This is a presentation that I have given to over 1000 Canadian companies over the years for the Atlantic Canadian Opportunities Agency (ACOA), The Canadian Consulate, Business New Brunswick, Innovation PEI, and the American Chamer of Commerce on how to develop sales in the USA.

1. USA Sales & Distribution
Channel Strategies
Stephen N. Davis
“Partnering With Clients to Drive Sustainable
Profitable Growth”
February 2007
2000 - 2007 © CXO Advisory Group

2. What We’ll be Covering
Common mistakes when entering the USA
The channel marketing plan
What it takes to succeed in distribution
Managing channel relationships
Managing channel conflicts
Channel Trends
Points to remember
2000 - 2007 © CXO Advisory Group 2

3. The U.S. Marketplace
2000 - 2007 © CXO Advisory Group 3

4. Common Exporter Mistakes
Insufficient commitment by top management
• Time & Finances
Launching in USA before fully established in Canada
Launching in more than one international market at a
time
Failure to develop an US marketing plan prior to
beginning to export
• A program without a budget is a wish
• Chasing orders instead of establishing a basis for profitable
operations and orderly growth.
• Failure to modify pricing for reality of US market
• Gray Market
Hiring the wrong advisors
2000 - 2007 © CXO Advisory Group 4

5. Common Exporter Mistakes
Insufficient care in selecting sales channels
• Channels are not in sync with end-user targets
• No targeted value proposition to the channel
• Failure to treat sales channels on an equal basis
• Failure to consider licensing or joint-venture agreement
• Lack of sell cycle sales tools
• Insufficient Start up Costs
Neglecting export business when domestic markets
are healthy.
Unwillingness to modify products to meet regulations
or cultural preferences of other countries.
Treating the US as one homogenous market
2000 - 2007 © CXO Advisory Group 5

6. Plan Your Entry into the Channel
“If you don’t know
where you’re going
you’ll probably
wind up
somewhere else”
2000 - 2007 © CXO Advisory Group 6

7. The International Marketing Plan
Strategy Program Execution
Goals Coverage model Media Campaign
Target Market Value proposition Communication
Product Business rules Incentives
Competition Sales model Education
Channels Pricing Outsourcing
• Roles Sales Support
• Alignment model
Customer Support
Model
Budget
2000 - 2007 © CXO Advisory Group 7

8. Have a Clearly Articulated “Value Proposition”
Elevator pitch is one of your most important elements
• This is the essence of your business
• You have 10 to 20 seconds to grab their attention
• Then 20 to 40 seconds to expand the Business Value
Proposition
Spend the time to develop a compelling value
proposition
2000 - 2007 © CXO Advisory Group 8

9. Showing Value Is Always Important
Positions what you’re offering as a solution to a
business problem rather than a commodity
Differentiates yourself, products and services from
competitors
Focuses customer into thinking on Return on
Investment(ROI) not price
2000 - 2007 © CXO Advisory Group 9

10. Example
We provide a flexible, interactive and
personalized system for delivery of medical
test results from a dedicated, comprehensive
content library.
We streamline the reporting of clinical
lab test results from the physician to the
patient in language that patient’s can
easily understand.
2000 - 2007 © CXO Advisory Group 10

11. It Takes a Long Time to Write Something Short
24 hours minimum – 4 months maximum
• 8 hours to develop prioritized list
• Problems your solving
• What your offering
• What makes you different from competition
– Why you’ll win
• 4 hours to write first draft
• 4 hours testing your first draft with key individuals, advisors, etc.
and incorporating feedback
• 6 hours testing revised draft on larger group
• 2 hours to revise and incorporate feedback
But this isn’t the end
You’ll eventually have multiple elevator pitches for various
audiences
• Investors, different customer types, strategic partners, etc.
2000 - 2007 © CXO Advisory Group 11

12. Sales Channels – The Reality
“A product with better distribution will
always win over a product with poor
distribution or customer access”
It’s not fair. It’s not right.
But, it’s reality.
2000 - 2007 © CXO Advisory Group 12

13. Channel Strategy
Must start with the customer
How many channel partners do I need?
What channel partners should I have?
• Build a channel partner profile
• Link to end-user targets
• Fit with existing channels
• What role do they play?
• Influence
• Sales
• Support
• Technical
How do I choose them?
How do I measure them?
How do I generate business for them?
Do the financial requirements make sense for our company?
2000 - 2007 © CXO Advisory Group 13

