831_ZS_Channel_Strategy_Case_Study_[2009-11-09]_v1.0_1

B2B Segmentation and Channel Strategy Chemical Industry Northwestern Northwestern University Kellogg School of Management November 9, 2009

ZS Associates | 312.233.4800 | www.zsassociates.com

Agenda

§ Introduction to ZS § Channel Strategy Framework § Specialty Chemicals Case § Q&A

© 2009 ZS Associates

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B2B Channel Strategy Case Study - Chemicals v1.0

I n t r o du du c t i o n t o Z S

Who is ZS?

§ A global management consulting firm specializing in Sales and Marketing: – Strategy – Capability building – Outsourcing § Founded in 1983 by professors from Kellogg School of Management – Andy Zoltners Prabha ha Sinh Sinha a – Prab § Significant penetration in healthcare with growing presence in: – Transportation – Financial services – High tech – Consumer products

ZS is a firm with a mission: help clients get products to market and sell successfully © 2009 ZS Associates

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Our firm has a record of accelerated growth

Doubled our revenue and people

EVERY 5 YEARS

1983

1988

1993

1998

2003

2008

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ZS has a global presence and supports clients in more than 70 countries, ranging from Fortune 500 organizations to start-ups

Boston

Barcelona

New Delhi

Chicago

Frankfurt

Pune

Evanston

London

Shanghai

Los Angeles

Milan

Tokyo

New York City

Paris

Philadelphia

Zurich

Princeton San Francisco Toronto −5− © 2009 ZS Associates



Our projects drive top-line growth for clients in three key areas

GO-TO-MARKET STRATEGY • Sales process development • Sales force design • Territory design • Incentive design & goal setting • Sales performance measurement

SALES DECISIONS

UNDERSTANDING CUSTOMERS

FLAWLESS EXECUTION

• Customer insights • Segmentation • Value proposition • Marketing planning • Marketing performance measurement • Integrated product launch planning & measurement

• Data management, performance reporting & analytics • Incentive compensation & goals administration • Territory & account planning

MARKETING DECISIONS

SALES AND MARKETING OPERATIONS

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Agenda



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C h a n ne ne l S t r a t e g y F r a m e w o r k

What is a channel?

§ A channel is anything that moves product, services, information and money back and forth between a company and it’s end-users

§ Market and competitive dynamics often require indirect channels to meet growth objectives and financial requirements Credibility with endcustomers

§ Preferred source § Complete market basket § Local / responsive


Market reach or coverage

§ § § §

Rural geographies Small accounts Vertical markets International

Cost of sales

§ Off balance sheet assets § Fixed to variable costs § Leverage multiple suppliers

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Competencies or expertise

§ Market specific knowledge § Expertise through specialization § Efficiency through repetition B2B Channel Strategy Case Study - Chemicals v1.0


ZS Associates’ Associates’ guiding guiding principles principles for channel strategy strategy

e a g t n v a d l a e n a n h c n g i l d i u B

Results

Winning requires flawless integration of channel operations, information, and enterprise capabilities Channel strategies cannot remain static, they must evolve and adapt

Channel advantage requires a deep knowledge of market insights, dynamics and trends


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Our approach to scenario analysis addresses channel strategy guiding principles, iterative analysis and fact-based decisions

Scenario analysis Current and future states

Industry mapping

Channel strategies and financials

• Industry Industry channe channell and custom customer er structure and concentration • Manu Manufactu facturer rer support support requiremen requirements ts and costs • Chan Channel nel capab capabilitie ilities, s, offer offer and and business model • Valu Value e chain chain margin margin allo allocation cation • Cust Custome omerr segment segments, s, buying buying process and decision criteria • Key trend trends s and market market dynam dynamics ics

Market dynamics identify forces that shape channel strategies

• Distri Distribut bution ion polic policy y • Aut Author horiza izatio tions ns and and controls • Par Partne tnersh rship ip program programs s • Ch an ann el el compensation • Int Interer- & int intrara-cha channe nnell conflict • Dir Direc ectt busine business ss model model fit and tradeoffs

Assessment scorecards and decision support Business objectives Criteria Growth Profits Competitive advantage

S1 S2

S3

Scenarios

Criteria

S4 S5

S2 S4 S5

Difficult economic conditions Brand decline / private label Pay-for-performance Pay-for-performance / fee-for-service Web effectiveness or efficiencies

Other …

Other …


Full, selective, combined, or gated strategy adoption

Implementation plan Activities, accountabilities, CSFs, signposts and milestones milestones

