Transforming a Channel Strategy During a Severe Disruption

By: Jim Fogarty, Principal

We hope you and your families remain healthy and safe during this challenging time. As the scope and length of the Covid-19 pandemic continues to unfold, glimmers of hope are emerging as the number of new infections plateau or begin to decline in parts of Asia, Western Europe and the U.S. and countries in Asia and Western Europe are beginning to re-start their economies.

As governments and central banks across the globe launch massive fiscal and monetary stimulus programs, economists tune macroeconomic models to estimate the severity of the recession and the profile of the recovery. Each forecast is sobering and suggests our journey to the next normal will be challenging and fitful.

Within this context, we continue to talk to manufacturers, distributors, and colleagues in various industries across the globe to capture insights and perspectives regarding the implications of the Covid-19 disruption for direct and indirect channel strategies. We will periodically share these perspectives with you, and our hope is that, together, we will successfully navigate this shock.

Planning Context and Horizon

Companies have been responding to the Covid-19 social and economic shock for several weeks to several months depending on their geographic footprints. Given the forecasts from a range of epidemiological and economic models[1] and the tremendous uncertainty inherent in them, companies will continue these activities for the foreseeable future. Each organization will also need to continuously adapt to survive this shock, including evolving the roles of their direct and indirect sales, service, and support teams and the processes, practices, and tools they use to execute them.

The purpose of this second management brief is to continue to define actions required to triage a channel strategy and begin to define actions that can transform one as society and the economy transition to the next normal (see Figure One for a summary of the actions we discuss in our first and second Management Briefs).

Figure One – Economic Phases, Time Periods and Planning Stages

Companies that thoughtfully and purposefully navigate the disruption can innovate and creatively evolve and, in some cases, transform their value propositions, channel strategies, and economic models. To help management teams do so, FL&A suggests the teams consider three additional actions.

Continuously Adapt Sales, Service and Support Functions

While the National Bureau of Economic Research has yet to officially declare a recession, the International Monetary Fund and a variety of economists anticipate we will experience a severe one.[2] Given the length and severity of the various scenarios, companies should be poised to continuously adapt their customer and vendor engagement models to avoid lost sales, service disruptions, unresolved field problems and permanent loses of market share.

As the disruption persists, companies with more involved and complex sales, support, service, and procurement models will likely need to evolve beyond basic virtual interactions to more digitally enabled ones. Companies that, for example, normally use product samples during face-to-face meetings and now ship them in advance and virtually orchestrate their pitches may find it an ineffective and unscalable approach. These companies will likely need to investigate, vet, test, and deploy a virtual and augmented reality or holographic application to simplify, improve, scale, and lower the cost of this process.

Manufacturers of rugged, fitted personal protective equipment may risk losing sales if they continue to rely on in-person sessions to size users. Since it may prove impractical to ship expensive sizing sets to enable the process, they may find it necessary to seek, vet, test, and deploy a more effective, economical, and scalable virtual 3D body scanning and measurement application to do it. Manufacturers of complex equipment that cannot enter customer facilities may find ad hoc use of video feeds from smart phones an ineffective way to remotely troubleshoot and repair non-functioning equipment. They may need to search for or accelerate the use of augmented reality technical support applications to facilitate these processes.

Prolonged social distancing mandates, altered social norms, and a deep recession will press and, in many cases, require manufacturers, sales channels, and end customers to search for and implement creative alternatives to execute critical elements of the customer and supplier engagement models. Without them, they risk amplifying the adverse effects of the shock.

Actively Monitor and Proactively Mitigate Other Risks

As the disruption persists, sales, service and support roles will change as companies adapt new customer and supplier engagement models and new social distancing and interaction norms take root. With prolonged financial stress, demand in many sectors will slow and decline, price pressure will increase, and sales channel and competitive landscapes will alter. Each issue presents challenges for a channel strategy.

Evolving sales-related roles require companies to design new competency models and provide training and support resources to facilitate the changes. Companies will also need to enable first-level sales and channel managers to skillfully and empathetically execute the change so front-line personnel remain engaged and productive.

If demand collapses or surges, highly leveraged sales compensation plans can distract and demoralize sales professionals or provide extraordinary pay-outs, respectively. Manufacturers and indirect sales channels should proactively adapt highly variable compensation plans to fairly mitigate the downside risk and manage the extraordinary, upside potential.[3]  Similarly, manufacturers whose indirect channel compensation programs include sales volume-related requirements or growth incentives should consider similar changes.

