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.

How Can Your Company Enable a Resilient Channel Strategy During a Severe Disruption?

By: Jim Fogarty, Principal

We hope you and your family are safe and well during this unprecedented time. The Covid-19 pandemic is a humanitarian tragedy affecting millions of people in our global community, and it is causing an extraordinary social and financial disruption. The intent of this brief is to share perspectives regarding the implications of the disruption for a company’s channel strategy, the method it uses to cover and serve its target markets and deliver exceptional customer experiences.

We initiated conversations with clients and colleagues across the globe to capture insights and perspectives, and we will periodically share them with you as the situation evolves. Our hope is that, together, we navigate the situation in an intentional, empathetic and successful way.

We invite you to contribute your voice as well. You are welcome to contact a member of our team to share your perspectives; we provide contact information at the end of this brief.

Planning Context and Horizon

Prior disruptions sensitized management teams to the importance of contingency and resiliency plans. The varying and dynamically changing shapes of the Covid-19 pandemic transmission curves and governmental and health policy responses across the globe reinforce the need to continuously and dynamically adjust them.

As health experts calibrate the transmission curves, management teams can begin to assign time frames to three important stages of their plans: Triage, Transition, and Innovate and Transform (see Figure One).

Figure One—Economic Phases and Planning Stages

Economic Phase:Severe Social and Economic DisruptionRecoveryNext Normal
Time Period:Immediate, Short-
to Mid-term
Mid-Term to Long-TermLong-term
Planning Phase/Perspective:TriageTransitionInnovate and Transform

Most of the global community is in the throes of the severe social and economic disruption. As it continues and amplifies and the social and fiscal responses emerge and evolve, management teams are quickly responding to the fluid situation… empathetically leading their teams, guiding and enabling transitions to home-based work and virtual interactions with key stakeholders, identifying and adapting to disruptions in supply and demand, assessing fiscal stimulus packages, calibrating cash flow and analyzing financial scenarios, etc.

As social and economic activity in select geographic regions begins to re-start, ramp-up and accelerate, the initial recoveries will likely be fitful and require continuous, nimble responses and adaptations as the initial experiences in China and Hong Kong suggest. A company’s successful evolution to the “next normal” is likely to depend on the actions and posture it takes as it triages and transitions. Research reveals that management teams that balance strategic cost-cutting and investment during disruptions are best positioned to outperform competitors as the economy transitions to the next normal.[1]

Critical Actions at this Moment…

Our hope is that this and subsequent briefs help your team successfully navigate the disruption and identify market and operational opportunities that enable it to adapt and enhance its channel strategy as it races to triage the many immediate human resource, supply chain, operations, and financial challenges associated with the Covid-19 shock.  In the near-term, we suggest the team consider four key issues:

  • Actively Engage Direct Sales Teams and Channel Partners— like the company itself, its direct and indirect sales teams are navigating uncharted waters. Direct and indirect sales, customer service, technical support and service teams are transitioning to virtual roles (the first “Zoomer” sales team cohort) as they also deal with the personal and emotional issues related to this human tragedy. Therefore, clear, coordinated, empathetic and continuous communication is required to provide the leadership and support they need to remain focused and engaged so they can productively contribute to the enterprise’s survival and innovation. If the existing compensation plans encumber the teams’ focus and performance, then the management team should adjust them to accommodate the radically changing circumstances and provide ongoing support as their roles change.
  • Continuously (Re)Calibrate Supply and Demand and Align Sales Efforts— companies are dynamically adjusting to the shifting sands of supply and demand. Clients have shared examples of demand surges in specific sectors like healthcare equipment (ventilators), pulp and paper and food. They have also described demand collapses in other sectors like hospitality, entertainment and oil and gas. Sales teams are scouring sales funnels to verify and close near-term opportunities and properly nurture the remaining, qualified ones to safeguard sales and cash flow. A partial list of the supply and demand patterns in a mix of industries demonstrates the fluctuating patterns these teams are dynamically navigating:

INDUSTRY SECTORS
Travel (e.g., aerospace and rail): ↓Construction: ─ (short-term); ↓ (mid-term)
Hospitality (e.g., hotels, restaurants and bars): ↓Medical Equipment: ↑critical modalities; ─ / ↓ other modalities
Entertainment: ↓Pulp and Paper: ↑
Retail: ↑ (on-line); (brick and mortar)Agriculture: ↑
Automotive: ↓Technology: ↑
Oil and Gas: ↓Government: ↑

The direct and indirect sales teams are positioned to spot changes in demand and customer behaviors. With the proper guidance, support and feedback mechanisms from sales leadership, they can provide the insights to keep direct sales teams and channel partners focused on viable, near-term opportunities. Since the demand patterns during this shock will likely fluctuate more rapidly and unpredictably than they do during a financial disruption, this market insight is critical.

