Definitions/Glossary

Frank Lynn & Associates-Specific Terminology

Channel Strategy – A plan that defines the channel mix (direct AND indirect) and deploys channel partners and programs to support the broader marketing and corporate goals of the company

Channel Framework or Structure – The formal arrangement of and relationships between the different types of partner types as designed by a company, and to include distribution steps (e.g., wholesale vs. resale), classifications related to partner functions (technical partners vs. logistical partners) and tiers related to partner performance (e.g., Gold vs. Silver)

Channel Program – A specific offering from a manufacturer to support its channel partners including, but not limited to sales, marketing, technical support, financial or logistical benefits. Also, the collection of all the individual offerings noted above

Channel-Related Terms in Common Use

Advisory Panel – A select group of partners convened one or more times a year to advise a supplier on channel-related issues

B2B – Business-to-business

B2C – Business-to-consumer

Certification – A process whereby a partner (or an individual employed by a partner) passes a test demonstrating a competency level in a given product, solution or skill. Suppliers may require that a partner employ a specific number of certified personnel in order to be authorized or qualify for a given level of authorization (see “Tiered Channel Program”)

Channel – Any entity that performs a significant sales, marketing, financial and logistics role in moving a product or service from the supplier firm to the end-customer. (see also “direct channel,” “indirect channel,” “partner,” “reseller” and “intermediary”)

Channel Conflict – The competition that occurs when two or more different types of channels try to sell to the same customers. Common forms of conflict involves direct channels competing with indirect channels, and one type of indirect channel competing with another type of indirect channel. Partners frequently look to suppliers to reduce the latter type of conflict through changes in pricing, policies or diplomacy. (see also “over-distribution”)

Channel Power – Refers to the ability of partners to influence the decision of a supplier, or vice versa. Power is useful in inter-firm negotiations/discussions involving investment levels, discount/rebate levels and strategic direction

Co-op Advertising Funds – Money made available to partners from suppliers (typically based on a percentage of purchases) to defray the cost of advertising the supplier’s brand/products

Deal Registration – A program in which a partner provides a supplier with information regarding an upcoming project and is given some type of priority (often in the form of an exclusive, additional rebate) for initiating the deal and informing the supplier. Deal registration is one means of managing channel conflict

Direct Channel – Any means by which a supplier sells to an end-customer using its own employees/resources without involving an intermediary (see “Indirect Channel”). May include field-based personnel, inside/phone sales teams, in-house online/Internet selling organizations

Discount – The percentage deducted from a product’s list price that sets the price at which a partner can purchase (see Functional Discount and Volume Discount) from a supplier

Disintermediation – The practice by which a supplier stops doing business with indirect channels and instead sells directly to the end-customer (See also “channel conflict”)

Distributors – A generic term (see “channel”) usually reserved for partners that serve the B2B market, not consumers. However, in the high-tech industry, distributor typically means a wholesaler (such as Ingram, Tech Data, Avnet, etc.) that acts as the first-step in a two-step supply chain to the end-user (see “wholesaler” and “two-step distribution”)

Dual Compensation – A method intended to reduce channel conflict by paying direct salespeople for sales made by partners into accounts assigned to the direct salesperson. Designed correctly, dual compensation should not increase a supplier’s overall sales cost

Ecosystem – The entire set of companies and organization, beyond just the partner community that support a manufacturer or industry. Examples of other entities beyond the partners including, consulting firms, training companies, web site designers, standards-setting bodies, industry associations, other (typically non-competing) suppliers, etc.

Go-To-Market – refers to the overall path or mix of channels a company uses to reach its end-user customers

Gray Marketing – The buying and selling of a manufacturer’s products outside of authorized channels

Functional Discount (see Discount) – A discount determined not by how much a partner purchases, but by the types of activities (functions) a partner agrees to perform.

Gross Margin Return On Investment (GMROI) – A measure of the financial benefit of a particular product, brand or category. GMROI is calculated by dividing a partner’s gross margin by their average investment in inventory.

Horizontal Markets – End-user segments defined in terms of applications that cross many industries. Examples include accounting, human resources, graphic design, manufacturing, etc.

Indirect Channel – Any intermediary company involved in the physical logistics, financing, marketing or sales of a supplier’s product. Although indirect channels typically refer to companies that take legal title to a product, they may also include reps/agents or influence channels (see Influencers)

Influencers – Companies that affect a customer’s brand or technical choices, but that do not resell the associated products. Influencers might include consultants, architects, training companies, software companies/ISVs, etc. (also see “Ecosystem”)

Intermediary – See “Channel,” “Partner,” and “Reseller”

Manufacturers – see “Suppliers”

Manufacturer’s Rep or Agent –  An independent sales company that manages other channels or sells to end users on behalf of a supplier, generally without taking legal title to the product and without representing competing suppliers

Master Distributors – See “Wholesalers”

Market Development Funds – Money made available to partners from suppliers to pay for partner marketing activities beyond just advertising (such as seminars, conferences/trade shows, “demo day” events, t-shirts and other promotional trinkets, etc.).   The level of funding is based on either a percentage of a partner’s purchases or the subjective value of the partner’s proposed marketing activity

Market Life Cycle – A concept that explains how the appropriate type of channel changes as a market matures

Metrics – Measurements used by a supplier to assess the success of a channel program. Examples include sales by channel, share by channel, number of certified partner sales reps, etc. Companies often use a “scorecard” or “dashboard” tool to organize the data. Suppliers use metrics to assess their channel partners and vice versa. Increasingly, companies are turning to more advanced data analytics to aid in forecasting and decision-making for channel strategy