14. Know Your Customers Buying Process
Sales Cycle Identify Prospect Qualify Proposal Close Deliver
Stage
Discover Need Seek Solution Review Vendor Agree on Check Start
Materials Solution and References Implementation
Identify Research
Determine Total Project Specs. Validate Assign
Business Goals Find Vendors
Scope of Project Coordinate Proposal Resources
Quantify Impact Get Information Estimates
Customer’s
RFQ Buying Process Start Training
Cycle & ROI
Confirm timing & Choose Vendor Manage Project
Objective Timing &
Budgeting Budget Sign off Pay Bills
Select Vendor Approvals
Contract signed
Purchase Order
2000 - 2007 © CXO Advisory Group 14

15. Typical IT Sales Cycle
Sales Cycle Demand
Prospect Qualify Develop Solution Proof Close Deploy Support
Stage Generation
Probability NA 0% 10% 20% 40% 60% 80% 100% NA
Generate Validate Qualify lead/ Develop Present Demonstrate Conduct Finalize Finalize
awareness potential opportunity customer solution capability to negotiations deployment support
Your Sales requirements
and pre- opportunity which exceed and finalize plan & plan,
Cycle qualified & identify & establish exceeds customer contract execute execute &
Objective prospects potential sponsor customer requirements monitor
sponsor relationship needs progress
2000 - 2007 © CXO Advisory Group 15

16. Distribution Channels - Examples
Field sales reps Internet sites
Corporate resellers Extranets
Master or local e-Marketplaces
distributors Direct Mail
Integrators OEM’s
Value-added resellers Retail
Manufacturer’s agents Kiosk’s
Brokers Strategic alliances
Franchises Agents (consultants,
Telemarketers affiliates, etc.)
Inbound telesales agents
2000 - 2007 © CXO Advisory Group 16

17. Comparison of Major Channels
Retail Agent/Rep Distributor/VAR Acquisition Joint Venture Subsidiary
Time to Market Slow Slow Medium/Fast Medium Medium Slow
Management Control Low Medium Low High Medium High
Brand Control Low Low Low High Medium High
Cost of Sales Medium Low Low High Medium High
Development of In-House
Low Low Low Medium Low High
Expertise
Access to New Partners Low Medium Low Medium Medium Low
Risk Medium Low Low/Medium High Low High
Hands-On Sales/Marketing
High Medium High Low Low Low
Support
2000 - 2007 © CXO Advisory Group 17

18. Channel Value Add
High
“High Touch
Channels” Field
Field
Sales
Sales
Value VAR’s
VAR’s
Add t
Dis-
Dis- D irec
“Low Touch es
Of Sale tributors
tributors Sal nnel
Channels” Retail
Retail Ch a
ne ls
Stores
Stores han
Tele-
Tele- re ct C
marketing Indi
marketing
Internet
Internet nn e ls
Low ct C ha
Dire
Low High
Cost per Transaction
2000 - 2007 © CXO Advisory Group 18

19. What Do These Firms Have in Common?
2000 - 2007 © CXO Advisory Group 19

20. Creating Effective Budgets
A program without a budget is a wish
• Cancelled at any point
• Not credible to reseller
• Cannot be strategic or justified to management
• Costs cannot be measured or controlled
Must estimate costs of program design,
implementation and management
• Coverage, sales model, support model, value proposition
• Calculate as both cost of sales and return on investment
2000 - 2007 © CXO Advisory Group 20

21. Pricing For the Channel
Most companies don’t know
how to set their price
Start-ups tend to underprice
and fail to include channel
margins
SRP vs “Street Price”
• Natural “street pricing” exists
in retail products in the U.S.
Key is hitting the desired
“street price”
The channel prices up off
cost
2000 - 2007 © CXO Advisory Group 21

22. Price is the Focus
If You Can’t Show Value
Customer is Buying
Price Value
Supplier is Selling
Buyer Tendencies: Supplier Tendencies:
Buy low-cost alternative Make today’s numbers
All solutions are the same Let “the company” worry about
Make price the main focus delivery and service
Move on to the next sale fast
2000 - 2007 © CXO Advisory Group 22