As the disruption continues, management teams should also provide the team with guidance and feedback mechanisms so it can provide insights that spark innovations in value propositions, customer engagement models, sales processes, sales tools, etc. that provide competitive advantage during and after it.

  • Monitor and Dynamically Adjust to Changes in Purchasing Patterns and Behaviors— business and consumer purchasing patterns will change. As companies come under increasing financial stress, many (depending on the sector) will likely delay or cancel capital purchases and focus on maintenance (emergency, preventive and predictive) and repairs to reduce their cash outflows. These patterns emerged during the last recession and persisted after the recovery.

    Companies that serve industries that normally have significant new project activity should calibrate and closely manage investments in specification and quoting activities since the mix of short- and long-term opportunities may materially shift. Within this context, leadership teams, with input from market participants, can also proactively define solutions their sales teams can use to intercept customers and prospects in target markets that are searching for creative ways to reduce their operating costs.

    Since these evolving purchasing patterns will likely endure through the recovery and shape the next normal, management teams should dynamically tune product mix forecasts and align sales resources, activities, processes and tools to align with them.

  • Enable the Resiliency of Channel Partners— channel partners are grappling with the same business continuity issues as the companies they represent, so their businesses are under stress as well. Given the nature of the channel management function, companies will benefit from a proactive and coordinated approach. Senior sales or channel management leaders should organize a team to structure and coordinate its response and actively monitor the performance of its portfolio of channel partners. In the immediate time frame, this team should:
    • Communicate— structure, facilitate, coordinate and enable clear, empathetic and continuous two-way communication with internal stakeholders across all functions and channel partners. The team should brief channel partners on the company’s situation, plans and expectations. It should also proactively and continuously solicit insight and guidance in a structured way from channel partners so it understands the issues affecting their businesses and informs its plans and actions
    • Arm Channel Managers— savvy channel managers can help channel partners navigate this shock; therefore, the team should position them to do so. In the immediate time period, the team should guide and enable channel managers to:
      • Proactively communicate with channel partners and solicit their insights, feedback and guidance in a structured way
      • Proactively collaborate with channel partners to recalibrate sales forecasts and re-assess opportunities in the partners’ sales funnels
      • Facilitate channel partner’s transition to virtual selling and support by sharing and training them on new software applications and changes related to evolving sales and service skills, practices, processes, and tools
      • Provide guidance regarding how channel partners can adjust their sales incentive plans to retain personnel and keep them engaged and focused on critical activities, if it has the resources to do so
      • Brief channel partners on the company’s supply patterns and allocation approach
      • Share insights on demand patterns and brainstorm ways to continuously tap into qualified pockets of demand so channel partners can dynamically align their sales efforts with viable targets such as geographies, industries, applications, and accounts
      • Fine-tune short-term, tactical marketing plans and activities so they align with the demand patterns
      • Proactively provide guidance so channel partners manage stocking plans and purchases to optimize their working capital investments
      • Spot and bridge liquidity issues if the manufacturer has the financial wherewithal to do so (e.g., modify terms and conditions) or provide insight to help channel partners tap into the emerging government-provided financial assistance programs if it is able to do so
      • Ideate new value propositions to spark demand as customers’ requirements and purchasing patterns change
    • Increase Rigor of Channel Management Process— more frequent and structured interactions with channel partners will inform and help the company refine its activities, respond to dynamic changes, and execute its actions. The team should also help channel managers define, track and monitor a mix of leading indicators to help spot impending distress that may compromise the company’s market coverage (e.g., weak sales funnels, significant lay-offs, late payments, etc.). Channel management teams should proactively develop contingency plans to maintain coverage in areas at risk.

Summary

Collectively, these four actions are designed to help manufacturers focus immediate- and short-term sales efforts on qualified targets, spot and navigate shifts in demand patterns, mitigate risks that compromise market coverage, and innovate and transform offerings and channel strategies.

We will 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.comBob Segal: bobsegal@franklynn.com
Stephen Martin: smartin@franklynn.comTracy Moag: tmoag@franklynn.com

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