Buying has changed - but most indirect sales channel models haven't!
About Common Sense - About John & Ed
You've met Ed here on the site.
For many years John and Ed have enjoyed talking about thorny issues around B2B marketing & sales, and recently we've started to record those conversations/debates. We're calling it "Common Sense" based on our shared love of history, and the perspective we hope we bring.
You can follow our musings on Common Sense at:
Debating how technology and changes in buying impact sales channel models
Industrial sales channel was designed to overcome barriers of physical distance and information sharing in a business world where both were significant hurdles. Today's markets are different, yet most channel sales models haven't evolved. Who owns relationships now and how does technology fit?
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This episode includes:
- Line cards are a waste of paper - actually worse, they degrade how buyers perceive sellers
- Most channel isn't even properly familiarized with products/services....but some channel is richly supported - why the difference?
- Geographic exclusives bear careful scrutiny in an internet world
- CRM & PRM (partner relationship management) software have a critical role to play
- Buyers should inform channel models, and the collaboration between manufacturers and sales channel
We dive into each of those and more as part of this conversation about whether digital marketing has created a group that's out of touch with the very people they're trying to reach.
Transcript Follows:
Ed: Hi. I'm Ed. Welcome to Common Sense.
John: And I'm John. How you doing Ed.
Ed: I'm good John. How about yourself?
John: I'm doing well. And I just wanted to see if you knew that this is our 20th episode of Common Sense. And thank you for your continued interest and dialogue. It's been a lot of fun.
Ed: Yeah. I'm enjoying these. It was a great idea that you had. You get the credit for the idea originally. And I'm enjoying also this debate. There's so much contentious fighting in society today that it's nice to be able to say, "Okay. We're gonna argue about this, but argue about it in a way that we, by design, know will take us to a better solution between the two." And that's, I think, a neat thing to do in a world that seems to just go the other direction.
John: Yeah. That's a good point. We are getting more and more viewers. And it'd be great if your new viewers would let us know what you'd like for us to debate, because that'd be even better if we can answer some of your questions and sort of stimulate some more thinking out there.
Ed: If we get enough interest, maybe we can even bring some of them on and fight with them.
John: Yeah. That'd be great. All right. So today we're gonna talk about a topic that most marketing thought leaders don't talk about, and that's channel partners. So in particular, we're gonna debate the topic of how to align their interests with yours as a company, in particular, the technology, strategy, and other sort of factors. So why don't we get the ball rolling by just staking out a couple of different positions? So in your view, who do you think should own the sales and marketing process in technology? Should it be you the company or your channel partners?
Ed: So, I've got a perspective ... When we talk about channel partners, I've got a perspective that's been built over a career, and I've spent time in all channel roles basically, as distributor, a sales rep distributor, a sales manager distributor, a mill rep, a manufacturing agent domestically and internationally. And many of my clients today actually sell through industrial sales channels. So that's kind of ... I've walked in these shoes from a variety of different perspectives. And I've participated in the arguments and the debates from each side of this.
The reality is that most channel is set up to address issues of physical distance and sharing of information. Certainly, there's some cultural and relationship issues. People sell to people they know and like. They buy from people they know and like. There's longstanding friendships that get built over through some sales channel. But those are really by products. It started out because you had to get products and services from one place to another, and you had to share information about them. It's different now. Obviously, those fundamental factors have changed. And a lot of sales channels still is anchored in those old things, even though the reality is different.
Anybody with a line card that represents multiple products can't, by definition, have the kind of in depth knowledge about them, understanding of use cases, et cetera, that manufacturers have. And that's what's really important to buyers today. They can get info anywhere they want. It's not info they need. It's insights that they need. And so generally, a line card toting sales rep isn't gonna be able to do a very good job for the buyer. And that becomes the asset test. They're not gonna do a very good job for anybody else. So I would argue that manufacturers, by definition, are potentially in a stronger position to drive value for buyers because they have more understanding, or they should have more understanding, of many of the applications.
And the ideal sales channel will value that. The ideal sales channel will say, "Jeez, you can help me do a better job for customers." Unfortunately, many don't do that. Obviously, systems or process is really important. You gotta solve for the buyer, not the [inaudible 00:04:31] of the channel. And too often, obviously, channel has become rent seekers. They wanna just make ... kind of skim some money off the top whether they're carrying the paper and reselling it or getting a commission on bringing in a deal. Many don't use CRM. Many can't track projects. They can't report on the status of expensive leads that the manufacturers have generated. They don't even know their own projects.
