Archive for the ‘Channels & Alliances’ Category

5 sources of growth in 2013

North America is mired in a low growth funk driven by cautious consumer spending and frugal capital expenditures.  For 2013, many CEOs are bracing for zero or even negative revenue performance. Even frothy companies are adjusting to this ‘new normal’ by continuing to restrain R&D, sales & marketing and M&A activity.  Is this reaction a tad premature?  Have firms exhausted all avenues for growth?  Since 2008, we have helped a variety of dynamic companies drive topline growth an average of 27% by identifying market ‘white space’ and monetizing under-utilized assets.  Managers should explore these 5 areas to propel their 2013 business:

1.    Find under-serviced or ignored niches around your core offering

The fluid nature of many categories and consumers hide a number of market anomalies that could be exploited by nimble firms.  For example, the majority of markets can support different strategic positions including low cost, specialized and premium offerings.  Some categories, however, are missing one of these players offering opportunities for new and differentiated entrants.

Other companies will discover adjacent “white space” – an ignored market or compelling, unmet consumer need – where they could extend their strong brand franchises. P&G has done this successfully by launching Crest White Strips, extending their Oral Care line-up from toothpaste and brushes into the Whitening business; and by launching an array of Swiffer products to clean various surfaces in addition to their other cleaning line.  “Cutting costs is important, but you cannot shrink your way to growth.  You’ve got to reinvest the savings in distinctive value-added products and services that customers are happy to pay for.” said Tim Penner, retired President of P&G Canada.

2.    Increase revenue from current customers

Most firms inadvertently leave money on the table, often with their best customers. This occurs for a number of reasons including: over-zealous discounting; poor visibility into the customer’s potential value; low customer awareness of the vendor’s full offering or; ineffective cross-selling programs.    Fact is, opportunities exist in every customer relationship and company.  We designed a revenue maximization program for a software company that plugged billing leaks and better aligned pricing to value deliveredpainlessly producing an 18% revenue lift.  In another case, we helped a U.S. industrial goods manufacturer double their cross-selling rates by mining their customer data with advanced analytics and developing targeted sales and marketing initiatives.

3.    Turn platforms into new revenue generators

Following significant capacity, infrastructure and IT investments over the last decade, many firms now have robust but under-utilized operational platforms that can be leveraged into new revenue opportunities.  Amazon has successfully pursued this strategy.  Early on, they recognized the potential of their B2C e-commerce platform by launching a host of new B2B services including cloud computing, online storage and merchant e-commerce services.

4.    Maximize all distribution opportunities

Many marketing strategies have not kept pace with the buying habits of their customers, who increasingly are directing their purchases through a plethora of direct and indirect on & offline channels.   Filling these distribution gaps is an ideal way to build volume and outflank competitors.  For example, we helped a consumer products company drive a 18% increase in shipments by gaining ‘bricks and clicks’ shelf space in non-traditional retail and B2B channels.  Furthermore, firms can no longer ignore the revenue, margin and custom experience benefits of going direct to the consumer.

5.    Monetize intellectual property and process by-products

In some firms, healthy investments in R&D and strategic partnerships have spawned a significant amount of intellectual property.  Much of this IP may now be lying dormant due to lower commercialization investments or a shift in corporate strategy. Organizations should look to monetize inactive IP through outright sale or by licensing to non-competitive 3rd parties.  In addition, many companies like Cook Composites and Polymers have discovered that there is gold in the waste by-products of their manufacturing processes. Turning waste into new products can create new streams of high-margin revenues and improve sustainability performance.

In tough times, prudent companies will seek to maximize their revenue by better leveraging their existing customer base, resources and capabilities.  To realize this potential, managers will need to relook their entire business, including: enhancing their understanding of the market ecosystem, mining their consumer data and; looking for creative ways to serve customers in unique and compelling ways.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Gold medal partnerships

These days, many companies are looking to build their brands, target new customers and launch new services using marketing sponsorships, outsourcing arrangements or business development alliances.  To do this, managers need to master partnership management with complementary firms, government agencies and non-government organizations.   Identifying the need for a partnership, however, is easier said than making one work. A myriad of issues can complicate key business relationships, including poor communication, misaligned objectives between the organizations, and weak integration between the entities.  

