Welcome Back! Quick Review

What is the fundamental reason for classifying customers into Customer Segments?? Different Customer Segments often have Different Business Models. You will continue to be faced with the decisions required to delineate between CS as you build your understanding of the ecosystem.

Who has an example of a unique Customer Type that you discovered from Interviews this week?

“where your customers will come from” The Petal Diagram is a visual tool for showing “where your customers will come from” You can use it to convey several concepts, including competitive landscape and market sizes

Distribution Channels

Now start asking Customers about Channels Where do you buy products today?

Who has an example of a Distribution Channel identified for their business model??

Remember… A Channel defines how your customers want to be reached !!!

What is a Direct Channel?? Direct: Direct Sales, Brick & Mortar, Web / Download

What is a Direct Channel?? Indirect Channel? Direct: Direct Sales, Brick & Mortar, Web / Download Indirect: Distributor, Reseller, VAR, System Integrator

What is a Direct Channel?? Indirect Channel? OEM Channel? Direct: Direct Sales, Brick & Mortar, Web / Download (performed by your company) Indirect: Distributor, Reseller, VAR, System Integrator (relies on intermediaries) OEM: company that makes a part or subsystem that is used in another company's end product

What is a Direct Channel?? Indirect Channel? OEM Channel? Licensing? Direct: Direct Sales, Brick & Mortar, Web / Download (performed by your company) Indirect: Distributor, Reseller, VAR, System Integrator (relies on intermediaries) OEM: company that makes a part or subsystem that is used in another company's end product Licensing: Does licensing resemble an OEM Channel? Difference is that you are not making the product to be integrated, someone else is, or you are granting them the right to do so. Common misconception: that you don’t need to know the Licensor’s customer needs. Often you will need to decipher that model for them, and illuminate the pain your are solving.

Physical Distribution Physical Distribution Channels Web / Online: Used as your sales channel, but distribution occurs through physical means OEM: Used when you might have a component that goes into a more complex system / product: Semiconductor chip that is used as the processor for a computer, but it’s their brand that shows up and is visible to the end user. System Integrators: Take your product and add value through additional products or software to deliver an entire system to a customer: Telecommunications Network, O&G Drilling Platforms Direct Sales Force: Your own team that is directly interfacing with customers. Value-Added Resaler: Less complex systems than system integrators, but may add value by bundling technologies / software to provide a turnkey solution. Distributors: Provide wholesale, warehousing, accounting, etc. Dealers: Might add some additional value, but they are effectively just an extension of the distribution channel. Educate the customer. They may or may not have a physical storefront: Tesla Retailers / Mass Merchants: Directly interfacing with customers, storefront / large and small.

Virtual Distribution Virtual Distribution Channels are not limited to the web, can also include Apps or the Cloud. Dedicated E-Commerce: A website that belongs to your company Platform App Store: If you have an app, you may have to use Apple or Androids platform for distribution 2-Step Distribution: Other stores that have significant web presence, and you might sell your virtual or physical product through theirs: Walmart, Amazon Aggregator: A company that takes a vertical market approach (that is, to say they focus on one market vertical): Insurance, Shoes Social Commerce: Using social platforms that aggregate / attract customers: Facebook (just announced major earnings!) Flash Sales: Groupon – market has struggled Which of these are Direct / Indirect?

Distribution Complexity Marketing Complexity Evangelists Mainframes Minis LANs PC Servers Desktop PCs Printers Keyboards Toner WANs Global Systems Direct Sales VARs Retail Web, Telesales Systems Integrators Higher Volume Higher Value Added In Red, you see the different types of channels defined: Web, Retail, VARs, Direct Sales, Integrators In between that, are examples of product types which give a sense for the range of complexity you might experience from these types of channels Service Technicians Solution Complexity

Channel Economics

Channel Economics Direct Sales List Price Your Revenue Cost of Goods (Supply Chain) SG&A + R&D PROFIT EU Discounts End Consumer Source: Mark Leslie, Stanford GSB

Channel Economics Resellers List Price Your Revenue Cost of Goods (Supply Chain) Cost of Goods (Supply Chain) SG&A + R&D PROFIT Reseller EU Discounts End Consumer Source: Mark Leslie, Stanford GSB

Channel Economics Distributor & Reseller List Price Your Revenue Cost of Goods (Supply Chain) Cost of Goods (Supply Chain) SG&A + R&D PROFIT Distributor Reseller EU Discounts End Consumer Source: Mark Leslie, Stanford GSB

When does the Channel look like a Customer?? Products embedded in others (OEM) Products resold by others (VARs, System Integrators) Who’s the customer? Don’t confuse your channel with the customer!

Channel Economics: OEM or IP Licensing List Price Your Revenue EU Discounts Reseller Distributor Master Distributor SG&A + R&D Cost of Goods (Supply Chain) PROFIT End Consumer Reseller SG&A + R&D Cost of Goods (Supply Chain) PROFIT Your Product Becomes Your Customer’s Cost of Goods

How are channels motivated or incented? Money! (what makes them the most) Training Marketing to the channel

Questions?