Our clients often share issues with us that are frustrating their efforts Teensex maintain and grow their revenue or sustain their profitability. Clients will comment that their direct sales teams miss their targets, indirect sales channels fail to support and promote their lines, new product introductions fail miserably, and special pricing deals are the rule rather than the exception. Comments like these suggest to us that fundamental channel marketing problems may be at work.
While certainly not exhaustive, in this article we explore some common symptoms that indicate go-to-market strategies are failing.
Our Sales are Continually Declining
Companies that are watching their market positions erode may be suffering from many adverse factors. If the economy is reasonably healthy, the company has a competitive product or service offering, and it has not made any other major missteps, then we begin to look at its go-to-market strategy. Has the product or service category evolved? Do customers now buy in channels that the company does not use? Does the manufacturer enjoy the support Erotik its channels or does destructive channel conflict exist? We consider issues like these to determine if a company’s channel strategy is undermining its market performance.
Most manufacturers or service providers target and serve a variety of different customer segments. Not surprisingly, most manufacturers need to sell through a number of different sales channels to reach them. Some customers or prospects may not be familiar or comfortable with the supplier’s products or services and prefer to purchase from a high-touch channel that has the resources to educate and help them make the right purchase decisions. Other customers may have a long history of buying the products and services and no longer need or desire a high level of support when purchasing them. Given the differences, the more experienced customers are likely to prefer and use a set of channels that are different from the ones that the less experienced customers use.
If a manufacturer or service provider does not sell through the range of channels from which its target customers want to buy, then it lacks the required market presence and its market position will erode. If a manufacturer or service provider’s target customer base is making a significant transition from one channel to the next, and the supplier does not move with them, then it can suffer dramatic changes in market position and market share.
For example, when big box retailers, like The Home Depot, emerged, consumers began to migrate to them and buy the products they had traditionally purchased from their local hardware store. Manufacturers of hardware, paints and coatings, lawn and garden equipment, and many other categories lost significant revenue and market share if they did not sell through or were locked out of these big box retailers. Similarly, manufacturers of industrial maintenance, repair and operations (MRO) products had the same experience when integrated supply distributors, like Bruckner, came on the scene. Manufacturers that refused to sell through these distributors lost their position in major accounts as the distributors won the contracts to supply them.
The need for a multi-channel strategy exists in most markets and suppliers can ill-afford to limit their distribution if they want to satisfy the purchasing preferences of their customers.
Nevertheless, presence in multiple channels invariably gives rise to channel conflict. While some conflict is necessary to ensure adequate market coverage, suppliers must walk a fine line between the necessary and acceptable conflict, which ensures market coverage, and the destructive conflict, which erodes it.
While “noise” always exists in the channel, changes in the level or intensity of it may indicate that destructive channel conflict exists. Manufacturers or service providers that witness an increase in “border wars,” or situations in which members of its channel network compete for the same sale in the same account, may be seeing evidence of destructive channel conflict. When these situations begin to impact more than 15% of a channel partner’s sale of the manufacturer’s products or services, then destructive channel conflict is taking place.
When emotions flare and members of the channel reduce their support of the product line or switch it out as often as possible, the manufacturer is suffering the consequences of destructive conflict and risks losing its position in the channel.
Manufacturers can also witness decreases in the productivity of their sales resources when destructive conflict exists. When sales or channel managers spend an inordinate amount of time responding to special pricing requests or the productivity of their territory managers falls, manufacturers may be experiencing another consequence of destructive conflict.
These are but a few of the signs that suggest that a fundamental market coverage issue exists. Manufacturers must be able to interpret these symptoms and take corrective action before it results in permanent market share loss.
Our New Product Launches Always Fail
Many companies often overlook the importance of selecting the right channels when they launch a new product. Many simply round up the usual suspects and ask their existing channels to sell their new products or services. They do not use the same level of rigor to evaluate and select the right channels that they do to design the product or service. Companies may develop new marcom materials, case studies, advertising campaigns, and offer their channel an additional rebate to capture their attention. Unfortunately, most of these cursory attempts fail.
