Inroduction to The Handbook of Channel Marketing



	*The Handbook of Channel Marketing* by Edwin Lee Introduction When the new CEO, we'll call him Frank, took over the struggling high-tech company, it was stuck at around $15 million in annual sales and operating near break-even. Frank set out to get his company back to growth and profits. He had been the successful CEO of another high-tech company that he had built up and sold. He was also an engineer and fully understood the products of his new company. Frank analyzed the company's situation. Its major products were over three years old and badly needed updating. Its selling system had two channels: Direct Sales for the largest accounts and commissioned Manufacturers Representatives for the bulk of the market. The level of Media advertising was low. Frank chose to do three things to turn the company around: 1) update the product line, 2) add a new sales channel to the selling system, and 3) advertise heavily to generate leads. Frank confidently forecast that the existing sales channels would persevere for a year while his company developed its new products. He also forecast that his new sales channel, a nationwide network of Systems Integrators, would provide at least a 10% net increase to domestic sales in the first year and be the primary source of growth after that. Systems Integrators had been the primary sales channel in his previous company and he had great confidence in what they could do. He also told his board of directors: "Manufacturers Representatives are nothing more than part time contract labor. They aren't a good channel for selling our high-tech products." Frank launched an aggressive development program. Within two years his company had introduced some 40 new products that clearly matched or bettered its competitors' products in performance, quality, and price. Frank hired someone from the sales staff of his old company and appointed him National Sales Manager. Together they launched a determined campaign to add Systems Integrators to the selling system and repeat his previous success. Within four months the National Sales Manager had met his initial objective of hiring twenty-five System Integrator organizations. Six months of media advertising increased the number of leads from fewer than one hundred per week to more than one thousand per week. However, by the end of the first fiscal year domestic sales were well below the previous year's and 30% below Frank's forecast. There were destructive conflicts between Systems Integrators and the Manufacturers Representatives. Frank was firing Rep organizations right and left, and the Systems Integrators were doing less than half the business projected for them. In the second year things got worse and by the third year the company was nearly bankrupt, in spite of its exciting new products. This true story illustrates a common problem facing many CEOs of high-tech companies when they tinker with selling systems: they are technologists, but they are not sales professionals. They have learned how to design and build products, but they haven't learned how to design and build selling systems. They may deal with technical challenges realistically, systematically, and successfully, but they approach selling systems with convictions based on limited experiences and cultural biases. They produce inconsistent results. When Frank reorganized his selling system, he didn't account for several critical things: Hiring channel organizations doesn't mean they'll sell for you. He didn't have the people or other resources to evaluate, train, and provide ongoing technical support for twenty-five Systems Integrators. He started a process he couldn't finish properly. Leads don't mean that people will buy, especially when the supplier lacks the capability to follow up on them. Systems Integrators are particularly poor at following up leads. People live up to expectations. Frank's negative bias about Manufacturers Representatives caused him to treat them as problems. His attitude towards them helped to undermine their commitment and performance, and lost some of their major accounts just when his company desperately needed business. Adding a sales channel creates inter-channel conflicts over resources and customers. These conflicts are intrinsic to multi-channel selling and require careful planning and skilled management to keep under control. The addition of Systems Integrators overloaded an anemic sales management system and created conflicts which accelerated the collapse of his Manufacturers Representative channel. This book includes a systematic, comprehensive study of business-to-business selling systems. It also explains the issues that undermined Frank's sales plans. It contains some good news for technologists: *the basic technical methods used to design products or develop business plans also apply to the design and management of selling systems. It isn't a whole new ball game. However, applying rational methods to the sales organization won't succeed on its own. Selling systems involve sales professionals and customers who are culturally different from technologists and CEOs. Intercultural problems, whether in society or business, get in the way of success unless identified and dealt with properly. The British and French are fundamentally the same when it comes to intelligence, integrity, and drive. But the British look upon the French as inferior in these characteristics, and vice versa. They judge French people in the context of British culture rather than in the appropriate context of French culture. Similar intercultural biases exist between technologists and sales professionals. These biases undermine teamwork, increase stress, lose sales, and reduce profits. This book examines these intercultural issues and provides practical ways to work through them. Author's Background* I'm an engineer by profession and founded two successful high-tech companies, MSI Data Corporation and Pro-Log Corporation. For three years I was the Vice President of Engineering at MSI, a manufacturer of order entry systems for supermarkets and other businesses. For sixteen years I was the CEO of Pro-Log, a manufacturer of industrial microcomputers. Between MSI and Pro-Log, I was a founder and President of Drag Mag, an ill fated toy company. However, in its brief existence Drag Mag made a toy product, test marketed it, did TV advertising, and sold it through Retail channels which included Toys-R-Us. I developed and managed Pro-Log's selling system during its first five years. That system included Direct Sales and Manufacturers Representative channels in the domestic market, and Distributors internationally. In the sixth year I hired the first in a series of sales executives to run the sales organization. Then I stopped traveling to the field and holed up in the plant to manage my fast growing and profitable company. By the tenth year Pro-Log was a $20 million per year business with over $4 million of retained earnings and $1 million cash in the bank. A domestic Distribution channel and some VARs had been added to the selling system. In the eleventh year things got rocky. Sales took a nosedive when I dropped a product line that had no future but had accounted for over 60% of our revenue in the previous decade. The decision was strategically correct, but my tactical execution of it through the selling system left a lot to be desired. I managed the company for another five years through painful losses, skimpy profits, lost sleep, and alienated family and friends; then I retired. As I looked back from retirement, I realized that I hadn't effectively managed or supported the selling system after the fifth year. Results had been spotty. For example, I never selected a VP of Sales and Marketing with whom I worked effectively or who maintained my trust and confidence. On the other hand, Pro-Log's agreements, bill paying policies, some of its incentive programs, and a few of its national sales meetings were very successful. They had generated enthusiasm, commitment, and profitable business. I decided to learn how to be more consistent and more effective in managing selling systems. I looked for books on the subject, but didn't find any that did the job. I traveled the country interviewing the Manufacturers Representatives, Distributors, and VARs with whom I had worked over the years. I became an associate member of the Association of High Technology Distributors and interacted with its members. The people I interviewed were incredibly open and helpful. They encouraged me to communicate what I was learning, particularly to the CEOs and regional sales managers of high-tech companies. They wanted to be better understood, to be respected for what they did, and to be treated as professionals. They wanted to work with suppliers, not play endless games of cat and mouse with them. As I organized and reorganized the mass of information and ideas generated by the interviews, research, study, and personal experience, simplifying concepts emerged. I crafted them into practical and useful management tools, and in 1991 launched a nationwide series of one-day workshops for CEOs and Sales Professionals with the title: How to Sell Through Reps, Distributors and VARs. This book substantially expands and refines that workshop's material. Table of Contents ____ Copyright © 1986, 1996 Edwin Lee All rights reserved. You may download and freely reprint this introduction provided you include this copyright notice. 9351 Holt Road, Carmel, CA 93923 Tel: (831) 626-8719 Email: edwinlee@alum.mit.edu Homepage: www.elew.com