23. Cost of Market Entry Options
Retailer Mark-up, 50% - 200%+
5-10% MDF, Slotting Fees
Agent/ Rep. Commission, 5%–30%
Value Added Reseller Margin, 20-40%, 5-10% MDF
(VAR)
Distributor (stocks product) Margin, 10%–50%, 2-5% MDF
Acquisition Fair Market Value
Joint Venture Varies
Own Build $1–2 million (US)
2000 - 2007 © CXO Advisory Group 23

24. #1
Tech Marketing Budgets
Analyst Other
Web Relations activities
4.0% 2.3% 5.3%
Advertising
Research
23.2%
4.6%
Collateral
5.1%
Public
Relations
6.5%
Events
Direct 19.3%
M arketing
12.9% M arketing
Support &
Sales T ools
16.8%
Source: IDC’s 2005 CMO Tech Marketing Benchmarks Database
2000 - 2007 © CXO Advisory Group 24

25. When Worlds Collide:
Misalignment of Marketing & Sales
Marketing sales:
“We spend millions generating qualified
prospects and they fall into a black hole!”
Sales says:
“The collateral material is crap. It doesn’t help
me in the sales cycle and the so-called leads
they send us are a waste of my time.”
2000 - 2007 © CXO Advisory Group 25

26. When Worlds Collide:
Misalignment of Marketing & Sales
Company centric messaging doesn’t support sales
effort
50% to 90% of marketing messages, collateral and
sales tools go unused
Sales people spend 40-60 hours each month creating
their own materials, responses, presentations
Only 10% of sales people present the “best answer”
to a customer solution
Solution: Produce sales-cycle relevant tools
and collateral
Source: AMA
2000 - 2007 © CXO Advisory Group 26

27. Sales Alignment Challenges
Alignment within
Alignment with the company
the customer Inadequate sales metrics
Not able to identify Solution selling is a
the decision makers cultural challenge
Not focused on right In fighting between
value propositions marketing and sales
Lack tools to help Everyone has sales impact
customer jump
decision hurdles
Alignment
Performance
metrics
with the market
Not aligned with customer
buying preferences or shifts
Channel issues need constant
attention
Consistency of strategy
Value proposition
Marketing mix
2000 - 2007 © CXO Advisory Group 27

28. Channel Concerns
Shrinking Margins
Growing service & consulting
revenues
Expanding capabilities
Obtaining new customers
Turnover of personnel & training
Vendors desire to try and cut
them out
Cash flow
2000 - 2007 © CXO Advisory Group 28

29. Is Your Buyer Package up to Snuff?
Marketing materials
Price lists
Outline of your marketing campaign – Demand Creation
Product samples - Packaging
COOP/MDF funds and campaigns
In-store merchandising
Prospect & customer correspondence
Sales training for their personnel
Sales support
End user training
End user support
2000 - 2007 © CXO Advisory Group 29

30. Computer Distribution Channels
2000 - 2007 © CXO Advisory Group 30

31. Joint Venture/ OEM / Private Label
Quick penetration – less risk
Established market presence
Provides localization of product
Handles all marketing, sales, distribution &
support
Provides ongoing market analysis
Provides ongoing competitive analysis
Usually won't carry competing product
Tough sale – long sales cycle
2000 - 2007 © CXO Advisory Group 31

32. Approaching a Potential
Joint Venture/ OEM / Private Label Partner
Be Ready to Explain Key Product Advantages
Do Your Homework
• Why should they be interested?
• Fills competitive hole
• Enhances existing product line
• Prevents having to compete against you
• You could develop market in your home country for their
products
How easy it will be to work with you
Support you will give them
• Technical
• Training
2000 - 2007 © CXO Advisory Group 32

33. Key Issues Licensing Agreement
Specs & Deliverables Marketing Obligations
Acceptance List Price of Product
Grant of License Performance Requirements
Terms Warranties
Payments Limitation of Liabilities
Bookkeeping Requirements Development Support
Ownership Rights to Updates
Use of Trademarks Termination
Training Source Code Access
Decision Making Authority
2000 - 2007 © CXO Advisory Group 33

34. Distributors
Sells to other channel players within designated area
Takes title to goods and is compensated by mark-up
upon sale
Sells suppliers goods to his own customers
No authority to act on your behalf
Maintains Inventory
Sells in original packaging
May or may not provide after sales services
Many products are taken on consignment basis
2000 - 2007 © CXO Advisory Group 34

