[MUSIC] As an example of these tradeoffs and how we're going to go about it, let's look at an example from a company that sells automation services for warehouses. The chart indicates the importance of each one of the attributes from one to five. Ranked in order of importance, as to what different kinds of customers in this particular case very large accounts, versus small accounts care about. And then, the blue and the red line for each one of the large accounts indicates my firm, and my channel with the results of my competition. This is normally known as a snake graph whereby we give an order from one to five as to how good my channel is. So for example, let's take large accounts and the first thing that they care about is the first that they need is product information. Let's say that the competitor channel ranks 1 on this particular dimension. They also ranked close to 2 or 2.5 on the warranties that my competition channel is offering. Process, Application, Engineering and so forth and so on, they go slightly better. On complimentary products, they're much better and finally in offering financing. On the other hand, I am much better in the first top three attributes, which means that I'll probably will be able to serve via my partner's net worth large accounts, however, for small accounts notice that those same needs are not necessarily the same. In particularly small accounts may care about complementary product lines and financing as opposed to process or application engineering. So as you can see the partner network of my competitor might be better for serving smaller accounts. So identifying the customer needs for specific segments of customer is critical in order to be able to start thinking about which is the best channel partner for serving them and exceeding their expectations. So identifying these needs and trying to rank them in rank order, as in this example, is one of the first things that you will do in order to be able to serve customers well. The next one as far as selecting the channel, it's useful to go through next flow process. First of all, you might want to start with customer proximity. That's the customer wants to buy or does he already visit this particular channel that comes in very handy. Second, is there any strategic fit? For example, if I'm selling luxury items like for example Zegna suits. Do I really want to open up a store in Luton or Stansted Airports that are serving maybe Ryan Air outside of London? In the periphery of the City of London. Does it make sense that Zegna will actually open up Stores in Luton, for example. So there has to be in a strategic fit. If you're selling a high-end luxury product then you should be probably trying to sell them in somebody that meets these particular needs. Same thing with, if you're positioning your item as a value item, then you may have other possibilities for how to distribute a product. Finally, is there a product fit? In other words, does the channel really have what it takes to be able to sell the product? And we've covered this point number three with the previous example of selling automation for warehouses. And finally, the channel economics. You need to know what is the sales per transaction, what is the cost per transaction, and ultimately, what is the profitability of each one of those interactions for different channels, because everyone obviously operates at very different efficiencies. So for example, let's take the case of an electric motorcycle. And let's go through this flow process. First of all, we might start with does the customer already use this channel? For example, let's assume that the five possibilities for selling electric motorcycles are value added resellers, a direct sales force that actually shows up in your house, with a van, or with a truck. Essentially bringing your motorcycle. Retails, there are many different ways that we can encounter these retail outlets all the way from shops, specialized in selling particular brands of motorcycles. But if we really stretch our mind ourselves, we can even think of potentially a Media Markt, or a Leroy Merlin, or even a Best Buy selling electric motorcycles. Web or catalog, let's say there is a check for this one because customers are already using this channel or distributors. It turns out that most end consumers are not hanging around the distributors, so that will be a negative mark for the distributors. And they will move on to the next step, where four potential channels have already qualified. Is there any strategic fit? For the next step, for the ones that have cleared the mark, we will consider whether there is any strategic fit. Let's say that you are trying to position this as a luxury, super premium product. And for whatever reason, most customers don't think that value-added resellers or the ones that you have at your availability are particularly good at selling high-luxury items. In which case, value-added resellers will not clear the next hurdle. But a direct sales force will be a very good idea for selling motorcycles. Many retail formats certainly will also meet the requirement and even web or catalogs. Next is the product fit, direct sales force, for example, would be a good way, that will be, what a high end luxury service will do, which is actually drive it, bring it, let you test drive it at your door and maybe even certain retail outlets will also fulfill this requirement. But perhaps web and catalog does not necessarily fit well with this particular sort of distribution. Because, perhaps, you found out that over 95% of the people needs a test drive in order to be able to make a decision as to the kind of motorcycle to buy. So we will eliminate web catalog and maybe you're left with only two possibilities, a direct sales force or at retail, and the next question that you will ask yourself is like, what are the sales per transaction and what are the costs per transaction of selling motorcycles. And let's just say, for the sake of argument, that both channels direct sales force and retail are optimal, or if not optimal, at least are feasible for being able to execute your strategy, in which case you will really consider both approaches to selling electric high end motorcycle. So now, you're armed with two powerful tools for thinking about how to design and picking a particular channel. One, a framework for decision making that will help you with some of the important trade offs, capabilities, cost, coverages and issues that are related to control. And two, you have a flow process that will systematically help you to screen, channel to channel, until you finally get to a suitable alternatives that will help you to meet your marketing requirements. [MUSIC]