They can't even ... Often, in many cases, they're unwilling to pay the costs to get their teams trained up to a basic fundamental level of understanding about what they're selling. So, you know, I would say in the gentle and roundabout way that I often say things, that it really is the manufacturer that ought to own it. Now, in defense of sales channel, too often manufacturers go around them. I mean, they build up a program. And then manufacturers add another rep 'cause it's convenient, or they sell directly, or they take another channel like ecommerce and start to sell around them. So I understand a lot of the hesitation channel has. But manufacturers are really in the best position to help buyers.
John: Well. I can see your point of view. And I consider you the expert on working with channel partners. But I've actually been on the other side as a marketing agency, as a channel partner for a software company, which is HubSpot. And so I can see the point of view of channel partners that they're independent resellers. They do other things. They don't manufacture what you manufacture typically. And they may sell competitive products. So they really have to be independent. They can live without your products, so they don't necessarily need you, even though you might be a large percentage of their sells. So you have to see it from their point of view. They have to run their own businesses. They have their own customers. They have their own way of doing sales, usually a different sales process.
And maybe they don't wanna disrupt that. They may have longstanding relationships with their customers that they don't wanna disrupt also. So I think it makes a ton of sense what you're saying that they really need to work together. And they need to position the products consistently and support them in a consistent way, or that chain, that supply chain, is gonna be disrupted. But I think telling them what to do, in particular, down to the level of what software to use and how to sell is probably pushing it a little too far. What do you think?
Ed: No. I think you're right in many ways. One of the neat things ... You talk about HubSpot. One of the neat things that HubSpot did was set out to build an ecosystem that was good for everybody. Now, they had a selfish interest doing it, but they've helped a lot of marketing agencies achieve a lot of success by putting together a model and helping people understand how to use that model to build their business. And that's the kind of symbiosis that makes channel work. And when it works for everybody, it's a lot easier to figure out how you're gonna cooperate on those things that you don't wanna agree on like what kind of software to use. And you mentioned Hubspot. I mentioned industrial distribution. And that raises a great point.
There's lots of flavors of channel. And there's different practices by industry. Now, do we have to agree on everything? No. And in some cases, for instance, list and resell pricing and liability and those kinds of things, there's regulations, there's laws around some of that. And there's industry practices. Reputational damage is a risk for a manufacturer. On the other hand, it's also a risk for a distributor. If you've got two companies that are closely aligned, their reputations and their prospects, or their livelihood, can be impacted negatively by the other. But the biggest risk that people don't, I think, talk about and don't recognize in terms of channel is the opportunity cost. Because if you say "Yes. You're my channel partner, and you have this territory. You have these verticals. You have this responsibility. We're gonna protect you this way from other people," then essentially, if they're not performing, than you've lost access to that piece of the market.
And that's dangerous, particularly over the long term. A lot of times, in terms of channel, we talk about mind share. But even if you have a channel partner that's always talking about your product or your service, that's different than actually creating demand and creating projects. So if somebody happens to say, "Jeez, you know, as long as you're bringing me doughnuts and talking about the other 17 things, that's an interesting point. Somebody's been telling me we ought to look at that. Why don't you get me some information?" Okay. So maybe you get a sale. But that's not building the market. And unfortunately, that's what happens in many cases.
And in many industries, there are these geographic exclusives that have been set up where a company basically is locked out of business because of a rep that stakes that territory, has it written in an agreement, and again, an agreement that was often built on a different model, different era, different set of circumstances, but now controls that. And everybody ends up losing on that deal.
John: Well, I could certainly see your point of view. I think it's clear that if partners don't behave the way the seller would like them to, the manufacturer would like them to, if they don't put the effort in, if they don't commit to a quality process for the customer, all those things, it's likely that they can't succeed, and it's not in the company's best interest to keep them on. But I think some perspective would be useful too. I think the manufacturer should also think about what happens if those channel partners go away. What's the impact on their business if they don't treat them well, and they don't treat them as real partners, and they don't, as you mentioned with Hubspot, they don't nurture that relationship, they could lose 50 percent or more of their sales.
So I think that perspective has to be taken into account. And we really need to try to move towards a better ecosystem, a better cooperation between those companies. So how can we think about doing that sort of thing.
