SALES CHANNELS ANALYSIS
Channels Analysis provides a comprehensive view of the key issues affecting the sales, marketing and distribution of technology products and helps channel managers develop strategies that deliver business results.
A channel analysis is an evaluation of how and where a product should be sold. It starts with an assessment of the options for getting a specific product or service into the hands of the end user. This typically happens in one of three ways.
- Selling directly to consumers.
- Selling to a retailer or wholesaler (middleman).
- Some combination of both.
Selling directly to consumers allows an organization to maintain control over how the product is sold, including the final price charged to the customer, how it is displayed, and how it is promoted at the point-of-sale. However, selling directly can be more complex and expensive, as it often requires the organization to maintain a large sales team and a mechanism for distributing products and services all the way to the end user. Selling through the retail channel may reduce these complexities and costs, but the organization loses some control over the process and lacks the important direct touch with the customer that can often provide invaluable feedback and two-way communication.
Understanding these factors is an important component of the channel analysis that all organizations should perform. It is possible for a small organization to perform this step in the research process in a cost-effective way. First, review secondary information from research reports, local business organizations, or other publications to get a better idea of what distribution channels look like in the market. Ask questions such as:
- Where are the majority of products sold? (Retail shops, informal markets, pharmacies, etc.)
- Is there a major distributor servicing these outlets?
- What are the challenges to distribution (for both retail and direct sales)? Are there good roads? Affordable places to warehouse products?
Understanding these factors will help an organization decide where to focus its attention on more primary forms of channel analysis, such as:
- Visiting distributors to see what they charge for transportation or what wholesale price they are willing to pay for your product or service.
- Talking to retailers to understand their willingness to carry your (or competitors’) products and what price they feel they need to charge.
- Observing the distribution methods of competitors to your product. (Are they selling door-to-door? Through retail? Are they offering credit to their customers?)
Performing this research can be a valuable tool to an organization offering a new product or service or even seeking to improve their ability to succeed with an existing offering. As a small organization, budget may constrain you from doing this in a highly sophisticated or detailed way, but many have followed the simplest version of the steps outlined here to dramatically understand the market for their product.
If you have the time and resources to talk to stakeholders in the distribution channel, primary surveys can be a great way to capture this information. Here are examples of surveys that have been used to collect channel information relating to sanitation products from suppliers, financing organizations, and key opinion leaders.
Methods and tools of sales environment analysis
When you run a business, making the most of it becomes the prime purpose of life. Both big and small business owners need to conduct various analyses. There are many methods, which help to conclude about the firm’s current state before taking an informed decision. SWOT analysis is perhaps the most commonly used technique. STEEP, STEEPLE, and PEST are also used by individuals and companies.
SWOT analysis often talks of the basics of business. People see it as so important because the method evaluates a project or business venture’s strengths, weaknesses, opportunities, and threats. The initials of these factors make up the acronym SWOT.
Business owners or project managers apply this structured planning method to know where their venture stands. The analysis’ benefit is not limited to companies or industries only. You can carry out SWOT for products, places, and even people too. Both new and existing businesses can use it.
The process involves stating the business goal. The aim of SWOT is to identify the favorable and unfavorable internal and external factors to reach the goal. You can call the degree to which a firm’s internal environment matches with its external environment as strategic fit.
Assess the characteristics of your business that give it an advantage over the others in this step. Questions like the following are often asked when considering Strengths:
- What does your business do better than others?
- What advantages does it have?
- What lowest-cost or unique resources do you have which others do not?
- What does the market think your strengths are?
- What factors help you sell products?
- What is your Unique Selling Proposition?
These are characteristics that place the business at a disadvantage when compared to others. Answer the following questions:
- What could your business improve?
- What should the firm avoid?
- What does the market think your weaknesses are?
- What factors could lose you sales?
In this part, consider elements that the project could profit from. The 2 most important questions to ask in this section are:
- What good opportunities can you think of?
- What are some interesting trends in the market?
Find out what elements in the environment could cause trouble for your business or project. Some of the questions you can ask here are:
- What are the obstacles?
- What are the competitors doing?
- Are the quality standards or specifications for your products, services or job changing?
- Is technological advancement threatening firm’s position?
- Do you have cash-flow problems or bad debt?
- Could your weaknesses threaten your business seriously?
There are other tools used to find out an organization’s current status and position. PEST, STEEP, and STEEPLE analysis help assess the company’s external environment and current role. All have the same goal and you can perform them, in the same way. You can use them for future planning and strategic management. Which one of them you will choose depends on the nature of your business or project.