Our firm has identified a number of best practices around designing and implementing winning partnerships.  To illustrate these, we will look at two very different examples:  1) the Olympics and; 2) the software industry.

The Olympic Games

Recently, strategy+business magazine looked at the Olympics Games as a model for effective partnership management.  To successfully pull off the games, the International Olympic Committee must orchestrate a tightly choreographed dance of hundreds of sponsors, broadcasters and service firms. The IOC and its corporate partners have developed a world-class partnering model, based on the successful completion of many games (now including London) as well as a few painful experiences (think Montreal 1976).  Some of the IOC’s key learnings include:  

  1. Prioritize the brands

To maximize the value of the marketing sponsorships, all parties need to work closely to uphold the rules around brand usage and exclusivity.  Furthermore, corporate partners will drive better results when they have a clearly defined and powerfully articulated brand message that intersects the needs and desires of all stakeholders.

  1. Cultivate a few key relationships

Better outcomes are achieved by having fewer, deeper and longer term business relationships as opposed to more numerous, shorter term, and more superficial arrangements.  This ‘less is more’ strategy triggers each partner to invest more resources, capital and effort against longer term goals and to work more diligently through teething pains.

  1. Anticipate political pressure

The involvement of the public sector or a NGO usually brings some form of subtle (or not so subtle) political pressure that could run contrary to the financial interests of all players.  Managers should be aware of potential risks when structuring partnership deals and develop contingency plans to handle unexpected problems or political interference.

Software Industry

My firm was engaged to help a software company resurrect a stalled business development alliance with a global IT services firm.  Initially, the client thought they had the key ingredients – great technology and strong personal rapport at senior levels – for a winning relationship. We quickly discovered, however, through internal research that the partnership needed a structural, process and cultural tune-up to realize its potential. Three key lessons emerged:

  1. Align around common goals

At the outset, it is crucial that all players agree on what a successful partnership looks like, how it is evaluated and where their marketing and operational strategies converge to produce a mutually beneficial relationship. Not surprisingly, alliances based on similar long-term objectives & values, a ‘win-win’ deal and a ‘partnership mind set’ have a much greater chance of flourishing.

  1. Establish troubleshooting mechanisms

When disparate organizations come together, there is a good chance that modest disagreements and latent misperceptions could rapidly escalate to derail program implementation.  It is vital to deploy a high-level, cross-organization steering group that can quickly resolve issues before they can jeopardize the entire alliance. Moreover, this senior team can also support ongoing priority-setting and resource allocation.

  1. Foster intra-preneurialism

Rock solid contracts and detailed plans can not deal with all the demands and snafus that come with executing partnerships.  It is up to the ‘people in the trenches’ to make partnerships burgeon.  These vital individuals are most effective when they can act like intra-preneurs i.e. internal entrepreneurs.  To encourage these behaviors, key managers need a high level of empowerment, sufficient resources, and the opportunity to communicate extensively with their counterparts.

Some final and poignant thoughts come from John Boynton, Chief Marketing Officer, of Rogers Communications Inc. “Rogers prefers bigger partnerships. Bigger to us is a deeper, longer term, more integrated relationship. You know when you have a done a good job when you can’t tell who in the room is from which side. Getting one partnership or sponsorship to work on as many levels as possible provides a better return.”  To a prominent sponsor like Rogers, great partnerships are based on strong customer appeal.  “A lot of sponsorships don’t make sense to customers”, says Boynton, “because the target audience doesn’t line up in the “sweet spot”, or that companies choose the sponsorship based on profile or personal interests. Having a very tight overlap with the sweet spot and ensuring the sponsorship addresses the target customer’s “passion” are the keys.”

