Relentless competition in today’s markets is driving companies to re-invent their sales channel strategies, in order to ensure that they are within arm’s reach of customers, wherever they are and whenever required. Winning companies understand how to align their supply chain structure and exploit today’s technologies effectively in support of the selected business strategy. Above all, these companies have put in place a business architecture, (including channel partners as appropriate) which delivers operational flexibility and speed of implementation. As part of our range of marketing solutions, we help companies determine how to strategically use marketing to reach their target customers. In this article the following questions will be addressed:
A working definition of business architecture would include the ownership structure, operational processes, channel structure and technology infrastructure of the whole supply chain. The design of these factors is a crucial influence on:
Innovative companies have understood and exploited these ideas for many years. In fashion, Benetton was an early exponent of “quick response” and leveraged its channel ownership structure through a cleverly designed supply chain that included small subcontract manufacturers and franchised retail outlets. Start-up companies who built global businesses very quickly selling hard goods through the retail channel, such as Packard Bell with PCs, took advantage of cross-ownership structures within the supplier base and established close relationships with key retailers. Caterpillar, which today dominates the market for heavy construction equipment, has maintained this enviable position through the closest possible co-operation with its franchised dealers.
The creation of a powerful business architecture may be one of the few sustainable sources of competitive advantage: technical innovations can be copied or superseded quickly, but harder to match is the binding together towards common goals of participants in the value chain.
Five years ago, less than 0.5% of grocery retailing went through the petrol stations: today the figure is well over 5%, a massive annual market in its own right. Brand loyalty can turn Virgin into a successful direct supplier of financial services and help move Wall-Mart into the mainstream of personal banking. Industry leaders have learned to target a total share of end customer spending, not just their historical share with historical product ranges.
This is achieved using a portfolio of different channels, including the formation of new partnerships and exploitation of new technologies. Why is all of this important? Of the top 10 US food producers in 1980, only two are still in this league. The same ratio applies to the computer industry and the banking sector. It seems that formerly stable sectors are acquiring the characteristics of the fashion industry!
What lessons are there to be learned in the high technology sector that is subject to convergence of many products and services, with respect to content, consumer electronics, computers and communications? This has given rise not only to notoriously short product life cycles, but also to compelling opportunities and awe-inspiring risks for the participants.
Virtually daily there are announcements of acquisitions, mergers, alliances and partnering activity, with clusters around different technology models, as companies take part in a frenetic global mating dance.
Though price competition is brutal, history shows that segment entrants with new products often present a more dangerous form of competition. For example:
What implications for sales channel strategy have been observed?
Leaders in supply chain design and execution are exploiting electronic commerce via intranets and the Internet as a whole, in order to get closer to their suppliers and customers. Results can be measured in terms of:
Some companies have gone further in an attempt to redefine traditional ways of doing business. Ciscos in electronics, as well as several automotive companies use the internet to allow end-customers to locate, configure and order the desired product without the intervention of salespeople.
Gathering meaningful end-customer information which enables the company to develop its “one-to-one marketing” capability is the holy grail in the scramble for improved customer loyalty. Ford estimates that each one-point gain in customer loyalty is worth $100m in profit. In the US, a survey by the Strategic Planning Institute showed that companies rated highly by their customers for service are able to charge on average 9% more than those who are poorly rated.
Consumer-direct strategies such as those described above represent little short of a revolution in business practices for many industry segments. Today’s new technologies for communications, Internet applications and customer data management provide a tremendous imperative for many companies to redesign their key business processes. But to do this without thinking through the structure of the sales channel may be courting disaster!
In many important segments the intermediary (dealer or reseller) still has a role to play: but this role will have to be developed in order to strengthen the partnership with the original equipment manufacturer. The goal is a win-win relationship that can:
IBM, HP and Compaq operate channel configuration projects, whereby authorized (corporate) resellers configure base products to customer order, often within hours. Alternatively, the customer order taken by the reseller may be built by the manufacturer and shipped direct, within 48 hours for mainstream models. Estimates of the savings that are made through reduced inventory, price protection, returns, warranties, and freight cost vary from 10 to 15 percent. This would enable these companies to retain an indirect selling model where required, yet to reduce prices and compete more effectively with the established direct sellers such as Dell.
Whatever the industry segment, it is vital to build a clear vision for the target business architecture, including enhanced channel relationships, integrated supply chain, appropriate supporting technologies and a quantified financial return for the channel participants.
Unfortunately, the fact is that most demand processes are not set up to sense or anticipate customer requirements for solutions that deliver value and convenience. Few companies have the quantitative information that would enable them to answer important questions such as:
In today’s uncertain environment, stressed by the impact of new technologies, competitive edge is gained by means of a thorough understanding of the cause and effect relationships between customer service, operational integration effectiveness, sales channel design and financial returns for the participants. In some cases this will represent the difference between success and failure in the coming years.
Contact SPIRE Express today for more information on how we can help you develop an effective architecture for your business.