A traditional SWOT analysis would take the context of STEEP and STEEPLE to analyze how certain factors may impact. It is often conducted with either STEEP or STEEPLE analysis. Many think it is an interesting exercise.
PEST analysis studies 4 dimensions, like SWOT. The factors considered in PEST are Political, Economical, Social, and Technological. It is a precise analysis that helps to understand how each of the factors impacts business. It studies the opportunities and threats section of SWOT, but in more detail.
The Political factors include government regulations and legal issues. It defines both formal and informal rules that a firm must abide by. Below are some factors you should consider:
- tax policy
- employment laws
- environmental regulations
- trade restrictions and tariffs
- political stability
The economic factors affect the potential customers’ purchasing power and company’s cost of capital. These are some related factors:
- economic growth
- interest rates
- exchange rates
- inflation rate
Social factors involve the cultural and demographic aspects of the external macro-environment. The following factors impact customer needs and size of markets:
- health consciousness
- population growth rate
- age distribution
- career attitudes
- emphasis on safety
These factors can remove or lower barriers to entry. They can also reduce minimum efficient production levels and sway outsourcing decisions. Some of the technological factors are:
- R&D activity
- technology incentives
- rate of technological change
STEEP analysis consists of all these factors but has an additional factor. In STEEP analysis, you have to assess environmental factors too.
The environmental factors assess what kind of impact the company is having on the environment. The impact can either be negative or positive. Usually, this affects agricultural firms. Some factors to consider are:
- water, wind, soil
- soil energy
- Environmental regulations.
STEEPLE analysis is another step ahead. When conducting STEEPLE analysis you have to study Legal and Ethical factors.
These are factors, which deal with legal complications. You need to constantly check on new legal requirements to ensure compliance. The factors you should consider are:
- Legal restraints and regulations
- Health and safety of employees
Ethical factors are all about the social values, which govern business behavior. These act as the foundation for what is right and what is wrong. You must always check the ethical factors of your company. These do not change overnight, but small changes in morality are common.
Sources of information for sales environment analysis.
Business leaders can control aspects of the internal environment that can positively or negatively affect a company’s operating and financial results. For example, leaders shape their company’s culture, establish the company’s organizational structure and create policies that guide employee behavior. However, the greatest challenges to business success may be a consequence of the external environment over which a company has little, if any, control. To address these challenges, business leaders conduct an environmental analysis and develop policies and processes that adapt company operations and products to this environment.
Sources of Information for SWOT Analysis.
The acronym SWOT stands for strengths, weaknesses, opportunities and threats. Organizations of all sizes use SWOT analysis to assess the effectiveness of their operations and to determine how they can take advantage of future opportunities. The information needed for a SWOT analysis comes from internal and external sources, including financial resources, market surveys, performance indicators and competitor performance statistics.
Business financial resources that may indicate strength during your SWOT analysis include financial resources derived from sales activities, income from investors and the value of company infrastructure. Strong financial performance will enable a company to take advantage future opportunities. When an organization’s financial indicators show weakness, the organization must assess which actions to take to improve its financial performance.
When you are conducting a SWOT analysis, effective market research will show all the opportunities that are available to your company or organization. If your company is in a strong position, your analysis will help you decide the best approach for taking advantage of business opportunities. If your company is not presently positioned to take advantage of future opportunities, the SWOT analysis will help you decide which actions will strengthen your company’s position. According to the University of Missouri Extension, “marketing touches every aspect of your business’ operation.”
Performance indicators provide the information that managers need to understand how the organization is performing in relation to its strategic goals and strategic objectives. In a SWOT analysis, performance indicators help a company determine how it can improve business operations, and determine how they can capitalize on strengths. Performance indicators include rate of return on investment, production rates, sales growth, stock dividends, labor turnover rates and market share.
When you have completed an analysis of your competitors’ performance indicators, you can develop a strategy for taking advantage of market opportunities. According to Virtual Adviser Inc., a SWOT analysis “helps you to see how your strengths stack up against your competitors’ weaknesses and suggests ways to take advantage of marketplace opportunities.” Marketing strategies that may be developed from a SWOT analysis include offering your products at the lowest price, developing a special product differentiation, and finding a market niche your company can fill.
Analysis of industrial, commercial and public authority selling practices.
Industrial selling practices
Examples of a B2B selling process: An organization seeks to split the work between the two firms based on an evaluation of each firm’s capabilities.
- A sales representative makes an appointment with an organization that employs 22 people. He demonstrates a photocopier/fax/printer to the office administrator. After discussing a proposal, the business owner signs a contract to obtain the machine on a fully maintained rental and consumables basis, with an upgrade after 2 years.
