The Handbook of Channel Marketing How to select, motivate, and manage the people and organizations who sell your goods and services: Direct, Distributor, OEM, VAR, Systems Integrator, Rep, Retail by Edwin Lee E-mail: edwinlee@alum.mit.edu — Innovators and early-adopters edition — © 1995, 1996 by Edwin Lee, All Rights Reserved No part of this book may be reproduced in any form or by any means without the express written permission of the copyright holder. To Arnold Jorgensen An engineering craftsman, a recreational adventurer, my mentor, and my friend. i ii Thanks Thanks to Rich McClellan, Mike Campo, Jack Blakemore, Jeff Blackden, Larry Reierson, Jeff Miller, George Satterthwaite, Peter Benedikt, Ted Lusk, and Bruce Michels for diligently reviewing early drafts of the book and for providing me with so many helpful comments and suggestions on how to improve it. Thanks to Tom McCall, Brad Paul, Dave Paul, Bob Dietz, Tom Eisenstadt, George Rozzaza, Ron Ferara, Jerry Horrowitz, Pete Rocco, Rich Kelliher, Dennis Jordan, Ken Ericksen, Kathy Ericksen, Mary Pim, and many others for sharing so generously about their Sales Representative, Distributor, and VAR businesses, and for their many encouragements. A special thanks to Bob Dietz, founder of the Association of High Technology Distributors. He enabled me to join that organization and to experience the world of hi-tech selling from the perspectives of its members. A singular thanks to my mother, Betty Lee, who has rigorously edited this book twice; enthusiastically correcting her son’s occasional misuses of the king’s English. Any mistakes that you find were probably created after she finished editing. Rev: November 10, 1997 iii iv Table of Contents Thanks iii Table of Contents v Author’s Foreword 1 Introduction 3 Who can use this book? 4 Overview 5 Section I: Methods and Tools 1. Defining the Objective 9 What is a Marketing System? 9 When is it Successful? 10 The Six Cornerstones of successful business partnerships 13 Exercises 16 2. How to Produce the Objective 17 The learning process: through complexity to success 17 The Scientific Method: our problem solving tool 19 Commentary on the process 22 Using it to design and manage a Marketing System 24 Short Cuts 26 Exercises 26 3. How to Motivate and Manage Decisions 27 Maslow’s Hierarchy of Personal Needs 27 The need for fun 28 Management by Personal Attractors 29 A Personal Attractor’s pull 30 Money and Personal Attractors 32 Competitive Alternatives 33 The Principle of Three to Five 34 Reasons to manage by Personal Attractors 36 The bottom line 37 Exercises 37 4. Decision-making Attitudes 39 Overview 39 Adventurers 41 Craftspeople 43 Bureaucrats 44 Victims 45 v Other attitudes 45 Market timing for Adventurers, Craftspeople, and Bureaucrats 46 Impact on selling 46 Exercises 47 5. Customers’ Buying Processes 49 The buying team 49 The buying process 50 Shortcuts in the buying process 54 Timing of the buying process 55 What customers want or need 57 Timing of goods and services 61 Exercises 63 6. Customer/Supplier Relations 65 Relative importance of Customers and Suppliers 65 Critique of “the Customer is King” 67 The desired outcome: Profitable Customers 68 The bottom line 70 7. Manufacturers’ Selling Processes 71 Selling sequence 71 Timing of the selling process 75 Summary 76 Exercises 76 Section II: Channel Organizations 8. Introduction to Sales Channels 79 Direct 80 Manufacturers Representatives 81 Distribution 82 Value Added Resellers 83 Other Channel Resources 86 Classifying organizations is tricky 87 Exercises 87 9. Direct Sales 89 Structures 89 Key people 92 Economics 94 Strengths 95 Weaknesses 95 Management issues 96 Best customers 97 Worst customers 97 Exercises 97 vi 10. Manufacturers Representatives 99 Structure 99 Key people 99 Economics 103 Working relationships 109 Strengths 110 Weaknesses 111 Management issues 111 Best customers 112 Worst customers 112 11. Distributors 113 Structures 113 Key people 114 Economics 115 Working relationships 115 Strengths 115 Weaknesses 116 Management issues 116 Best customers 118 Worst customers 118 12. Retail 119 Shelf Space 119 Structures 120 Key people 120 Product Packaging 121 Economics 121 Strengths 122 Weaknesses 122 Management issues 122 Best customers 122 Worst customers 122 13. Value Added Resellers 123 Structures 123 Key people 124 Economics 125 Working relationships 125 Strengths 126 Weaknesses 126 Management issues 126 Best customers 127 Worst customers 127 vii Section III: Where the Rubber Meets the Road 14. How to Design Your Marketing system 131 Where we are in the design process 131 Simplifying Principle #1 131 Simplifying Principle #2 132 Eight Questions that shape your Marketing System 133 Summary of values added by channel organizations 139 How to develop a Marketing system from scratch 140 How to optimize an existing system 142 Guidelines for adding channels 142 15. How to Hire Sales Professionals and Channel Organizations 143 General approach 143 Interview and hiring tips 144 Interviewing Sales Executives 145 Interviewing Reps or VARs 146 Use the old-boy network 149 Eight common mistakes 150 Exercise 151 16. How to Get Them to Sell for You 153 Background 153 Plan Overview 154 Plan Objectives 154 Plan Sequence 156 First training session 156 17. Eight ways to Keep them Selling for You 159 1. Provide dependable, timely support 159 2. Build on strength 159 3. Have the best sales professionals visit the factory 161 4. Publicize competitive ratings among top performers. 