Despite the best intentions, many business partnerships will ultimately fail.   They need not.  Managers can follow a variety of marketing and organizational best practices to improve their odds of long term success.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Customer acquisition in a multi channel world

Most companies depend on some form of channel to target, sell and deliver products and services to end users.  A channel can be any intermediary such as a retailer or distributor, a sales team or a technology platform like the iPad. Recent developments are putting channel performance in executive crosshairs.  A low growth economy puts a premium on having high performance channels that drive customer acquisition and retention while maximizing efficiencies.  Secondly, the power of Web-based technologies can no longer be ignored.  Social media, e-commerce, and mobile computing already play a vital role in product purchase, research, referrals and support.

All too often, channel-focused acquisition strategies fail to achieve the desired results for the following reasons we’ll call the 5 Cs:    

Cannibalization – Customer acquisition programs in one channel end up cannibalizing another channel’s business.

Consistency – High channel complexity increases the chances that your value proposition, tactics and strategy will be inconsistently deployed.

Conflict – Misalignments in strategy and incentives triggers conflict between different channel players and the company.

Customers – Customer behavior and needs become out of sync with the channel design.

Change – Managers do not follow ‘best practices’ when making changes to strategies and structure.

Although channels are complex to manage, there is hope.  Our learnings from two industries – industrial automation and consumer insurance – highlight the fact that strategically agile firms who pay close attention to their customer and channel partner’s needs can build market share, reduce conflict and gain competitive advantage. Two examples illustrate the value of this bottom-up approach:

Industrial automation

An automation company approached us looking for help in penetrating an unexploited customer group. Management focused on 2 key questions: what was the best channel to target this new segment? How do you formulate a channel strategy that was a win-win-win for the customer, channel partner and company?

Our solution began with an exploration of the target customer’s behavior, needs etc. Secondly, we surveyed their likes/dislikes of the channel that traditionally targeted them.  Finally, we framed this research against major industry and technological trends to understand how the market was evolving. The recommended channel strategy would fall out of these purchase, market, technological and behavioral drivers. 

Our findings opened a few eyes.  Initially, the client assumed the segment could be targeted by the existing distributor and systems integrator channel, with only new and improved marketing programs.  However, we discovered that over half of these customers had a high level dissatisfaction with existing channels, both as individual firms and as a structure.  Instead, these people wanted a direct relationship with the manufacturer – if the firm could develop a functional and informative Web platform.  The research results triggered the deployment of a new e-business portal and direct marketing program.  This channel dramatically improved customer acquisition, minimized cannibalization, and increased overall customer satisfaction.

Consumer Insurance

Boston Consulting Group looked at how to win new business in a channel-reliant business –  the North American home and auto insurance industry,   BCG wanted to answer some questions essential to firms looking to profitably grow market share in a mature market.  For example, how do consumers really want to buy insurance? Do different demographic groups truly prefer different channels? Which channels will prevail in the future? And, which strategic steps should be taken to drive growth?

BCG’s research yielded some noteworthy findings, which we have validated through our Canadian insurer experience: 

  • Over 40% of consumers across all segments are channel indifferent. These consumers represent the battleground for customer acquisition.
  • One way to target these consumers is with a direct relationship using the Web.  Although insurer web channels are poised for the highest growth, current executions must become more customer-centric and functional.
  • All consumer segments value personalized advice and service delivered via agents. However, this agent channel, ideally positioned to provide advice, is not fully meeting consumer needs.
  • Strategically, managers should look to rejig their channel strategy to better drive acquisition.   They have 3 channel options:  agent-focused, direct-focused or a hybrid of the two.

In most channel-intensive markets, the key elements – consumers, technologies and channel partners – are evolving.  Companies that best understand the changes and are able to quickly and adroitly develop new channel models can outflank competition and win the battle for new customers at lower acquisition cost. 

