This document discusses channels and how products are delivered to customers. It addresses two key questions about channels: how you want to sell your product and how your customer wants to buy it. Different types of channels are examined, including direct sales, resellers, distributors, OEMs, and licensing. The economics of various channel models are analyzed using the example of book publishing. The impact of physical versus digital products on appropriate channels is also explored.

1. XMBA296T The Lean LaunchPad Session 4: Channels Professors Steve Blank,JonFeiber, Jim Hornthal, Oren Jacob https://sites.google.com/site/xmba296t/

2. Channels How does each customer segment want to be reached? Through which interaction points? 1

3. Test Hypotheses: Channel 2

4. Two Critical Questions about Channels First one is obvious: How do you want to sell your product? 3 1 Second one is subtle, but more important than the first: How does your customer want to buy your product? 2

5. How Do You Want to Sell Your Product? Yourself Through someone else Retail Wholesale Bundled with other goods or services 4 ü ü ü ü ü

6. How Does Your Customer Want to Buy Your Product? Same day Delivered and installed Downloaded Bundled with other products As a service … 5 ü ü ü ü ü ü

7. Nature of Product Impacts Channel: Atoms or Bits? Access to customers changes dramatically Logistics related to product complexity People as products 6

8. Web Channels 7

9. Physical Channels 8

10. Types of Channels OEM VAR Reseller Distributor 9 Direct Indirect Licensing

11. The Channel as a Customer Some products are embedded in others (OEM) Some products are resold by others (VARs) Some products are distributed by others Who’s the customer? 10

12. Distribution Complexity 11 Evangelists Global Systems Systems Integrators WANs Mainframes Direct Sales Higher Volume Minis LANs VARs Marketing Complexity PC Servers Higher Value Added Desktop PCs Retail Printers Keyboards ServiceTechnicians Web, Telesales Toner Solution Complexity

13. How Are Channels Compensated? Commission Percentage of sales price Discounted pre-purchase 12

14. How Are Channels Motivated or Incented? Money! – what makes them the most? Training Marketing to the channel SPIF 13

15. Channel Economics: “Direct” Sales 14 ListPrice Revenue Cost of Goods(Supply Chain) Profit + SG&A + R&D EU Discounts End Consumer Source: Mark Leslie, Stanford GSB

16. Channel Economics: Resellers 15 ListPrice Revenue Cost of Goods(Supply Chain) Profit + SG&A + R&D Reseller EU Discounts End Consumer Source: Mark Leslie, Stanford GSB

17. Cost of Goods(Supply Chain) Profit + SG&A + R&D Channel Economics: Distributors/Resellers 16 ListPrice Revenue Reseller EU Discounts Distributor End Consumer Source: Mark Leslie, Stanford GSB

18. Channel Economics: OEM or IP Licensing 17 ListPrice Revenue EU Discounts Reseller Distributor Master Distributor Profit + SG&A + R&D Cost of Goods(Supply Chain) End Consumer Reseller Profit + SG&A + R&D Cost of Goods(Supply Chain) Your Product Becomes Your Customer’s COGs Source: Mark Leslie, Stanford GSB

19. Example: Book Publishing 18 Publisher National Distributor Printer Wholesaler Retailer Customer

20. Book Publishing 19 Publisher National Wholesaler Distributor Retailer Customer Percent of Retail 35% 15% 10% 40% $7.00 $3.00 $2.00 $8.00 $20.00 For their efforts, distributors take an additional 10% of retail. That means you get 35% of retail, the distributor gets 10%, the wholesaler gets 15% and the retailer gets 40% less any discount they offer the end customer

21. Book Publishing Economics 20 Publisher National Distributor Wholesaler Retailer Customer Allowances Wholesale costs Bills Markup Credit guarantees Payment guarantees Payment guarantees Return rights Credits Payments

23. Print orders

24. Bundle counts

26. Create demandPrepare galleys Print and ship magazines Acknowledge returns Dispose of returns

27. Bits vs. Atoms 22 Channel Web Physical Bits Product Physical

29. Fastest to acquire early customers and scaleBits Product Physical

31. Twitter

32. Facebook

33. Zynga

34. Cloud ServicesBits Product Physical

36. Fastest to acquire early customers and scale

37. Rapid Agile and Customer development

38. Traditional sales channel

39. May require installationBits Product Physical

41. Twitter

42. Facebook

43. Zynga

44. Cloud Services

45. Microsoft

46. SAP

47. OracleBits Product Physical

49. Fastest to acquire early customers and scale

50. Rapid Agile and Customer development

51. Traditional sales channel

53. Logistics, shipping and manufacturing critical

54. Customer servicePhysical

56. Twitter

57. Facebook

58. Zynga

59. Cloud Services

60. Microsoft

61. SAP

62. OracleBits Product Zappos Amazon Cafepress Netflix Consumer electronics Physical

64. Fastest to acquire early customers and scale

65. Rapid Agile and Customer development

66. Traditional sales channel

68. Logistics, shipping and manufacturing critical

69. Customer service

70. Longer customer feedback cycle

71. May require large capital requirements for scalePhysical

73. Twitter

74. Facebook

75. Zynga

76. Cloud Services

77. Microsoft

78. SAP

80. Solar panels

81. Wind turbines

82. Bookstores

83. Consumer electronicsPhysical