Emerging customers or channels

Channel power

Initial screen =>

Recommendations

Trends and opportunities

Scenarios

• Altern Alternati ative ve channe channels ls • Str Strate ategic gic align alignme ment nt with partners • Cro Crossss-bu busine siness ss synergies • Cha Channe nnell power power and influence drivers • Fin Financ ancial ial imp impact act – costs, profits & drivers

Final assessment =>

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Capability building Organization knowledge, skills, process and tools for execution


Agenda



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Specialty Chemicals Case

A recent acquisition and sales force merger required a new channel strategy for a printing chemicals company

§ A Fortune 500 chemical company with existing products for the flexible packaging market acquired a manufacturer with products sold to the custom print market

§ Each market was served by an existing sales force and marketing team, and significant overlap existed between the two markets

§ The sales teams’ ability to target the smallest and largest customers was limited – Small customers could not be profitably served by field sales – Large customers required expertise expertise not available in field sales

§ The organization had very limited experience with indirect sales channels Note: Case is based on work performed by ZS Associates, Inc. Portions of the client situation, actions, and results described on this and the following pages been modified for simplicity, illustrative illustrative purposes, or to preserve confidentiality. confidentiality. © 2009 ZS Associates

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Post acquisition, what are the sales and marketing issue areas that we need to consider? Customer Focus & Growth Strategy

Go-to-Market Strategy

Competency Competency Model Model

Customer Customer Insight Insight

•Needs •Buying processes & preferences •Attitudes, perceptions & satisfaction •Potential & longterm value

Marketing & Sales Operations

Sales Sales Process Process

Segmentation Segmentation & & Targeting Targeting

Value Value Proposition Proposition

Success Success Measures Measures

Sizing Sizing & & Deployment Deployment

Competitor Competitor Insight Insight

Marketing Marketing Mix Mix

Information Information & & Tools Tools

Marketing Marketing & & Sales Sales Analytics Analytics

Coordination Coordination Systems Systems

EXECUTION

STRATEGY


Compensation Compensation & & Motivation Motivation Programs Programs

Performance Performance Management Management

Sales Sales Channels Channels

•Sales force design •Advertising & promotion

Hiring, Hiring, Training Training & & Coaching Coaching

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We worked collaboratively with our client, leveraging collective experiences and emphasizing fact-based analysis and decisions Overview of phases Phase 1

Assessment and information gathering

s e m o c t u o y e K

§ Market assessment and identified information gaps § Integrated database of all current and potential customers


Phase 2

Phase 3

Scenario analysis and implications

Segmentation and targeting

§ Account segment definitions § Estimated sales potential for each account § Target segment recommendation and coverage hypotheses

§ Viable channel alternatives for each segment § Cost-to-serve model for each alternative § Recommendation based based on qual qual & quant factors

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Phase 4

Implementation planning

§ Implementation roadmap and success factors § Prioritized gaps and barriers



Our immersion involved internal and external stakeholder interviews and data-driven analytics to map industry conditions ZS Approach to Channel Strategy WhatWhat is “channel is “channel strategy”? strategy”? Channel Strategy is:

• Addressing customer needs and sourcing preferences

• Giving fair consideration to all direct & indirect channels options,

• Enabling profits for channel partners, and

• Achieving the supplier’s business objectives

When Whenisisaa(new) (new)channel channel strategy required? strategy required?

HowHow is a channel strategy is a channel developed? strategy developed?

Common situations:

Rigorous, fact-based approach:

• New channels emerge • New product launch • Enter new markets • Global expansion • Customers migrate to new channels

• Channel consolidation • Declining channel performance

• Map current industry conditions and trends

• Identify and explore all viable future states

• Design the channel for the optimal mix & number of channels and partners

• Manage channels to drive change and achieve ongoing success

• Diminished control of channel activities

• Proliferation of channel formats or business models © 2009 ZS Associates

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Accounts were segmented based on print application segment and potential estimated through regression-based modeling 1. Integrate Integrate customers customers of acquirer acquirer and and target companies companies and ‘match’ agains againstt the market universe universe


2.

Identify Identif y account account pro profil filing ing vari variabl ables es from from the the market market dataset that influence sales

3.

Determine Determ ine rel relati ationsh onship ip betw between een each each rel releva evant nt profiling variable and sales potential

4.

Calculate Calcul ate pot potent ential ial for cur curren rentt custo customer mers s& prospective accounts

5.

