Marketing and Sales: A Holistic Approach to New Channel Development

To gain a competitive edge, every project needs to take a holistic approach. Changes
in one process or program will weave its way throughout an organization and its
markets. When making changes to the marketing and sales channels, some work
needs to be done early in the project to assess the implications of change. Failure to
consider this may cause irreparable damage to the company’s sales, clients and
reputation in the marketplace.

Take introducing a product into a new channel of distribution as an example. The
company knows current markets well and has setup programs and processes to support
the existing channels. When a new channel is contemplated, there are many interrelated
issues that must be dealt with. They include:

1. The ability of the existing brand to support a new channel
     a. Co-op, merchandising, marketing, corporate communications, collateral
materials, etc.

2. How existing customers will be affected by this new channel

3. Competitive responses

4. Business processes to support the change or addition
    a. Vendors, distribution, facility space, volume fluctuations, personnel, capital
        requirements for inventory, facilities, collection float, etc.

Example:
Let’s assume we have a product that is two stepped from distributors to doctors to
consumers and that we want to sell the product through retail. Understanding the
requirements of the new channel is critical. The company needs to consider the end
user and the retail partner. Retail requirements will be very different. Retailers want to
have well thought out merchandising and co-op programs. They want programs that will
include volume discounts, local advertising support, brand building activities and they
may want exclusivity in the retail channel. Retailers may want you to buyout the product
in the shelf space you want to occupy. They will have unique shipping requirements. In
the case of Wal-Mart, they may want you to do vendor managed inventory. All of these
issues will require a change in the way the client does business. Those changes will
affect the cost structure of the business and impact existing channels of distribution.
Of major concern is whether or not existing customers will feel threatened by the new
distribution channel. Some investigation is required to assess the potential impact.
Preserving the existing client base is a high priority to protect the company in case the
new channel doesn’t meet expectations. If this example, if there is alternate product in
the marketplace that is exclusive to the channel, the doctors will exit the product rather
than try to compete with retailers. One approach to dealing with this issue is to create
another brand that will not impact the existing channels. This approach has a higher
initial cost but protects the existing business.

Spending some project time on financial impact is an important part of any project. If
existing customers are threatened by the new channel, then an analysis needs to be
done to assess the impact of sales moving from one channel to another. In the
previous example, profit margins are historically higher with distribution through doctor’s
offices than retail. Because there is a significant swing in volume, the project needs to
address the expected impact to the income statement.

There are other impacts to the income statement that need analysis. Understanding the
cost for a retail rollout is critical to the company. Retailers want to be assured that there
is sufficient inventory and manufacturing capacity for their product. They don’t want
empty shelves. This may require expenditures for increased inventory levels and
additional manufacturing capacity. Other expenses include marketing the product, the
initial sell-in costs and store set-up kits for each retail location. Training costs are often
forgotten, but when implementing a new channel, the company may have to create
parallel systems and processes because of their unique support requirements. This
requires training for the sales, marketing, customer service and supply chain people.
Good ideas have often failed because of poor preparation.

Businesses need to be prepared to anticipate the gut wrenching change that new
channels bring and understand the implications throughout the organization and its
financials. If the company is using a consulting company to help with the
implementation, they need to pick a firm that has experienced people who have lived
through those changes.