© 2014 Blue Canyon Partners, Inc.

Managing complex channel

relationships while creating

value for end customers

SAMA 50th Annual Conference

May 20 & 21, 2014

12. Managing complex channel relationships while creating value

for end customers David G. Hartman, Principal, Blue Canyon Partners Denise Hampton, Director, Zebra Technologies William Moore, Senior Vice President, SKF

Presenters:

©2014 SAMA Annual Conference

David G. Hartman

Principal Blue Canyon Partners

• More than 15 years experience working with major B2B corporations to develop growth strategies and strengthen B2B customer relationships

• Serves as Director of Blue Canyon’s China Practice and CEO of Blue Canyon & China Associates in Beijing

• Ph.D. in economics from Harvard; B.A. and M.A. degrees from Northwestern University in mathematics and economics

Denise Hampton

Director, Channel Strategy, Programs and Marketing Zebra Technologies

• Responsible for channel program strategy and governance, channel marketing and channel development

• Accomplished marketing and sales strategist who has held a variety of positions in marketing, sales operations and channel strategy during her 18 year career

• BS degree in Speech Communications from the University of Wisconsin and an MBA from the Lake Forest Graduate School of Management

William Moore

Senior Vice President, Sales Development & Channel Management SKF

• More than 30 years of experience selling industrial products to and through Industrial Distributors, Specialty Resellers and Representative Agencies as well as directly to consumers and OEMs

• Currently responsible for managing SKF’s sales and development of indirect selling channels as well as leading SKF’s U.S. campaign to engage with major end users and distributors in a TCO environment

• Presents SKF’s value selling experience to MBA students at the London School of Business

Session Goals

• Managing market change • Understanding the customer chain • Identifying winning approaches

Themes

• Trends and Environmental Factors • Working with Channel Partners • Cost to serve

Polling Question #1

During the economic recession, what happened in your industry? a) Channels contracted b) Channel partners expanded goods and services c) Channels consolidated d) All of the above e) None of the above

Polling Question #2

Do you consider your channel partner to also be a competitor? a) Yes b) No c) Not currently, but it is likely d) I am not sure

Polling Question #3

How well do you and your channel partners divide responsibilities to make serving strategic customers cost-effective? a) Very well; we are highly efficient b) Not ideal, but too costly to change c) Not sure; difficult to determine d) Unknown as to what the channel is doing

References

• The Imperative for Active Channel Management, Bruce Karr and Atlee Valentine Pope, ©2014, Blue Canyon Partners, Inc.

• Supplier Driven and Channel Driven Business Models, Atlee Valentine Pope and George F. Brown, Jr., ©2006, Blue Canyon Partners, Inc.

• Sales Models in Business Markets with Complex Customer Chains, Atlee Valentine Pope and George F. Brown, Jr., Summer 2008, Sbusiness

David G. Hartman (moderator) dgh@bluecanyonpartners.com Denise Hampton dhampton@zebra.com William Moore William.c.moore@skf.com @bluecanyonptrs

12. Managing Complex

Channel Relationships

While Creating Value for

End Customers

Executive Summary

12. Managing Complex Channel Relationships While Creating Value for End Customers Executive Summary

2

©2014 Blue Canyon Partners, Inc. All rights reserved.

This year’s Strategic Account Management Association’s Annual Conference, held May 19 to May 22 in

Orlando, Florida, included a concurrent session on managing complex channel relationships. The session was

held twice over a two-day period. More than 50 strategic account managers, business executives, and

corporate leaders attended the session and participated in lively discussions around channel consolidation;

new, emerging channels (supported and unsupported); channel competition; and channel succession.

The session was moderated by David G. Hartman, principal of Blue Canyon Partners, a B2B growth strategy

consulting firm. Joining David were two individuals with nearly 50 years of combined experience in channel

design, strategy, and development—Denise Hampton, director of Americas channel strategy, programs and

marketing for Zebra Technologies, a global leader in the design and manufacture of thermal printers, radio

frequency identification products and real-time locating systems, and William Moore, senior vice president of

sales development and channel management for SKF, a leading worldwide manufacturer and supplier of ball

and roller bearings, linear motion products, precision bearings, spindles and seals. Denise and Bill shared their

real-world experience, leading practices and insights around trends, how their companies are working with

channel partners while adapting to and managing change, and what challenges and opportunities they are

seeing around a number of areas, such as new, emerging channels and cost-to-serve. Interactive polling was

used to gauge what members of the audience were experiencing, and aided in the discussions around these

topics.

