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Distribution Channels for Services: Big Ideas, Big Payoffs

Distribution channels for services companiesLast week Jim talked about the unglamorous but important topic of distribution channels. It’s one of the “4 Ps” (“placement”), but many marketers and smaller companies don’t think about it as often as they should. It’s potentially the most important strategy in your arsenal.

When you sell a physical product, it’s easy to keep distribution strategy and channels at the top of the priority list. You may have a direct sales team, a network of resellers & VARs, a retail presence, a catalog and/or an e-commerce website.

But what about distribution channels for services?

Most services firms in the U.S. are small businesses under $1 million in revenue. Many are caught in the E-Myth — the founders are working in the business with little time to work on the business. And when you’re stuck in the E-Myth, it’s tough to find time to lead your company to hyper-growth.

For these services businesses, a new distribution channel can be just the ticket. The opportunities may not be obvious, but they’re there when you apply your creativity.

Strategies for Building Distribution Channels for Services Companies

As you think about expanding your distribution channels, focus on your typical customers. Here are some questions to get you started:

1. List other products or services your customers use.

  • What problem are your customers trying to solve when they buy from you?
  • Are there complementary services or products that come before or after they join you?
  • What else may be on your decisionmaker’s plate at the time they buy from you?


2. Find organizations who already have access to your prospects. Think broadly about

  • Media they consume (online content, podcasts, industry publications, newspapers, etc.)
  • Services they subscribe to
  • Consultants or vendors they work with
  • Companies they buy from regularly
  • Organizations they belong to
  • Events they attend

The organizations you’ve listed are potential distribution partners or channels for you!

Examples of Services Distribution

Here are a few case studies to inspire you as well.

Strategy #1: Buck tradition

Logoworks uses a non-traditional distribution strategy for their industry with enormous success.

There are thousands of graphic designers & firms in every city. They compete for the same business and it’s difficult to gain leverage over their time.

Instead of setting up shop and knocking on local doors, Logoworks distributes their design services via the internet. They use search engine marketing (both organic and paid search), online ad campaigns and ongoing online publicity to gain clients all over the world. It’s possible for them because they also distribute their product – logo designs – via the web.

This distribution strategy also gives them a more compelling value proposition: operational efficiency. By using a pool of virtual designers, Logoworks is able to provide clients multiple design options at a much lower cost than a traditional firm.

Their internet distribution model has been extremely successful, and this spring, H-P acquired the company. Why? H-P wants to use the Logoworks offering as a value-add to their small-business customers.

That’s a smart distribution strategy.

Strategy #2: Hang out with your customers

Here’s another distribution option: partner with a company whose customers need your service.

Geek Squad

Let’s say you’re launching a new tech support service. You could knock on doors and market your services locally. Or you could raise millions and spend it on marketing, physical locations and overhead.

Instead, Geek Squad partnered with Best Buy to offer their services right inside their stores. When Best Buy sells a computer, customers know that Geek Squad can service it if they have any problems. They even promote the Geek Squad brand in the parking lot.

This partnership was so successful that Best Buy acquired Geek Squad in 2002.

Jigsaw

Companies that create software widgets can find great success partnering with bigger software companies that have a critical mass of users.

Jigsaw founders Jim Fowler and Garth Mouton were a pair of high-tech sales pros frustrated with the amount of time they spent searching for contact information. So they created Jigsaw, an online directory of more than five million business cards.

Now they needed access to salespeople, so they joined Salesforce.com’s App Exchange program, offering their service to any Salesforce user.

Salesforce.com is a major distribution channel for Jigsaw, giving them access to tens of thousands of potential customers.

They’re now one of the 10 top App Exchange applications.

Home Depot

How about a non-technical case study? Consider all of the vendors who provide service via Home Depot.

When you hand over your credit card for granite countertops, flooring or a new garage door, you don’t have to DIY. Home Depot will sell you installation services if you need them, but they don’t provide those services directly.

Instead, they have teams of subcontractors in each market to perform those jobs. Home Depot is a distribution partner for those contractors, giving them access to a large pool of customers who need their services right now.

Get Serious About Distribution!

Developing a new distribution strategy, then creating and managing the program can be tough work – particularly if you’re a service company with limited resources.

But if you’re looking for new ways to gain leverage and build your business, take a serious look at your distribution strategy. You can start small with a single partnership and work up from there.

Still reading? I must have hit on something valuable! How does your company think about distribution? Have you considered new strategies in the last year? What’s worked and what hasn’t? Please share your thoughts in the comment area below.

If you’d like more hands-on guidance, we have guided templates to walk you through the steps of building your distribution channels for services as well as free distribution channel planning tools in our marketing planning and management app.