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Optimize the channel experience

Firms competing in channel-intensive markets are regularly challenged to satisfy finicky and value conscious customers without introducing too much cost and complexity.  All too often, however, a firm’s customer experience and value proposition is compromised by channel partners whose objectives, value proposition and capabilities are strategically incongruent.  For example, we worked with an IT equipment manufacturer whose premium brand image was hurt by the actions of a deep-discounting, low service distributor.  In another case, a leading consumer goods company could not satisfy customer service requirements because one of their retailers was unwilling to invest in new capabilities. 

To maximize customer satisfaction, managers should understand how their channel partners – such as resellers, portals, service providers, installers and retailers – interact with buyers through the entire marketing-purchase-service continuum and then work collaboratively with them to enhance that experience.   

This will not be an easy exercise. Many enterprises have thousands of SKUs, work with hundreds of channel partners and use multiple platforms to sell, communicate and serve customers.  There could easily be over 100,000 different physical and digital touch points between consumers, producers and channel partners.  This hodge-podge can only lead to conflicting, poorly integrated and uncoordinated marketing, channel and service programs resulting in failing customer experiences, overly complex operations and lower margins.

The root cause of this problem lies in misalignments between the structure of the channel and how consumers want to get information, purchase products and receive services.  Channels that are underperforming or based on yesterday’s requirements are often unable to accommodate current market needs let alone deal with growing consumer demands, new product launches and emerging digital technologies.

In reality, consumers no longer separate the channel from the product, service and message — the channel is the product. In the era of buyer engagement, customer acquisition and retention is a lot about effective channel management and design. To truly engage consumers through a multi-channel world, companies must do more outside the confines of the traditional channel marketing function.

Improving the channel’s ‘customer experience’ requires three fundamental changes:  1) an agreed understanding of buyer needs across the entire continuum;  2) a commitment and action from the entire channel to satisfy these needs — not just from the company’s marketing and service departments and;  3) a redefined channel management function that links the organization to a desired and brand-compliant channel customer experience.    

We have helped organizations design and implement new channel management programs that have enhanced customer engagement and reduced operational costs while driving higher revenues and service levels.  Some of these principles include:

Expand the channel role beyond just marketing

To better engage buyers whenever and wherever they relate to a firm’s product, companies must expand the channel management role beyond sales and marketing to include input to and co-ownership of all customer-impacted operational, IT, product and service decisions.    

Bring the channel into organization

To improve performance, firms need to bring a rich understanding of channel requirements into the enterprise.  This can be done by creating internal councils with IT, finance and operational representation.   As well, important channel relationships can be managed through integrated, cross-functional teams with P&L responsibility.

Tweak the channel

A good starting point is to think about the channel experience as customers do – a series of related interactions that, added together, make up a ‘moment of truth’ experiences. This approach will naturally identify areas where the channel can be redesigned and better managed to ensure strategic congruency.  This process will usually trigger a discussion of who internally is in the best position to manage these activities and what resources and capabilities are needed to achieve the new vision.

Get everyone on the same page

Channel engagement (at key touch points) and performance should be regularly measured with some of the same metrics that are used to evaluate brand image, operations or marketing effectiveness. All channel partners should align around these metrics and goals

Anticipate challenges

Optimizing the channel experience will not be easy given the business risks and the organizational implications to partners, employees, processes, technology and strategy.  Change will be doomed if management and the channel:  1) do not have a common understanding of their markets, buyers and value proposition and; 2) do not work collaboratively towards the same goals. If companies and partners don’t make the transition, they run the risk of being overtaken by competitors that have mastered the new era of engagement.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Improving joint venture performance

Over the past 20 years, Joint Ventures (JV) have become a popular form of business structure.   There are many types of JVs but each share a basic premise: separate businesses agree to develop, for a finite time, a new entity and new assets through the contribution of equity and resources. The partners exercise control over the enterprise and consequently share revenues, expenses and assets.