Ed: Well you're right. That's the risk. And that's the risk that people tend to focus on. And that's just sort of [inaudible 00:11:06] is that the sales channel always kind of hangs over the head of the manufacturer saying, "Oh, you know, if you're not nice to us, we're gonna just go away and your business is gonna collapse." But it doesn't have to be that way. I mean, the channel ... In some cases, sales channel is awesome for everybody involved, the customer, the channel and the manufacturer.
So if you try to work backwards and figure out why that is the case in some rare cases, and they are rare ... maybe rare is not the word, but infrequent compared to how they often are, then that gives you some clues. In my experience, they've got common goals. And the common goals start with the customer. Obviously, they wanna increase their revenue and profits. But it's really based on nurturing that customer satisfaction, solving for the buyer. And when they begin to do that then that leads to repeat sales, and upsales, and cross sales and all the other kind of stuff, particularly for channel that has multiple products.
One product or service becomes the lever, if you will, by which they get into an account that they've wanted to get into. And then, they can sell across their product lines into that account. So there's a long term value for them. And if the manufacturer does a good job of developing and supporting the products that address the customer need, then everybody wins. I mean, it becomes an easy sort of a self supporting and virtuous nurturing cycle. Neither the manufacturer or the partner ... Nobody wants to waste time or money on duplicated efforts, and missed opportunities, and general inefficiency. The number of spread sheets that get sent back and forth between sales channel listing projects from seven years ago, you know, they're still gonna close next month, and manufacturers saying, "What do we need to do to close these?" There's this Kabooki dance that goes on, and it's a waste of time.
You know, every conversation we have, it seems to kind of always come back to solving for sales and aligning between marketing and sales and customer service. And in this case, we're adding kind of a fourth dimension if you will, aligning with the sales channel. And how do you fit that together? So at the end of the day, we're gonna talk about technology in a minute. But really, it's kind of philosophical alignment. Great channel relationships are built on a customer focus and ... and this is really important, not the distributor agreement, but a mutually beneficial business plan that over the course of the next one, and three, and five, and 20 years, companies believe will help them each become better and stronger businesses.
John: Yeah. I agree. And I think the problem that a lot of partner programs have is that the manufacturer, or the company that's selling primarily will just hand over an agreement, like you mentioned, and just say, "Well, this is our partner agreement. Sign here. And we'll god own the road together," which is basically a one way deal. And so in order to get around that and do better, I think there needs to be some negotiation up front. There needs to be a mutually agreed to relationship where everything is spelled out, all the operating, all the relationship factors, the compensation, all of that needs to be worked out in advance.
In essence, that really means all the rules of engagement, both with customers and each other, need to be detailed and agreed to. And it has to be there has to be accountability. Sharing technology and data makes a ton of sense so that everybody knows what's going on in the sales process with each prospect, with each customer. There isn't any unclear sort of situation where there are finger pointing going on. I was responsible for this, or you were responsible for that. That could be ... A lot of that can be solved with technology and data sharing, and some of these rules of engagement. And then, last but really not least at all, you need to agree on who your customers are.
Ed: I agree 100.
John: You really have to be on the same page about who's qualified for these products? Who are the best customers. And where do we find them? How do we attract them? All those things. So really, marketing and sales and customer service on both sides need to be working together on this thing in order to do it right. So, you know, it's not gonna be easy but what do you think? You think it's possible for companies to do this?
Ed: Is it possible? I think so. Absolutely. What you described is nirvana. It doesn't happen very often.
John: Right.
Ed: But it can happen. Now, it's not necessarily the case that you're gonna have to align two different marketing groups, 'cause in many cases channel doesn't have their own marketing group. Channel relies on the manufacturer to do marketing. So there's different flavors to this. You're absolutely right. You can outline all the transactional details in a set of bullets in an agreement. The challenge is the philosophical agreement. And in a world that's evolving as quickly with the disruptive changes in technology ...
I mean, think, in the context of channel, the ecommerce. I mean, what a classic example of the kind of disruption. It's really hard to reach that philosophical agreement. There's great technology that can plug into this, PRMs, Partner Relationship Management software, is an example of that. There's a company called Logic Bay that is owned by a veteran, that is very successful in this space, in the industrial sector. PRM can handle not only lead management, but trainings and certifications, and market development funds, and all kinds of stuff as part of that channel process.
I've seen some really creative uses of marketing automation to help build relationship with the channel and with the buyer right of the gate. When that first interaction with a prospect happens, how wonderful can it be to pull everybody into that, to have an email automatically generated that comes from the manufacturer sales rep and the channel partner, saying, "Hey. We're together as a team. We're gonna bring you insights, and not just pester you with information."
