Sales Channel Strategy – Why do you need one?
Many manufacturers and brands understandably assume the most important metric in their sales channel strategy is the number of retailers selling their products. The more resellers, they reason, the better.
So these brands prioritize growing their channels, devoting a great deal of time and resources to bringing on as many retail partners, as well as wholesalers and distributors, as they can.
And although this approach certainly made sense in the pre-Internet era, when retailers would compete against each other from their brick-and-mortar stores miles apart—and not head to head, in real-time, online—today there are dangers in simply building out a resale network as aggressively as possible, focusing only on its size and reach.
The Risks of the “As Many Channel Partners As Possible” Approach
Actually, in the eCommerce era, there are several dangers to this strategy. For example:
- Online price erosion
When you have too many retail partners offering the same products, and they’re all advertising those products on the same listing pages online, you place downward pressure on your products’ prices. An aggressive retailer trying to meet its quarterly numbers might drop its advertised price below your Minimum Advertised Price (MAP) level, for example. And when one seller violates your policy, others will follow.
- Poor customer experiences
When your resale channel becomes too crowded, and your sales partners find themselves unable to sell the products they’ve purchased from you, that can set off a chain of events that can lead to negative customer experiences with your brand. Retailers might dump excess inventory with any reseller interested in buying it, and many of those sellers might be in the gray market or are unauthorized third parties who won’t honor your brand’s warranties or proof-of-purchase benefits, for example.
- Damage to brand value
Both of the risks above often lead to the more serious threat of a damaged brand. When consumers see your prices online continually dropping, or experience disappointing buying experiences with your products, it can have the long-term effect of weakening your brand’s reputation and public trust.
So, those are some of the significant risks of a sales channel strategy that focuses only on growing the size of your resale network. Here’s how to build a sales channel the smart, strategic way.
The Solution: Actively Monitor, Manage, and Limit Your Sales Channel
This is the all-important part of the channel strategy many brands miss. Yes, you’ll want to build your resale network, but you need to build it strategically, accepting only the right resellers and actively monitoring their practices and operations for as long as they’re selling your brand’s products.
In other words, the counterintuitive truth is that the most effective sales channel strategy for your company might mean fewer wholesale and retail partners in your network. Of course, assuming you have the right processes and technology in place, you can scale and grow your resale network considerably. But the point is to do it carefully and with a focus on reseller quality, not quantity. This is how you protect your brand while growing your revenue.
So, what does this strategy look like? How do you actively manage, monitor, and limit your sales channel? Here are some best practices to get you started.
1. Establish an authorized dealer program.
The first step in gaining control over your resale channel is to create an invitation-only program in which you require dealers to apply, have your team vet them, and then monitor.
The best and most cost-effective way to do this is to implement an online dealer portal where you can set up and manage your authorized dealer network.
This can give your team greater visibility at all times into how your dealers are operating, and it can automate the tedious details such as processing applications and sharing brand-approved assets like sales copy, pricing sheets, and product images or videos.
2. Add new rules and policies to your distributor and wholesaler agreements.
You’ll also want to step back and examine the current practices of your wholesalers or distributors. If you haven’t been closely monitoring these partners, or you don’t have an approved list of vendors for them to do business with, you might discover they have been selling inventory to gray market sellers or other types of rogue retailers.
So as part of your strategy to create a world-class sales channel, you’ll want to put strict guidelines in place for your wholesale/distributor partners. Limit which retailers they may sell to, demand that they keep track of all sales and report them to you periodically. (This might also require serialization of your inventory.)
When you’ve determined the rules you want to impose on your wholesale network, you will then want to update your wholesaler agreements and ask your partners to sign them.
3. Set rules for your internal sales teams, too.
Another important step will be to take many of the same rules and processes you’ve created for your wholesalers and distributors, and implement them for your internal sales department.
These sales teams face their own pressure to meet milestones and quotas, and they might also be tempted to sell inventory to unauthorized dealers. To minimize these risks, you’ll want to train your internal sales department on how to monitor their own team’s sales to retailers or wholesalers, and build into that training the strategic reasoning for imposing these new rules.
You’re implementing these new policies to protect your company’s brand, after all, and that benefits everyone in the long run—the sales department in particular.
4. Limit your resellers on Amazon.
Remember, one danger of the “as many sellers as possible” strategy is that it can overcrowd a given marketplace—particularly Amazon—leaving many of your retail partners competing directly against each other on the same product listing page.
For this reason, you might want to limit the number of resellers you’ll allow to offer the same products on Amazon at any given time.
This policy will require some strategic planning and monitoring to implement effectively. One way to simplify this is with an online market visibility and price tracking tool—which can give you visibility into how many sellers are offering a given product on Amazon (or anywhere) at the same time.
5. Establish and publish an effective MAP policy.
Finally, if you haven’t already done so, it’s time to create a MAP policy. But you need to develop and roll out this policy in a way that attracts the right types of high-quality retail partners to your brand. After all, if these resellers are going to be willing to apply to your invite-only authorized dealer network, you’re going to have to show them that selling your brand will be a profitable undertaking.
This means, for example, announcing your MAP policy across your industry, so new (and existing) retailers know your company is serious about the policy. You’ll also want to let sellers know you stand behind your MAP pricing guidelines with a strong MAP enforcement program. To the right retail partner, this sends an important signal that they won’t be undercut by an unethical competitor using below-MAP pricing to steal customers.
Take the First Steps Now Toward this Smarter Sales Channel Strategy
Actually, you can start putting many of these new tactics into place quickly and painlessly, and start building your world-class sales channel strategy, by signing up for an online platform for resale monitoring and enforcement.
To learn more, contact a TrackStreet solution architect.