Although difficult to get an accurate tally, there are likely more than 8,000 JVs in existence worldwide representing hundreds of billions of dollars in combined revenues. JVs have been the preferred strategy for North American and European companies to enter the rapidly growing BRIC (Brazil, Russia, India, China) markets.

When operating well, JVs deliver compelling benefits including simplifying entry into new markets, reducing business risk and conserving scarce capital. 

The operant phrase is, “when functioning well.”  JVs are not easy to form, operate and exit. A number of studies by KPMG, McKinsey and PWC have concluded that no more than 50% of all JVs were seen to be successful by their participants, with the average partnership lasting between 8 and 10 years. For those JVs that soldier on, they often suffer from strategic confusion, slow decision-making, and duplication of effort with the parents.

Two successful JVs provide some important lessons on creating and managing these unique relationships.  CIBC Mellon, a leader in the Canadian Asset Servicing industry, is a successful 14 year JV between the CIBC and Bank of New York Mellon.  Sony and Ericsson created a JV s in 2001 to manufacture mobile phones.  In 2009, Sony Ericsson was the 4th largest mobile phone manufacture in the World.

The following are some key lessons on creating and managing well-run JVs:

 Finding the right partner

  • Look for similar goal, and cultures – Not only must the firm’s culture and business practices be amenable to collaboration but it must have what Tom MacMillan, Chairman of CIBC Mellon, calls “the JV mindset…Some companies are good at working with others, some aren’t” 
  • Ensure a strategic fit – When prospective partners are identified, managers must evaluate the firm’s capabilities, management and financial health against the JV’s needs and their own gaps. In Sony Ericsson’s case, the JV combined Sony’s well-honed consumer electronics expertise with Ericsson’s leading technological knowledge in the communications sector.

 Reaching the right agreement

  • Get a strong business case - A winning JV combines a compelling business case with financially-strong partners.  “Two lousy businesses put together will not make one good business…they will give you one big lousy business.” Says Tom MacMillan.
  • Align around goals, commitments and mutual expectations - To avert conflict and ensure proper resource allocation, all parties must ensure their strategic and financial interests are in sync before commencing operations. To ensure strategic and financial alignment, both Sony and Ericsson agreed in the JV to stop making their own mobile phones.
  • Get the right equity and capital deal – Research says that a 50/50 equity split, with clear responsibilities and rights on both partners, has the greatest chance of success. 

Making the partnership flourish

  • Assign effective leaders – Senior management at both the parents and JV must be skilled at managing through differences in reward systems, cultures and organizational practices.   According to Tom MacMillan, strong Board-level leadership by the partners and day-to-day leadership in the JV may be the most critical factor in ensuring the JV’s success
  • Insist on mutual commitments -  Both partners must honour and maintain their financial and operational commitments even when results are less than ideal or the strategic circumstances of one party changes. This puts an onus on properly capitalizing the JV at the outset and dealing with future investment requirements.
  • Get the governance model right – The ideal governance structure provides sufficient controls to minimize risk without stifling operational flexibility and speed.
  • Anticipate and pre-empt conflict - According to a PWC study, the top 2 reasons why JVs fail are poor financial performance and a change in strategy.  To pre-empt surprises and illuminate important issues, JVs need regular strategic reviews and performance tracking.  Building in transparency and regular management communications will help foster trust and reinforce shared goals.

For more information on services and work, please visit the Quanta Consulting Inc. web site.

Bridging the Two Solitudes in a Channel Relationship

Shared values, mutual understanding and regular communication are critical ingredients in a successful relationship between a channel partner –wholesaler, agent, integrator etc – and their supplier. To managers who deal with channel issues on a regular basis, this is a self-evident truth.  However, most will lament how difficult it is to cultivate a fruitful and symbiotic business relationship based on shared goals, trust and transparency. 