Price pressure is likely to increase as end users search for the best values among competitive alternatives. Manufacturers should define and implement strategic pricing approaches to ensure their direct and indirect sales teams maintain pricing discipline and selectively extend strategic prices and offer incremental value to qualified, target customers and prospects.[4]  Manufacturers and sales channels will safeguard critical customer relationships and protect the value of their brands with disciplined pricing practices.

The channel landscape is shifting and will continue to do so. In some industries and product categories, a surge in online volume accelerates an existing trend and represents an enduring change. Manufacturers should actively monitor, anticipate, embrace, and adapt to changes in every aspect of target end user’s purchasing journeys and channel preferences to avoid permanent sales and market share loses.

The length and severity of the recession will put many indirect sales channels’ businesses at significant risk. Across industries and geographies, manufacturers will witness bankruptcies and consolidation that cause coverage gaps and increase concentration and power in various categories of sales channels. Manufacturers should actively monitor the financial health of channel partners, identify critical risks, and create resiliency plans. Without them, manufacturers will experience coverage gaps and lose sales and market share.

The Covid-19 disruption will also alter the competitive landscape. Companies should actively monitor the financial health of competitors and proactively anticipate the changes they will make to their target markets, value propositions (including pricing practices) and channel strategies. Companies should factor the shifting competitive dynamics into their plans to enable them to compete and win in the volatile market.

Reimagine the Channel Strategy

The Covid-19 shock has forced manufacturers, indirect sales channels, and end users to radically alter behavior overnight, and the depth, length and profile of the recession and recovery will apply continuous pressure on all stakeholders for an indeterminate length of time. In this context, companies have an opportunity to reimagine channel strategies and gain sustainable, long-term competitive advantage.

As companies race to find alternative ways to enable critical elements of their customer and supplier engagement models, each solution and combination of solutions provides an opportunity to design more effective, efficient, scalable, and resilient approaches. Some digital solutions, for example, may enable manufacturers and channel partners to broaden the reach of their most qualified personnel and reduce the time and cost of doing so while others will eliminate inherent inefficiencies in their current practices. Companies can also use this process of discovery, design, and experimentation to further engage, collaborate and co-create with channel partners, end users, and vendors and increase the strength and intimacy of their relationships and the value of their brands. Through this process, companies can re-imagine ways to interact with and serve, customers, prospects and vendors, re-think roles, and re-allocate functions… critical variables that inform the design and transformation of a channel strategy.

Summary

Collectively, these three actions are designed to help manufacturers continue to triage the evolving implications of the Covid-19 shock and begin to focus on opportunities to successfully transition to the next normal. Redesigning critical activities of the sales, service, support, and procurement functions and mitigating the risks of other key, related issues help manufacturers enhance the resiliency of their channel strategies and simultaneously reimagine them. Research reveals that companies that strike the delicate balance between strategic cost cutting and investment break-away from their competitors as society and the economy transition to the next normal.[5]

We will continue to periodically share ongoing perspectives as the Covid-19 disruption evolves, and we invite you to contribute your voice to this conversation. You are welcome to contact us at the following addresses:

John Henderson: hendy@franklynn.comCarl Cullotta: cpc@franklynn.com
Jim Fogarty: jfogarty@franklynn.comStephen Martin: smartin@franklynn.com
Tracy Moag: tmoag@franklynn.com 

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[1]   Various sources including William Wan and Carolyn Y. Johnson, “America’s most influential coronavirus model just revised its estimates downward. But not every model agrees,” Washington Post, April 8, 2020;  Sven Smit, Martin Hirt, Kevin Buehler, Susan Lund, Ezra Greenburg, and Arvind Govindar, “Safeguarding our lives and our livelihoods: The imperative or our time, McKinsey & Company, March 2020; Charles Riley, “The world hasn’t seen a recession this bad since the 1930s. The recovery is far from certain, CNN Business, April 14, 2020.

[2]   Charles Riley, “The world hasn’t seen a recession this bad since the 1930s. The recovery is far from certain, CNN Business, April 14, 2020.

[3]   For examples of potential changes, see Steve Grossman, “So now what do we do about paying our salespeople?”, Steve Grossman & Associates, Ltd., March 25, 2020.

[4]  For examples of strategic pricing approaches, see Kirk Jackisch, Fred Puech, “B2B Companies Can Navigate Times of Crisis with These Pricing Strategies”, Pricing Solutions, April 2020.

[5]   Ranjay Gulati, Nitin Nohria, and Franz Wohlgezogen, “Roaring out of Recession,” Harvard Business Review, March 2010.

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