It's All About Distribution
Jamie Earle
Issue date: 10/15/01 Section: Technology
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If there’s one thing I learned from my summer in Rio de Janeiro (besides how to make the perfect Caipirinha), it’s the importance of distribution in high-technology marketing.
I worked for a software startup that develops and markets systems management software for hardware, focusing primarily on servers and desktops. In working on the company’s distribution strategy, I learned a few things about how to get the most out of product distribution and how to strike strategic partnerships that pay.
Why should you read this article? Clearly, I’m not going to reveal the Caipirinha recipe. What relevance does some crazy wannabe-Carioca’s rantings about tech distribution have to do with your life? The answer is clear: It’s all about distribution. I guarantee you, at some point in your career, whether you are a product manager at P&G, business development manager at eBay or consultant at McKinsey, you will come across this issue. And the lessons learned from today’s high-technology startups are valuable in understanding issues that companies of all shapes and sizes and in all industries are facing as they try to find the right partners, strike the right deals and makes those deals pay to maximize their marketing “bang for the buck.”
So, what are some of the important factors in developing a distribution strategy for your high-technology product? Following are some questions you should ask as you explore partnering options:
Have I found the right partner? First and foremost, it’s important that you find the right partner – someone who has as much incentive to put time and effort into the relationship as you do.
What type of partnership have you agreed upon, and does it make sense for your product? Are you bundling (is your product being distributed with that of your partner), are you OEM-ing (is your product embedded or installed into that of your partner), does your partner re-sell your product (are you using your partner’s salesforce to distribute your product), etc.? Does it make sense for the type of product you are selling and the customer to whom you are selling?
Do you have complementary products for the type of strategy you are pursuing? Does it make sense for your partner to distribute your product with her own? Does your product fit in with the partner’s existing product portfolio? Do you intend to sell to the same customer base as your partner? Does she sell to the same “decision maker” at the customer as you would?
Does your pricing strategy complement that of your partner? In an OEM arrangement, does it make sense to bundle a $200 management tool with a $1,000 server? The price you charge for your product should make sense given the value that your product adds when used in conjunction with that of your partner.
What is your partner’s process for distributing your product? What does it mean for a partner to “re-sell” your product? For example, if your partner agrees to sell your piece of software to existing customers of his server product through a telesales campaign, how will she go about it? Will her salesforce call all her customers? How long will it take for the salesforce to contact and sell to all of its customers? How many other products is her salesforce selling (in other words, is your product #50 on a list of checkboxes? What other “competing” products is your partner re-selling (by “competing,” I don’t necessarily mean that they directly compete, but they may compete for customer dollars).
Are your incentives aligned with those of your partner? If there’s one thing I learned in Professor Oyer’s Human Resources Management course, it’s the importance of incentive alignment. Distribution partnerships are a perfect example. If you rely on a partner to re-sell your product, she must have the proper incentives in place to do so. You must not only make it worth her while in terms of commission or profit sharing, but you must also make it worth her while enough such that the benefit she gains from re-selling your product is greater than her opportunity cost.
Now, if I could only figure out how to distribute enough limes and Cachaca to my house to satisfy my Caipirinha cravings…then I’d be set!
I worked for a software startup that develops and markets systems management software for hardware, focusing primarily on servers and desktops. In working on the company’s distribution strategy, I learned a few things about how to get the most out of product distribution and how to strike strategic partnerships that pay.
Why should you read this article? Clearly, I’m not going to reveal the Caipirinha recipe. What relevance does some crazy wannabe-Carioca’s rantings about tech distribution have to do with your life? The answer is clear: It’s all about distribution. I guarantee you, at some point in your career, whether you are a product manager at P&G, business development manager at eBay or consultant at McKinsey, you will come across this issue. And the lessons learned from today’s high-technology startups are valuable in understanding issues that companies of all shapes and sizes and in all industries are facing as they try to find the right partners, strike the right deals and makes those deals pay to maximize their marketing “bang for the buck.”
So, what are some of the important factors in developing a distribution strategy for your high-technology product? Following are some questions you should ask as you explore partnering options:
Have I found the right partner? First and foremost, it’s important that you find the right partner – someone who has as much incentive to put time and effort into the relationship as you do.
What type of partnership have you agreed upon, and does it make sense for your product? Are you bundling (is your product being distributed with that of your partner), are you OEM-ing (is your product embedded or installed into that of your partner), does your partner re-sell your product (are you using your partner’s salesforce to distribute your product), etc.? Does it make sense for the type of product you are selling and the customer to whom you are selling?
Do you have complementary products for the type of strategy you are pursuing? Does it make sense for your partner to distribute your product with her own? Does your product fit in with the partner’s existing product portfolio? Do you intend to sell to the same customer base as your partner? Does she sell to the same “decision maker” at the customer as you would?
Does your pricing strategy complement that of your partner? In an OEM arrangement, does it make sense to bundle a $200 management tool with a $1,000 server? The price you charge for your product should make sense given the value that your product adds when used in conjunction with that of your partner.
What is your partner’s process for distributing your product? What does it mean for a partner to “re-sell” your product? For example, if your partner agrees to sell your piece of software to existing customers of his server product through a telesales campaign, how will she go about it? Will her salesforce call all her customers? How long will it take for the salesforce to contact and sell to all of its customers? How many other products is her salesforce selling (in other words, is your product #50 on a list of checkboxes? What other “competing” products is your partner re-selling (by “competing,” I don’t necessarily mean that they directly compete, but they may compete for customer dollars).
Are your incentives aligned with those of your partner? If there’s one thing I learned in Professor Oyer’s Human Resources Management course, it’s the importance of incentive alignment. Distribution partnerships are a perfect example. If you rely on a partner to re-sell your product, she must have the proper incentives in place to do so. You must not only make it worth her while in terms of commission or profit sharing, but you must also make it worth her while enough such that the benefit she gains from re-selling your product is greater than her opportunity cost.
Now, if I could only figure out how to distribute enough limes and Cachaca to my house to satisfy my Caipirinha cravings…then I’d be set!