1. Engineering 245The Lean Launch Pad Session 5: Channels Professors Steve Blank, Ann Miura-Ko, Jon Feiber http://e245.stanford.edu

2. Channels How does each customer segment want to be reached? Through which interaction points? 1

3. Test Hypotheses: Channel 2

4. Two Critical Questions about Channels First one is obvious: How do you want to sell your product? 3 1 Second one is subtle, but more important than the first: How does your customer want to buy your product? 2

5. How Do You Want to Sell Your Product? Yourself Through someone else Retail Wholesale Bundled with other goods or services 4 ü ü ü ü ü

6. How Does Your Customer Want to Buy Your Product? Same day Delivered and installed Downloaded Bundled with other products As a service … 5 ü ü ü ü ü ü

7. Nature of Product Impacts Channel: Atoms or Bits? Access to customers changes dramatically Logistics related to product complexity People as products 6

8. The Sales “Channel” 7 Web System Integrators Your Company Your Customers Direct Sales Force Value-Added Resellers (VARs) Dealers Distributors Retail/Mass Merchants

9. Types of Channels OEM VAR Reseller Distributor 8 Direct Indirect Licensing

10. The Channel as a Customer Some products are embedded in others (OEM) Some products are resold by others (VARs) Some products are distributed by others Who’s the customer? 9

11. Distribution Complexity 10 Evangelists Global Systems Systems Integrators WANs Mainframes Direct Sales Higher Volume Minis LANs VARs Marketing Complexity PC Servers Higher Value Added Desktop PCs Retail Printers Keyboards ServiceTechnicians Web, Telesales Toner Solution Complexity

12. How Are Channels Compensated? Commission Percentage of sales price Discounted pre-purchase 11

13. How Are Channels Motivated or Incented? Money! – what makes them the most? Training Marketing to the channel SPIF 12

14. Channel Economics: “Direct” Sales 13 ListPrice Revenue Cost of Goods(Supply Chain) Profit + SG&A + R&D EU Discounts End Consumer Source: Mark Leslie, Stanford GSB

15. Channel Economics: Resellers 14 ListPrice Revenue Cost of Goods(Supply Chain) Profit + SG&A + R&D Reseller EU Discounts End Consumer Source: Mark Leslie, Stanford GSB

16. Cost of Goods(Supply Chain) Profit + SG&A + R&D Channel Economics: Distributors/Resellers 15 ListPrice Revenue Reseller EU Discounts Distributor End Consumer Source: Mark Leslie, Stanford GSB

17. Channel Economics: OEM or IP Licensing 16 ListPrice Revenue EU Discounts Reseller Distributor Master Distributor Profit + SG&A + R&D Cost of Goods(Supply Chain) End Consumer Reseller Profit + SG&A + R&D Cost of Goods(Supply Chain) Your Product Becomes Your Customer’s COGs Source: Mark Leslie, Stanford GSB

18. Example: Book Publishing 17 Publisher National Distributor Printer Wholesaler Retailer Customer

19. Book Publishing 18 Publisher National Wholesaler Distributor Retailer Customer Percent of Retail 35% 15% 10% 40% $7.00 $3.00 $2.00 $8.00 $20.00 For their efforts, distributors take an additional 10% of retail. That means you get 35% of retail, the distributor gets 10%, the wholesaler gets 15% and the retailer gets 40% less any discount they offer the end customer

20. Book Publishing Economics 19 Publisher National Distributor Wholesaler Retailer Customer Allowances Wholesale costs Bills Markup Credit guarantees Payment guarantees Payment guarantees Return rights Credits Payments

22. Print orders

23. Bundle counts

25. Create demandPrepare galleys Print and ship magazines Acknowledge returns Dispose of returns

26. Bits vs. Atoms 21 Channel Web Physical Bits Product Physical

28. Fastest to acquire early customers and scaleBits Product Physical

30. Twitter

31. Facebook

32. Zynga

33. Cloud ServicesBits Product Physical

35. Fastest to acquire early customers and scale

36. Rapid Agile and Customer development

37. Traditional sales channel

38. May require installationBits Product Physical

40. Twitter

41. Facebook

42. Zynga

43. Cloud Services

44. Microsoft

45. SAP

46. OracleBits Product Physical

48. Fastest to acquire early customers and scale

49. Rapid Agile and Customer development

50. Traditional sales channel

52. Logistics, shipping and manufacturing critical

53. Customer servicePhysical

55. Twitter

56. Facebook

57. Zynga

58. Cloud Services

59. Microsoft

60. SAP

61. OracleBits Product Zappos Amazon Cafepress Netflix Consumer electronics Physical

63. Fastest to acquire early customers and scale

64. Rapid Agile and Customer development

65. Traditional sales channel

67. Logistics, shipping and manufacturing critical

68. Customer service

69. Longer customer feedback cycle

70. May require large capital requirements for scalePhysical

72. Twitter

73. Facebook

74. Zynga

75. Cloud Services

76. Microsoft

77. SAP

79. Solar panels

80. Wind turbines

81. Bookstores

82. Consumer electronicsPhysical