And I've seen co-marketing where manufacturers have built very effective campaigns on behalf of their channel partners, using the entire marketing automation infrastructure they've got. And I've seen channel partners refuse to participate, inexplicably. But it's a crazy world. I recommend that if you're a manufacturer looking for a channel partner, that you only court companies that are too busy to talk to you. You don't wanna talk to channel partners that say, "Oh yeah. I want another line. I've been on this space, or my line card, or ..."
You want companies that are so busy creating value with longstanding relationships with buyers, that it's hard to get in there. But you do it when everyone realizes, based on philosophical alignment, that you're getting one of those one plus one equals five kinds of arrangements. I mean, one plus one equals three isn't enough. It's gotta be better than that because channel relationships are hard. And I believe that manufacturers should also track which of the leads and introductions they provide to a channel partner that actually lead to other sales for the channel partner besides their own product, because that's a huge part of the value as a manufacturer you bring, is to put a channel partner in front of buyers that ultimately may buy your stuff, but in the mean time they buy other things and help that channel partner drive their business.
There's a lot to it. You're absolutely right on the money that the agreement is the last place to start. You gotta build it around the way you do business together.
John: Yeah. I agree. And I like what you said about the technology too. And I think technology is one thing, but using it the right way is really the key. So, you know, why not get together? Why not get together, do some workshops, and work together on how you're gonna put the process in place. What are the challenges that you see as a partner that maybe the manufacturer doesn't see, and vice versa? And then, sort of work through some of the road blocks. The best way to do that is to actually do it in person.
Ed: Sure.
John: And then, have regular communications. And share dashboards. And talk to each other about what's working and what isn't working. Those are the sorts of things that really might not necessarily be in an agreement, but that's the philosophical thing that you agree to at the beginning. And then, you just memorialize it, put it in place. And just be consistent about it. Make sure that each person on that sort of mutual team is doing what they're supposed to be doing. And I think, if we can do that, we could really make the promise that you talked about in the beginning, which is that it's a win/win for both sides. And everybody can grow even faster because of the relationship.
Ed: Absolutely. For sure. But it has to start with a high level or conversation.
John: Yeah.
Ed: It has to start at the CEO level, the business vision level. Where do you wanna be in five years? Not how much of this can you sell over the next six months. And it can't be driven by the short term imperative. And if the metric, if that dashboard you share, is focused just on what's closed and what's going to close in the next quarter, then you're building that relationship in the wrong way. Its, again, we just always keep coming back to this point. How do you solve for the buyer? How do you reduce friction for the buyer? How do you improve their access to information? Or more importantly, how do you take the insights that you as a manufacturer have from a national or global installed base of users? How do you take insights from that and help share it through your channel, so they're providing value to the buyers?
And how can the channel collaborate to help deliver that information? If you can find alignment on that stuff, the rest of it, the agreement, falls into place and the business kind of grows itself. But I'm gonna out drive my headlights here because you're the tech guy. But that tech stack is really important, and reporting analytics, integration of systems. They're important not just for managing the business, but for solving for the customer. Think of the situation where a prospect reaches out to a manufacturer, gives them a bunch of information, gets a call from the manufacturer sales rep, and has to give it all again, gets a call from a distributor sales rep and has to give it all again.
I mean, that's a complete breakdown that technology ... a simple example of how technology could help solve for the buyer and make everybody more efficient.
John: Yeah. And I've seen data that shows that just retaining another five percent of your customers annually could lead to 20 to 25 percent increase in profitability.
Ed: Yeah.
John: So just focusing on what happens after the sale, who's supposed to do what, and making sure that that relationship with the customer is seamless, actually leads to growing revenues.
Ed: Yeah. Great point.
John: Yeah. All right. Good. Well, it sounds like we've solved the world's problems again.
Ed: Yeah. If this is a topic that is of interest to anybody that's watching. We're recording this in April of 2018, and coming up on May 8th of 2018. I'm actually gonna be at the industry today manufacturing a technology event, delivering a workshop on this topic and how to use technology to facilitate channel sales with the Logic Bay team. That's gonna be in Raleigh North Carolina. So it'll be a great opportunity for anybody that's focused on this topic to take a deeper dive into it. (Register here for the Industry Today Manufacturing and Technology Show. Use code LOGIC to receive a $400 discount!)
John: Very good.
Ed: In the meantime, thanks for joining us on Common Sense. I'm ed.
John: And I'm John. And we'll see you next time.
Ed: Thank you.
