Executives often struggle with the gray areas. Leading the troops is difficult when marching orders are qualified by phrases such as “relative to”, “within limits”, or “balanced approach”. However, in the world of marketing, particularly channel marketing, balance is everything. Like an aerialist walking a tightrope, channel marketers must constantly strike a balance between too little and too much.

Let us look at some examples:

Market Coverage sales channel

At Frank Lynn & Associates, we’ve seen many companies looking to expand into indirect channels for the first time. With no channel partners to start, the sales or marketing executive frequently tells the field team to start recruiting partners, the more the better.

Simplistically, the goal of the manufacturer is to balance the number of partners (supply) with the number of customers (demand). To find the optimal point I often use the rule-of-two. If the average customer meets two partners selling the same brand that is often the balancing point. Fewer than two partners implies that maybe 20-30% of customers are seeing no partners of the manufacturers. More than two partners, implies that many customers are overwhelmed with sales pitches for the same brand.

Purposely under-distributing a product can often be part of a strategy to create an exclusive, premium position. The resulting premium brand position will draw the customer to the channel. Think of companies like Apple, Bose, Mercedes or Rockwell Automation.

Purposely over-distributing a product might make sense when trying to establish a technology standard early in a market life cycle. Novell accomplished this in the networking market (until eventually Microsoft was able to break the Novell standard by linking its networking product to its dominant operating system).

Channel Programs

Manufacturers also must consider the concept of “balance” in the structure of their channel programs. Programs may include lead generation, co-op advertising, discounts and rebates, training or certification, business plans, joint selling efforts, demo units, SPIFs, contests, deal registration, channel advisory councils, newsletters, portals, etc. Even for a company with a single operating division, the structure of its channel program can quickly become overwhelming.

Therefore, walking the tightrope of channel programs involves balancing the need for a comprehensive set of support activities with a simplified process that harried channel partners can understand. Too many programs and the channel ignores the brand altogether. Too few programs and the channel doesn’t see enough support to justify pushing the brand.

Channel Compensation

Indirect channels are highly motivated to sell products and brands that carry higher margins. Manufacturers can provide higher margins for their channel partners in two ways channel compensation. First, they can create a premium brand that delivers real added-value to the customer – the Apple iPhone is a good example. A premium brand allows the channel to charge a higher price. Second, the manufacturer can offer channel partners deeper discounts, rebates and other forms of compensation.

The margin, the difference between what the channels can charge the customer and pay the supplier, is a critical source of motivation. Providing the channel with too little margin will cause the channel to push another brand or product category. Providing the channel with too much margin means the manufacturer gives away its own profit.

Share of Partners Business

Many manufacturers want to maximize their share of the channel’s business. In some cases, suppliers will insist that the channel not carry competing brands. In these exclusive arrangements the vendor will have 100% of the channel’s business – in this one product area. But, of course, most channels will sell other product categories. What if the supplier goes out of business? What if the supplier reduces its discounts? Channel partners often don’t want any one supplier to represent more than 20-30% of their overall business.

Too low a share of the channel’s business and the vendor will have no clout. Too high a share of the channel’s business and the partner may purposely pick up new suppliers. channel workshops

The gung-ho executive expecting to lead a sales channel team to success needs to realize that more (nor less) isn’t always better. Marketing and sales executives should think about strategy as a tightrope. As a balancing act. Set expectations on the high side, and the low side. Provide incentives for staying within the range, not pushing to the extremes. Ultimately, employees and channel partners will recognize a superior leader who grasps the subtleties and nuances of a market rather than someone who thinks in black and white.

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