Are You Prepared to Launch a Successful Channel Sales Strategy? (part 1)
The requirements for channel sales, also known as an indirect sales channel strategy, where you resell your products and services through a partner program, are quite different from direct selling through your own in-house sales team.
Are you ready to start on this journey? Are you sure?
Whether you call it channel sales, indirect selling, a channel partner strategy, partner marketing, a reseller channel, or a vendor-partner relationship, let’s first define what this sales strategy is.
Channel sales definition.
What is channel sales? It’s an indirect sales model, also called a reseller sales model, where a manufacturer sells their products to third-party companies who resell the products to their customers. The customers may be consumers, as in business-to-consumer (B2C) sales or businesses, as in business-to-business (B2B) sales.
The third-party reseller is referred to as a channel partner and can be a reseller, affiliate, or value-added partner.
Channel sales is known an indirect sales model because the products are not sold by the manufacturer’s or vendor’s internal sales team. They are sold by an independent company’s sales team.
A sales strategy focused on indirect channel sales can drive significant business growth opportunities. By effectively evaluating go-to-market options, expanding into new markets, engaging a sales team to hit the ground running, and targeting marketing initiatives to new customers, you can launch a successful channel strategy and find the right channel partners to drive growth.
I divided this complete channel sales roadmap into three parts, with a separate blog post focusing on each. It will walk you through the stages of channel development and how it can benefit your business.
Part 1: channel evaluation, market validation, and go-to-market strategy (that’s what we’re discussing here)
Part 2: preparing your business to launch a successful channel strategy
Part 3: finding and onboarding the right channel partners to drive revenue growth
Benefits of channel sales.
Building an indirect distribution channel through sales channel strategy offers several advantages beyond eliminating the need for an in-house sales team. Key advantages include:
Expanded market reach.
Indirect sales channels allow businesses to tap into new markets and reach a broader customer base. This enables them to access customers outside their direct reach, whether geographically or within specific industries or market segments.
Increased sales coverage.
Indirect sales channels provide an extended sales force that can actively promote and sell your product. Channel partners are often specialized in their respective markets, possessing deep knowledge and expertise that can help drive sales. They can actively engage with customers, provide demonstrations, answer inquiries, and address customer concerns, resulting in increased sales coverage and customer acquisition.
Cost efficiency.
Building an indirect sales channel can be more cost-effective than maintaining an in-house sales team. Companies can leverage channel partners' resources, infrastructure, and expertise, reducing the need for significant investments in hiring and managing an internal sales force.
Market insights.
Indirect sales channels provide valuable market insights and feedback. Channel partners directly interact with customers, allowing them to gather information about customer preferences, buying behavior, and market trends. This information can be shared with your product development and marketing teams, enabling your business to make data-driven decisions and refine your offering to better meet customer needs.
Speed to market.
Partnering with established channel partners can expedite market entry and reduce the time it takes to generate sales. Channel partners have pre-existing relationships, distribution networks, and knowledge of local markets. By leveraging their infrastructure and market presence, businesses can accelerate their go-to-market strategy, reducing the time and effort required to establish a direct presence.
Focus on core competencies.
Indirect sales channels allow companies like yours to focus on their core competencies, such as product development and innovation. By delegating the sales and distribution functions to channel partners, you can allocate more resources to areas where you excel.
You may want to consider a channel sales model if…
You have decided to shift your sales focus from consumers (B2C sales) to businesses (B2B sales) or vice versa.
Shifting your sales focus from consumers (B2C) to businesses (B2B), or vice versa, involves specific challenges and considerations. One of the key challenges is comprehending the fundamental differences in customer behavior between business-to-consumer and business-to-business markets. B2C sales typically involve individual consumers often making relatively low-value, emotional-driven purchasing decisions.
On the other hand, B2B sales often require longer sales cycles, involve multiple stakeholders, and are driven by decision-making based on business needs and return on investment (ROI). Understanding these behavioral distinctions is crucial for successfully shifting sales focus.You are expanding into new territories.
Expanding into new locations, whether domestically or internationally, becomes more manageable and cost-effective with a channel business model. Channel partners in the target region possess local market expertise, established relationships, and an understanding of cultural nuances, providing a competitive edge over direct expansion.
