In the second of three blogs, Business Growth Hub’s advisor Bob Dackiw looks at some of the guidelines you need to follow if you’re to enjoy a successful – and profitable – route-to-market.
Missed part one? You can find part one here.
Carlo Fiorini, CEO of Hewlett-Packard, suggests that poor channel relationship can be a root cause of poor business performance, emphasising the fact that the design and management of an organisation’s routes to market, or channels, is of strategic importance.
In order to develop a high performing route-to-market strategy, focus needs to be maintained on the right markets, with alignment to the behaviours and needs of the customers in those markets. It’s also important to choose the correct sales channels, products, and value propositions, as together these will result in a company that delivers high revenues, profitability, and customer loyalty.
There are ten general guidelines to achieving a successful route-to-market strategy. In this blog, I’ll look at the first five and explain what effect each has on client/supplier interaction.
1. A route-to-market strategy must start with the customer
The success of every route-to-market strategy depends on the depth of understanding a business has of their customers, their needs, their expectations and their behaviours, as all key route-to-market decisions depend on this kind of detailed information.
- Products – you will only sell products that customers need and are willing to buy. To get a better understanding of what these are you will need to interact directly with your customers, for example, through focused interviews, customer surveys or prototype testing.
- Channels – these are how you reach out and do business with your customers, who will dictate the channels you use, and those you will need in the future.
- Value Added – what makes your product or service add value to the customer? To find out, you will again need to work directly with your customers to understand their buying interests and the ways they want to do business with you.
The importance of understanding your customers is borne out by a recruitment website specialist I recently worked with, Volcanic (UK), which has offices in Mexico City, Kuala Lumpur and Sydney, as well as the UK.
A key element of my work with the business was helping them to plan for future growth without reducing the service it offered to existing clients. The Hub worked with Volcanic to build and implement a global expansion strategy and helped them secure an essential grant which was used to carry out crucial market research and assess the demand for their services in several key countries.
As a result of understanding their target markets and clients’ needs, 22 new positions have been created in the business – 16 at their Stockport headquarters and 6 abroad, with a further 30 potential jobs in the pipeline. But even more impressive is that the company has grown three-fold in the last 18 months.
2. An aggressive use of low-cost channels will have a positive impact on profitability
The sales function is an area of your business which can have the greatest impact on profitability, especially when you look at the possibility of selling some of your products through lower-cost channels.
The hard part is to understand which channels can be used for which customer. Some products and sales transactions will require more complex and expensive channels, while others can be maintained by lower cost channels such as telesales. These cost savings have been estimated to be as low as 10%, and as high a 25% of total sales, therefore, utilising the correct channels can significantly profitability.
3. How you sell has to fit with what you sell
When selling, make sure that the product and channel are suited to each other.
Three things you need to consider are:
- Customers – the channels you choose need to be those that the customers actually use to buy what you are selling. If you’re unsure, then the simplest way of finding out is to ask.
- Cost – use those channels that give economic sense to the point of sale. In other words, don’t use expensive channels to sell cost-based products that don’t give differentiation to the product. An example of this would be using expensive sales reps to sell commodity products.
- Complexity – use appropriate channels in the sales process. Simple products can be sold through simple, low-cost channels such as the Internet or by phone, while more complex products will require complex channels such as a field sales force. Look at high-value products such as Rolls Royce or Rolex, for example, these cannot simply be sold over the Internet – often someone needs to be on-the-ground to up-sell the product and explain the value.
4. There is always a balance between market penetration and control
It’s important to bear in mind that using a global market coverage route-to-market strategy with a mix of channels can result in channel conflict, margin erosion and even dissatisfied customers when your channels are not closely controlled.
To stay in control, you need to identify these potential risks. Again, take Rolex: they maintain quality, stability, exclusiveness and, ultimately, high margins on a defined segment of the population. But at the same time they forgo the fact that they could probably sell ten times as many products as they manufacture, but at a cost to brand image and position.
The flip-side is large market coverage, as in the case of Microsoft Windows. In order to establish the operating system as an ‘accepted standard’, they needed to gets the product in front of as many customers as possible, and as fast as possible, while losing out on customer control and partnership relationships
5. The Internet is not a general market channel
There are three key issues to consider before adopting an Internet channel:
- If your customers don’t use it and don’t require it in the future, i.e. selling abrasives to local garages, then you don’t need it
- Does your product/service actually require the Internet, i.e. if your car breaks down, do you go on the Internet or do you phone the dealership?
- If there’s no value-added to the customer it’s better not to adopt an Internet channel as you will have to up-sell your product against lower value alternatives.
Discover the final five essentials of a successful route-to-market in part three.