Minimum Advertised Price (MAP) – A policy enacted by suppliers that penalizes partners for advertising a product below a stated minimum price. Often, suppliers will withhold co-op advertising funds as a penalty for violators of this policy

OEMs – A channel that buys components for its own manufactured and branded products and resells them through its own direct or indirect channels to the ultimate end user. OEMs typically assume all of the marketing, branding and sales responsibility for the final product. (For example, if a disk drive supplier sold its products to a PC supplier, the PC supplier would be considered the OEM)

Over-distribution – The situation that occurs when a supplier recruits/authorizes more partners than required to serve a market of a given size. The ensuing inter-partner competition reduces the market price and partner margin, typically leading some partners to drop their affiliation with the supplier. Over-distribution is often not an intentional supplier strategy

Partner – A generic phrase (see “channel” and “reseller”) often used in the technology market to describe intermediaries that have been certified, authorized or have some other type of formal relationship with a supplier. Some suppliers may still sell through non-partners (typically through a wholesaler), however, these non-partners don’t receive the comprehensive benefits offered to authorized partners

Partner Portal – A password-protected portion of a supplier‘s web site devoted to interaction with channel partners. Portals can include ordering capability, partner/program status or progress, marketing lead information, purchase history, training registration, access to marketing materials, etc. The software that powers the portal is often referred to as a Partner Relationship Management (PRM) system

Point-Of-Sale (POS) – Refers to the time/place a sale occurs. POS materials (also known as Point of Purchase or POP) describes collateral (brochures, signs, etc.) designed for display at a store. POS data refers to customer information (product purchased, amount purchased, customer name or ZIP code where purchased) collected by the partner. Most suppliers would like access to their partners POS data, including the sales price (see “Sell-Out”). Partners may be reluctant to share the data, especially the name of the end-customer for fear that the supplier may try to disintermediate the channel

Providers – see “Supplier”

Resale Price Policy – A policy instituted by a supplier that requires a partner to sell products above a stated price (minimum resale price policy), below a stated price (maximum resale price policy) or at an exact price. While such policies are legal in the U.S. and Canada, they are generally not permissible in the European Union. It is recommended that these policies be unilateral, e.g., not contractual or negotiated between the supplier and the partner. A consistent partner failure to abide by this policy ultimately will result in loss of a portion of the product line or termination of the relationship

Retailers – A channel that sells predominantly to consumers and small businesses through stores, catalogs or online

Reseller – A generic term referring to any member (company) of a sales/marketing channel that takes legal title and engages in selling efforts on behalf of a supplier

Return Material Authorization (RMA) – An approval by a supplier for a partner to return unsold product

Solution – A mix of products and/or services that answers a specific customer need, particularly a complex need

Sell-In (or Sell-To) – The amount of product a partner purchases from a supplier, valued at the partner’s acquisition cost

Sell-Out (or Sell Through) – The amount of product a partner sells to end-customers of a given supplier’s product, valued at the customer purchase price. Sell-out data, when reported to a supplier, can provide a more accurate picture of market conditions

SPIFs – Cash or other incentives given directly by suppliers to partners’ salespeople for each sale made

Stock-keeping Unit (SKU) – A SKU is the most finite label associated with a product. It refers to the specific product model, features and size

Supplier – The company that produces the product or service sold through the channel. May also be called the “manufacturer” in the case of tangible products, like computer hardware. “Provider” is another term frequently used, especially for companies offering a service. Software firms are sometimes called “Developers”

Supply Chain – (see Go-To-Market) Refers to the overall set of players involved in the physical logistics of moving a product from the supplier to the end-customers. Supply chains will involve not only the distribution channels, but component suppliers, transportation companies, intermediate warehousing companies, etc.

System Integrators – A channel that delivers complex and customized systems by managing sub-contractors and/or supplying its own technical staff

Tiered Channel Program – A hierarchical structure which rewards partners that meet certain requirements with greater benefits. Often these tiered channel programs have labels for the different tiers, e.g., Gold Partner tier, Silver Partner tier and Bronze Partner tier. In some cases the supplier may actually name/brand the program, e.g., IBM’s PartnerWorld. The tiered programs are an incentive for partners to improve their efforts on behalf of the supplier

Two-Step Distribution – Refers to a channel structure with two intermediary levels. Typically, these levels consist of a wholesaler (distributor) and the so-called second tier: retailers, dealers, VARs, integrators or other partners, that are not big enough or choose not to buy directly from the supplier. Companies can also sell directly (e.g., no steps) to customers, or one-step (from supplier to partner to customer). Rarely do companies sell with more than two steps

Turns, Inventory – A ratio of a partner’s revenue in a given period (measured by Cost of Goods Sold of a certain product category, brand or individual SKU) divided by the average inventory in that period. A turns ratio of 3 means a partner replaces its entire inventory 3 times per year, or once every 4 months.

Value-Added – Referring to services performed by partners that increase and frequently change the benefits inherent in the physical or original product

Value-Added Partners – A channel that provides a multi-product, often multi-vendor solution adapted to fit specific industries or applications.

Vertical Markets – End-user segments in specific industries, e.g., banking, manufacturing, state and local government, healthcare. (see Horizontal Markets)

Volume Discount (see Discount) – A discount determined by how much a partner purchases from a supplier in a given time period

Whole Product Concept – A framework describing the need to consider all relevant hardware, software and services an end-user needs to meet its computing requirements

Wholesalers – Companies that provide mainly logistics services linking a supplier to its partners. Wholesalers typically do not sell to end-customers, only to partners. Although wholesalers try to keep their costs low, some do offer value-added services to the partners in the form of marketing assistance, kitting, consulting, etc.