The term “sales channel” is used all the time, but what does it mean?  I think the easiest way to get your mind around the sales channel is to consider the functions it serves.  We’ve been describing the six functions that make up Big-M Marketing, but you can’t consider these in a vacuum because side by side with that Big-M Marketing Group is a sales channel, and the boundaries between the two can get fuzzy at times.  So let’s pause for a moment in our description of the marketing functions to describe the functions of the sales channel.

I like to break the sales channel into six basic functions.  Just like the six Big-M Marketing functions, you have to be sure your sales channel is doing all four of these.  But whereas in marketing, there is little or no overlap of the functions across marketing groups, in the case of the sales channel it is common to find the functions being repeated in two or more groups.  In this post, we’re not really going to describe those groups, but concentrate instead on the functions.

Simply put, the sales channel has to accomplish six things:

1. Find customers
2. Service those customers
3. Provide technical assistance
4. Provide credit to the customers
5. Deliver the goods
6. Administer the whole thing

Finding Customers

This may seem obvious but we like to explicitly make finding customers the first function to separate it from marketing, who by and large does not find customers. It is a common mistake in marketing to think they provide valuable sales leads to the sales force.  The truth is these “leads” are typically unqualified responses to an ad or press release — marketing tracks the numbers with great enthusiasm and mails them to the sales offices with notes like, “more hot sales leads.”  Sales immediately throws them out without even being opened.  Remember, the first job of the sales force is to find real customers — not to call on names from computer printouts supplied by marketing.

Servicing Customers

The process of interacting with customers is done in a well-rehearsed dance known by both sides.  Sales people get their parts “qualified’ with the customer… basically evaluated and found acceptable.  Then the customer requests a quotation… pricing for the quantities and delivery schedules needed.  The sales people provide that pricing, either quoting “book prices” or getting special pricing from marketing.  Assuming the order is granted and accepted, the customer may need shedule updates.  After delivery, there may be some defective units that have to go through a failure analysis to the customer’s satisfaction.  It goes on and on, but the sum total of all those mini-transactions make up what we call “servicing the customer.”

Providing Technical Assistance

There is a practical limit to how much information can be put on the company website.  At some point, customer engineers need some face-to-face time with an expert.  Filling this need are the company Field Application Engineers (FAE’s), assigned to the sales regions and chartered with making visits to customers to help them with their designs.  Good FAE’s are notoriously hard to recruit, and I’ve never known a good sales manager who wasn’t looking for one virtually all the time.  FAE’s on the company payroll only provide assistance for the company’s products, but distributors and even reps may also have FAE’s, though in these cases they cover multiple product lines and therefore are less knowledgeable about any one of them.  The quickest way to assess a sales channel is to just check the extent of the FAE coverage.  Channels with a full complement of FAE’s are powerful forces in the market and tough competitors.

Providing Credit and Payment Services

Whether the product is a software program or a million microprocessors, they have to be paid for.  For customer / supplier relationships that are ongoing, it benefits both sides to have credit terms extended to the customer.  Normally these are 30 day terms, perhaps with a 2% discount for payment within 10 days.  But sometimes credit terms may be extended over much longer periods in exchange for some sort of exclusivity agreement.  In any event, the extension of credit is a huge function in the sales channel, and one that carries all sorts of risks.  Whereas large customers may deal directly with the supplier and use the credit extended to them by that supplier, smaller customers that are unknown outside of their region may go through a distributor who provides the credit function.  In fact, this is one of the most important roles distributors play.

Delivery of the Goods

Shipping the parts to the customer… who does that?  Before you argue, “not sales,” keep in mind that carrying inventories and shipping to customers is one of the main roles of distributors.  Of course, the company itself must also ship directly to customers.  While this is not normally part of the sales group, it is definitely part of the sales channel.  Making sure customers can get your products in any quantity from one to a million is critical.  I’ve seen too many companies set up shipping systems with minimum ship quantities of 100 or more.  How is the customer expected to do their prototype system designs if they can’t buy parts in handfuls rather than cartons?

Administration of the Channel

Believe me, every sale carries a story, and that story has strong implications for the division of the commissions, hiring new people, expense reporting, and so on.  Marrying the story and trends of the sales in each individual sales region is a time-consuming task and one best left to specialists.  Virtually none of this directly impacts the bottom line, so there is no driving need to have the Finance Department track this information… in fact, unless they’ve got people dedicated to doing it, they don’t have the time.  As companies grow, they invariably hire administration people reporting to the head of sales.  They chase the monthly forecast through the various sales levels and make sure it gets done on time.  They track expenses in the various sales offices and help with things like leasing space for new offices, cars, and expense accounts.  They track the level of credit adjustments being given to the distributors.  And they track, manage, and report what are called commission splits — the division of a commission for a specific sale between the sales person, the FAE, and frequently sales people in other regions.

We will discuss these in detail in upcoming posts, but I wanted to describe them in an overview as we look at the marketing functions because of the way marketing and sales must dovetail.

Tags: Big-M Marketing, Sales Channels

This entry was posted on Saturday, August 23rd, 2008 at 1:56 pm and is filed under Big-M Marketing, Sales Channels. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.