35. What Distributors Look For
Products with proven demand
Product's packaging, ease of use & install
Marketing budget
Quality tech & Customer support
Ability to scale up to demand
Financial stability
Training
Distributor staff time required
Only 1% - 2% of products presented get chosen
2000 - 2007 © CXO Advisory Group 35

36. Manufacturers Agent/Commercial Agent
Alternative to own sales force
Both authorized to solicit orders in designated area
Receive salary or commission
Usually bear no credit risk
Maintains no inventory
Requires same support & training as internal
salesforce
Carries several lines
References, References, References
2000 - 2007 © CXO Advisory Group 36

37. Types of Retailers
Specialty Stores Discount Stores
Department Stores Convenience Stores
Supermarkets Off-Price Retailers
Superstores
2000 - 2007 © CXO Advisory Group 37

38. Retailers Classified By Service Type:
Self-service retailers
• Customers are willing to self-serve to save money
• Convenience stores and fast moving shopping
goods
Limited-service retailers
• Most department stores
Full-service retailers
• Salespeople assist customers in every aspect of
shopping experience
• High-end department stores and specialty stores
2000 - 2007 © CXO Advisory Group 38

39. Retailers Classified By Product Lines:
Specialty stores
• Narrow product lines with deep assortments
Department stores
• Wide variety of product lines
Supermarkets
Convenience stores
• Limited line
Superstores
• Food, nonfood, and services
Category killers
• Giant specialty stores
2000 - 2007 © CXO Advisory Group 39

40. Retailers Classified By Pricing Category:
Discount stores
• Low margins are offset by high volume
Off-price retailers
• Independent off-price retailers
• TJ Maxx, Marshall’s
• Factory outlets
• Levi Strauss, Reebok
• Warehouse clubs
• Sam’s Club, Costco
2000 - 2007 © CXO Advisory Group 40

41. Discount Stores - Target Corporation
First store opened in 1902
Currently has 1,147 stores in 47
states.
Builds brand name to heighten
barriers to entry in the market.
Successful built defensible niche
with middle and upper-end
customers - low price but high style.
Resurrecting old brand names for
own exclusive
Co brands with high profile partners
– Sony & Virgin
Building own boutique product lines
– soaps, candles, etc.
2000 - 2007 © CXO Advisory Group 41

42. Retailers Classified By Organization Type :
Corporate chain stores
• Commonly owned / controlled
Voluntary chains
• Wholesaler-sponsored groups of independent retailers
Retailer cooperatives
• Groups of independent retailers who buy in bulk
Franchise organizations
• Based on something unique
Merchandising conglomerates
• Diversified retailing lines and forms under central ownership
2000 - 2007 © CXO Advisory Group 42

43. How Would You Classify
2000 - 2007 © CXO Advisory Group 43

44. Catalogers
Readers Have Bought Through Mail Before
Build a Track Record First
Why Should They Pick Up Product - 25 Words
You Pay For Ad Space & Catalog Production
Can Swap Product For Ads
Special Promo Mailings Might Pull Better Than
Catalog
2000 - 2007 © CXO Advisory Group 44

45. What does a good Reseller look for
Product for their market
Ways to increase revenue via
• Consulting
• Support
• Reduced cost of sale
Investment and commitment
Good business proposition
Training & technical support
Sale & marketing support
Territorial exclusivity
Price stability
2000 - 2007 © CXO Advisory Group 45

46. VARs Choose Product On
% VARs Considering Factor
Extremely Important
Product Quality 87%
Order Fulfillment 55%
Profit Margins 45%
Price/Performance 45%
Commitment 43%
Technical Support 41%
Business Documentation 29%
Terms & Conditions 25%
Channel Conflict 21%
Sales Rep Assistance 17&
Sales Leads 17%
Co-op Advertising 6%
Source: VARBusiness
2000 - 2007 © CXO Advisory Group 46

47. Manage Your Reseller Relationship
Be selective – resellers won’t
Reduce potential territorial conflicts
Distributors will not maintain your reseller relationship
• You have to do it directly
Segment your resellers
• That work on large accounts with your direct sales force
• Markets that resellers will be your salesforce
• Specialized vertical markets
Resources should be based on this segmentation
Set realistic sales targets and ramp up
Provide sales cycle specific marketing tools
Communicate regularly
Train, Train, Train
2000 - 2007 © CXO Advisory Group 47

