Business Plan

Entrepreneurship 4543

Module leader: Dr Shehryar Shahid Office: 418-C Email: mshehryar@ucp.edu.pk

Channels

How does each customer segment want to be reached? Through which interaction points?
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Test Hypotheses: Channel

Two Critical Questions about Channels

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First one is obvious: How do you want to sell your product?

Second one is subtle, but more important than the first: How does your customer want to buy your product?

How Do You Want to Sell Your Product?

Yourself Through someone else Retail Wholesale Bundled with other goods or services
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How Does Your Customer Want to Buy Your Product?

Same day Delivered and installed Downloaded Bundled with other products As a service
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The Sales Channel

Web System Integrators Direct Sales Force Value-Added Resellers (VARs)

Your Company

Your Customers

Dealers Distributors
Retail/Mass Merchants
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Types of Channels

Direct

Indirect

Web Own stores Sales force

OEM VAR Reseller Distributor

How Are Channels Compensated?

Commission Percentage of sales price Discounted pre-purchase

How Are Channels Motivated or Incented?

Money! what makes them the most? Training Marketing to the channel SPIF (Product Incentive Fund)

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Economics of Channels

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Channel Economics: Direct Sales

List Revenue Price
End Consumer
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Cost of Goods (Supply Chain)

Profit + SG&A + R&D

Source: Mark Leslie, Stanford GSB

EU Discounts

Channel Economics: Resellers

Revenue List Price
End Consumer
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Cost of Goods (Supply Chain)

Profit + SG&A + R&D

Reseller

Source: Mark Leslie, Stanford GSB

EU Discounts

Channel Economics: Distributors/Resellers

Revenue List Price
End Consumer
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Distributor

Cost of Goods (Supply Chain)

Profit + SG&A + R&D

Reseller

Source: Mark Leslie, Stanford GSB

EU Discounts

Channel Economics: OEM or IP Licensing

Revenue List Price
End Consumer
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Master Distributor

Distributor

Cost of Goods (Supply Chain)

Profit + SG&A + R&D

Reseller

Cost of Goods (Supply Profit + SG&A + R&D Chain)

Reseller

Your Product Becomes Your Customers COGs

Source: Mark Leslie, Stanford GSB

EU Discounts

Example: Book Publishing

Publisher

National Distributor

Printer

Wholesaler

Retailer

Customer

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Book Publishing
Publisher National Wholesaler 15% $3.00 Distributor 10% $2.00 Retailer 40% $8.00 $20.00 Customer

Percent of Retail

35% $7.00

For their efforts, distributors take an additional 10% of retail. That means you get 35% of retail, the distributor gets 10%, the wholesaler gets 15% and the retailer gets 40% less any discount they offer the end customer

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Book Publishing Economics

Publisher National Distributor Wholesaler Retailer Customer

Allowances Wholesale costs Bills Credit guarantees Payment guarantees Payment guarantees Return rights Credits Payments
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Markup

Book Publishing Delivery

Publisher National Distributor Printer Wholesaler Retailer

Prepare film (content)

Receive Schedules Print orders Bundle counts Film

Determine allocations

Merchandise titles

Deliver orders
Establish identity Create demand Prepare galleys

Sell magazines

Print and ship magazines

Dispose of returns

Acknowledge returns
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So how do you decide what is the best channel for your business?
It depends! It depends on the nature of product/service you are selling?

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The Channel as a Customer

Some products are embedded in others (OEM) Some products are resold by others (VARs) Some products are distributed by others Whos the customer?

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Distribution Complexity
Global Systems

Evangelists

Systems Integrators
WANs Mainframes

Marketing Complexity

Direct Sales
Minis LANs

VARs
PC Servers Desktop PCs

Retail
Printers Keyboards

Web, Telesales
Toner

Service Technicians

Solution Complexity
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Bits vs. Atoms

Channel
Web Physical

Bits

Product

Physical

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Product and Channel Are Bits

Channel
Web Rapid Agile and Customer development Bits Fastest to acquire early customers and scale Physical

Product

Physical

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Web 2.0 Product and Channel Are Bits

Channel
Web Bits Google Twitter Facebook Zynga Cloud Services Physical

Product

Physical

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Product Is Bits, but Channel Is People

Channel
Web Rapid Agile and Customer development Bits Fastest to acquire early customers and scale Physical Rapid Agile and Customer development Traditional sales channel May require installation

Product

Physical

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Traditional Enterprise Software

Channel
Web Bits Google Twitter Facebook Zynga Cloud Services Physical Microsoft SAP Oracle

Product

Physical

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Physical Products Sold Over the Web

Channel
Web Rapid Agile and Customer development Bits Fastest to acquire early customers and scale Physical Rapid Agile and Customer development Traditional sales channel May require installation

Product

Rapid Customer development Logistics, shipping and Physical manufacturing critical Customer service

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Killing Traditional Storefronts

Channel
Web Bits Google Twitter Facebook Zynga Cloud Services Zappos Amazon Cafepress Netflix Consumer electronics Physical Microsoft SAP Oracle

Product

Physical

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The Factories May Be in China

Channel
Web Rapid Agile and Customer development Bits Fastest to acquire early customers and scale Physical Rapid Agile and Customer development Traditional sales channel May require installation Longer customer feedback cycle May require large capital requirements for scale

Product

Rapid Customer development Logistics, shipping and Physical manufacturing critical Customer service

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We Still Make Things that Need Salespeople

Channel
Web Bits Google Twitter Facebook Zynga Cloud Services Zappos Amazon Cafepress Netflix Consumer electronics Physical Microsoft SAP Oracle

Product

Physical

Cars Solar panels Wind turbines Bookstores Consumer electronics

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In Class Exercise

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