For many manufacturers, indirect channels provide the majority of their revenue yet carry only a small percentage of their most profitable products. Instead, indirect channel partners opt to move literally tons of low-margin items, competing in the marketplace on price and availability alone. The electronic components industry is a case in point. When buyers have little opportunity to customize services or products, pricing and availability are all that matter.
Yet the trend among manufacturers to measure their channel partners’ margin contributions forces distributors, value-added resellers and channel partners of all types of up-sell services to look for new ways to sell higher-margin products. For manufacturers aiming to gain greater in-channel share, selling strategies that simplify the complex sale are critical.
Applying Best Practices
Following are the top lessons learned from working with manufacturers to streamline their operations when selling higher margin, complex products:
Lesson 1: Making quoting consistent across all sales channels is a must. One globally known helicopter manufacturer’s quoting system is an island within marketing. Not integrated with pricing, manufacturing or service, this quoting system can deliver an elegantly prepared 100+ page quote — yet the entire document must be re-engineered by manufacturing and pricing.
The extra time required to validate a quote has cost this company business. If you have multiple quoting systems for each sales channel, consider consolidating them into a single quoting system, and integrating it with pricing and manufacturing. It’s significant work to accomplish this up front, and it can take six months to a year — but it’s worth the competitive advantage in the long term.
Lesson 2: Quoting history needs to be captured and used. Manufacturers in the heavy equipment and truck industries write quotes on napkins and then transcribe them into Word — sometimes overwriting the last quote with the current one in a Word template. Consider at least looking at how your company can create a historical view of quotes by customer; this history is invaluable for win/loss analyses and future selling.
Lesson 3: Don’t get played in pricing. One electronics distributor found that there were different pricing databases used for online quotes and those providing by their telemarketing sales reps. The distributor’s customers realized they could access pricing and availability on the Web and then call their telemarketing rep for a lower price.
Many manufacturers and distributors alike don’t realize their customers are playing them across channels to get better prices because their quoting systems use different databases or inconsistent versions of pricing tables.
Lesson 4: Push order status, pricing inquiries, and guided selling to your channel partners first. These three areas comprise over 70 percent of the inquiries for one global PC manufacturer. Push order status out as the first application on a channel partner portal, even if it means delaying order management or any other applications. It will quickly pay for itself by reducing calls to telemarketing reps.
Pricing information is also a must. If your company is like the PC manufacturer, accessories are a significant revenue source — over 15 percent of revenue annually. Consider incorporating a guided selling application into your Web site, linking it to quoting in order to provide up-sell and cross-sell reminders for sales reps.
Lesson 5: Replace blind price cuts with an automated special pricing request strategy. One manufacturer of communications equipment has a staff of seven who handle pricing exceptions for their indirect channels, working with rules and constraints as defined by senior management for approving price drops on large deals. The largest deals must be personally approved by senior management.
Moving from manually managing this process to automating it wins business. For one disk drive manufacturer, it netted significant revenue increases at the end of every quarter based on the reductions in reaction time alone.
Lesson 6: Configuring products delivers margins. Instead of just relying on channel partners to sell your least complex — and most likely lowest margin — products, consider a strategy that would enable them to sell higher margin and more complex, configurable products as well. It’s possible to do this by adding a product configurator to your channel strategies mix.
Product configurators take the many attributes, subassemblies, characteristics and constraints of a product and interlink them into an easily maintained model that channel partners, resellers and direct sales forces can use to define products that precisely align with the needs of customers.
Manufacturers getting the best results with product configurators are integrating them with pricing, services and, most importantly, enterprise resource planning systems, so bills of materials can be automatically generated and routed through production.
Defining and selling complex products through channels is paying off for manufacturers. One consumer products manufacturer, Nike, has launched a build-to-order show through NikeID.com as an extreme example of using product configuration to sell through its online direct sales channel.
Lesson 7: Use your product catalog as the basis for cross-selling and up-selling. The essence of any successful cross-selling and up-selling strategy is recommending the right product at the right time. When combined with product configurators, catalogs are making a difference in closing sales for many manufacturers and distributors alike.
Lesson 8: Guided selling isn’t just for your soon-to-be discontinued products. In previous research completed on guided selling, manufacturers’ reliance on this strategy only for slow-moving or end-of-life products has proven to be shortsighted. Manufacturers today are making guided selling part of their launch plans.
In the case of consumer product companies, capturing the majority of their gross margins on Internet-only products before releasing them to retailers and mass merchandisers is leading to greater lifetime product line profitability.
Lesson 9: Get passionate about making improvements based on good and bad feedback. Finally, never be afraid to ask how your company can improve — especially when it comes to selling through channels. For Gateway, one of its best ideas on the launch of a new Microsoft operating system for its high performance desktops came from a channel partner summit.
Bottom Line: Every channel partner’s business model, information and product needs are different. Unifying collective needs to sell more goods profitably is what best practices in quoting and configuration are all about.
Louis Columbus, a CRM Buyer columnist, is a member of the Cincom Manufacturing Business Solutions Team and a former senior analyst with AMR Research. He has worked with enterprise clients on defining solutions to their channel management, order management and service lifecycle management strategies. Mr. Columbus also teaches graduate-level international business and marketing courses at Webster-Loyola Marymount University and University of California, Irvine. He is the author of fifteen books on technology and two books on analyst relations. His book, Getting Results from your Analyst Relations Strategies, can be downloaded for free.