Channel Mix

Channel mix is about the coverage of a company’s overall market with multiple channels. Channels in a mix coexist, each providing a different route to customers. The purpose of developing a channel mix is to intercept a broad range of purchasing transactions, and thus increase sales and your market share.

In order to create a market coverage model, you have to begin by dividing your overall market into discrete "product markets" such as "simple products sold to consumers" and "customized solutions for mid-sized accounts," etc. One such matrix is shown in the figure below:

The product-market grid allows to align company’s offers with the best selling opportunities. Once those channel opportunities are clear, channel strategy jumps to center stage. After all, channels are nothing but pipes connecting your products with customers.

There are three practical ways to fill this grid:

1. Selective market coverage—Assign one channel to serve one product market only.

The figure above shows a sample selective market coverage model. As is apparent, the simple-SOHO (Small Office / Home Office) market is served by the Internet, whereas complex solutions are sold to Fortune 500 companies using a field sales force. This chart illustrates the basic concept behind the selective coverage mode i.e., keep each channel in its silo, serving a discrete and unique group of customers on its own.

Advantages:

Minimal channel conflict – Since each channel is selling in its own silo, there is a very little chance of them bumping into each other.
Ease of channel performance management – It is easy to monitor the performance and sales activities of individual sales channels when each of them is assigned to a discrete market.

Disadvantages:

Practicality – It is difficult to execute this model in real life. For example, a reseller assigned to sell a product in a smaller market may covet larger opportunities and pursue customers that they are supposed to avoid, as they often do. Customers assigned to one channel such as a reseller may also decide to use other channels e.g., the Internet. This breeds resentment among channel partners who were promised a certain group of markets.
Customer dissatisfaction – Customers want choices—they don’t want to be told how to buy things. Attempts to force them into a particular channel fail. They either go to channels they prefer or they go to a competitor.

2. Intensive coverage – Use all available channels to sell all products to all customers.

The intensive market coverage model allows maximum flexibility so customers can do business where they want and how they want to do it.

Advantages:

Alignment with customers’ buying trends – It meets customers on their own terms, and lets them migrate to their preferred channels.
Deeper market penetration – An aggressive use of all possible channels allows you to capture maximum transactions.

Disadvantages:

Margin erosion – When channels compete for the same sales, channel conflicts arise, resulting in eroded margins and, in some cases, defection of the best partners.
High costs – Providing a large number of channel inventories to cover the same market segment is not cost-effective. These channels need to be built, maintained and managed, and that costs money.

3. Hybrid market coverage – mix of selective and intensive market coverage model

In the hybrid market coverage model, a critical mass of buyers is supported by intensive channel coverage, whereas unique product-market segments such as premium customers are served by selective channels e.g., by a field sales force. The figure above shows a sample hybrid market coverage model.

Advantages:

Extensive market coverage – Just like the intensive market coverage model, the hybrid model offers deeper market reach, giving customers in those markets the flexibility that they need.
Premium service for premium customers

Disadvantages:

Channel conflicts – Conflicts over tasks and territories may develop in main markets served by multiple channels
Higher sales costs

Whichever market coverage models you choose depend upon your business objectives and conditions. However, the hybrid model offers the best of the both worlds. While designing a market coverage model, there are four basic principles to follow. They are:

Align intensively covered markets with the "critical buying mass," meaning the market segment with the best revenue growth opportunities should be thoroughly covered by multiple channels.
Manage the channel mix for profitability, not just sales. The goal of a business is to make money that you can keep. Only money you can keep is profits. Unless you have deep pockets, don’t risk the profitability of your business for a larger market share.
Save selective coverage for when it really counts, for example, reserve your field sales force for premium accounts or the Internet for simpler products; otherwise, just go for intensive coverage.
Beware of channel conflicts, particularly with indirect channels. As discussed before, there is no real way to solve channel conflicts, so play it by ear and strive for channel cooperation.

In the next section, "Channel Integration" we will see how to improve profitability for each sales channel by integrating them in one coherent system.

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Reference:

The Channel Advantage by Lawrence Friedman and Tim Furey

1. Selective market coverage—Assign one channel to serve one product market only.

2. Intensive coverage – Use all available channels to sell all products to all customers.

3. Hybrid market coverage – mix of selective and intensive market coverage model

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Reference:

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