Poor channel relationships exact a significant direct and indirect cost on both the channel partner and supplier, including:   missed revenue opportunities, higher than necessary operating costs, ongoing hassle and misplaced management attention.  Channel relationships can stumble for many business reasons including poor product and service quality, insufficient channel discounts or a misalignment between consumer needs and the channel structure.  While business issues are important, they are not in and of themselves fatal to a relationship in the short-term.  Based on my experience running a large wholesaler, the root of most failed relationships is a gap between the parties around Values, Assumptions, Beliefs and Expectations (VABEs). A lack of common VABEs is not surprising considering how different channel firms and suppliers are in terms of corporate structure & size, culture and strategic focus.  To build a successful relationship, both parties need to recognize the differences in their VABEs and proactively develop strategies and processes to bridge the gaps.  

Below are two of my ‘best practices’ to accomplish this. 

Acknowledge and Deal with Strategic Misalignments

By their nature, suppliers and channel companies typically have different corporate strategies, cultures and goals which can hinder alignment, trust and performance.  Suppliers typically want their products to have maximum market coverage, revenue and service at the lowest cost and fastest cycle times.  Channel firms, on the other hand, often seek to limit risk, engagement and investment in a new product until the firm/product proves itself in terms of revenue, quality and commitment (e.g., marketing, training etc). Moreover, because of the 80/20 sales rule, channel partners will often treat a new product as secondary (i.e. not core to their offering) thereby withholding full (and promised) support.  For a variety of individual and organizational reasons, strategic misalignments are often ignored, missed or buried by respective managers. This strategic denial prevents firms from: developing reasonable expectations, overcoming misperceptions and undertaking pragmatic steps to drive greater engagement levels.

Strategic incongruence can be mitigated by acknowledging the 800 lb gorilla early on, namely setting realistic and achievable performance milestones, activity levels and investment requirements.  To foster greater understanding, both suppliers and channel partners should do their homework in order to better understand the other party’s history, financial context and competitive drivers.

Engage Senior Leadership

There is often a major difference in the kinds of management representing suppliers and channel companies.  This disparity has a big impact on how hot button issues like channel compensation, inventory levels and sales requirements are dealth with.  In many suppliers, middle managers without P&L responsibility manage channel relationships.  Unfortunately, they often lack the authority, strategic perspective and internal information to develop a win-win channel relationship or troubleshoot important issues.  This frequently will create angst, distrust and frustration within the channel partner who wonders why they don’t receive the attention and support they deserve. On the other hand, channel partners are often led by entrepreneurs who wreak havoc on channel relationships by personally being involved in negotiations, relationship management and sales & delivery execution.  ‘Leading from the front’  can also be problematic as it reduces strategic perspective and leads to issue ‘personalization.’ 

Suppliers can plug the leadership gap by bringing in senior management early on in the process as well as better empower middle managers to input into channel design and have the authority to make partner-specific decisions. Channel partner owners can minimize role overlap by either focusing on deal structure and relationship troubleshooting or service delivery.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Pharmaceutical Firms: Heal Thyself

Pharma executives have a lot to fret about these days.  Blockbuster drugs like Lipitor and Prozac representing $130B in revenue will soon come off patent.  Even though new drugs cost up to $1B to develop and market, there are no home runs in the launch queue that can easily close the gap.  Furthermore, tighter guidelines around marketing and educational practices are making it difficult to introduce new – too often me-too – drugs. As a result, the traditional pharma business model is increasingly being seen as broken.  David Blumberg, leader of KPMG’s pharmaceutical industry practice has said, “There’s a recognition that current models have a lower rate of return than they used to,” A recent newsletter from the Wharton Business School has some interesting thoughts on the challenges and possible fixes for the pharmaceutical industry:

Diversify drug portfolios

Pharma companies are moving beyond blockbuster drug strategies to include smaller patient populations and more specialized ailments.  One quick way to build the product portfolio is through drug licensing and marketing partnerships with IP-rich yet cash-poor firms.  For example, Pfizer recently licensed the worldwide rights to a treatment for Gaucher’s disease, a rare disease affecting thousands (not millions) of patients, from a small Israeli company. 