The Handbook of Channel Marketing

by Edwin Lee

Introduction

When the new CEO, we'll call him Frank, took over the struggling high-tech company, it was stuck at around $15 million in annual sales and operating near break-even. Frank set out to get his company back to growth and profits. He had been the successful CEO of another high-tech company that he had built up and sold. He was also an engineer and fully understood the products of his new company.

Frank analyzed the company's situation. Its major products were over three years old and badly needed updating. Its selling system had two channels: Direct Sales for the largest accounts and commissioned Manufacturers Representatives for the bulk of the market. The level of Media advertising was low.

Frank chose to do three things to turn the company around: 1) update the product line, 2) add a new sales channel to the selling system, and 3) advertise heavily to generate leads. Frank confidently forecast that the existing sales channels would persevere for a year while his company developed its new products. He also forecast that his new sales channel, a nationwide network of Systems Integrators, would provide at least a 10% net increase to domestic sales in the first year and be the primary source of growth after that. Systems Integrators had been the primary sales channel in his previous company and he had great confidence in what they could do. He also told his board of directors: "Manufacturers Representatives are nothing more than part time contract labor. They aren't a good channel for selling our high-tech products."

Frank launched an aggressive development program. Within two years his company had introduced some 40 new products that clearly matched or bettered its competitors' products in performance, quality, and price.
Frank hired someone from the sales staff of his old company and appointed him National Sales Manager. Together they launched a determined campaign to add Systems Integrators to the selling system and repeat his previous success. Within four months the National Sales Manager had met his initial objective of hiring twenty-five System Integrator organizations. Six months of media advertising increased the number of leads from fewer than one hundred per week to more than one thousand per week.

However, by the end of the first fiscal year domestic sales were well below the previous year's and 30% below Frank's forecast. There were destructive conflicts between Systems Integrators and the Manufacturers Representatives. Frank was firing Rep organizations right and left, and the Systems Integrators were doing less than half the business projected for them. In the second year things got worse and by the third year the company was nearly bankrupt, in spite of its exciting new products.
This true story illustrates a common problem facing many CEOs of high-tech companies when they tinker with selling systems: they are technologists, but they are not sales professionals. They have learned how to design and build products, but they haven't learned how to design and build selling systems. They may deal with technical challenges realistically, systematically, and successfully, but they approach selling systems with convictions based on limited experiences and cultural biases. They produce inconsistent results.

