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Channels of the Future or Channels of the Past?
An Essay by Forum 2000 Keynote Speaker Bruce Stuart
of ChannelCorp
The best channel organizations in the printing and imaging technology
industry plot channel strategy the way a great pool player plays
pool. The great pool player is never shooting the shot that sits
before him/her on the table. The best pool players are thinking
five to ten shots down the table. The best channel organizations
are the same. This year, they are making decisions and investments
that will pay off two to three years down the line. Investments
that are paying off this year were made two to three years ago.
As we gear up for Forum 2000, the purpose of this essay is to
encourage channel executives in the printing and imaging technology
industry to think about the answers to four key questions:
- Is your organization building channels of the future or optimizing
channels of the past?
- Will the current channel strategy become “stranded”
with no salvage value as new channels and channel technologies
emerge and grow?
- What will the impact of the Internet and electronic channels
of distribution be on our markets and segments within our markets?
- Do you have the talent in your organization needed to make
any changes that you have identified as having to be made?
To help address these questions I’ve divided this essay
into the following four sections:
- Threats to the Business
- Options — Don’t Play vs. Play
- Don’t Play
- Play
Threats to the Business
There are a whole host of potential threats to the businesses
of vendors in the printing and imaging products and services.
New primary demand has emerged. The small/medium business market
has evolved as a major market. The Internet and its emergence
as a driver of global structural change in the way business is
done is driving primary demand in ways not imagined even two years
ago.
New competing technologies are emerging in all areas of the industry.
New technologies, the Internet in particular, are also emerging
in the channel’s business. Vendors and the channel
partners of vendors are redefining their markets and their business
models. In the PC industry, vendors are giving away computers
if they can sell a block of Internet access. Software is being
provided almost for free in order for a vendor or channel partner
to make money by providing support, training and consulting services.
Where the money is being made is shifting from the products business
to the services business.
Channels are changing. Older channel institutions in the industry
are being pushed out of the way by newer types of partners with
higher levels of focus or dramatically lower cost levels. Bricks
and mortar resellers have given way to electronic channels. Distributors
have been forced to become either volume-focused or value-focused.
Major markets are seeing overcapacity, leading to customer closures,
retrenchment, and major changes in business models. Electronic
channels are threatening to take large streams of revenue for
repurchased commodity products, and non-commodity products sold
to sophisticated purchasers (who buy them like commodities).
Channel responses are, for many organizations, the key to survival
and growth.
Options –
Don’t Play vs. Play
Figure 1 outlines the channel-related options or responses that
are available to vendors. Key strategic investment decisions emerge
as one reviews the options:
- When should a product/service “line” be abandoned,
a market abandoned, or a species of channel partner abandoned?
- With existing/conventional channels, should channel investment
be reduced, kept the same, or expanded?
- When should new investments be committed to new channels —
never, now, or later?
- On what scale should investment decreases or increases be
made?
Channels are about money. All critical channel decisions eventually
become financial decisions.
Don’t Play
Many vendors will decide not to play, or they will delay participation
until it is too late. They will deny that there are structural
changes going on in the channels for printing and imaging technologies.
The industry has seen denial before.Those that don’t play
immediately will likely respond in one of five ways:
- Some vendors will do nothing until it is too late. They will
be bought and “parted out” like an old car being bought
by a wrecking yard. Products, businesses, and channels will
be taken apart. We have seen several situations like this in
the industry in the past few years. “Parting out”
is an inevitable by-product of consolidation. It is fueled by
the ability to purchase companies for cheaper than it costs
to build technologies or markets.
- Some vendors will see “monitoring developments”
or “undertaking constant studies” as their key response.
Unless action is taken as a result of the monitoring or studying,
the second option is just a more expensive version of the first.
- Some vendors — those who like to move slowly with a lot
of data/experience to go on — will “take options”
on emerging channels and channel structures. They will get involved
in alliances, make investments in start-ups, and generally invest
time and money to reduce the risk of wrong moves. Those vendors
with large, productive, conventional (direct and/or “bricks
and mortar” indirect) channels will likely move slowly
before they make big moves into electronic channels. Depending
on how the experiments or “options” work out, some
vendors will rapidly expand into new channels; some will not.
- Invariably, some vendors will attempt to fight the emerging
channels with legal means and public relations. Gray marketers
will be pursued with vigor. Attempts will be made to keep product
out of electronic channels that went in through the “back
door” of conventional channels. Legal hassles will ensue.
Pro-conventional channel public inforation will be placed into
the market to counter the “no channel needed” messages
being offered to the market by the electronic channel partners.
If the truth be known, customers will pay for value if it is
there and if it is not, they won’t pay for it.
- Many vendors, while buying time to develop a long term response,
will attempt to fight the impact of the new channels with improvements
in their conventional channels. Channel consolidation is an
attempt to take Cost Per Order Dollar (CPOD) down to lower the
customer cost of the product. Smaller channel partners will
be deleted from the channel; smaller less productive distributors
will be relieved of products and product lines. Not playing
may be the most costly decisions that the managers of some vendors
ever make.
Play
The decision to play does not guarantee success. It only assures
a different future than would occur by not playing. Figure 2 outlines
in a schematic the impact of making decisions to play and adapt
to changes. As can be seen from Figure 2, the decision to play
or actively experiment with new species of channel partners (conventional
or electronic) has an impact on the entire channel system. All
of the key questions that had been answered need to be asked and
answered all over again.
As a result of the questions, management must thoroughly think
through how the channels of the future are going to unfold. Key
questions include:
- Are the skills required to meet the changes outside the traditional
competencies of the vendor’s staff?
- Will change be accomplished in minor adjustments (logical
and incremental), or will changes take place in big steps (big
bang)?
- How much time does the vendor actually have to make the changes
before there is a negative and structural impact on earnings?
- What features of the vendor’s organization will impede
adoption of the new strategies, behaviors and operations that
are required (direct channel legacy/strong service organization/strong
conventional channel)? Can the vendor afford to tamper “with
a good thing?”
- What approach will be used to acquire the new skills to make
the changes: develop people internally (make), or hire them
from outside (buy)?
- Will the contemplated change make obsolete a large number
of existing ways of doing things or can the old and new coexist
comfortably?
- Is there a market, segment or niche that the vendor can hide
in to avoid any requirement to make change? Is the size of this
opportunity acceptable?
- How much is at stake? The more at stake, the more investment
than can be made.
Summary
Moving forward, the key strategic questions that need to be asked
by vendors of imaging and printing technologies are:
- Are you building channels of the future, or simply optimizing
channels of the past?
- What questions need to be asked as we construct channels for
the future?
We’ll explore these topics further at Forum 2000. Plan on
joining me in San Antonio.
Bruce R. Stuart is the President of ChannelCorp
Management Consultants Inc. He is a leading expert on reseller
profitability and reseller performance improvement. Stuart is
the author of The Channels Handbook and the 6th edition of The
Reseller Management Handbook. Mr. Stuart can be contacted via
e-mail at channel@intergate.bc.ca.
More information about ChannelCorp can be found at www.channelcorp.com.
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The Compass || Winter
2000