NSF I- Corps The Lean LaunchPad Lecture 4: Distribution Channels How does your Product Get to Customers? Version 6/22/12
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NSF I- CorpsThe Lean LaunchPad
Lecture 4: Distribution Channels
How does your Product Get to Customers?
Version 6/22/12
Channels
How does your Product Get to Customers?
© 2012 Steve Blank
Who Are Our Customers and How Do We Reach Them
Physical versus Virtual Channels
How Do You Want Your Product to Get to Your Customer?
7
Yourself
Through someone else
Retail
Wholesale
Bundled with other goods or services
üüüüü
Web Channels
8
Physical Channels
9
How Does Your Customer Want to Buy Your Product from your Channel?
10
• Same day
• Delivered and installed
• Downloaded
• Bundled with other products
• As a service
• …
üüüüüü
Types of Channels
11
– OEM– VAR– Reseller– Distributor
Direct Indirect Licensing
Distribution Complexity
12
Evangelists
ServiceTechnicians
Higher Value Added
Higher Volume
Direct Sales
VARs
Retail
Web, Telesales
Systems Integrators
Mainframes
MinisLANs
PC ServersDesktop PCs
PrintersKeyboards
Toner
WANs
Global Systems
Solution Complexity
Ma
rke
tin
g C
om
ple
xity
How Do the Economics Work in Different Sales Channel?
How Are Channels Compensated?
14
– Commission
– Percentage of sales price
– Discounted pre-purchase
Channel Economics: “Direct” Sales
15
Profit + SG&A + R&D
En
d C
on
sum
er
EU
D
isco
un
ts
Your RevenueList
Price
Source: Mark Leslie, Stanford GSB
Cost of Goods(Supply Chain)
Channel Economics: Resellers
16
Cost of Goods(Supply Chain)
Profit + SG&A + R&D
En
d C
on
sum
er
EU
D
isco
un
ts
Reseller
Your RevenueList
Price
Source: Mark Leslie, Stanford GSB
Profit + SG&A + R&D
Channel Economics: Distributors/Resellers
17
En
d C
on
sum
er
EU
D
isc
ou
nts
Reseller
Dis
trib
uto
r
Your RevenueList
Price
Source: Mark Leslie, Stanford GSB
Cost of Goods(Supply Chain)
The Channel as a Customer
18
– Some products are embedded in others (OEM)
– Some products are resold by others (VARs)
– Some products are distributed by others
– Who’s the customer?
Channel Economics: OEM or IP Licensing
19
Your Product Becomes Your Customer’s Cost of Goods Source: Mark Leslie, Stanford
GSB
En
d C
on
sum
er
ResellerProfit + SG&A
+ R&D
Cost of Goods
(Supply Chain)
EU
D
isc
ou
nts
Reseller
Dis
trib
uto
r
Mas
ter
Dis
trib
uto
r
Profit + SG&A + R&D
Cost of Goods(Supply Chain)
Your RevenueList
Price
How Are Channels Motivated or Incented?
20
– Money! – what makes them the most?
– Training
– Marketing to the channel
– SPIF
Book Publishing Channel Example
Example: Book Publishing
22
PublisherNational
DistributorPrinter Wholesaler Retailer Customer
Book Publishing
23
•Percent of
Retail
• You get- 35% of retail- the distributor gets 10%- the wholesaler gets 15% - the retailer gets 40%
- less any discount they offer the customer
PublisherNational
WholesalerDistributor Retailer Customer
35% 15% 10% 40%
$7.00 $3.00 $2.00 $8.00 $20.00
Book Publishing Economics
24
PublisherNational
DistributorWholesaler Retailer Customer
Wholesale costs
Markup
Allowances
Payment guarantees
Payments
Bills
Credit guarantees
Payment guarantees
Return rights
Credits
Book Publishing Delivery
25
PublisherNational
DistributorPrinter Wholesaler Retailer
Merchandise titles
Sell magazines
Acknowledge returns
Determine allocations
Dispose of returns
Prepare film (content)
Establish identity
Create demand
Prepare galleys
Receive Schedules Print orders Bundle
counts Film
Print and ship magazines
Deliver orders
Medical Device Channel Example
Patients
Product flow/Channel
Fluid SynchronyElectronic
Health Records
.Partners/
OEMS
Hospitals(AnesthesiologistsNeurosurgeons)
Pain Clinic(AnesthesiologistsNeurosurgeons)
Pump + Controller
Support Services
Bundled Kits
Electronic Records
Channels (Direct)
• Direct to institutions• Some formularies involved in purchase decisions• Some doctors make purchase decision directly
• Device company/Doctor relationship is key • Heavily influenced by :
