12/03/2012 Back to articles

Channel business prevention programmes - part 1

Keep recruiting partners come what may – you can never have too many people selling your product, right?

Wrong. Big time wrong. Unless you are a dominant market player, and even then it’s probably not a good idea.

It’s all about balance...

...in this case between market coverage and channel commitment. You want to make sure every potential customer can obtain your total product. That’s market coverage. To sell and deliver your total product, as opposed to a competitor’s, your channel partner needs to be motivated to do so. You and your product have to matter to them. An old rule of thumb in the high technology sectors is that your product range should ideally make up 10% to 40% of a channel partner’s revenues. Less than 20% and your products are not important enough to their business to really matter. More than 40% and they are becoming dependent on you. You may see that as their problem, but if a change in strategy means your withdrawing from a market it is best to be able to do so without leaving a legacy of wrecked businesses. People have long memories.

Mindshare matters

Experience shows making up a significant proportion of a partner’s revenue maintains mindshare with them better than the best co-op marketing programme. In fact revenue share  matters even more than product margin.  There is also a cost to maintaining every channel relationship and analysis often reveals it is more cost effective to concentrate on fewer, higher value relationships than continually recruiting new partners. Over-distribution can lead to internal price competition, compromised customer service and loss of market share to competitors.

Growth may lead to structural problem remaining hidden

Market dominance in a segment, such that customers demand your products, may encourage you to recruit everyone and anyone to sell and support the range. However, dominance is rarely guaranteed in the long term. It is all too easy to build structural problems into our routes to market through recruiting the wrong channel partners or managing them in the wrong way. These may be hidden in times of high demand but become painfully evident when serious challenges, competitive or otherwise, arise.

This may seem a counsel of perfection when most of us are dealing with channel structures that have grown organically. However, as a first step, an exercise to map channels against target market segments (by geographical, vertical, size, needs...) can identify where there may be over- or under-distribution. To get to where you want to be you first of all need to know where you are.

Peter Wright