Channel Selection for New Product Launches

I have been reviewing the go to market strategy for two ventures, both of which are trying to penetrate new markets. The first is an established B2B SaaS company that has a huge customer base of SMEs and wants to enter the UK market. The second, is a UK startup trying to launch an innovative new product in the B2C insurance space. Both decided to pursue a channel sales strategy which made sense on paper. But after detailed discussions, they agreed to re-evaluate their approaches.

A channel sales programme is a significant investment once the partner identification, contractuals and ramp up costs are taken into account. Done right, it offers the chance of rapidly increasing sales and generating positive buzz that propels the business to the next level. The wrong strategy can set you back a year or more and in the case of startups, be a life or death question.

This article reviews important considerations for identifying the right channel(s) for new product launches.

1. Which channels do your target customers use/transact through?

All organizations consider this question very carefully. What channels have regular contact with my customers? For example industry associations are venues where B2B SMEs regularly interact with each other and prospective vendors. SME decision makers have also developed trusted relationships with local resellers who are happy to position new products. In the case of B2C product targeting consumers searching for insurance, the internet is the best medium as many people compare prices online. Internet traffic acquisition channels include SEM (Google AdWords, Yahoo etc), display advertising and affiliate networks as well as direct partnerships with sites that attract relevant traffic. Typically, several channels will be identified that can be used to target customers for a single product.

2. Product Channel fit: Is the channel motivated and able to sell or service the product properly?
The next thing to do is match the prospective channels to the product category. It is important to decide beforehand if you want the channel to perform either lead generation, close deals or service the product, or all or part of these. The tradeoffs are that lead generation is a low touch activity, while closing deals and supporting customers can involve significant partner investment and hence revenue sharing.

Questions to ask include:

• Has the product demonstrated success for its target customers in the channels that you have selected? Partners are more willing to promote and sell a proven product. In a new product launch, it is helpful to invest time in acquiring beta customers directly to serve as references.
• Is the product simple for third parties to position? Does it require significant training on behalf of the partner? Groundbreaking or complex high value products are usually better left to a direct sales force which has undergone comprehensive training.
• As a proportion of a channel's customers, how many fall into your target segments? Partner sales managers prefer to promote products that appeal to the broadest number of their customers. If your product appeals to less than 50% of a channel's customers, you may need to invest significant effort in proper segmentation.
  
• Does it fit into the partner's portfolio, or even enhance the value of a bundled offering? In the case of an affiliate or partner website, does this product help the partner's positioning of their site?
  
• What is the sell price of the product relative to the typical transaction through this channel? Can your product help the salesperson meet their revenue or margin targets? Is the affiliate revenue or margin share competitive relative to other products being promoted?
• Does the partner sell or service products that compete with yours? Could your channel program be subsidizing your competitors' products?

Be wary of partners that have the customers you want to target, but have a different focus. I have seen several examples of channels that failed to deliver as the product was not a good fit with the rest of the partner's portfolio.

3. Is it economically viable?

Channels can be well aligned with customers and products but still be economically risky to pursue. Many of the questions in the previous category help you to identify the true costs of a partner launch.

Questions to ask to include:

• How many transactions can this channel accomplish relative to the total cost of launching the product? How much work will it entail to modify the product to make it fit into the channel? How much is the cost of training and supporting the partners on an ongoing basis? Be sure to validate your penetration and cost assumptions with the closest substitutes.
• What is the opportunity cost of launching in the channel and helping it get up to speed? In a fast moving market, will your competitors be able to steal a march on you through direct sales? In offline channels, there is sometimes a long lead time involved in getting partners to launch your offering. This is especially true of deployments with volume channels such as Telcos which have deployment roadmaps that extend into several quarters and require much preparation on behalf of the vendor.
  
• What is the cost of failure? If the partner fails to launch or support the product on your behalf, how much more will you have to invest for a re-launch?
• How does this compare with direct sales?
  

After going through this thought process, the B2B venture is evaluating a phased telesales through to reseller model, that allows it to achieve initial success quickly and then experiment with a channel strategy. The B2C venture has realized that SEM (Google AdWords/Yahoo etc) is too costly for the market they are entering. They are investigating a sales and marketing combination of affiliates, PR and social media to showcase the innovation their product can bring to the insurance market.