Lecture 4 Distribution Channels.pptx

Lecture 4 Distribution Channels.pptx
The Lean LaunchPad Lecture 4: Distribution Channels How does your Product Get to Customers? Version 6/13/12
Channels How does your Product Get to Customers?
© 2012 Steve Blank
Physical versus Virtual Channels
How Do You Want Your Product to Get to Your Customer? 5 Yourself Through someone else Retail Wholesale Bundled with other goods or services     
Web Channels 6
Physical Channels 7
How Does Your Customer Want to Buy Your Product from your Channel? 8 • Same day • Delivered and installed • Downloaded • Bundled with other products • As a service • …      
Types of Channels 9 – Original Equipment Manufacturer (OEM) – Value Added Reseller(VAR) – Reseller – Distributor Direct Indirect Licensing
How Do the Economics Work in Different Sales Channel?
How Are Channels Compensated? 12 – Commission – Percentage of sales price – Discounted pre-purchase
Channel Economics: “Direct” Sales 13 Selling Expenses+ G&A + R&D End Consumer EU Discounts Your Revenue List Price Source: Mark Leslie, Stanford GSB Cost of Goods (Supply Chain) Profit
Channel Economics: Resellers 14 Cost of Goods (Supply Chain) Selling + G&A + R&D End Consumer EU Discounts Reseller Your Revenue List Price Source: Mark Leslie, Stanford GSB Profit
Selling + G&A + R&D Channel Economics: Distributors/Resellers 15 End Consumer EU Discounts Reseller Distributor Your Revenue List Price Source: Mark Leslie, Stanford GSB Cost of Goods (Supply Chain) Profit
The Channel as a Customer 16 – Some products are embedded in others (OEM) – Some products are resold by others (VARs) – Some products are distributed by others – Who’s the customer?
Channel Economics: OEM or IP Licensing 17 Your Product Becomes Your Customer’s Cost of Goods Source: Mark Leslie, Stanford GSB End Consumer Reseller Selling +G&A + R&D Cost of Goods (Supply Chain) EU Discounts Reseller Distributor Master Distributor Profit + SG&A + R&D Cost of Goods (Supply Chain) Your Revenue List Price Profit
How Are Channels Motivated or Incented? 18 – Money! – what makes them the most? – Training – Marketing to the channel – Special Performance Incentive Fund (SPIF)
Book Publishing Channel Example
Example: Book Publishing 20 Publisher National Distributor Printer Wholesaler Retailer Customer
Book Publishing 21 •Percent of Retail • You get - 35% of retail - the distributor gets 10% - the wholesaler gets 15% - the retailer gets 40% - less any discount they offer the customer Publisher National Wholesaler Distributor Retailer Customer 35% 15% 10% 40% $7.00 $3.00 $2.00 $8.00 $20.00
Book Publishing Economics 22 Publisher National Distributor Wholesaler Retailer Customer Wholesale costs Markup Allowances Payment guarantees Payments Bills Credit guarantees Payment guarantees Return rights Credits
Book Publishing Delivery 23 Publisher National Distributor Printer Wholesaler Retailer Merchandise titles Sell magazines Acknowledge returns Determine allocations Dispose of returns Prepare film (content)  Establish identity  Create demand Prepare galleys Receive  Schedules  Print orders  Bundle counts  Film Print and ship magazines Deliver orders
Medical Device Channel Example
Patients Product flow/Channel Fluid Synchrony Electronic Health Records Partners/ OEMS Hospitals (Anesthesiologists Neurosurgeons) Pain Clinic (Anesthesiologists Neurosurgeons) Pump + Controller Support Services Bundled Kits Electronic Records
Channels (Direct) • Direct to institutions • Some formularies involved in purchase decisions • Some doctors make purchase decision directly • Device company/Doctor relationship is key • Heavily influenced by : • Clinical study results • Regulatory approval • Reimbursement Hospitals Pain Clinics
Farm Sensor Industry Channel Example
Channel Model: Service Provider OEM Us Large farm USDA/EPA Small farm Product Money Nutrient Data Licensing/sales