When launching a new product or service, companies must understand whether a channel “sees” its target market and whether it is capable and willing to market and sell to the target customers in a manner that meets their buying requirements and expectations. A channel’s “window” defines the markets and customers it sees, and its business model determines how it markets, sells and supports them. If a channel does not already serve the target market, then it is unlikely that it ever will because economics are at play. Most channels cannot afford to either train or hire personnel to serve the new segment, incur the costs to prospect for new customers, or absorb the lower win or “hit” rates that they will invariably experience. While channels may assure the manufacturer or service provider they will chase the new opportunity, few ever do. Most channels generate the majority of their sales from existing customers-a fact that manufacturers and service providers should not ignore when they evaluate whether a channel will deliver their target end user.
Importantly, prospective customers may already have preferred channel relationships and may be unwilling to change them. Trying to change existing behavior rarely works and few manufacturers or service providers can afford to try. Companies are better served aligning with the buying behaviors and channel preferences of their target customers than they are using a channel that does not fit.
Our Channels Continue to Demand Price Concessions and Our Marketing and Sales Costs Continue to Rise
When suppliers use multiple channels to go-to-market and they range from high technical support channels, such as system integrators and value-added resellers (VARs), to less technical but more efficient channels, like wholesale distributors and big box retailers, they are selling through channels with significantly different cost structures. The more technical channels usually have higher costs because they employ personnel and provide services to support the more complex needs of the less experienced buyers in the market. If the manufacturer or service provider treats all of its channels the same and offers them the same compensation program, then the higher cost channel is at an economic disadvantage when they compete with the more efficient channel for the same sale.
This scenario can fuel destructive conflict if the channels compete for the same sale frequently. The high technical support channels invariably request pricing support so they can compete with the lower price offered by the lower cost channel. If the manufacturer refuses to extend price concessions or the support it offers is infrequent or insufficient, then the higher cost channels learn that they cannot earn enough margin to support the line. When these channels lower or eliminate their support for the product lines, the manufacturers usually bear the marketing costs to support the customers seeking the services that the channels no longer provide.
The foodservice equipment industry has been struggling with this issue for many years. The “full-service” dealers in this market have showrooms with demo equipment, provide design services and maintain inventory to support the replacement needs of local restaurants (among a variety of other value-added services). These full-service dealers compete against a variety of other channels such as “bid houses,” “broadline distributors,” and warehouse clubs, which do not provide the same breadth of services. Since suppliers in this market typically compensate their channels based on volume, the channels cut their prices to capture more sales. Since the channels with lower cost structures are better positioned to win this game, they typically generate higher sales volumes. As this scenario plays out, the full-service dealers request more discounts to compete. As they win fewer sales, they reduce their support of the products by minimizing or eliminating their service offering. Suppliers ultimately shoulder these marketing support costs to meet the needs of the segment of customers that require it. Consequently, the manufacturer loses on two different fronts–they pay higher discounts to the channel and they assume the marketing costs once borne by the channel.
Manufacturers and service providers can experience a wide range of symptoms which result from fundamental problems with their go-to-market strategies. As discussed, declining sales may suggest that it does not have adequate market coverage or destructive channel conflict exists. Numerous new product launch failures may indicate that the manufacturer or service provider has not selected the right channels. Repeated requests for special prices may signal that the channel compensation program is designed poorly. These are but a few of the symptoms that indicate that a go-to-market strategy is failing. If you are experiencing these problems or other ones that you think are affecting your market performance, we would be happy to discuss them with you.
Summary
There are times when sales targets are missed or when market share is declining due to market and economic factors that are beyond the control of your management team. But, do not concede to these uncontrollable factors too fast.
Over many years and hundreds of projects, our experience has demonstrated the real causes of sales and market share declines are usually found in your “go-to-market” strategy.
Often, management gets too comfortable with past successes and fails to see that customer preferences are changing, new sales channels are emerging, channel conflict is continually waning management’s attention, and long standing channel relationships are weakened due to failed new product launches and poorly structured channel compensation.
Jim Fogarty is a Principal of Frank Lynn & Associates with almost 20 years of consulting experience. He has diverse experience with process improvement, sales effectiveness and organization effectiveness in commercial and service industries.
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