Many of today’s sales channels were established prior to the era of ubiquitous Internet, email, ERP, CRM and cloud; thus, many executives operate on the assumption that they can’t know everything about what’s happening downstream.
That’s a potentially costly mistake, and unnecessary because modern channel management principles can reveal the big business picture. Channel data management (CDM) is a discipline, just like ERP, SCM, CRM and SFA. Forrester defines these systems as a way for channel companies to optimize incentives, inventory, revenue-recognition and compliance-management processes. Without full transparency and accurate visibility into product and channel performance, manufacturers can’t make informed choices about how they design, create, position, price and strategically sell their products.
Tech manufacturers, distributors, and resellers naturally have different business goals and priorities, and these contrasting interests don’t always encourage transparency about inventory movement, sales and returns. Inventory specialists often find it difficult to know exactly where their products are, for example, and if and when they’ve been sold, resold, moved, transferred to another reseller or returned for credit.
While some partners do report sales data, they may approach the task half-heartedly. That’s understandable because it tends to be time-consuming, with little payoff since most lack the ability to leverage sales data to improve their own bottom lines. Consequently, data may arrive sporadically or late, making it less useful in a market where product cycles are rapid and competition is fierce. Point-of-sales records can be laden with errors, particularly across regions with different languages, currencies and business practices. When part numbers and descriptions don’t match – a common occurrence – the data can become useless.
In short, the substantial investments made by manufacturers to incentivize partners are no guarantee that more business will be transacted. Despite their best efforts, marketers may find themselves with no reliable way of correlating incentives to sell-through or reseller effectiveness.
Get Data Driven
Below are seven suggestions for best practices in acquiring and managing channel intelligence. Enterprises that embrace these methodologies will understand the movement of their goods with greater precision. The data they gain can make incentive programs more effective — increasing sales, reducing marketing costs and making partners more productive. The data will also inform different functional areas within the business and deliver forecasting efficiency and compliance benefits to product planning, finance, accounting and marketing.
As with any set of new or refined data, advantages come from proper consumption. No matter how good data is, it can’t yield benefits if it’s not put to use promptly. The first five of the following best practices propose ways of using market intelligence to make business improvements. The remaining two discuss how management teams can collect and analyze better data.
- Use data to measure marketing and rebate program effectiveness. Manufacturers spend a considerable amount of time and money designing, managing and funding programs to increase channel sales. For many, this the primary reason their marketing operations even exist. Companies may spend as much as 10 percent of total sales on efforts to increase performance, yet most have no way to measure the effectiveness of their promotions. The answer is to use past sales data to design promotions that incentivize desired behavior. Ensure programs can be dynamically adjusted to optimize profitability as new data flows in.
- Intelligence aids partner segmentation and management. When manufacturers sell through distributors, they’re by extension working with resellers. You need to know which are most effective. It’s easy to determine the largest resellers, but don’t make the mistake of conflating size with success. To determine effectiveness, focus on: Which resellers are growing? Shrinking? Which are the up-and-comers? Which are more likely to stay with you? Which are selling the most strategically important products? CDM can help leverage data to understand partners at a deeper level.
- Don’t write off sales execution metrics. Most companies pay commissions based on sales-in — the items the manufacturer sells to distributors and resellers as inventory. Virtually everyone grasps the limitations of this approach, yet most have shrugged their corporate shoulders, writing off the inefficiencies as unavoidable costs of doing business. Using data to set sell-through targets and correctly compensate salespeople by paying commissions based on actual end-user purchases rather than shipments into an inventory cache can yield a competitive advantage.
- Use data to help cross-sell and upsell. Partners often stock and promote only a portion of a given product line, though most vendors would prefer to have everyone selling everything. While this may not always be practical, knowing who is selling what is very useful to encourage cross-selling and upselling. Using CDM might allow you to point out gaps in a reseller’s product line.
- Sales-team motivation should be based on real sales. Leaders incentivize end-user sell-through rather than inventory sell-in. Accurate data enables improved sales execution management, including setting sales-out targets, measuring them precisely, and paying commissions on what resellers actually deliver to end users rather than on what has been shipped and parked in warehouses and retail stores.
- Get your hands on the data. Every OEM that uses distribution channels should insist on receiving accurate, up-to-date data from every first-tier partner, regardless of size or location. Distributors, integrators, consultants, resellers, retailers and e-tailers should understand and agree that providing transaction-level data is not an option, and that such data will include granular details about end customers. Reaching this point with partners might require contract changes and a few weeks or months of monitoring for compliance, but it’s worthwhile. The broad benefits of modern CDM flow both ways and assist partners in continuously improving their own operations.
- Spread the wealth, securely. Once a company secures access to all of its channel data, sharing insights with trusted, important partners can enhance those relationships. It draws them closer, putting OEM and reseller on the same side in the quest for ever-increasing sales. Sharing data gives partners an opportunity to provide feedback on issues the manufacturer may not have noticed or considered. But remember: Secure data should be top of mind for everyone. Working with partners means a certain amount of sensitive corporate data resides outside the manufacturer’s firewalls. Competitors would like nothing more than to capture that intelligence for their own benefit. Contract negotiators must carefully word agreements to make sure that all confidential data is protected, both physically and legally.
Bottom line, every vendor that sells goods through distribution should leverage real-time data to ensure that marketing campaigns function optimally, incentive programs are tailored to drive market behavior in desired and measurable ways, and sales organizations are always focused on sell-through instead of channel stuffing.
I have seen automated channel data management help tech manufacturers increase revenues by as much as 5 percent annually while reducing sales promotion costs by 10 percent to 15 percent. Since incentive funds account for more than $50 billion of the $1 trillion flowing through tech industry channels, following these best practices can significantly impact a manufacturer’s year-end results.
Ted Dimbero is a co-founder of zyme and is the chief customer officer. In this role, he is responsible for all customer-facing activities including operations, support, professional services, and customer advocacy. Prior to Zyme, Ted spent seven years in various consulting and product development leadership roles at i2 Technologies.