162 5. Conduct participative and interactive sales meetings 162 6. Establish a “Top Sales Professionals” council 164 7. Establish a Council of channel organizations 164 8. Establish an effective and continuous training program 165 18. A Fresh Look at Classic Issues 167 What makes the Sales Forecast counterproductive 167 Individual Quotas and Incentives 170 Launching New Products 171 19. Automating Your Marketing system 173 Examples of effective automation 173 Eight tips on how to automate 174 Suggestions for computer-resistant executives 177 viii [...]... a systematic and useful perspective on the selling process and selling systems; one that you can use to select and manage sales executives It analyzes the costs, risks, and benefits of selling through each channel It provides checklists of the goods and services that each channel organization provides It contains how- to information such as: how to find the optimum mix of channels, how to develop a... on their personal results, the quotas and budgets of their organizations, the support they receive from the business, and on their customers’ reactions • Customers measure success on how well the marketing system meets their individual price, delivery, technical support, and personal needs They don’t concern themselves with its revenue quotas or overall budget The key to sustainable success is to manage. .. This book is about how to operate a marketing system successfully in its pond (environments, contexts) Its pond includes the business it supports, the customers it serves and the competition it faces We will study the dynamics of the pond and the significant interactions between the frog and the pond Now and then, we will dissect dead frogs to better understand the living ones Second, the term “system”... associate member of the Association of High Technology Distributors and interacted with its members All these people were incredibly open and helpful They encouraged me to communicate what I was learning Most of them were particularly frustrated with the ignorance and arrogance of many CEOs and regional sales managers They wanted to be better understood, to be respected for what they did, and to be treated... project Their ideas about the product are too simple because they have yet to go through the design process to discover all the technical issues Most engineers pad their budgets and schedules to allow for unknowns However, they either underestimate the padding needed or it is eliminated by shrewd managers As engineers go through their design process, they find out why they needed more time and more... uses the interim results from an action to modify the action itself until the final result is successful For example, we use feedback to drive an automobile To control the car’s speed we push on the accelerator or the brake To control its direction we turn the steering wheel However to drive at an intended speed, we use our eyes to observe the car’s speed, compare that to our desired speed,, and then... your peers have used to improve their sales and profits It suggests workable solutions to the usual conflicts between suppliers and channel organizations It gives you new insights into your suppliers, customers, and your own employees that can make your job easier and more satisfying You can use copies of this book as gifts for the CEOs and regional managers you work with If you’re a technologist who. .. probable solution The Scientific Method 3 4 5 6 21 Divide the hypothesis into bite-sized elements and specify each element Solve each element Integrate elements into a theoretical solution Verify the theoretical solution in the real world Steps 1, 2, and 3 are the top-down or context -to- object planning sequence Steps 4, 5, and 6 are the bottom-up or object -to- context solution development The steps may... solution to the specified need It’s also an educated guess based on what we know at the time An hypothesis has properties and involves resources that are unique to it and not otherwise part of the need We identify and quantify these characteristics and resources in an hypothesis specification Step 3 Divide the hypothesis into bite sized elements When a hypothetical solution is too complicated to be actualized... always in the context of sustainable success It eschews selling gimmicks that temporarily increase sales or profits at the expense of customers, people in the selling system, and future business The book has three distinct sections: Methods and Tools, Sales Channels and Channel Organizations, and Where the Rubber Meets the Road Section I: Methods and Tools (Chapters 1 through 7) describes the fundamentals . The Handbook of Channel Marketing How to select, motivate, and manage the people and organizations who sell your goods and services: Direct,. Direct, Distributor, OEM, VAR, Systems Integrator, Rep, Retail by Edwin Lee E-mail: edwinlee@alum.mit.edu — Innovators and