payment terms and freight policies, invoicing and billing procedures and any other relevant items, including warranty reimbursement, rates/policies, minimum order quantities and product discontinuance policies.

    3. Sales/Marketing: This part of a channel program should be tailored to the needs of the target end users. This section should outline in detail the expectations of the channel in terms of helping acquire and retain customers. Included here should be detailed channel requirements for sales representation (including information on the basis for measurement of each requirement)and product line-specific sales investment. Detailed information on sales training should be outlined  (Will the channel partner’s sales force be certified? What training will be required to qualified? What, if any, benefits will the partner accrue for achieving certification?).

    Advertising and co-op investment requirements, merchandising/point of purchase requirements or restrictions, availability of literature or collateral materials, trade show representation and requirements and expectations regarding lead generation and qualifications should also be detailed in full as part of a successful channel relationship and profitable program.

    4. Technical:  It is important to spell out the technical elements of the channel relationship to ensure consistent support of the end user.  Successful channel programs will include a detailed outline of the technical knowledge expected of channel sales force members, including with a basis for measurement.  Also included should be information on technical support elements provided by the channel partner, which may include training, demo units and information on investment in samples, reference sites, application database and support, and warranty policy and administration.

    4. Operations/Logistics:  Operations and logistics have to do with the efficiency in your channel program, and it is the area of your relationship that should be reviewed and updated most often.  To ensure a profitable channel program, take the time to outline the order process definition, which includes reviewing alternatives for your channel partner to place orders and what information can help partners track order progress.  Other areas that should be reviewed on a regular basis include order expediting policies, inventory requirements, product lead times and fill rates, and the return goods policy.

    A channel program lays the groundwork for a successful and profitable relationship.  The process of building a successful channel model involves establishing clear expectations and paying special attention to these components, which will make the difference between a program that is outdated and struggling, and one that is current and profitable.

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