Main features of the B2B selling process are:
- Marketing is one-to-one in nature. It is relatively easy for the seller to identify a prospective customer and build a face-to-face relationship.
- Highly professional and trained people in buying processes are involved. In many cases, two or three decision makers must approve a purchase plan.
- Often the buying or selling process is complex, and includes many stages (for example, request for proposal, request for tender, selection process, awarding of tender, contract negotiations, and signing of final contract).
- Selling activities involve long processes of prospecting, qualifying, wooing, making representations, preparing tenders, developing strategies, and contract negotiations.
Blurring between B2B and B2C
Industrial marketing can cross the border into consumer marketing. For example, an electronic component seller may distribute its products through industrial marketing channels but also support consumer sales. Many products are equally desired by business and consumers—such as audio products, furniture, paint, hardware, etc. Nonetheless, manufactures and service providers frequently maintain separate industrial and consumer marketing operations to reflect the different needs of the two channels.
Industrial marketing often involves competitive tendering. This is a process where a purchasing organization undertakes to procure goods and services from suitable suppliers. Due to the high value of some purchases (for example buying a new computer system, manufacturing machinery, or outsourcing a maintenance contract) and the complexity of such purchases, the purchasing organization will seek to obtain a number of bids from competing suppliers and choose the best offering. An entire profession (strategic procurement) that includes tertiary training and qualifications has been built around the process of making important purchases. The key requirement in any competitive tender is to ensure that:
- The business case for the purchase has been completed and approved.
- The purchasing organization’s objectives for the purchase are clearly defined.
- The procurement process is agreed upon and it conforms with fiscal guidelines and organizational policies.
- The selection criteria have been established.
- A budget has been estimated and the financial resources are available.
- A buying team (or committee) has been assembled.
- A specification has been written.
- A preliminary scan of the market place has determined that enough potential suppliers are available to make the process viable (this can sometimes be achieved using an expression of interest process).
- It has been clearly established that a competitive tendering process is the best method for meeting the objectives of this purchasing project. If (for example) it was known that there was only one organization capable of supplying; best to get on with talking to them and negotiating a contract.
Because of the significant value of many purchases, issues of probity arise. Organizations seek to ensure that awarding a contract is based on “best fit” to the agreed criteria, and not bribery, corruption, or incompetence.
Suppliers who are seeking to win a competitive tender go through a bidding process. At its most primitive, this would consist of evaluating the specification (issued by the purchasing organization), designing a suitable proposal, and working out a price. This is a “primitive” approach because…
- There is an old saying in industrial marketing; “if the first time you have heard about a tender is when you are invited to submit, then you have already lost it.”
- While flippant, the previous point illustrates a basic requirement for being successful in competitive tendering; it is important to develop a strong relationship with a prospective customer organization well before they have started the formal part of their procurement process.
Not all industrial sales involve competitive tendering. Tender processes are time consuming and expensive, particularly when executed with the aim of ensuring probity. Government agencies are particularly likely to utilize elaborate competitive tendering processes due to the expectation that they should be seen at all times to be responsibly and accountably spending public money. Private companies are able to avoid the complexity of a fully transparent tender process but are still able to run the procurement process with some rigor.
In solution selling, it is essential not to sell the solution before you understand the customer’s requirements. Otherwise you may unwittingly sell him on how ill-suited your solution is to his requirements. To illustrate, imagine a couple tells an architect, “We want to build a house.” If the architect immediately responds with a design without learning the details of the clients’ desires and requirements, he will likely alienate them. If he patiently learns what the clients need, he has a much greater chance of successfully selling his services.
Marketing supports solution selling through methods like account-based marketing—understanding a specific target organization’s requirements as the foundation of a marketing program. As research shows, sales success is heavily weighted towards suppliers who understand the customer. In UK research, 77 per cent of senior decision-makers believe new suppliers’ marketing approaches are poorly targeted and make it easy to justify staying with current suppliers).
Sales force management has a critical function in industrial selling, where it assumes a greater role than other parts of the marketing mix. Typical industrial organizations depend on the ability of their sales people to build relationships with customers. During periods of high demand (economic boom), sales forces often become mere order takers and struggle to respond to customer requests for quotations and information. However, when economic downturn hits it becomes critical to direct the sales force outward to sell.