• Clinical study results • Regulatory approval• Reimbursement
Hospitals
Pain Clinics
Farm Sensor IndustryChannel Example
Channel Model: Service Provider
OEM
Us
Large farm
USDA/EPA
Small farm
Product
Money
Nutrient Data
Licensing/sales
Channel Model: Service Provider
OEM
Us
Large farm
USDA/EPA
Small farm
Product
Money
Nutrient Data
Licensing/sales
Product
Service
Dental ProductChannel Example
COST / PROFIT ANALYSIS
R&D Maintaining IP
En
d u
ser
Our revenue 4-8% revenues List price
Per unit cost and profit estimation
Licensing Revenue Model
Raw materials
Manufacturing &
Packaging
License fee Distribution
33
Univ.License
fee
End User
Health-Care Providers:Hospitals
PractitionersClinics
InsuranceAgencies
Customer segment: Large
corporationsJ&J, GSK, 3M
DMXR&D
ProductsProcedures
IPs
$$$
~$40
$$
University
4-8% royalty
2-4% license fee
Licensing of Technology Ecosystem
34
Medical Device Channel Example 2
IndividualDoctors
Purchasing Administrato
rs
High value medical products
(e.g. cardiovascular stents)
Commodity medical products
(e.g. latex gloves)
• Doctor education• Direct feedback from doctors• Very expensive
• No doctor education• No customer feedback• Inexpensive
Direct Sales
Distributors
MammOpticsChannel Strategies and Costs
Individual Doctors
Purchasing Administrato
rs
Channel Strategies and CostsMammOptics
5 dedicated sales people$150,000 each/year
Hire nurses or technicianswith establishedrelationships
Early adopter feedback
Continue with core group of sales people
Use women’s healthcare equipment distributor
Already established network of customers
Sales strategy 1 Sales strategy 2
Dental Product 2Channel Example
Private PracticeDentist
PurchasingDepartment
Big Distributors
InstitutionalDentist
Direct Sales
Channels
Private PracticeDentist
PurchasingDepartment
Big Distributors
InstitutionalDentist
Direct Sales
Channels
80% Market Share30% Margin
Private PracticeDentist
PurchasingDepartment
Big Distributors
InstitutionalDentist
Direct Sales
Channels
80% Market Share30% Margin
ContinuingEducationCourses
Magazines& Email
TradeShows
Online RentalChannel Example
43
Listings Provider
Tenants
Landlords
PropertyManagers
Service Providers
Potential Landlords
Realtors
Web Info
Show, Advise, Valuate
Sell, Advise
MaintenanceFurnishing
Listings,ChecksRent Payment
Moving
CraigslistPadmapper.com
Rent.comApartment.com
Forrent.com
Credit ChecksSafetenantcheck.c
Erenter.com
Payment FacilitatorRentpayment.com
Clearnow.comOnline Cheque
Listings, ChecksRent Payment
Maintenance FindingZoospi.com
Redbeacon.comTaskrabbit.com
Schedule Tools
Yelp.com
Angie’s List
Setster.com
Find information
Servicemagic.com
Zoospi.com
Rentpost.comRentjuice.com
Buildium.comRentingsmart.co
Propertyware.com
Rentjuice.comPropertyware.co
Rentingsmart.co
Buildium.com
propertymanagemnt360
Maintenance Ratings
Trulia.com
PM Tools
Dental Product 3Channel Example
COST / PROFIT ANALYSIS
Raw active ingredient
Manufacturing &Packaging
Profit + R&D + License fee Distributor
$40 *$27%32 cut
$6 ? ($5) ~$11 ~$13
En
d u
ser
Our revenue List pricePer unit cost and profit estimation
Direct Sales Revenue Model
45
* Competition• NuPro prophy paste (Novamin $50)• NuPro desensitizer (Novamin $93)• MI varnish (Recaldent $100)• Gluma desensitizer (Glutaraldehyde $130)• Health-Dent desensitizer (Fluoride $49)
End User
Customer Segments;
Health-Care Providers:- Hospitals
- Practitioners- Clinics
InsuranceAgencies
Product Sales &
Distribution
Formulations& Packaging
Raw MaterialsManufacturing
DMXR&D
ProductsProcedures
IPs
$$??$6/pk
$5/pk$$??
University
-32%($27)
$?
Direct Sales Ecosystem
R&D &Regulation
$40/pk
46
Channel Example
Distribution Food Chain
48
Precursor Synthesis
Finished product
Precursor in Cassette
Cassette (device)
I-Corps Final Presentation 12/14/11
Channel Example
Travel IndustryChannel Example
Travel Services:Impact of Changing Technology
The Advent of GDS Systems (1980 -1995)
Turning the Screen AroundOnline Travel (1995-2010)
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