Channel Model: Service Provider OEM Us Large farm USDA/EPA Small farm Product Money Nutrient Data Licensing/sales Product Service
Dental Product Channel Example
COST / PROFIT ANALYSIS R&D Maintaining IP End user Our revenue 4-8% revenues List price Per unit cost and profit estimation Licensing Revenue Model Raw materials Manufacturing & Packaging License fee Distribution 31 Univ. License fee
End User Health-Care Providers: Hospitals Practitioners Clinics Insurance Agencies Customer segment: Large corporations J&J, GSK, 3M DMX R&D Products Procedures IPs $$$ ~$40 $$ University 4-8% royalty 2-4% license fee Licensing of Technology Ecosystem 32
Medical Device Channel Example 2
Individual Doctors Purchasing Administrators High value medical products (e.g. cardiovascular stents) Commodity medical products (e.g. latex gloves) • Doctor education • Direct feedback from doctors • Very expensive • No doctor education • No customer feedback • Inexpensive Direct Sales Distributors MammOptics Channel Strategies and Costs Individual Doctors Purchasing Administrators
Channel Strategies and Costs MammOptics 5 dedicated sales people $150,000 each/year Hire nurses or technicians with established relationships Early adopter feedback Continue with core group of sales people Use women’s healthcare equipment distributor Already established network of customers Sales strategy 1 Sales strategy 2
Dental Product 2 Channel Example
Private Practice Dentist Purchasing Department Big Distributors Institutional Dentist Direct Sales Channels
Private Practice Dentist Purchasing Department Big Distributors Institutional Dentist Direct Sales Channels 80% Market Share 30% Margin
Margin - it is the difference between revenue and the associated cost of sales Market Share - the percentage of the total revenue or sales in a market that a company’s business makes up For example: If there are 50,000 units sold per year in a given industry, a company whose sales were 5,000 of those units would have 10% share in that market
Private Practice Dentist Purchasing Department Big Distributors Institutional Dentist Direct Sales Channels 80% Market Share 30% Margin Continuing Education Courses Magazines & Email Trade Shows
Online Rental Channel Example
43 Listings Provider Tenants Landlords Property Managers Service Providers Potential Landlords Realtors Web Info Show, Advise, Valuate Sell, Advise Maintenance Furnishing Listings, Checks Rent Payment Moving Craigslist Padmapper.com Rent.com Apartment.com Forrent.com Credit Checks Safetenantcheck.c Erenter.com Payment Facilitator Rentpayment.com Clearnow.com Online Cheque Listings, Checks Rent Payment Maintenance Finding Zoospi.com Redbeacon.com Taskrabbit.com Schedule Tools Yelp.com Angie’s List Setster.com Find information Servicemagic.com Zoospi.com Rentpost.com Rentjuice.com Buildium.com Rentingsmart.co Propertyware.com Rentjuice.com Propertyware.co Rentingsmart.co Buildium.com propertymanagemnt360 Maintenance Ratings Trulia.com PM Tools
Dental Product 3 Channel Example
COST / PROFIT ANALYSIS Raw active ingredient Manufacturing & Packaging Profit + R&D + License fee Distributor $40 * $27 %32 cut $6 ? ($5) ~$11 ~$13 End user Our revenue List price Per unit cost and profit estimation Direct Sales Revenue Model 45 * Competition • NuPro prophy paste (Novamin $50) • NuPro desensitizer (Novamin $93) • MI varnish (Recaldent $100) • Gluma desensitizer (Glutaraldehyde $130) • Health-Dent desensitizer (Fluoride $49)
End User Customer Segments; Health-Care Providers: - Hospitals - Practitioners - Clinics Insurance Agencies Product Sales & Distribution Formulations & Packaging Raw Materials Manufacturing DMX R&D Products Procedures IPs $$?? $6/pk $5/pk $$?? University -32%($27) $? Direct Sales Ecosystem R&D & Regulation $40/pk 46
Travel Industry Channel Example
Travel Services: Impact of Changing Technology
The Advent of GDS Systems (1980 -1995)
Turning the Screen Around Online Travel (1995-2010)

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