1. Welcome Back! Quick Review

2. 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.

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

4. “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

5. Distribution Channels

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

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

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

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

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

11. 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

12. 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.

13. 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.

14. 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?

15. 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

16. Channel Economics

17. 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

18. 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

19. 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

20. 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!

21. 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

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

23. Questions?