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Distribution channels – not sexy, but smart

Distribution channels for marketsDistribution channels have become the least glamorous strategy in the B2B marketing portfolio. Who writes about building channels, nurturing partners and channel performance?

I feel grizzled just tackling this subject. Social media, search marketing and new media are the topics with heat even in the B2B crowd (a small group compared to consumer marketers, I might add). Frankly, there’s been nothing new or exciting to say about distribution strategy for many years.

Many marketers in established companies don’t give much thought to distribution strategy. Maybe it’s because they think of distribution as the movement of a physical product from one place to another.

Or maybe it’s because distribution is a strategy that’s only discussed in the executive suite, and marketers often don’t have a seat at that table. Maybe it’s just because it’s rare to find new case studies and stories about innovative channel design and management.

A key marketing strategy

But distribution strategy (one of the “4 Ps”, BTW) is perhaps the most important weapon in your arsenal. Great distribution strategy and execution can dramatically boost your top line. A poorly-performing channel can do the opposite.

For many B2B service firms (including SaaS companies like us who don’t physically distribute a product), “channels” are somewhat intangible and take creativity to apply. For example, you can create a private-label version of your service and offer it to large partners to offer to their customers. Or you can create a packaged offering where you join forces with other companies to offer a larger suite of services.

We’ll write more about creating channels for service companies in our next post. Today I’m focusing on improving an existing channel using H-P’s PC division as an example.

H-P versus Dell

While H-P used to own the #1 spot in the PC market, Dell took over the top spot in 2003. Dell’s direct distribution model became the envy of all PC manufacturers and made them a darling on Wall Street (and a case study for all MBA students). Christopher Lawton’s post for the Wall Street Journal provides great detail about H-P’s fall and strategy to regain the top spot.

It started in 2005 when H-P CEO Mark Hurd hired Todd Bradley to run its PC business. Bradley quickly found out that H-P was concentrating resources where Dell was strong: in direct sales over the internet and phone.

More importantly, in focusing in head-to-head competition with Dell, H-P was neglecting its retail stores. Bradley found a slew of problems:

  • Late and incomplete deliveries
  • Strained partner relations
  • No marketing focus (the printer division handled PC marketing)

H-P’s research also showed that 58% of PC buyers had no preference whether they bought a PC in a store or online.

Let the plum tree wither for the peach

So instead of fighting a losing battle online, Bradley shifted H-P’s focus to a battle it could win: in the retail distribution channel.

Bradley immediately began repairing relations with retailers, freshened designs to appeal to retail buyers, formed the PC’s own marketing group, upped his retail outlet marketing budget, and designed new campaigns targeted to the retail buyers.

Some of his campaigns such as “The Computer is Personal Again” with rapper Jay-Z and fashion designer Vera Wang alarmed H-P employees, who felt Bradley was too focused on consumer PCs, ignoring corporate business.

He shrugged off the criticism. “I wasn’t holding an election.”

The results? H-P’s retail outlet strategy vaulted it back to the undisputed world lead in personal computer sales.

When you’re losing marketing share, shifting the battle to one you can win might work for you. (It’s one of the 36 Stratagems of ancient China: Let the plum tree wither in place of the peach.)

Six ways to improve your channel’s performance

If you need to improve your channel performance like H-P, here are six things you can do to improve your top line.

1. Make it a priority. Devote resources to channel management – preferably at least one dedicated manager whose sole responsibility is to manage those relationships and build the marketing programs to drive revenue through the channel.

2. Develop measurements and track performance. Know who your best sales performers are at each point in the channel. By tracking orders, volume and total revenue at each point, you can identify and improve underperforming partners and keep your top performers happy.

3. Communicate! Build relationships at each step of your channel. If you’re not talking with your partners, how can you identify problems and solve them? And how will you know whether your programs are working and how to make them better?

4. Drive revenue through the channel. Take ownership of the marketing campaigns that will drive revenue at all levels through the channel. Your partners have to focus on building their own customer base, not marketing just your product (remember that you’re not the only solution they offer).

5. Avoid pricing conflicts. Establish a pricing strategy and stick to it. If channel conflict arises because of price, attempt to resolve it ASAP.

6. Address conflicts swiftly. Since distrust and channel conflict is common, it’s important to address problems quickly to find a solution.

After writing this, it’s even clearer to me why there’s no buzz about channels. Building and managing traditional channels isn’t glamorous and requires a lot of elbow grease. But even though channels have little sizzle in the marketing mix, they’re a big piece of the steak.

In our next post we’ll share ideas for applying the channel concept in a B2B service business. And as always, please share your thoughts and questions via the comments below!

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Focus on the details of marketing execution to get great results.

Download a plan for it ... in our marketing management app.