1. NSF I- Corps The Lean LaunchPad Lecture 4: Distribution Channels How does your Product Get to Customers? Version 6/13/12

2. Channels How does your Product Get to Customers?

3. © 2012 Steve Blank

4. Physical versus Virtual Channels

6. How Do You Want Your Product to Get to Your Customer? 5 Yourself Through someone else Retail Wholesale Bundled with other goods or services

7. Web Channels 6

8. Physical Channels 7

9. How Does Your Customer Want to Buy Your Product from your Channel? 8 Same day Delivered and installed Downloaded Bundled with other products As a service …

10. Types of Channels 9 –OEM –VAR –Reseller –Distributor DirectIndirectLicensing

11. Distribution Complexity 10 Evangelists Service Technicians Higher Value Added Higher Volume Direct Sales VARs Retail Web, Telesales Systems Integrators Mainframes Minis LANs PC Servers Desktop PCs Printers Keyboards Toner WANs Global Systems Solution Complexity Marketing Complexity

12. How Do the Economics Work in Different Sales Channel?

13. How Are Channels Compensated? 12 –Commission –Percentage of sales price –Discounted pre-purchase

14. Channel Economics: Direct Sales 13 Profit + SG&A + R&D End Consumer EU Discounts Your Revenue List Price Source:Mark Leslie, Stanford GSB ) Cost of Goods (Supply Chain)

15. Channel Economics: Resellers 14 ) Cost of Goods (Supply Chain) Profit + SG&A + R&D End Consumer EU Discounts Reseller Your Revenue List Price Source:Mark Leslie, Stanford GSB

16. Profit + SG&A + R&D Channel Economics: Distributors/Resellers 15 End Consumer EU Discounts Reseller Distributor Your Revenue List Price Source:Mark Leslie, Stanford GSB ) Cost of Goods (Supply Chain)

17. The Channel as a Customer 16 –Some products are embedded in others (OEM) –Some products are resold by others (VARs) –Some products are distributed by others –Whos the customer?

18. Channel Economics: OEM or IP Licensing 17 Your Product Becomes Your Customers Cost of Goods Source: Mark Leslie, Stanford GSB End Consumer Reseller Profit + SG&A + R&D Cost of Goods ( Supply Chain) EU Discounts ResellerDistributor Master Distributor Profit + SG&A + R&D Cost of Goods (Supply Chain) Your Revenue List Price

19. How Are Channels Motivated or Incented? 18 –Money! – what makes them the most? –Training –Marketing to the channel –SPIF

20. Book Publishing Channel Example

21. Example: Book Publishing 20 Publisher National Distributor PrinterWholesalerRetailerCustomer

22. Book Publishing 21 Percent of Retail You get - 35% of retail - the distributor gets 10% - the wholesaler gets 15% - the retailer gets 40% - less any discount they offer the customer Publisher National Wholesaler DistributorRetailerCustomer 35%15%10%40% $7.00$3.00$2.00$8.00$20.00

23. Book Publishing Economics 22 Publisher National Distributor WholesalerRetailerCustomer Wholesale costs Markup Allowances Payment guarantees Payments Bills Credit guarantees Payment guarantees Return rights Credits

24. Book Publishing Delivery 23 Publisher National Distributor PrinterWholesalerRetailer Merchandise titles Sell magazines Acknowledge returns Determine allocations Dispose of returns Prepare film (content) Establish identity Create demand Prepare galleys Receive Schedules Print orders Bundle counts Film Print and ship magazines Deliver orders

25. Medical Device Channel Example

26. Patients Product flow/Channel Fluid Synchrony Electronic Health Records Partners/ OEMS Partners/ OEMS Hospitals (Anesthesiologists Neurosurgeons) Pain Clinic (Anesthesiologists Neurosurgeons) Pump + Controller Support Services Bundled Kits Electronic Records

27. Channels (Direct) Direct to institutions Some formularies involved in purchase decisions Some doctors make purchase decision directly Device company/Doctor relationship is key Heavily influenced by : Clinical study results Regulatory approval Reimbursement Hospitals Pain Clinics

28. Farm Sensor Industry Channel Example

29. Channel Model: Service Provider OEM Us Large farm USDA/EPA Small farm Product Money Nutrient Data Licensing/sales

30. Channel Model: Service Provider OEM Us Large farm USDA/EPA Small farm Product Money Nutrient Data Licensing/sales Product Service

