Channel Value Differentiation
Previously, we introduced the “TGIF” Commercial Growth Strategy Framework and outlined the 6 value differentiation categories of Brand, Relationship, Channel, Products, Services and Price (Table 1) to build competitive advantages.
Human emotional connection often forms the basis of brand and relationship. Having deep understanding of your customers and leveraging on behavior science is key to developing your Brand and Relationship value differentiation. It allows connection with your target customers’ value with empathy, build credibility and trust. A credible brand will gain you entry into the game and a robust relationship will help to secure the win. In this article, we will dive deeper into the Channel value differentiation.
Channel Value Differentiation
Channel in the broad sense refer to the “where” - where to buy and/or where to get information. For a B2C business, physical channel accessibility of your products/services is crucial and will impact your business performance. For the B2B business, brick and mortar accessibility may not be as critical. What is perhaps more important is the “ease of doing business”. This includes, how easy is it to find the information that they need? How easy is it to contact you or your representative? How easy is it to get reference and recommendation from existing user? All of which boils back down to communication – open and credible communication that build trust and relationship.
A typical approach is to increase channels of communication and building multichannel and/or omnichannel presence. This ranges from adapting a heavier social media presence to setting up physical call/service centre for increased human touch to improve customer responsiveness and satisfaction. Intensifying multichannel communication approach would be an important consideration for those focusing on strengthening existing base to build and gain market leadership with mostly existing product mix and capabilities (Exhibit 1 – Fortress building).
With communication channels expansion, new challenges will occur. This is especially where customers are increasingly moving their service interaction to social media and poor customer service is no longer a private matter but a public affair. Establishing interaction standard will be important to ensure consistency of interaction and a unified seamless user experience. Contingency plans should also be in place for the human touch when things go wrong, as it is your employees that will drive your service recovery and customer experience.
Exhibit 1: TGIF Commercial Growth Strategy Framework
- T: Thrive business growth by gaining access to new markets with new resources and capabilities
- G: Geographic expansion into new region away from corporate headquarters.
- I: Intensifying growth with brand new resources and capabilities to further create value
- F: Fortress building of strengthening market leadership in existing market with existing resources and capabilities
Expanding your Playground
The expression, “The world is your oyster” is fitting where technologies advancement had made the world a smaller place. Channel differentiation should not only be about increasing channels of communication and building multichannel/omnichannel presence but also consideration of global geographical coverage.
Venturing into new territory to tap into a faster-growing region may be an attractive commercial growth strategy for some (Exhibit 1 – Geographic Expansion). In our previous white paper, Healthcare Venture in Asia Pacific, we had outlined the market dynamic and growth potential in Asia Pacific that is expected to outstrip the rest of the world. While the opportunities are aplenty, due to the diversity and complexity of the region, it is not without pitfalls. The cultural differences, communication style, regulatory landscape, the way of conducting business is all potential minefield to navigate. As a result, many businesses turned to local independent distributors as a conduit for their geographic expansion plan to balance their risk exposure.
Borrow to Build
Selection for the right distributor is a critical success factor. Traditionally, distributors would approach the principal and if the distributor seems convincing enough, the principal would often be inclined to agree as the incremental cost is low with the distributor taking most of the risk. This is what we term the distributor driven model (Exhibit 2).
Such distributors typically have a good market fit and are willing to invest to entice the principal. In turn, the principal would likely draw up an agreement with distribution rights buy back clause and may offer some initial technical, sales and marketing support but are reactive to support thereafter. Sales would initially grow pleasingly but subsequently plateau resulting in a more strained finger pointing relation. The principal would then rush in to make major changes including:
- Buying the distributor
- Appointing competitive local distributors
- Getting back the distribution rights to set up their own subsidiary
All of which results in a messy, disruptive, and costly clean-up.
Market Driven Distributor Selection Framework
A more strategic approach would be the market driven model (Exhibit 2) that is the result of an objective market assessment fitting with your commercial growth strategy. The major trade-off is increased investment and risk. To manage the increased investment risk, we propose a framework to help guide your distributor selection and management consideration (Exhibit 3).
Fit: The most important consideration is partnership fit. It is often tempting to go with the distributor who are already serving your major target customers, but they may not always be the best fit. This is especially for businesses that are trying to disrupt the market with replacement technologies, but such distributor may prefer to maintain market status quo. A systematic assessment and balancing of the distributor’s market, culture, and strategic fit will help establish the overall fit more effectively. Assessing the distributor’s existing portfolio for complementary or conflicting products would be another valuable consideration as part of the overall fit.
Agreement: A distributor agreement terms dictate the partnership balance. Distributor is often appointed with short term agreement containing distribution rights buy back clauses. While this minimizes risk for the principal, it also encourages the distributor to take a short-term approach and deterrent investments needed to grow. To develop a more collaborative approach, the agreement terms should be milestone-based with appropriate incentive for reaching pre-defined goals such as acquiring new accounts or establishing reference accounts etc. Formalizing clauses for market and financial data sharing such as accounts sold to, pricing level etc. will help to improve transparency and strengthen collaborative partnership to charter continuous business growth together.
Investment: Establishing a long-term collaborative partnership are often signaled by the investment level. This could include sending someone to be permanently located within the distributor office or even to the extent of taking a minority equity stake in the distributor company. Co-investment in informatics system, establishing co-manufacturing center or service center, setting up promotional programs, advertising, etc. are all illustration of commitment that encourages reciprocate investment from the distributors for the long-term growth of the business together.
Support and oversights: Growing the business beyond the initial market entry require effective strategic marketing planning. This is the most tangible support for the distributor as they should be viewed as implementer of the marketing strategy rather than the marketing department. Sharing of domain knowledges and experience from across the globe with the distributor will help to strengthen and maintain control over the marketing strategies. Provision of continuous technical, sales and marketing training support is paramount for long term growth.
Network: Setting up regional distributors network is helpful to maximize resources and encourages independence. Facilitating opportunities for cross collaboration among the network will lead to best practice sharing and innovative ideas of how to further grow the business. The added advantage of having such network also minimizes parallel import challenges and helps to deliver greater consistency in customer experiences no matter where one is. This will help enhances your brand reputation and strengthen the customer relation that are so critical to opening doors and winning deals.
Selecting the right distributor that fit is a critical success factor
Omnichannel Value Integration
Building channel value differentiation is fundamentally about improving accessibility of your products and services. Having multichannel presence while improving accessibility is no longer a major value differentiation nor would it confer much competitive advantage. Omnichannel integration offering seamless consistent customer interaction journey is the minimal expected standard now.
Geographical expansion program is similarly also about improving accessibility to your products and services to a new group of customers in a new region. Distributor selection approach should be view comparably to building an omnichannel integration program where an objective is to ensure consistent customer experience no matter whom they are buying from. We proposed a framework of fit; agreement terms; investment level; support and oversights and network building to guide your selection consideration and to build a better relationship structure with your distributor that will enable more consistent growth.
Stay tune for our next article where we will discuss in detail products and services value differentiation and the impact of Covid19 pandemic. Follow us to get regular update of our articles online.
Glossary
- TGIF – Thrive, Geographic expansion, Intensification, Fortress building
- B2C – Business to Consumers
- B2B – Business to Business