Growth and Change

When asked what scenarios have emerged in their channels during and since the economic recession, more

than 90 percent of those who participated in the polling shared that major challenges have emerged in their

channels. While some shared that channels contracted (19%), others indicated that there has been

consolidation in the channel (24%). While those moves have helped channels survive, there are challenges as

well. For example, a number of channel partners took on competitive product lines, including low-cost Chinese

products, sometimes private labeled by the channel itself.

Bill commented that at SKF, which serves the industrial goods and MRO market, the economic recession

resulted in significant downturn in demand. The market shrunk and competition intensified among direct

competitors as well as SKF’s channel partners, which are all multi-brand distributors in the United States who

sell SKF’s and every one of its competitor’s products. The market share wars intensified, which brought a

number of pressures on SKF.

Denise indicated that Zebra’s market share was not impacted due to Zebra’s strong brand. However, where

Zebra did see a change was in end user buying behavior. Like many consumers today, Zebra’s end customers

now do a lot of their own research, have easier access to information, and are more knowledgeable when it

comes to being able to use Zebra’s products without the services of a system integrator. Hence, coming out of

the recession, end users began using different channels, such as Internet B2C and B2B IT marketers, which

were growing more quickly than traditional channels, to purchase Zebra products. Many of Zebra’s traditional

channels were contracting or consolidating as a result of the economic recession. Rather than look to sell

12. Managing Complex Channel Relationships While Creating Value for End Customers Executive Summary

3 ©2014 Blue Canyon Partners, Inc. All rights reserved.

competing technologies, Zebra’s channel partners typically looked to get into businesses that were adjacent

and/or complementary to Zebra’s products.

Coming out of the economic recession, companies are seeing growth, but the landscape has changed.

Businesses are accepting the new landscape, but looking at different channels, additional participants, and

consolidation within their industry and among their channels, and learning how to adapt. The questions then

become how do you thrive in this new environment and how do you manage the channel?

New Versus Traditional Channels and Globalization

A big issue at the front of participants’ minds was how customers are served by these new channels. While

traditional value-adding channels were under stress during the recession, new channels were emerging. Bill

gave the example of SKF seeing the emergence of Amazon Supply, a pieces and parts delivery agent,

suddenly becoming more active, which concerned many of SKF’s channel partners. The discussion then

turned to how do you manage these new channels and how do you manage relationships with your traditional

channel partners.

SKF sells products through a highly evolved channel. However, it also began to sell systems (products and

services) through value-added resellers (VARs). The VAR channel gave SKF a direct business relationship

with its customer, but opened the door to conflicts of interest with its traditional channel partners. SKF’s

products also are sold through cataloguers and Internet resellers. SKF’s view is that Internet suppliers are an

adequate logistics channel, but not ideal for communicating the value.

As SKF expanded products, it gained greater visibility into new ways to go to market. All channels are going to

continue, but legacy channels will continue to be pressured. Ways in which SKF is effectively managing its

channels is through pricing, product offerings, collaborative value creation and communication.

VARs are Zebra’s traditional route to market, which it leverages distributors to gain economies of scale. In

terms of new channels, Zebra’s technology moved from being a point solution within an end user environment

to one that is more connected to the IT enterprise, and as a result, the decision makers have changed. That

has been challenging for the existing channel partners who do not have relationships with these buyers. As a

result of these changes, Zebra has since aligned itself with the software developers that drive the applications

with which printing connects. The end result is an ecosystem of channel partners that can coexist with each

other. Zebra uses its channel pricing structure to mitigate channel conflict as much as possible.

As customers expand around the globe, serving them in the same way becomes a major challenge, particularly

when operating in a multi-country, multi-channel environment. Both the panelists and audience recognized the

challenge, but there was no single solution. Recognizing the challenges early on is critical. SKF also looks at

areas such as cost-to-serve and distributor compensation models.

12. Managing Complex Channel Relationships While Creating Value for End Customers Executive Summary

4 ©2014 Blue Canyon Partners, Inc. All rights reserved.

Channel Partner or Competitor?

When asked if they consider their channel partner to also be a competitor, nearly 70 percent of poll

respondents chose yes. As customers put pressure on distributors to offer more and the distributors looked for

ways to capture better margins, manufacturers began seeing the entry of low-cost products from foreign

competitors, private-labeling, and competitors’ products being picked up by their channel partners. Both Bill

and Denise agreed that these situations can be challenging, but offered options to effectively manage the

relationship, such as:

1. Invest in marketing to the channel and its end customers. When these situations occur, suppliers are

competing for the mindshare of both audiences. Staying in front of the end customer is important

because they are ultimately requesting the product and distributors can become protective.

