What is a Channel?
Posted on December 1, 2010 by TJude
In business parlance, a channel is any indirect conduit that delivers a product or a service to a customer. In that sense, a company that does business with customers through other companies is selling through channels. Direct marketers, including companies with large sales forces that generally take purchase orders directly from customers, often use channels too. For example, Apple, a well known direct marketer with company stores in large malls and a strong direct Education sales organization, also markets it’s products at Fry’s or Best Buy. The fact is that almost all companies have some sort of Channel Strategy.
Implicit in this is the fact that the ‘Channel’ must be adding value that you, the vendor, need to leverage. Maybe that value is the that they simply know where the customers are. Maybe the Channel Partner is bundling, servicing, unbundling, merchandising, or they have a great logistics capability. Whatever it is, if that particular capability dovetails with a vendors limitation, then that Channel brings value and can be leveraged.
One of the most common channels to market for high tech manufacturers is a two-tier distribution channel where customers buy from VARs, who, in turn, buy from Distributors, who buy from the vendor. Cisco uses such a strategy. While is has direct relationships with many Fortune companies, it has found that Value Added Reseller partners are where many of it’s Small and Medium Businesses, Vertical Industry and other segmented customers prefer to buy. These customers lack the big IT infrastructure that the F1000 have, and depend on VARs to guide them through the ever-changing high-technology landscape. They recognize that technology driven productivity advances give them a competitive advantage, and they must stay on top of technology lest the competitors seize the advantage. And so they turn to VARs – the modern day technology thought leaders and implementers.
In turn, accepting purchase orders from a large number of VARs with varying credit capacities and support needs is not something that Cisco wants to be expert at, and so they use Channel Partners with excellent logistics capabilities – namely, distributors. Westcon, one such distributor, offers Cisco’s VARs unbundling, credit terms, marketing funds, etc in a way that Cisco cannot do as well. And so the two-tier distribution channel operates effectively.
Another common channel is the OEM or Original Equipment Manufacturer. An OEM takes a product from a vendor and integrates or embeds it in another product in such a way that the resultant or ‘Original’ product cannot exist without the ingredient. Intel is an obvious example of a vendor that uses an OEM Channel model. Sure, you can buy a boxed Intel processor at the store (the retail channel) or from a white box seller (the VAR channel), but the bulk of Intel’s processors are sold to OEM manufacturers that sell “Intel inside” PC’s, servers, and what not. Here, the value-add is much more obvious.
There are other channels. Retail is one. Government resellers, another. The key for any vendor is to analyze the available channels and map that to their customers expectations and see which ones give them greater overall profitability. Then you can engage with that channel using customary ways of doing business flavored with unique programs that capture their attention. As one great mentor drilled into me years ago, “Mindshare is money!” Creativity is essential in a great channel managers. If the channel partners are thinking about you, revenues will follow, as surely as night follows day.
So, in summary, a channel is a conduit to the market that is generally more efficient than the marketer, thereby lowering the costs of addressing the market or increasing its accessibility – or, typically, both.
TM Associates engaged by Harris Stratex (Now Aviat Networks) to help launch new business initiative.