When Frank reorganized his selling system, he didn't account for several critical things:

Hiring channel organizations doesn't mean they'll sell for you. He didn't have the people or other resources to evaluate, train, and provide ongoing technical support for twenty-five Systems Integrators. He started a process he couldn't finish properly.
Leads don't mean that people will buy, especially when the supplier lacks the capability to follow up on them. Systems Integrators are particularly poor at following up leads.
People live up to expectations. Frank's negative bias about Manufacturers Representatives caused him to treat them as problems. His attitude towards them helped to undermine their commitment and performance, and lost some of their major accounts just when his company desperately needed business.
Adding a sales channel creates inter-channel conflicts over resources and customers. These conflicts are intrinsic to multi-channel selling and require careful planning and skilled management to keep under control. The addition of Systems Integrators overloaded an anemic sales management system and created conflicts which accelerated the collapse of his Manufacturers Representative channel.

This book includes a systematic, comprehensive study of business-to-business selling systems. It also explains the issues that undermined Frank's sales plans. It contains some good news for technologists: the basic technical methods used to design products or develop business plans also apply to the design and management of selling systems. It isn't a whole new ball game. However, applying rational methods to the sales organization won't succeed on its own. Selling systems involve sales professionals and customers who are culturally different from technologists and CEOs.

Intercultural problems, whether in society or business, get in the way of success unless identified and dealt with properly. The British and French are fundamentally the same when it comes to intelligence, integrity, and drive. But the British look upon the French as inferior in these characteristics, and vice versa. They judge French people in the context of British culture rather than in the appropriate context of French culture. Similar intercultural biases exist between technologists and sales professionals. These biases undermine teamwork, increase stress, lose sales, and reduce profits. This book examines these intercultural issues and provides practical ways to work through them.

Author's Background
I'm an engineer by profession and founded two successful high-tech companies, MSI Data Corporation and Pro-Log Corporation. For three years I was the Vice President of Engineering at MSI, a manufacturer of order entry systems for supermarkets and other businesses. For sixteen years I was the CEO of Pro-Log, a manufacturer of industrial microcomputers.

Between MSI and Pro-Log, I was a founder and President of Drag Mag, an ill fated toy company. However, in its brief existence Drag Mag made a toy product, test marketed it, did TV advertising, and sold it through Retail channels which included Toys-R-Us.

I developed and managed Pro-Log's selling system during its first five years. That system included Direct Sales and Manufacturers Representative channels in the domestic market, and Distributors internationally. In the sixth year I hired the first in a series of sales executives to run the sales organization. Then I stopped traveling to the field and holed up in the plant to manage my fast growing and profitable company.

By the tenth year Pro-Log was a $20 million per year business with over $4 million of retained earnings and $1 million cash in the bank. A domestic Distribution channel and some VARs had been added to the selling system. In the eleventh year things got rocky. Sales took a nosedive when I dropped a product line that had no future but had accounted for over 60% of our revenue in the previous decade. The decision was strategically correct, but my tactical execution of it through the selling system left a lot to be desired. I managed the company for another five years through painful losses, skimpy profits, lost sleep, and alienated family and friends; then I retired.

As I looked back from retirement, I realized that I hadn't effectively managed or supported the selling system after the fifth year. Results had been spotty. For example, I never selected a VP of Sales and Marketing with whom I worked effectively or who maintained my trust and confidence. On the other hand, Pro-Log's agreements, bill paying policies, some of its incentive programs, and a few of its national sales meetings were very successful. They had generated enthusiasm, commitment, and profitable business.

I decided to learn how to be more consistent and more effective in managing selling systems. I looked for books on the subject, but didn't find any that did the job. I traveled the country interviewing the Manufacturers Representatives, Distributors, and VARs with whom I had worked over the years. I became an associate member of the Association of High Technology Distributors and interacted with its members. The people I interviewed were incredibly open and helpful. They encouraged me to communicate what I was learning, particularly to the CEOs and regional sales managers of high-tech companies. They wanted to be better understood, to be respected for what they did, and to be treated as professionals. They wanted to work with suppliers, not play endless games of cat and mouse with them.

As I organized and reorganized the mass of information and ideas generated by the interviews, research, study, and personal experience, simplifying concepts emerged. I crafted them into practical and useful management tools, and in 1991 launched a nationwide series of one-day workshops for CEOs and Sales Professionals with the title: How to Sell Through Reps, Distributors and VARs. This book substantially expands and refines that workshop's material.

Table of Contents

____

Copyright © 1986, 1996 Edwin Lee All rights reserved. You may download and freely reprint this introduction provided you include this copyright notice. 9351 Holt Road, Carmel, CA 93923
Tel: (831) 626-8719
Email: edwinlee@alum.mit.edu

Homepage: www.elew.com