A food manufacturer in New Jersey that is targeting Chinese companies with US offices in Los Angeles and San Francisco may benefit from partnering with resellers in those cities who already have a relationship with these companies, understand the unique cultural differences, and can speak to customers in their native language. These customers will feel more comfortable building a relationship with a channel partner who is intimately familiar with their ways of doing business rather than your company, which will take considerably longer to come up to speed.You are targeting new markets.
To achieve business success, specialization and differentiation are crucial. Market-specific channel partners possess deep knowledge of their market and customers, including existing products, potential gaps, leading competitors, and opportunities for integration. Partnering with them enables businesses to tailor their offerings and messaging to resonate effectively with the target market.
Go-to-market strategy and market validation.
The most famous quote from the 1989 movie Field of Dreams is, "If you build it, they will come." This quote underscores the mindset of some businesses that believe their product or service is precisely what the market needs. All they have to do is launch it and customers will come knocking on their door. That is undoubtedly a myth.
It is critical that you research if your product or service is something potential customers actually want, if similar products already exist, who your competitors will be, and if it is an entry point to a new market or an upsell opportunity to an existing market. Before executing a go-to-market plan, you need to validate whether the solution, target market, and potential customers are the right fit and align with your business objectives.
Understand the following to determine if there is a real opportunity:
Market segmentation and research.
The first step is to determine if there are enough potential customers in the market you are interested in entering to make all of this hard work is financially viable. Reviewing market research conducted by independent third-party analyst firms will give you an overview of the size of your market, opportunities, the leading competitors, etc. For example, analyst firms and associations studying the IT services industry include IDC, Gartner, Forrester, 451 Research, and CompTIA. Effective market segmentation is essential when developing a sales channel strategy to align your products with the right partners in channel sales.
Market segmentation defined.
Understanding the target market and segmenting it based on factors such as demographics, geographic location, industry, or customer behavior is essential. This analysis helps identify the specific customer groups the product will cater to, enabling focused marketing and sales efforts.
The next step is to do an internal and external analysis.
Inside your company, engage your sales team to learn their feelings on this new opportunity. They are on the front lines of the sales process daily, having conversations with customers, attending industry events, and selling against competitive products.
Outside your company, survey your customers. Ask them if your new product or service is something they would be interested in. What would the benefits be? Determine why they would choose your solution over that of a competitor. You can also gain valuable information by participating in sales calls or listening to recorded customer service conversations. Mining your CRM database can also uncover valuable insights. Your goal is to develop a unique value proposition.
Market penetration strategy.
Will your market penetration strategy be an entry point or an upsell/cross-sell opportunity?
The point of market entry is the point at which new customers become interested in what you have to offer. By positioning your product so that customers become familiar with it as soon as their need arrives, your company and product can become the standard by which all other competitors are measured. This is a great position to be in and increases the likelihood that potential customers will purchase from you.
Market penetration strategy defined.
Determines the approach for market entry. It involves deciding whether the product will serve as an entry point for new customers or an upsell/cross-sell opportunity for existing customers. This strategy determines how the product will be positioned and marketed to maximize its market penetration potential.
Alternatively, current customers already using your product will be more open to considering your new offering. This sales opportunity will likely be successful as customers have already established a relationship with your business. Cross-sell opportunities enable you to sell complementary or related products to an installed customer base.
Product roadmap.
Does your new, proposed product fit within your existing product roadmap? This roadmap should include your plans for new products you will launch over the next 18 months. Will the new product you are considering fit within your existing product roadmap? Is it complementary and does it help round out your portfolio or is it just the "flavor of the month?"
Product roadmap.
Evaluating your product roadmap helps align your new product with your company's overall product strategy and goals. It involves assessing how the new product fits within the existing product portfolio, whether it complements other offerings, and if it helps fulfill customer needs more comprehensively.
For example, an electronics manufacturer planning to introduce a new smartphone would evaluate how it fits within its product roadmap. They may consider technological advancements, customer demand, and competition to ensure the new smartphone aligns with their long-term product vision and business goals.
Buyer persona.
It is critical for both your sales and marketing efforts to have a complete and clear understanding of exactly who your target customer is and what makes them tick. Create a buyer persona where you explain who your customer is.
If your target customer is a consumer or individual (business-to-consumer sales), your buyer persona may include their age, gender, income, geographic location, likes and dislikes, etc.
For example, a fitness equipment company targeting individual consumers may create a buyer persona with characteristics like age, fitness goals, preferred workout styles, and disposable income. This persona helps tailor marketing campaigns and product features to resonate with the target audience.