31. Dental Product Channel Example

32. COST / PROFIT ANALYSIS R&D Maintaining IP End user Our revenue 4-8% revenues List price Per unit cost and profit estimation Licensing Revenue Model Licensing Revenue Model Raw materials Manufacturing & Packaging Packaging License fee Distribution 31 Univ. License fee Univ. License fee

33. End User Health-Care Providers: Hospitals Practitioners Clinics Insurance Agencies Customer segment: Large corporations J&J, GSK, 3M DMX R&D Products Procedures IPs $$$ ~$40 $$ University 4-8% royalty 2-4% license fee Licensing of Technology Ecosystem 32

34. Medical Device Channel Example 2

35. Individual Doctors Purchasing Administrators High value medical products (e.g. cardiovascular stents) Commodity medical products (e.g. latex gloves) Doctor education Direct feedback from doctors Very expensive No doctor education No customer feedback Inexpensive Direct Sales Distributors MammOptics Channel Strategies and Costs Individual Doctors Purchasing Administrators

36. Channel Strategies and Costs MammOptics 5 dedicated sales people $150,000 each/year Hire nurses or technicians with established relationships Early adopter feedback Continue with core group of sales people Use womens healthcare equipment distributor Already established network of customers Sales strategy 1 Sales strategy 2

37. Dental Product 2 Channel Example

38. Private Practice Dentist Private Practice Dentist Purchasing Department Purchasing Department Big Distributors Institutional Dentist Institutional Dentist Direct Sales Channels

39. Private Practice Dentist Private Practice Dentist Purchasing Department Purchasing Department Big Distributors Institutional Dentist Institutional Dentist Direct Sales Channels 80% Market Share 30% Margin

40. Private Practice Dentist Private Practice Dentist Purchasing Department Purchasing Department Big Distributors Institutional Dentist Institutional Dentist Direct Sales Channels 80% Market Share 30% Margin Continuing Education Courses Magazines & Email Trade Shows

41. Online Rental Channel Example

42. 41 Listings Provider Tenants Landlords Property Managers Property Managers Service Providers Potential Landlords Realtors Web Info Show, Advise, Valuate Sell, Advise Maintenance Furnishing Listings, Checks Rent Payment Moving Craigslist Padmapper.com Rent.com Apartment.com Forrent.com Credit Checks Safetenantcheck.c Erenter.com Payment Facilitator Rentpayment.com Clearnow.com Online Cheque Listings, Checks Rent Payment Maintenance Finding Zoospi.com Redbeacon.com Taskrabbit.com Schedule Tools Yelp.com Angies List Setster.com Find information Servicemagic.com Zoospi.com Rentpost.com Rentjuice.com Buildium.com Rentingsmart.co Propertyware.com Rentjuice.com Propertyware.co Rentingsmart.co Buildium.com propertymanagemnt360 Maintenance Ratings Trulia.com PM Tools

43. Dental Product 3 Channel Example

44. COST / PROFIT ANALYSIS Raw active ingredient Manufacturing & Packaging Manufacturing & Packaging Profit + R&D + License fee Distributor $40 * $27 %32 cut $6? ($5) ~$11 ~$13 End user Our revenueList price Per unit cost and profit estimation Direct Sales Revenue Model Direct Sales Revenue Model 43 * Competition NuPro prophy paste (Novamin $50) NuPro desensitizer (Novamin $93) MI varnish (Recaldent $100) Gluma desensitizer (Glutaraldehyde $130) Health-Dent desensitizer (Fluoride $49)

45. End User Customer Segments; Health-Care Providers: - Hospitals - Practitioners - Clinics Customer Segments; Health-Care Providers: - Hospitals - Practitioners - Clinics Insurance Agencies Insurance Agencies Product Sales & Distribution Formulations & Packaging Formulations & Packaging Raw Materials Manufacturing Raw Materials Manufacturing DMX R&D Products Procedures IPs DMX R&D Products Procedures IPs $$?? $6/pk $5/pk $$?? University -32%($27) $? Direct Sales Ecosystem R&D & Regulation R&D & Regulation $40/pk 44

46. Travel Industry Channel Example

47. Travel Services: Impact of Changing Technology

48. The Advent of GDS Systems (1980 -1995)

49. Turning the Screen Around Online Travel (1995-2010)