channel strategy definition

Contributor(s): Ivy Wigmore

A channel strategy is a vendor's plan for moving a product or a service through the chain of commerce to the end customer.

Product manufacturers and service providers face a number of channel options. The simplest approach is the direct channel in which the vendor sells directly to the customer. The vendor may maintain its own sales force to close deals with customers or sell its products or services through an e-commerce website. Direct selling via catalog represents another possibility, although this business has been largely subsumed by e-commerce.

Vendors can also pursue sales via indirect channels involving one or more intermediaries. Indirect sales models include retail, which can involve selling through a brick-and-mortar business or an online e-tailing company. In addition, vendors can sell through value-added resellers (VARs), companies that bundle a vendor's product or service with other products and services to provide an overarching solution for customers. The vendor-to-VAR-to-customer channel is sometimes referred to as a one-tier distribution strategy. In two-tier distribution, the vendor sells to a distributor, which, in turn, provides the vendor's products and services to a network of VARs.

In addition to retailers, VARs and distributors, managed service providers (MSPs), consultants, systems integrators (SIs), original equipment manufacturers (OEMs), ISVs, wholesalers and distributors may also serve as channel partners. A vendor pursuing indirect channels will often create a partner program to manage relationships with its business allies.

When devising a channel strategy, a vendor must make decisions about which channel or channels to use and the types of partners it will seek to cultivate.

The appropriate strategy can vary from one product or service to another.

A vendor that builds a channel strategy around both direct and indirect sales channels must take care to avoid channel conflict. Channel partners will soon become disgruntled if a vendor's direct sales force competes with them for customer business.  Thus, a channel strategy may involve market segmentation. For example, a vendor could target only large enterprises with its direct sales force, while reserving small and mid-sized businesses for its channel partners.

This was first published in April 2015

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