From cannon fodder to preferred tenderer
The term “cannon fodder” derives from the World Wars and refers to the massing of undertrained and recently recruited troops sent to the fronts to face the enemy. Such troops invariably had a poor survival rate but provided the tactical advantage of distracting the enemy while professional soldiers mounted more effective operations. In adopting the term to Industrial Marketing it means those bids being submitted that have no chance of winning but are involved to make up the numbers (you can’t have only one bid in a “competitive” tender process; that wouldn’t satisfy the requirements of probity) (for example in government tenders, or for private enterprise the requirement to “truly test the market” and to “keep them honest”). The reader might be wondering why anybody would go to all of the work of submitting a tender when they had no chance of winning; for the same reason that troops were sent into battle to die; they thought they had a real chance.
In industrial marketing personal selling is still very effective because many products must be customized to suit the requirements of the individual customer. Indicators such as the sales tunnel give information on the expected sales in the near future, the hit rate indicates whether the sales organization is busy with promising sales leads or it is spending too much effort on projects that are eventually lost to the competition or that are abandoned by the prospect.
The Internet and B2B marketing
The dot-com boom and bust of the late 90’s saw significant attempts to develop online shopping. Many entrepreneurs (and their investors) discovered that merely having a website (no matter how innovative) was insufficient to generate sales. The amount of conventional media advertising required to promote the sites burnt cash at a faster rate than on-line sales generated. They also presumed that consumers would eschew the conventional shopping experience (driving, parking, poor service etc.) for the convenience of shopping on-line. Some did, but for many companies, not in sufficient numbers. There were many unforeseen problems, and apart from some notable exceptions (Amazon.com and others) the business to consumer online failed for many companies. B2B selling, however, more frequently achieved impressive results.
Public & private sector procurement – what do you think of the differences?
“I see the main difference being the recognised value and strategic benefits that procurement can bring to the organisation; in private, it is seen as integral to the organisation, however in public its merely routine /operational / transactional…almost a means to an end”
“Private sector are more flexible and open to innovations; they are profit and people driven. Public sector is highly regulated and sometime can be seen as inflexible.”
“Procurement in the public sector (local government) is mechanically driven to meet procedures/regulations and often interfered with politically. Risk of challenge is not seen as a serious concern.”
“Because of the Public Contracts Regulations most of the public sector is too risk averse to procure effectively”
“One significant difference is that the public sector seems frightened to talk to suppliers, relying too much on the use of formal processes & arms length negotiations.”
“Public sector procurement is too rules based (for very understandable reasons) to allow for much innovative procurement and to take advantage of shifts in the market.”
Others believe one of the main differences lies within the skills of each sector.
“The profession is under skilled and complacent. We need to recruit young professionals with university degrees, give them massive drinks from firehoses in training, and manage their careers with balanced assignments in numerous ‘Specialties’.”
“The general perception is if you work in the public sector you are lazy with poor skills and wouldn’t last five minutes in the private sector where the real work gets done.”
“For all the grandstanding announcements of this government’s focus on driving up standards the standard of basic skills has deteriorated over the few years, an issue that is not truly addressed”
“The standard of central government procurement delivery skills is lower than any time I can remember over the past 25 years”
“Whilst the private sector inevitably has more commercial focus, the public sector often underestimates its own skills, particularly given the very different legislative environment that we work within.“
Some believe this is down to lack of communication and leadership skills.
“Procurement lacks leaderships skills and teeth, is too easily told what to do and does not have sufficient support at Exec Director level. In the commercial sector you have the full range of capability from well run, well resourced, appropriately governed procurement units running efficiently and effectively whilst maintaining a suitably risk controlled environment.”
“My department (Public sector) is so huge that communication from senior levels often seems diluted or ineffective and doesn’t drive performance or change among the staff delivering procurement.”
Others believe it’s down to the Public sector having to take much more into account when going through the procurement process.
“Public sector procurers have to put up with more – adverse headlines, constant government interference, competing priorities (aggregation for savings v disaggregation for SME involvement), more legal uncertainty, the constant pressure of challenges etc.”
“Public sector procurement has to juggle so many more objectives, outcomes and stakeholders than the private sector than just looking to provide an improved service or margin. It is also still seen as a functional service and therefore under-resourced and not seen as a key player in delivering corporate objectives”
“Propriety, transparency and compliance place greater demands on public sector people and processes.”
Moving away from the more popular opinions, a few of our survey participants made some interesting opinions about what differences they think lie between the private and public sectors in procurement, including:
“The profession must be larger: Acquisition. Not just purchasing or procurement. CIPS must move up the food chain and produce acquisition professionals who can operate equally well in public or private sector. They really are not that different.”
“The differences are always down to the quality of procurement leadership and the level of top level support the function attracts”
“My concern is that we are experiencing too much central control at the moment and this could leave a pool of talent on the fringes being neglected and and forgotten.”