48. How the Channel Views
Vendor Internet Plans
2000 - 2007 © CXO Advisory Group 48

49. Key to Efficient Channel Management
Strengthen ability of channel partners
to deliver solutions
Train channel partners well & often -
for free
Enhance communications
Treat them like they’re your own
salesforce
Deliver channel value with the web
• Demand creation
• Quality leads
• Support
• Information
• Links
• Feedback
2000 - 2007 © CXO Advisory Group 49

50. Manage Channel Conflict
Areas of channel conflict
• Multiple channels calling on same account
• Specify territories or vertical markets -
segmentation
• Company selling directly to reseller accounts
• Specify company owned accounts - reserved
• Specify reseller owned accounts - reserved
• Compensate direct sales force on sales
through resellers
– Have them work on accounts with key
resellers
• Pricing not consistent across channels
• Get your pricing structures in line
Conflict can not be eliminated
Changing business objectives
Company politics
2000 - 2007 © CXO Advisory Group 50

51. Channel Trends
New retail forms & shortening retail life cycles
Growth of non-store retailing
• Mail order, TV, Online, Phone
Convergence
• Merging of consumers, products, prices, competitors and
retailers
Mega retailers
Changing retail technology
Globalization
• Production, retailers, wholesalers
Malls as communities and hangouts
2000 - 2007 © CXO Advisory Group 51

52. Channel Trends
Price competition is intense
Channel partners adding value, increasing efficiency,
reducing risk to remain relevant
Store within a store
• Slotting fees to a whole new level
2000 - 2007 © CXO Advisory Group 52

53. Key Points That Can Make a Difference
Have realistic expectations
Top management commitment
Focus, Focus, Focus
Long Term View
Clear understanding of end-user targets and their
alignment with channel partners
Reduce channel conflict by clearly defining roles and
responsibilities for each channel
Develop comprehensive business rules for managing
program processes
2000 - 2007 © CXO Advisory Group 53

54. Key Points That Can Make a Difference
Take inventory of your partners
• Does the 80/20 rule apply?
• Build profiles based on successful partners
• Align internal resources based on contribution
Invest in your partners
• Marketing
• Training
• Support
• Web
Use the Internet to enhance partner sales
Review your channel strategy yearly
• Identifies potential destructive channel conflict
• Tune channel support programs
2000 - 2007 © CXO Advisory Group 54

55. Questions
2000 - 2007 © CXO Advisory Group 55

56. The CXO Advisory Group
CXO Advisory Group is a strategic operations advisory
and management firm comprised of proven C-level
executives with both breadth and depth of experience.
CXO Advisory Group Team members have achieved
success in positions ranging from: President/CEO to
COO, CFO, and VPs of Sales, Marketing, Corporate
Development and Human Resources.
Has proven success in building US sales and distribution
channels
2000 - 2007 © CXO Advisory Group 56

57. How Can CXO Help You?
Business Strategy Services
• Audit business practices and organization
• Evaluate product and pricing strategies
• Evaluate effectiveness of sales channel
• Assess effectiveness of existing sales and marketing
programs
US Market Entry Program
• Analyze competitive landscape
• Market launch strategy and plan
• Channel strategy and programs
• Establish sales channels
• Generate sales and manage relationships
2000 - 2007 © CXO Advisory Group 57

58. How Can CXO Help You?
Sales Channel Management
• Review and revise sales channel strategies
• Channel partner identification, prospecting and recruitment
• Eliminate channel conflict
• Channel contract development and negotiation
Venture Advisory Services
• Enhance financeability
• Fine tune operations, business strategy and market entry
• Assist with preparation of investor presentation
• Identify potential venture partners
• Contact potential capital sources
• Presentations to capital sources
2000 - 2007 © CXO Advisory Group 58

59. How Can CXO Help You?
Interim Management Resources
• Interim CEO, COO, CMO, CFO, CSO
• Interim VP of Sales and Marketing
• Consultant on staff
• Launch team coaches
2000 - 2007 © CXO Advisory Group 59

60. Thanks for Attending!
For more information on driving profitable growth:
• Email us at sdavis@cxoadvisorygroup.com
• Call Steve Davis at (508) 528-7571
• Visit on the web at http://www.cxoadvisorygroup.com
2000 - 2007 © CXO Advisory Group 60