Suppose your target customer is a business (business-to-business sales). In that case, your buyer persona may include the company size, location, industry, whether the decision maker is business or technology focused, if they are a corporate executive or run a specific department, etc.
Buyer persona defined.
Developing a clear understanding of the target customer. Creating buyer personas helps define the ideal customer profile, including their characteristics, preferences, pain points, and motivations. This insight guides marketing messaging, product positioning, and customer engagement strategies.
Customer engagement.
How will your potential customers engage with your company to purchase your product? One option is for them to interact with your sales team – whether that is your direct sales team or the sales professionals who work for your channel partners.
The other option is a self-service model where a prospect visits your website, learns about the product, signs up online, and begins using it without speaking with a salesperson.
Since the requirements for each are very different to execute, it will be essential to determine up front which option will be more effective.
For example, a software company may offer a self-service model for smaller businesses, allowing customers to visit their website, sign up, and use the software independently. On the other hand, larger enterprise customers may require a direct sales team to engage in personalized sales discussions and provide demonstrations.
Marketing communications.
Once you have done your market research, understand your market penetration strategy, developed your buyer persona, and know how your customers will engage with your company and your product, you can complete the marketing component of your go-to-market strategy.
Your marketing communications strategy will include both brand building/brand awareness and demand generation activities. Still, your current market position and business goals will dictate the percentage of each.
Marketing communications.
Developing a comprehensive marketing communications strategy is crucial for creating brand awareness, generating leads, and driving product adoption. It involves determining the appropriate mix of brand-building or awareness activities and demand-generation tactics based on the company's market position and objectives.
For example, if you will sell your new product to your existing customer base, those customers already know your company, so brand awareness is not as important as generating leads through newsletters, your website, social media, advertising, webinars, and other demand-generation activities.
Suppose you have decided to enter a market requiring more visibility or brand recognition. In that case, you will need to begin with a brand awareness campaign to familiarize potential customers with your company and products. Then ramp up your demand generation campaigns.
Leverage another company’s brand equity.
Is there an opportunity for you to leverage the brand equity of other well-known manufacturers?
What is brand equity?
The inherent value and influence a brand possesses in the market, encompassing factors such as brand recognition, customer perception, loyalty, and reputation. It represents the intangible assets and competitive advantage contributing to a brand's ability to generate customer preference and drive business success.
For example, imagine your product is a car trunk organizer specifically designed for the exact size and shape of the Nissan Rogue, Toyota RAV4, and Tesla Model Y.
Your trunk organizer may be a product that Nissan, Toyota, and Tesla would be interested in including with every vehicle sold.
If this is the case, your marketing efforts can benefit as well. Since you will be able to use the logos and other marketing resources of Nissan, Toyota, and Tesla, the brand equity of these well-established companies will enable you to get the attention of prospective customers who might have yet to give your company a second look.
So, explore opportunities for partnerships, co-branding initiatives, or bundling products/services with established brands.
Of course, if you are going to market with a new product and were considering hiring your own sales team, you would complete the same go-to-market evaluation. You would determine if:
you have a viable product
there are potential customers interested in buying the product
your sales team could actually sell
if competitors exist
and if you have a unique value proposition
But, when deciding that an indirect channel sales strategy would be the more profitable and quicker option, many business owners overlook some of these items or believe the channel partner can resolve any issues that will arise.
This couldn’t be future from the truth.
Your product must align with the customer's needs, motivations, and goals. At the same time, your business model and sales strategy must align with your channel partners' needs, motivations, and goals to ensure a successful, long-term partnership.
Once you have completed your market validation / go-to-market strategy and decided that channel sales is the road you want to go down, the next step is to ensure that your company is "all in" and ready to execute a channel strategy.
The next step.
A thorough evaluation is crucial for long-term success before embarking on an indirect sales channel strategy. By considering market validation, go-to-market strategies, and aligning your business model with the needs of channel partners, you can create a winning channel sales strategy.
But this is only the first step. The next steps involve . . .
preparing your internal departments
partner recruitment and evaluation
program structuring
and marketing and support to execute your channel strategy effectively.
Through careful assessment and strategic planning, your business can achieve substantial growth and maximize revenue through an indirect sales channel.
Next, read part 2 in this channel sales series, Maximize Channel Sales: What Every Channel Partner Manager Must Know.
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