engr 245 session 05 channel
TRANSCRIPT
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Engineering 245The Lean Launch Pad
Session 5: Channels
Professors Steve Blank, Ann Miura-Ko, Jon Feiber
http://e245.stanford.edu
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Channels
How does each customer segment want to be reached?
Through which interaction points?
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Test Hypotheses: Channel
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Two Critical Questions about Channels
First one is obvious: How do you want to sell your product?
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1
Second one is subtle, but more important than the first: How does your customer want to buy your product?
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How Do You Want to Sell Your Product?
Yourself
Through someone else
Retail
Wholesale
Bundled with other goods or services
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üüüüü
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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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üüüüüü
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Nature of Product Impacts Channel: Atoms or Bits?
Access to customers changes dramatically
Logistics related to product complexity
People as products
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The Sales “Channel”
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Web
System Integrators
Direct Sales Force
Value-Added Resellers (VARs)
Dealers
Distributors
Retail/Mass Merchants
Your Company
Your Customers
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Types of Channels
OEM VAR Reseller Distributor
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Direct Indirect Licensing
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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
Who’s the customer?
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Distribution Complexity
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Evangelists
ServiceTechnicians
Higher Value Added
Higher Volume
Direct Sales
VARs
Retail
Web, Telesales
Systems Integrators
Mainframes
MinisLANs
PC ServersDesktop PCs
PrintersKeyboards
Toner
WANs
Global Systems
Solution Complexity
Ma
rke
tin
g C
om
ple
xity
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How Are Channels Compensated?
Commission
Percentage of sales price
Discounted pre-purchase
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How Are Channels Motivated or Incented?
Money! – what makes them the most?
Training
Marketing to the channel
SPIF
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Channel Economics: “Direct” Sales
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Cost of Goods(Supply Chain)
Profit + SG&A + R&D
En
d C
on
sum
er
EU
D
isc
ou
nts
RevenueList
Price
Source: Mark Leslie, Stanford GSB
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Channel Economics: Resellers
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Cost of Goods(Supply Chain)
Profit + SG&A + R&D
En
d C
on
sum
er
EU
D
isc
ou
nts
Reseller
RevenueList
Price
Source: Mark Leslie, Stanford GSB
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Cost of Goods(Supply Chain)
Profit + SG&A + R&D
Channel Economics: Distributors/Resellers
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En
d C
on
sum
er
EU
D
isc
ou
nts
Reseller
Dis
trib
uto
r
RevenueList
Price
Source: Mark Leslie, Stanford GSB
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Channel Economics: OEM or IP Licensing
Your Product Becomes Your Customer’s COGs
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Source: Mark Leslie, Stanford GSB
En
d C
on
sum
er
ResellerProfit + SG&A +
R&D
Cost of Goods(Supply Chain)
EU
D
isc
ou
nts
Reseller
Dis
trib
uto
r
Mas
ter
Dis
trib
uto
r
Profit + SG&A + R&DCost of Goods(Supply Chain)
RevenueList
Price
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Example: Book Publishing
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PublisherNational
DistributorPrinter Wholesaler Retailer Customer
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Book Publishing
Percent of Retail
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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
PublisherNational
WholesalerDistributor Retailer Customer
35% 15% 10% 40%
$7.00 $3.00 $2.00 $8.00 $20.00
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Book Publishing Economics
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PublisherNational
DistributorWholesaler Retailer Customer
Wholesale costs
Markup
Allowances
Payment guarantees
Payments
Bills
Credit guarantees
Payment guarantees
Return rights
Credits
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Book Publishing Delivery
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PublisherNational
DistributorPrinter Wholesaler Retailer
Merchandise titles
Sell magazines
Acknowledge returns
Determine allocations
Dispose of returns
Prepare film (content)
Establish identity
Create demand
Prepare galleys
Receive Schedules Print
orders Bundle
counts Film
Print and ship
magazines
Deliver orders
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Bits vs. Atoms
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Bits
Physical
Product
Web Physical
Channel
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Product and Channel Are Bits
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Bits
Physical
Product
Web Physical
Channel
Rapid Agile and Customer development
Fastest to acquire early customers and scale
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Web 2.0 – Product and Channel Are Bits
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Bits
Physical
Product
Web Physical
Channel
Google Twitter Facebook Zynga Cloud Services
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Product Is Bits, but Channel Is People
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Bits
Physical
Product
Web Physical
Channel
Rapid Agile and Customer development
Fastest to acquire early customers and scale
Rapid Agile and Customer development
Traditional sales channel
May require installation
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Traditional Enterprise Software
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Bits
Physical
Product
Web Physical
Channel
Google Twitter Facebook Zynga Cloud Services
Microsoft SAP Oracle
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Physical Products Sold Over the Web
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Bits
Physical
Product
Web Physical
Channel
Rapid Customer development
Logistics, shipping and manufacturing critical
Customer service
Rapid Agile and Customer development
Fastest to acquire early customers and scale
Rapid Agile and Customer development
Traditional sales channel
May require installation
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Killing Traditional Storefronts
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Bits
Physical
Product
Web Physical
Channel
Zappos Amazon Cafepress Netflix Consumer electronics
Google Twitter Facebook Zynga Cloud Services
Microsoft SAP Oracle
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The Factories May Be in China
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Bits
Physical
Product
Web Physical
Channel
Rapid Customer development
Logistics, shipping and manufacturing critical
Customer service
Rapid Agile and Customer development
Fastest to acquire early customers and scale
Longer customer feedback cycle
May require large capital requirements for scale
Rapid Agile and Customer development
Traditional sales channel
May require installation
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We Still Make Things that Need Salespeople
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Bits
Physical
Product
Web Physical
Channel
Zappos Amazon Cafepress Netflix Consumer electronics
Google Twitter Facebook Zynga Cloud Services
Cars Solar panels Wind turbines Bookstores Consumer electronics
Microsoft SAP Oracle