Extend R&D outsourcing and collaboration

Given its high cost and modest success rate, big pharma R&D is beginning to change. Breaking with historical practice, Eli Lilly now allows outside contractors to test the company’s most promising molecules.  GlaxoSmithKline has decided to let its smaller biotech partners do more of its early-stage development work.  GSK has also taken the additional step of using the venture capital model to allocate investment funding; GSK scientists now must pitch their ideas to panels of company executives and external  experts to secure project funding.

Improve M&A and partnering capabilities

If partnering is expected to propel future R&D and marketing success, drug companies need to improve two key capabilities.  First, firms need to adopt M&A best-practices in identifying, evaluating and engaging high-potential, synergistic equity partners.  These competencies can be crucial to securing first-mover advantage for key IP that best addresses product and R&D gaps.  Part of this approach could involve placing several small equity bets on early stage companies in order to secure early exposure into promising science.  Furthermore, to enter new markets, protect existing market shares and leverage scale economies, big pharma firms should pursue more ownership of complementary generic drug manufacturers.  Secondly, more partnerships will require pharma companies to get better at integrating and working with smaller or dissimilar companies who often bring very different operating styles and business requirements. 

Change the research paradigm

Today, billions of research dollars are targeting a host of big market diseases including Alzheimer’s and Cancer.  However, it may all be for naught as a historically-successful research model may not be suitable for some of these disease’s scientific challenges.  According to Daniel Hoffman, an industry consultant, “It’s questionable whether the scientific paradigm of medicinal chemistry that has resulted in huge successes in areas like cardiovascular drugs can be as productive in the future.”  To address these challenging illnesses, a new R&D paradigm will be needed to find, germinate and leverage critical IP and processes wherever it is found globally. 

Although many pundits contend it will be difficult to develop meaningfully better drugs than the current blockbusters, some firms still believe that concentrating on well-understood science offers the best return vs risk trade-off as compared to big market drug R&D.   Specifically, Novartis AG has abandoned a “big market” disease strategy in favor of ailments where the science is well understood, thereby improving the chances of finding treatments that work.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Microsoft: What’s in Store for their Company Store?

Microsoft, following other major brands like Apple, Nike and Ralph Lauren recently launched their first company store in Phoenix Arizona to showcase their latest Xbox, PCs and Zunes.  The Microsoft move is widely seen as a bit of catch-up with rival Apple, which at the end of 2008 operated some 247 retail stores around the world. Considering Microsoft’s product dominance, what took them so long to get into retail?

There are many good reasons for manufacturers to display its wares within their own retail environment. For example, a company can create the best merchandising and brand experience for their products and services. As well, companies can use retail space to build a footprint in underdeveloped markets or learn more about their consumers.  Despite these benefits and Apple’s trailblazing, Microsoft may have delayed retail expansion out of concern for triggering major channel conflicts with its retailers (or, cynically, to cope with an onslaught of walk-in users with buggy software). 

On the other hand, perhaps Microsoft uncovered what a Wharton School of Business and INSEAD study recently concluded.   Namely, that operating company stores in the same market as your retail channel does not saturate markets, create inefficiencies or promote channel conflict.  In fact, the opposite is the case:  the rising tide of a company store lifts all retail boats.

The researchers used a series of mathematical models to simulate and analyze the marketing and price-setting behaviors of independent and manufacturer-owned retailers.  The model showed that when company stores and independent retailers compete in the same market, manufacturers typically set relatively high prices for goods in their own stores. Higher price points creates room for independents to reduce discounting (versus when company stores aren’t present) thereby improving their margins. Additionally, the presence of company stores can induce independents to increase their marketing efforts resulting in greater support for the manufacturer’s brand and overall brand sales in the market.