Benchmark Benchma rk agai against nst oth other er sou source rces s and and adjus adjustt potential based on factors not captured within dataset − 16 −



Two dimensional segmentations incorporated customer line of business & potential Potential per Account What do they do? Application Segment ? s u ) s o i t s s y y t l a e n e n h t m A g t e r e a a S a D e l a l y t r b i a a n d e u t n l o o c a P v e S ( w o H


Commercial Printing

Paper boxes, cartons

Printed flexible packaging, bags

Label, wrapper printing

All Others

Tier 1

$ 31,320

$ 1,130,797

$ 4,966,906

$ 138,949

$ 232,092

Tier 2

$ 11,845

$ 673,069

$ 1,570,480

$ 55,214

$ 121,960

Tier 3

$ 5,916

$ 396,826

$ 1,182,873

$ 31,409

$ 72,110

Tier 4

$ 2,380

$ 31,975

$ 36,416

$ 9,343

$ 7,645

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Viable channel alternatives were then assessed qualitatively Scenario analysis: Indirect channel options Channel Characteristic

Indirect Channels Rep / Agent

Reseller

Distributor

VAR / SI

OEM

Distinguishing Functions

§ Customer relationships § Lead generation § Sales

§ Manufacturer of complementary products (e.g. inks) § Industry movement toward consolidation § Regionally focused

§ Range from highly specialized to moderate to general § Inventory, Credit & Logistics § Marketing & Sales

§ Application expertise § Industry focus § Customized solutions § Assembled products

§ Manufacturer of equipment (e.g. presses) § Marketing and support functions § Can be customer or channel § Complex buying process

Compensation

Commissions • 5% to 15%

Commissions • 10% to 15% Other incentives

Resale margins • 18% to 25% Other incentives

Resale margins • 25% to 35%+ Other incentives

Supplier programs Alliance partnerships

Verdict

§ Already exists

§ Already exists

§ Range of possible partners

§ Too few for distribution

§ Pull through is weak

Current Ability to Execute

§ In place, but hard to scale

§ Some experience, not managed as a channel

§ Minimal experience, not managed as a channel

§ No experience

§ Some experience

Potential fit?


YES

YES

YES

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NO

NO



Scenario analysis was then used to estimate the cost-to-serve each segment across each viable channel alternative Cost to Serve Illustration

Tier 2 Label Printers contain 100 accounts:

Marketing Strategy and Research

100 accounts * 90% addressable = 90 accounts Leads, Qualified Prospects

1. A R d a v a t e n 1 c e W i n R a t e

1 call/account * 90 accounts * $500/call = $4.5K

Oppo Opport rtun unit ity y Iden Identi tifi fica cati tion on

Advancement Rate of 80% to Step 2

4 calls/account * 72 accounts * $500/call = $144K

2. Opportunity Management A R d a v a t e n 2 c e

Advancement Rate of 40% to Step 3

2 calls/account * 29 accounts * $500/call = $29K

3. Fulfillment

Total cost-to-serve Tier 2 Label Printers = $218K Overall win rate: 80% * 40% 40% = 32% Cost per won account via field sales = $7,569


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Sales channels that provided the highest expected contribution against each customer segment were chosen Channel strategy: Customer alignment and coverage Top Commercial Printing

Other Commercial Printing

Paper boxes, cartons

Tier 1 Field sales

Distributors or resellers

Tier 4

§

Label, wrapper printing

All Others (excluding quick printers)

Field sales

Tier 2 Tier 3

Printed flexible packaging

TBD Based on success of new channels

Inside sales

Distributors or resellers

Industry mapping and scenario analysis lead to the following channel strategy recommendations: “direct from supplier” value offering – Focus field sales on high value segments with a “direct

– Build inside sales capability to penetrate low purchase volume customers in targeted segments – Pick the best indirect sales partners through a disciplined recruiting and selection process – Inside sales with a “direct from supplier” value offering may be more effective than indirect channel partners and should be trialed


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The implementation plan specified high-level (and detailed) steps for moving to recommended state while delivering quick wins Channel strategy analysis

Phase I: Communicate strategy and integrate market database

Organizational understanding of channel strategy vision

Greater penetration within high value accounts, improved market knowledge, and organizational readiness for inside sales

Phase II: Improve field targeting

Phase III: Launch inside sales

Multi-channel direct sales organization

Phase IV (a): Lay groundwork for indirect sales channel Phase IV (b): Conduct product rationalization

Organizational understanding of segment specific value propositions and indirect channel infrastructure Improved clarity around product capabilities and alignment of these against market segments

Phase V: Ramp-up indirect sales channel

Phase VI: Optimize channel management

Integrated direct and indirect channel selling model

Time © 2009 ZS Associates

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Questions?

Josh Rosen ZS Associates Two Prudential Plaza 180 North Stetson Avenue, 42nd Floor Chicago, Illinois 60601 USA Tel : 312.233.4815 Fax: 312.233.4801 E-mail: [email protected]


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831_ZS_Channel_Strategy_Case_Study_[2009-11-09]_v1.0_1

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