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Factfile 34

Why not just keep adding channels?

Why not just take whatever you sell and throw it onto the Internet or some other new channel and see what happens? Well, that' exactly what a lot of companies are doing. 
 
Whether it' the Internet, direct mail, shopping-mall kiosks, or the incredibly annoying call-during-dinner-and-harass-the-hungry-family channel, companies are piling into as many channels as they can, as quickly as possible.
 
 The underlying assumption behind this frenzied activity is as follows:

add more channels = make more sales

There is, in fact, some truth in this formula. 
 
More channels make it easier for more customers to buy products from more sources and as a result sales typically increase.

• Many leading companies such as Microsoft and Fidelity Investments are adherents of this approach. Microsoft, for example, sells its software through retailers, distributors, application developers, systems integrators and original equipment manufacturers (OEMs) like Compaq and IBM.
  
  
• Fidelity has a similarly broad mix of channels, selling and servicing customers through retail branches, inbound call centres, the Internet, other financial service providers and so on. 

These leading companies are adherents of the philosophy that the more ways you can reach out to customers, the better. 
 
So what' the problem with just adding a lot of channels?

• For one thing, not every company achieves the impressive results of a Microsoft or a Fidelity Investments. For every one of those success stories, there are dozens of companies that struggle year after year to get sales growth and improved profitability out of an ever-expanding go-to-market system ? and fail. 
  
  
• New channels are added without a clear business purpose, are aimed at the wrong markets or the wrong customers, are under-invested or under-resourced, or are poorly integrated with other channels. 
  
  
• Rather than end up with an organised, market-focused, high-performance channel system, many end up with a complex, sprawling mix of channels that looks like some sort of Darwinian evolutionary experiment gone mad. 

For example, take a look at Figure 12, which shows the recent channel history of a US-based electronics appliance manufacturer.


 
 Figure 12: Channel progress or channel chaos?


 
 Source: Anon.
 
 What' the problem here? Actually there are several:

• Every time the company opens a new direct channel, such as a specialty shop or a catalogue operation, business partners see less opportunity for themselves and defect to competitors. The defections that have already occurred have made recruitment of new channel partners extremely difficult. In the US, the company is virtually blacklisted from the leading retail chains. Its channel innovations, in short, have created a lot of partner alienating channel conflict. 
  
  
• Channel backtracking such as the closing of its specialty shops in the US has cost millions in write-offs and has left customers confused as to where to buy its products. 
  
  
• The company'snewest channel experiment the Internet has delivered virtually no sales since its inception. Over a million dollars was spent to design, implement and maintain this nearly dormant sales channel so far. At its current sales productivity of $2,000 per year, it would take until the year 2048 to recoup the investment. 
  
  
• Selling profitability has been on the decline for years, as the company has struggled to control the costs of its various (and many) channel start-ups and shutdowns.

There' an important and simple point here.

• Most companies suffer not from aversion to new channels or sales innovation, but rather from a lack of experience with bringing the optimal mix of channels together into a coherent, market-focused, high-impact selling system.  
  
  
• It isn?t enough just to add a web site, hire a few distributors, or build a call centre. The kinds of growth in market share, revenues and profits that leading channel-centric companies achieve don?t come from random, chaotic channel experimentation.  
  
  
• These kinds of results come from planned, strategic and thoughtful channel innovation. Understanding and driving your channels is thus a major key to superior business performance and it requires channel conflict to be managed on a strategic and tactical level.

For a channel view from Unisys, click here.

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