Given these conclusions, do company stores end up putting the manufacturer brands at a disadvantage?  Not according to the research.  Independent retailers end up charging more for a given product when competing against a company store than they would if competing only against other independents. Having higher pricing is crucial for the manufacturer to preempt channel conflict and to support its premium brand positioning.  Furthermore, the research shows that independent retailers will undertake greater marketing effort when competing against a company store since they can benefit from significant “effort spillover” from the manufacturer’s store – the phenomenon of one retailer’s marketing and product education efforts helping to create a sale for another.

As for Microsoft, the question remains whether their stores will mirror the success of Apple or the failure of Gateway, a computer company that gave retail a try during the 1990s and closed its 188 retail shops in 2004.  A major reason for Gateway’s failure was its inability to create any in-store or brand sizzle for their discount PCs-in-the-box.  Microsoft’s first store is not lacking in “experiential” impact but many things can still go wrong.

Microsoft rarely undertakes an initiative without considerable research and investment.  Look for them to make an impressive retail debut, although achieving Apple or Nike standards may require a 2.0 launch.

For more information on services and work please visit our web site.

Driving Higher Channel Revenues and Performance

The current economic climate has challenged firms to maximize revenue from all sources while at the same time reducing sales & marketing costs and improving customer service. 

To accomplish this, many companies are looking to improve the performance of their reseller channel. Unfortunately, this is easier said than done.  All too often, well meaning channel strategies fail to meet the Supplier’s revenue objectives and expectations around effort.  In many cases, the Reseller’s strategy and culture are the culprits. In particular, the Reseller could be overly reliant on a single or small number of another company’s products to the detriment of your offering.  In other cases, the Reseller may be following a sub-optimal portfolio strategy of pushing every product without regard to what generates the most profit or best delivers on end user needs.  Finally, the Reseller’s culture and internal processes may favor some companies over others.  For example, the personal agendas of some sales people will trump the Reseller’s formal commitments.  Moreover, there is usually inertia within sales reps to take the path of least resistance and sell only what they know.

However, it is too simplistic to exclusively blame the Reseller.  Most of the time, poor Reseller performance is often the result of a misaligned and dysfunctional relationship with the Supplier.  This could be caused by: 

  • Insufficient resources – No one invests to win.  The Supplier does not provide sufficient marketing, training or product assistance while the reseller devotes inadequate sales and inventory support.
  • A lack of trust – Both the Supplier and Reseller often exist in different solitudes, seeing each other as necessary evils rather than partners.  As a result, both parties often assume or perceive hidden agendas, communicate poorly and ignore the spirit of their commercial relationship.
  • Inconsistent objectives and strategies – Both parties start off heading in the wrong direction.  Each often track different metrics, follow different market strategies and face different risk profiles.
  • Weak coordination between parties – The relationship is poorly implemented, characterized by low process integration, ineffective program execution and halfhearted relationship management efforts.

My experience suggests that a company can improve channel performance by shifting from a reactive, product-based relationship to a proactive, strategic partnership.  To do this, companys should consider: 

  1. Concentrating on the ‘right’ resellers – Too often, Resellers are a poor strategic and cultural fit with the Supplier. Company’s can improve channel performance by better attracting, qualifying and vetting new Resellers, sharing best practices and culling under-performing Resellers who are unwilling to change.
  2. Upgrading the relationship – Strong partnerships are patiently nurtured, with equal attention paid to strategy and implementation.  Great relationships feature a fair revenue model with aligned incentives, have tight marketing integration and foster a barrier-free working relationship.
  3. Achieving buy-in from sales – At the outset, the Supplier must secure and build product & company awareness with the Reseller’s sales group while cultivating ongoing mindshare and shared objectives.
  4. Productizing your organization – The Supplier will need a compelling value proposition to the Reseller in order to build awareness, stimulate sales activity and sustain momentum through the challenging times. 

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