2. Create agreements with distributors as to what markets they can sell into. In some instances, you may

find that distributors are selling products into a niche that you do not compete in, or that is too small.

3. Have an open dialogue with distributors on what is the best way to service the end customer. Don’t

make the conversation all about price. Focus on where you are providing value. At SKF and Zebra,

dedicated resources are aligned with key distributors to ensure open lines of communication and quick

resolution of issues.

4. Have a strong value proposition. If the channel can’t communicate your value, it opens the door for

lower cost competitors to take away market share. Whatever a supplier can do to solidify its position

against competitors who are all about price, the better position it will be in. For example, if you operate

in a market where there is high liability, does your distributor want its name associated with a high

liability product? Does your distributor have the skills to do what your company does and can it provide

the level of service that your company provides? Is your channel partner able to express that value and

get paid for it?

5. Offer incentives, such as partner programs, functional rewards, discounted rebate programs, buyer

rewards, cost-savings plans, etc.

When situations do arise, having a good relationship with your channel partners, particularly at the executive

level where they have broader oversight is critical. Bill commented, “In order to have a spirited discussion or an

argument, if you have a good relationship you know you’ll get through it. If you don’t have a good relationship,

all of a sudden that business discussion becomes a business gripe, and frankly we can’t afford that. We spend

a lot of time building those relationships.”

Working with Channels to Effectively Deliver Solutions to End Customers

In some industries, the channel is viewed as a cost of doing business. In others, the channel provides value by

combining products or delivering a combined solution that the manufacturer is incapable to do on its own.

When participants were asked how well their business and their channel partners divided responsibilities to

make serving strategic customers cost-effective, the majority responded, “Not ideal, but too costly to change.”

SKF’s view is that going through distributors is good for the customer and good for the distributors. The

distributors can bring either products, knowledge, or presence that SKF does not have, such as access to

technologies or access to non-competing suppliers that SKF does not have a relationship with. The two can

12. Managing Complex Channel Relationships While Creating Value for End Customers Executive Summary

5 ©2014 Blue Canyon Partners, Inc. All rights reserved.

work in tandem to create a holistic presence to the end customer. Yet, at the same time distributors are trying

to survive and are challenged to dedicate the time and mind share to their key suppliers and customers. But, if

distributors embrace the extra value they can bring, then they have to aggressively pick premier partners, just

as SKF has to pick premier distributors.

From a cost to serve perspective, there are economic reasons to use channels for Zebra. However, the

downside to being channel-centric, is the inability to have direct insight into understanding the end customer

and having control over the brand decision. To help overcome this, Zebra introduced a Strategic Account

Management organization where Zebra account managers have a direct presence (not transactional) with the

end customer. Zebra associates with channel partners that have complementary relationships with end users

to ensure that Zebra’s solution is promoted to the end customer. Whether they have reduced the cost to serve

is unknown, but it engages the channel, ensures the relationship with the customer and solidifies Zebra as the

preferred brand.

Another observation shared by the audience was that as customers are getting larger, distributors are looking

to manufacturers to play a bigger role in managing the relationships. Initially, they were hesitant to share that

relationship, but ultimately saw the benefit once the manufacturer brought business to them.

The final area discussed related to cost to serve tied into the conversation around new channels, such as

Amazon Supply. Both Denise and Bill mentioned that Internet distributors are not viewed as true channel

providers, because they cannot effectively communicate the value, and cannot provide the same level of

service and support as a traditional channel. However, the cost to serve this channel is burdensome, because

manufacturers have yet to solve how to segment the market on the support side. Rather, most manufacturers

provide support to anyone regardless of how they purchase the product.

Final Thoughts

The sessions confirmed that there are a number of areas within a channel that are top of mind among

manufacturers, distributors, and those who maintain these relationships. Channel relationships can be

complex, particularly in a changing world. Unlocking value is ultimately the end goal, but the key is how one

manages the relationship and creates value. The conversations showed that while there are a number of

challenges and opportunities that have been addressed, there are others that still need answers.

About Blue Canyon Partners, Inc.

Blue Canyon Partners, Inc. is a business-to-business management consulting firm that helps clients with their

growth strategies. The firm brings a proprietary, research-based methodology to help organizations solve their

most pressing growth challenges such as commoditization, industry consolidation, price based competition,

channel conflict, new business entry, acquisition strategies, and major customer pressures.